Glossary
Supply Chain-Related IT Costs
Tags: Glossary
Information Technology (IT) costs (in US dollars) associated with major supply chain management processes are described below. These costs should include: development costs (costs incurred in process reengineering, planning, software development, installation, implementation, and training associated with new and/or upgraded architecture, infrastructure, and systems to support the described supply chain management processes), execution costs (operating costs to support supply chain process users, including computer and network operations, EDI and telecommunications services, and amortization/depreciation of hardware), maintenance costs (costs incurred in problem resolution, troubleshooting, repair, and routine maintenance associated with installed hardware and software for described supply chain management processes. Include costs associated with database administration, systems configuration control, release planning, and management). These costs are associated with the following processes: PLAN - 1. Product Data Management - Product phase-in/phase-out and release; post introduction support and expansion; testing and evaluation; end-of-life inventory management. Item master definition and control. 2. Forecasting and Demand/Supply Management and Finished Goods - Forecasting; end-item inventory planning, DRP, production master scheduling for all products, all channels. SOURCE - 1. Sourcing/Material Acquisition - Material requisitions, purchasing, supplier quality engineering, inbound freight management, receiving, incoming inspection, component engineering, tooling acquisition, accounts payable. 2. Component and Supplier Management - Part number cross-references, supplier catalogs, approved vendor lists. 3. Inventory Management - Perpetual and physical inventory controls and tools. MAKE - 1. Manufacturing Planning - MRP, production scheduling, tracking, manufacturing engineering, manufacturing documentation management, inventory/obsolescence tracking. 2. Inventory Management - Perpetual and physical inventory controls and tools. 3. Manufacturing Execution - MES, detailed and finite interval scheduling, process controls and machine scheduling. DELIVER - 1. Order Management - Order entry/maintenance, quotes, customer database, product/price database, accounts receivable, credits and collections, invoicing. 2. Distribution and Transportation Management - DRP shipping, freight management, traffic management. 3. Inventory Management - Perpetual and physical inventory controls and tools. 4. Warehouse Management - Finished goods, receiving and stocking, pick/pack. 5. Channel Management - Promotions, pricing and discounting, customer satisfaction surveys. 6. Field Service/Support - Field service, customer and field support, technical service, service/call management, returns and warranty tracking. EXTERNAL ELECTRONIC INTERFACES - Plan/Source/Make/Deliver - Interfaces, gateways, and data repositories created and maintained to exchange supply chain related information with the outside world. E-Commerce initiatives. Includes development and implementation costs. Accurate assignment of IT-related cost is challenging. It can be done using Activity-Based Costing methods or using other approaches such as allocation based on user counts, transaction counts, or departmental headcounts. The emphasis should be on capturing all costs. Costs for any IT activities that are outsourced should be included.
What is Supply Chain-Related IT Costs?
Supply Chain-Related IT Costs
In today's digital age, Information Technology (IT) plays a crucial role in managing supply chain processes. From planning and sourcing to manufacturing and delivery, IT systems and infrastructure are essential for efficient and effective supply chain management. However, it is important to understand the costs associated with implementing and maintaining these IT systems.
Development costs are the expenses incurred in reengineering processes, planning, software development, installation, implementation, and training for new or upgraded IT architecture, infrastructure, and systems. These costs are necessary to ensure that the supply chain management processes are aligned with the organization's goals and objectives.
Execution costs refer to the ongoing operating expenses to support supply chain process users. This includes computer and network operations, Electronic Data Interchange (EDI), and telecommunications services. Additionally, it includes the amortization or depreciation of hardware used in the supply chain management processes. These costs are necessary to keep the IT systems running smoothly and to provide the necessary support to users.
Maintenance costs are the expenses associated with problem resolution, troubleshooting, repair, and routine maintenance of the installed hardware and software. This includes costs related to database administration, systems configuration control, release planning, and management. Regular maintenance is crucial to ensure the reliability and performance of the IT systems supporting the supply chain processes.
Now let's explore the specific supply chain management processes and their associated IT costs:
1. PLAN:
- Product Data Management: This includes costs related to product phase-in/phase-out, release, testing, evaluation, and end-of-life inventory management. It also involves defining and controlling the item master.
- Forecasting and Demand/Supply Management: Costs are incurred in forecasting, end-item inventory planning, Distribution Requirements Planning (DRP), and production master scheduling for all products and channels.
2. SOURCE:
- Sourcing/Material Acquisition: IT costs include material requisitions, purchasing, supplier quality engineering, inbound freight management, receiving, incoming inspection, component engineering, tooling acquisition, and accounts payable.
- Component and Supplier Management: Costs are associated with maintaining part number cross-references, supplier catalogs, and approved vendor lists.
- Inventory Management: IT costs cover perpetual and physical inventory controls and tools.
3. MAKE:
- Manufacturing Planning: Costs include Material Requirements Planning (MRP), production scheduling, tracking, manufacturing engineering, manufacturing documentation management, and inventory/obsolescence tracking.
- Inventory Management: Similar to sourcing, IT costs cover perpetual and physical inventory controls and tools.
- Manufacturing Execution: Costs are incurred in implementing Manufacturing Execution Systems (MES), detailed and finite interval scheduling, process controls, and machine scheduling.
4. DELIVER:
- Order Management: IT costs include order entry/maintenance, quotes, customer database, product/price database, accounts receivable, credits and collections, and invoicing.
- Distribution and Transportation Management: Costs are associated with DRP shipping, freight management, and traffic management.
- Inventory Management: Similar to sourcing and manufacturing, IT costs cover perpetual and physical inventory controls and tools.
- Warehouse Management: Costs include managing finished goods, receiving and stocking, and pick/pack operations.
- Channel Management: IT costs cover promotions, pricing and discounting, and customer satisfaction surveys.
- Field Service/Support: Costs are incurred in providing field service, customer and field support, technical service, service/call management, and returns and warranty tracking.
5. EXTERNAL ELECTRONIC INTERFACES:
- Plan/Source/Make/Deliver: IT costs include the development and maintenance of interfaces, gateways, and data repositories for exchanging supply chain-related information with external entities. This also includes costs associated with E-Commerce initiatives.
Accurately assigning IT-related costs can be challenging. Activity-Based Costing methods or other approaches such as allocation based on user counts, transaction counts, or departmental headcounts can be used. The key is to capture all costs associated with IT activities, including any outsourced IT services.
Understanding the costs associated with supply chain-related IT is crucial for organizations to make informed decisions about their IT investments. By considering these costs, organizations can optimize their supply chain processes and ensure the efficient flow of goods and information throughout the entire supply chain.