Supply Chain Management: Integrating information, reducing cost

The Jakarta Post, Jonminofri Nazir, Contributor

A great success in running a simple foodstall does not automatically guarantee a similar success in managing a supermarket, let alone hypermarkets such as Carrefour, Makro, Goro, Alfa and the like.

The reason is that the expertise required is very different from the simple style of foodstall management, as these businesses demand more sophisticated handling of goods and finance that involve numerous suppliers.

For businesses of this magnitude, a knowledge of supply-chain management is necessary, which includes a good management of logistics and the flow of information.

Companies that effectively apply supply-chain management obviously produce far better results. For example, Garuda Indonesia has just given its online travel agencies access to the ticketing data, so that they can easily find out the latest status of unsold seats at any time.

Lipposhop, which sells products using an online system, is another example of a company that truly understands the importance of supply-chain management, as it has a well- established online system between its customer service function and its customers. However, it does not have a good online system with its suppliers, so that the suppliers are not directly aware of the customers' orders to Lipposhop, thus causing delivery problems.

This is quite different from the type of business developed by the computer company, Dell, both in its home country, in the U.S., as well as in its branch office in Malaysia.

This company in does not in practice have a warehouse to store its raw materials and products. The moment all components and other raw materials enter the factory, they are immediately assembled according to customers' orders. Soon afterwards, the ready-to-use computers are delivered to the customers by courier companies. Dell's manufacturing plant or shops do not resemble ordinary shops or warehouses, much more the popular shops in Glodok or Mangga Dua shopping areas in Jakarta.

It is common knowledge that to order a Dell computer a customer can place an order online according to the specifications he wishes. The data sent by the customer automatically goes to each of Dell's suppliers for any material required. Without further command from the boss, each supplier sends the necessary components to fill the customer's order.

The entire process is quite fast and everything seems to be automatic. This can happen because Dell uses an integrated information system that links everyone, from the shops, manufacturing plant, suppliers, courier service companies up to all other companies that are related to Dell's business.

Dell in Malaysia uses Ship n Track (shipntrack.com), which is a company that provides e-fulfillment services, including supply- chain management. This system coordinates the flow of information, goods and payments from customers, shops, manufacturing plant, suppliers, banks, courier services and all other related companies. Using GPS (Global Positioning System) it even monitors the journey of the goods from the manufacturing plant to the warehouse, the retail points and the customers.

In Indonesia, until now there is no company that applies such a complete system of supply-chain management, which includes flow of information, goods and financing from customers, manufacturing plant and shops.

Even in Malaysia, where Dell was established two years ago and had financial success, companies with such a complete system number less than twenty. This company, with an investment of 15 million Malaysian ringgit in 1999, produced a fantastic first- year revenue of 12 million Malaysian ringgit.

The small number of companies applying this system indicates that it is not easy to convince a company to replace its system with a new one. Furthermore, it is more difficult if the company has been established for quite a long time and its old system is still working well or is considered workable by the owners. To them, trying an entirely new system is considered like gambling.

Hasan Shahab, general marketing manager of PT Global Jaringan Nusantara, the partner of Ship n track for Indonesia, said that he had seen some of the problems that he would have to overcome.

The problem he was referring to was the country's manufacturers' and distributors' knowledge of the concept, meaning that without their good understanding it would be difficult for them to embark on such a system. For businesspeople who are lay people when it comes to technology, it is indeed complicated to understand the e-fulfillment product, because it is heavily loaded with information technology and relies on the Internet network for data communication. On top of that, to educate the market will take a lot of time and involve huge costs.

Jefry Maulidani, product and development manager of Ship n Track Indonesia, said that in Malaysia this company purchased a warehouse and transware company to show examples of how this concept can be efficient in the logistics of supply-chain management (see table).

Apart from Dell, it is also interesting to study Malaysia's Social Security company. This insurance company for manpower operates jointly with various outlets and Ship n Track to enable every employee to purchase electronic items using his or her pension funds. The system is simple. After the employee selects the item of purchase, the data of the item and its price are entered into the company's data system for confirmation. All information is received by companies involved in the transaction at the same time, so that the purchase can be processed simultaneously. Just imagine, if the transaction were conducted in the conventional method, how much time and paperwork it would consume.

A more complicated application is at the drugstores and pharmaceutical companies in this neighboring country. Here several drugstores jointly form a company to purchase medicines from various pharmaceutical manufacturers. The drugstores can then send their orders through the computer, cellular phone and PDA. All these orders are treated as a collective order and these large-volume purchases naturally get reduced prices, which would not be possible if each drugstore places an individual order.

The orders are automatically received by the manufacturers. After being produced, the ordered items are sent to the warehouse, where each drugstore's order is dispatched.

Every step of the process moves very fast and does not involve even a single piece of paper. The flow of information and goods are controlled virtually, including payments.

Could such a system be applied in Jakarta and other major cities in Indonesia? One has to admit that at present it would still be difficult.