The Role of Information Technology in Supply Chain Management Explained

Information technology (IT) has become the driving force behind a revolution in supply chain management.

By integrating data across every stage – from sourcing raw materials to delivering finished products – IT provides real-time insights that empower businesses to make informed decisions.

This newfound visibility allows for proactive management of inventory levels, identification of potential disruptions, and optimization of transportation routes.

Beyond efficiency, IT also fosters collaboration between different players in the supply chain, leading to greater agility and responsiveness to changing market demands.

Let’s dig deeper into this topic and understand the role of information technology in supply chain management in detail.

What is Supply Chain Management?

Supply chain management (SCM) is the handling of the entire production flow of goods or services—starting from the raw components to delivering the final product to consumers.

SCM includes a network of companies, including suppliers, manufacturers, shippers, distributors, and retailers, working together to make stuff like logistics, inventory management, transportation, and so forth go as smoothly as possible.

What is the Role of IT in Supply Chain Management?

The role of information technology in supply chain management can’t be overstated.

It plays a big role as IT provides the solutions that can pick up relevant information, break it down for proper analysis, and execute it for optimum performance of the supply chain.

Data is crucial for the execution of the supply chain, primarily because it provides the base on which the supply chain professionals can make decisions.

Real-time or almost real-time information is the key to proper supply chain management. With information about the various stages of the supply chain, decision-makers can plan, manage, and adjust processes to achieve goals in procurement, inventory, manufacturing, etc.

Latest Supply Chain Statistics and Trends

If you’re interested in numbers, the following supply chain stats show the current state of data and technology used in the supply chain:

• 81% of supply chain professionals say analytics is critical to reducing costs
• In 2023, 50% of large global companies used AI, advanced analytics, and IoT in supply chain operations to optimize their supply chains, reduce costs, increase efficiency, and enhance overall performance.
• 79% of companies with high-performing supply chains achieve greater revenue than the average for their industry
• 73% of supply chains experienced pressure to improve and expand their delivery capabilities
• Businesses with optimal supply chains have 15% lower supply chain costs
• AI-powered supply chains are now 67% more efficient than traditional supply chains 
• 67.4% of supply chain managers use Excel spreadsheets to manage their operations.
• Over 50% of companies believe that increased digitization and automation will increase the resilience of their supply chains, enabling them to better cope with future disruptions and challenges.

Why is Information Technology important in Supply Chain Management?

In the past couple of decades, business processes have been digitized and have become a necessity rather than an option. It helps businesses speed up operations and prevent bottlenecks.

With advanced technology solutions, enterprises are closer to achieving on-time procurement, shorter inventory, and better efficiency, especially in manufacturing. It enables companies in the supply chain to meet the needs of consumers.

In short, by improving visibility, communication, and efficiency, information systems can facilitate supply chain management and help businesses save money, improve customer satisfaction, and gain a competitive advantage.

Also Read: Cloud Payroll Software Development: Benefits, Process, Costs

How does IT affect Supply Chain Management?

Information technology impacts supply chain management in several ways. It has transformed it into a more efficient, transparent, and data-driven process.

This led to significant cost reductions, improved customer satisfaction, and a competitive advantage for businesses that embrace the important role of IT in SCM.

To better understand how IT affects supply chain management, let’s dive into the role of IT in the different aspects of SCM.

How IT Revolutionizes Supply Chains

The supply chain begins with the supplies. With reliable supply chain software that enables real-time data sharing, manufacturers and suppliers can collaborate better and avoid production delays due to insufficient raw materials.

With this information, suppliers can monitor clients’ inventory, forecast future demands, and ensure that they’re ready to complete orders for raw materials.

Suppliers can also use historical data to make better decisions in aspects like partnership and contract management.

How Information Technology Helps Manufacturers

The role of information technology in supply chain management offers better visibility and transparency that leads to better accountability and control over the production of goods.

By combining Information technology and supply chain management, manufacturers with clear visibility on production can make adjustments for efficient processes, forecast problems, and prevent them. For example, with IT, a manufacturer can foresee delays and change the production schedule.

Related Read: How Industry 5.0 Revolutionizing Manufacturing for a Human-Centric Future

How IT Helps Shippers

Timely delivery is vital in any company. On-time delivery usually results in customer satisfaction, which in turn contributes to client retention.

As a shipper or logistics provider, you may increase customer satisfaction by increasing order tracking and delivery. Keeping manufacturers and distributors informed about the whole delivery process, including any delays, gets you one step closer to repeat business.

What if you can avoid delays by leveraging data from the tools? Many supply chain management technologies for delivery and shipping service providers allow you to give clients access to a platform where they may feel in control.

How IT Helps Distributors

Distributors who spend a lot of time and money on inventory management can rely on supply chain management tools to get some needed assistance.

With the right IT solution and documented process, distributors no longer have to worry about excess or insufficient stock. Instead, they can predict demands and manage inventory and orders effectively.

How Retailers Can Use Information Technology

In the supply chain, retailers are the ones who finally interact with customers. They need flexibility, visibility, and integration.

Retailers can combine their POS systems, which record sales, with a tool for tracking stock levels, which is also visible to the distributor.

Additionally, retailers can establish a reorder point that, when reached, automatically generates an order. They can also use solutions such as Sales Gamification software to assist in encouraging employees to increase sales and drive better outcomes.

The Role of IT in Supply Chain Management

The role of information technology in supply chain management is not limited to a specific stage of the supply chain. Instead, it is pivotal for the entire supply chain, as we discussed some of the important ones above.

Nothing remains untouched, and it is no wonder that every part of a business is now under IT. That being said, the following are some of the key points that highlight the important role of IT in supply chain management:

1. Integrated and Coordinated Supply Chain

An efficient supply chain is only possible when it’s properly integrated and well coordinated. IT does this crucial job by bringing in multiple technologies and combining them to optimize the supply chain.

These technologies easily and accurately collect data and in turn this helps organizations perform detailed data analysis, leading to sound business decisions.

2. Increased Productivity

Information management in SCM allows a smooth flow of information and effective communication which increases the productivity of all entities in the supply chain. It works like a trigger for product movement.

Instead of going back and forth, information technology provides the link that passes the needed information continuously.

3. Cost Reduction

Information technology in the supply chain allows optimum use of resources and assets.

Professionals can study the old data collected with advanced tech solutions, study the trends, and analyze their operations to improve performance. When resources are used more efficiently, they result in cost reduction.

The role of information technology in supply chain management becomes more prominent because it motivates all parties to use their respective resources in the most cost-efficient manner. When It is used as it should be, there is a significant fall in overall expenses.

4. Product Improvement

Information technology includes smart tools and applications that can be used to gain early awareness.

In today’s market where customers always want something new, the product will either have to evolve or will go out of demand. To stay competitive, businesses must introduce product improvement and innovation sooner rather than later.

5. Supply Chain Visibility

By providing the tools and infrastructure to gather, integrate, and analyze data from across the entire supply chain network, IT plays a critical role in achieving supply chain visibility.

IT systems like Enterprise Resource Planning (ERP) and Warehouse Management Systems (WMS) capture data on inventory levels, production status, and logistics movements at each stage.

This allows for real-time insights, enabling businesses to monitor progress and react to issues instantaneously.

It means managers can have a clear picture of their supply chain operations and make informed decisions to improve efficiency, and a more resilient supply chain overall.

Recommended Read: How ECM Software Enhances Document Security and Compliance

The Functional Roles of IT in Supply Chain Management

Aside from the abovementioned basic roles of IT in SCM, there are three functional roles which we’ll understand below:

1. Collaboration & Coordination

IT facilitates the exchange of information. This allows for better planning, coordination, and collaboration among all players.

Demand forecasting allows for future planning, while order tracking makes knowing the physical location of each order a reality. Both of these activities are impossible without IT.

2. Transaction Execution

The number of transactions between individuals in the supply chain decreases as information flows more efficiently between them. The information system improves the efficiency of repetitive data interchange.

This information is typically useful for delivery verification, order processing, billing, and dispatch advice.

3. Decision Support

Effective decision-making cannot happen just like that. They should be based on data and IT is a huge benefit in decision support.

It can collect even the most complex data and convert it to easy-to-understand charts and reports. This can help managers better understand the situation and make decisions accordingly.

Also Read: How to Develop a Web Portal For Your Business

Examples of IT Solutions in Supply Chain Management

Now that we’ve covered the role of information technology in supply chain management, here are some of the specific IT solutions that are often used in the sector:

Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) software automates, streamlines, and enhances essential business processes.

In SCM, an ERP system offers a centralized platform for controlling the whole supply chain, from raw materials to finished goods.

Giving real-time information about inventory levels, production plans, and delivery timelines, can help businesses optimize their supply chain activities.

This can then further help firms make more informed decisions regarding when to order supplies, how much to order, and when to schedule production runs.

Automation and Robotics

In the last few years, the use of robots in the supply chain has increased dramatically. The movement of supplies and items in the warehouse, transportation, and fulfillment procedures are some of the ways firms are using robots.

With the constant development of technologies like artificial intelligence and machine learning, it’s expected to see extremely complex robots in the future that can carry out certain manual jobs now done by humans.

This will also include the automation of labor-intensive loading jobs, and picking and packing of business orders.

AI development services can play a crucial role in developing and deploying these advanced robotic systems, enabling them to perform tasks with greater efficiency, accuracy, and reliability.

Warehouse management systems (WMS)

A warehouse management system (WMS), as the name suggests, helps businesses manage inventory levels, track the movement of products throughout the warehouse, and increase order fulfillment accuracy.

A WMS system can provide organizations with real-time visibility into inventory levels, allowing them to optimize space utilization and reduce stockouts.

Transportation Management System (TMS)

A transportation management system (TMS) in supply chain management can help businesses control transportation expenses, optimize route planning, and improve cargo visibility.

This IT solution provides real-time visibility into transportation operations, allowing firms to track shipments, evaluate carrier performance, and manage exceptions proactively.

Read Next: How CRM Software for Small Businesses Can Improve Your Business Growth?

Future of IT in Supply Chain Management

As technology is constantly evolving, we can expect the role of information technology in supply chain management to be even bigger.

Emerging technologies such as artificial intelligence, edge computing, advanced robotics, and 5G connectivity are printed to revolutionize the sector further and offer new opportunities for businesses to streamline operations, improve teamwork, and boost creativity.

Frequently Asked Questions

Q. What is the role of IT in supply chain management?

Ans. IT plays a big role in supply chain management, providing tools to track inventory, optimize logistics, and analyze data. This allows real-time visibility, better decision-making, and a more efficient supply chain.

Q. How is information technology used in the supply chain?

Ans. The IT systems like ERP and WMS can be used in the supply chain for real-time data on inventory, production, and deliveries. It also facilitates communication and data sharing across the supply chain network.

Q. Which IT technology is used in SCM?

Ans. A variety of IT solutions are used in SCM, including Enterprise Resource Planning (ERP), Warehouse Management Systems (WMS), Transportation Management Systems (TMS), and the Internet of Things (IoT) for real-time data collection.

Q. What are the benefits of IT in the supply chain?

Ans. IT offers increased efficiency, improved visibility, better communication, and data-driven decision-making. This leads to cost reduction, faster deliveries, and more competitive advantage.

Q. How can information technology solve supply chain problems?

Ans. By providing real-time data and analytics, IT helps identify issues like delays or stockouts. Businesses can then react proactively, optimize inventory levels, and reroute shipments for a more resilient supply chain.