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Production and Supply Chain Management Information Systems
adversarial relationship between suppliers and their customers. In recent years, more
companies have begun to realize that they are part of a supply chain, and if the supply
chain is more efficient, all participants in the chain can benefit. Collaboration can
frequently achieve more than competition, and ERP systems can play a key role in
collaborative planning.
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Working with suppliers in a collaborative fashion requires trust among all parties. A
company opens its records to its suppliers, and suppliers can read certain company data
because of common data formats. Working with suppliers in this way cuts down on
paperwork and response times. Reductions in paperwork, savings in time, and other
efficiency improvements translate into cost savings for the company and the suppliers.
ERP lets companies and suppliers share information (sales, inventory, production plans,
and so on) in real time throughout the supply chain. This allows all parties to eliminate
from the supply chain costs that do not add value to the product (such as inventory,
overtime, changeovers, and spoilage), while simultaneously improving customer service.

The Traditional Supply Chain
The term supply chain describes all the activities that occur between the growing or mining
of raw materials and the appearance of finished products on the store shelf. The supply
chain for Fitter’s NRG bars starts with farmers growing oats and wheat, and it ends with
a customer buying a bar from a retail store. In a traditional supply chain, information is
passed through the supply chain reactively, as participants change their product orders—
as illustrated in Figure 4-24.

Source Line: Course Technology/Cengage Learning.

FIGURE 4-24 Supply chain—from raw materials to customer

For example, a retailer sees an increase in the sales of Fitter’s bars and orders a larger
quantity of bars from the wholesaler. If a number of retailers increase their orders, the
wholesaler will increase its orders from Fitter. When Fitter gets larger orders from
wholesalers, it must increase production to meet the increased demand. To increase
production, Fitter will order more raw materials from suppliers.
Because of the time lags inherent in a traditional supply chain, it might take weeks—
or even months—for information about Fitter’s increased need for raw materials to reach
Fitter’s suppliers. Raw material suppliers might require time to increase their production
to meet Fitter’s larger orders, resulting in temporary shortages for the supplier. And
unusual events such as the “Oprah effect” (where a product is endorsed by a famous name

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