Implementation of It to Supply Chain Management in Kazakhstan
1. Introduction The implementation of Information Technologies(IT) into Supply Chain Management (SCM) into any industry’s firm is an essential and crucial part for successful and productive firm performance: it’s knowledge about market demand, customer and supplier relationship. The main idea of this paper is to describe a framework for IT implementation and its impact on Supply Chain Management in the Kazakhstan Industry of Mining, Oil and Gas.
The work will present in general IT types in SCM and the benefits they can create being implemented in different stages of production: purchasing, operations, logistics, customer and supplier relationship. The focus will be made on Kazakhstani local environment and development of firms in Oil and Gas Industry, its current position and role in SCM: current problem, barriers for implementation and possible outcomes.
The Kazakhstani reality and perspectives are widely compared with and correlated to the world fast and highly developed countries examples. 2. Research Mythology: Information Technology in Supply Chain Management 2. 1 Supply Chain Management (SCM) The principle of Supply Chain Management (SCM) is based on the idea that every product, that reaches its final consumers, passes through the series of cumulative actions and efforts of several different organizations. This group of organizations involved is treated as the supply chain.
The supply chain has been existed for a long period of time, but despite its wide usage and spread, only a few companies understand the role of it on business performance and cope successfully managing it. As it’s stated by the famous US professor in SCM, Robert Hanfield, “SCM is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible.
Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities. ” According to Professor Hanfield, the organizations working through the SCM are linked to each other by physical flow of goods, finances and flow of information. Physical flow is “the transformation, movement, and storage of goods and materials” – the most visible part of the supply chain. The financial flow contains “payment schedule, credit terms and title of ownership arrangements”.
The same role of importance is this process belongs to information flows, which enable “the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain. ” The flow of Information among businesses is held through the Information Technologies (IT). 2. 2 IT in SCM By implementation and development of IT usage in SCM, the usage of IT in the inter-organizational and out of its boundaries process, must be considered from the both perspectives of Software and Hardware Systems applied.
Hardware includes devices for inputting and outputting, storage and processing information. Software systems in SCM are an operations systems that allow to control “entire system and application program for processing transactions management control, decision making and strategic planning” according to Ronita Kumar Mishra (2004). Software includes two types of applications: planning and executive. As it stated in the definition of SCM, provided, by ManufacturingEPR. com: planning application of SCM uses an “advanced algorithm” to place an order, reduces the costs and maximizes the profit.
The executive application “track” the physical position of goods, manages the materials and is responsible for all financial data of all parties involved. The work of SCM applications is based on the common results, data models and information openly shared among the companies, both on internal and external levels. By sharing the information with the suppliers (“upstream”) and customers (“downstream”) companies increase chances to improve the outcome of business: reduce the costs, decrease time-to-market, allows the parties better to manage current recourses and effectively plan the future activities.
Nowadays there is a tendency among companies who are more and are becoming part of e-procurement: that’s mean, increasing number of companies which use web-sites and web-based applications as a SCM solution. Constantly changing business environment and the complexity of SCM process control and supervision has pushed managers in different spheres of activities broadly use IT for making SCM easier and more efficient. According to the research held by Mishra R. K. (2004), special types of software for SCM are being invented, created and implemented by the largest and successful companies and Science: 1. Base Rate, Carrier Select & Match Pay (version 2. 0)” is the invention of Distribution Sciences Inc. The new software is applicable for calculation of carrying costs, comparative analysis of transportation regime rates, analyzing cost and service forcefulness of freight. 2. “Supply Chain planning” is a software program created by Ross systems Inc. , this software is accepted for it’s opportunity to forecast future market demand and allocate replenishment & manufacturing tools for effective business and manufacturing process planning. 3. Transportation Network Optimization”, was developed by “P&G distributing company” and “Saber decision” for rationalization the bargains and award procedure. 4. “Legibility planning solution” was recently created to ensure a program capable to manage the full supply chain process. The use of IT in the modern supply chain is considered to be an effective factor in developing and maintaining the business success and prosperity. 2. 3 Benefits of implementation IT Implementation of IT to SCM of business is an essential part of business development and for achieving beneficial results requires a big effort from the firm.
Benefits and gains that company will accomplish through the IT implementation includes partially the impact on cycle time, customer business relationship development and improving and supply chain agility. According to the US research group “Forrester Research” it found that IT optimization in SCM positively influences business performance and even can solved existing problems: 1. Planning cycle and horizon will be broaden due to the data coming in time; 2.
Cost optimization with the help of software applications, able to analyze, sort, classify and make the best choice among available options: economic order quantity, supplier dealer, ability to be in touch in the real life time with necessary parties; 3. Constant contact between parties involved, contra agents, operative work organization – all this implemented through IT help to avoid bottlenecks in the production process; 4. decrease of carrying cost, due to the method “Just-in-time” implication and constant certain data available concerning the inventory stocks; 5. Operative and agility upply chain positively influence the level of customer services quality; According to the one of the biggest analytical company “AMR research”, comparative advantages that are brought with the IT usage in SCM can be the following: |Cost and Revenues |Changes in performance, % | |Net Income increase |5-15% | |Order processing Time decrease |20-40% | |Time to market decrease |15-30% | |Procurement cost decrease |from 5% to 15% | |Warehouse stock decrease |from 20% to 40% | |Production cost decrease f |From 5% to 15% | The one of the most successful companies in terms of SCM innovation is the Dell Computer, the competitive strategy of which is based on IT transparency implementation. The company performs its liability in front of consumers and guarantee its clients to deliver any order in 5 days. With the help of Internet, company provides suppliers with forecast expectations and receives information from the suppliers about its readiness to satisfy the expectation.
Web-model “make to order”, created by Dell Computers became an example and basement for other producers to develop analogue features. General Motors, is also one of the brightest example of how IT implementation successfully influence the SCM. The Company became a leader in its sphere due to radical changes in SCM. For the last 7 years, the company performed a large change on global level management structure, with the main purpose to integrate the supply chains, which was held with the IT usage. Hetnet consulting company claims, that the Optimization of SCM is very similar to golf game – there is always a point to improve skills and abilities, despite on how well and successful the company is now.
Moreover, it doesn’t matter how high were your past results, for the current consumer it has no value. In order to keep competitiveness, organization has to demonstrate excellent results everyday. Concerning the future expectations, then the importance expedite level, low cost production and good quality of goods will keep tendency to grow. 3. Current position of Supply Chain management in KZ The topic for research of “Supply Chain Management and IT implementation” is very actual and crucial for Kazakhstan reality. The topicality is caused by low level of quantity and quality of logistic services provided on the territory of Kazakhstan (G. Abdekerimov, 2009).
As it’s stated later, today the world tendency is very linked to improving the level of logistic technology and inter modal supply chain systems. In Europe the SCM is spread and educated more widely, moreover has been already professionally used, rather than in Asia continent, where this process has just started and requires a huge efforts, strength and investments to be fully applied. Strategic point of Kazakhstan is to integrate SCM with the world economic system and develop logistic services. For the current moment, the potential of Kazakhstan in the sphere of logistic and transport services is not effective and not developed enough. 3. 1 SCM in Oil and Gas Industry
Kazakhstan is very rich with Oil and Gas natural reserves, and this is a biggest source of county’s revenue for improvements in economic situation and living standards of population. The country is faced with the challenges of implementing right oil supply chain and faces the problem of high cost of oil production, exploration due to absence of refinery stations in the country (substantial part of refining capacity is outside the Kazakhstan) and high transportation cost required, because the country has no direct access to the open sea (Caspian sea is landlocked) (Jay Nathan, 2008) The major driving forces in this industry are political, legal and technological.
In this paper I’d like to address the technological challenges the country faces and its negative impact on the managing the oil supply chain. Kazakhstan extracts a considerable amount of crude oil and is able to compete with the largest world oil suppliers in terms of quantity produced, but the disadvantage of not having the direct access to the open water is very negatively influences the industry. The cost of exploration, development and production of crude oil in Kazakhstan is similar to the cost other oil nations held, but the cost of transportation of oil to the refinery station make the industry burden the higher costs (Sridharan, Canines, and Patterson; 2005).
For Kazakhstan to transport oil to the world market there is a need to use the neighbors’ pipelines (Cavenagh, 1999). To maintain the required operations, Kazakhstan is lack of skilled worker and Implemented Information technologies applications, and there is a need to invest to the IT development in the sphere of oil supply chain – otherwise the physical distribution infrastructure connecting suppliers and crude oil refiners will be even more costly. Thus, Kazakhstan has to manage technological risks and Information technology integration for effective performance of oil supply chain (Gaudenzi and Borghesi, 2006; Lockamy and McCormack, 2004). 2.
Benefits of IT implementation on different stages of SCM The link below show the picture of SCM in Oil and Gas sphere: Exploration > Production > Refining > Marketing > Consumer The picture illustrates the interface and correlation between companies and information flow that exists through the supply chain. Within the each stage there are a lot of operations and information data. For Example, exploration includes different specific geological operations, while production being one of the most difficult stages includes drilling, engineering, as well as communication between vendors, firms and customers. Refining includes mostly transportation cost, which is considered to be the major cost the whole SCM. IT implementation enable producers to follow the logistic process and control for instance promised arrival time.
Marketing stage includes the sale, distribution and purchases of oil – IT usage can help to establish profitable, rational behavior. And final consumers can benefit from IT implemented by getting products delivered by better service and lower cost. (Christopher M. , (2007). Each of the all just mentioned SCM criteria is discussed later in more details, providing information about it’s possible benefits and particular IT applications that can be applied. In general, the development of Inter organizational IT system for the supply chain has three certain advantages: 1. Cost reduction 2. Productivity 3. Improvement and product/market strategies.
SCM: IT on Exploration and Production: In the Exploration and Production sector of Oil and Gas industry, all companies produce the same type of products and for them it’s difficult to differentiate the product from one another. Strategy that companies do implement is cost-leadership strategy. According to the information provided in the newspaper “KazInform”(2006), The largest Russian experts from the Russian Governmental Institute of Oil and Gas stated, that in the process of Oil exploring new information technologies with the unique technique features helps to increase the quantity of production. The modern equipment includes such means as electronic alarm which prevents and fights the difficulties during the exploration. Also, the scientists from Russia see the Oil and Gas sector as the fastest one to grow and develop in Kazakhstan.
In 2006 they claimed that in 2005 the quantity of oil explored was about 61,6mln tones, by 2010 the quantity explored was expected to grow to 63mln tones, if the sufficient amount of funds in invested for IT implementation and technological improvements. According to the real results of 2010, the quantity of oil explored and produced reached the point of 84mln tones – which sign and proves the fact of Kazakhstani investments in Oil and Gas technological sector and the beneficial results from that investments. SCM: IT on Logistics and refining: The most popular role of IT in SCM belongs to Transportation management. Moreover Transportation cost requires the biggest part of all company’s cost.
In Kazakhstan, Oil companies have no access to open sea (Caspian Sea is land locked) and need to use pipelines in and out of the country to transport crude oil to refinery stations. The huge amounts of oil explored and too little number of refinery stations within the country push oil companies to use refineries from other countries – mostly Russian or Chinese. On the graph below the statistical data from 2005 is presented. The main point of representing this is to show 3 major refinery stations in Kazakhstan: Shymkent, Pavlodar and Atyrau Oil Refineries. The capacity of all of them equals 18. 6mln tons per year (=6. 5+7. 5+4. 6), while the actual outcome is only about 8. mln tons (=3. 6+2. 3+2. 7), which three times less than expected. Due to the lack of proper equipment, technology and skills – Kazakh oil producers have to use foreign refineries – which represent a huge cost to hold. Design and Delivery Capacities of Major Refineries, data from the National statistical Agency of Kazakhstan, 2005 | | | |Per month |Per day | |Plant |Design Capacity |Actual Deliveries | | | | |mln. tons |mln. ons | | | | | | |Design |Actual |Design |Actual | | | | |In thousands tons |In thousand tons | |Shymkent Oil | | | | | | | |Refinery |6. 5 |3. 6 |590 |326. 8 |19. 7 |10. 9 | |Pavlodar Oil | | | | | | | |Refinery |7. 5 |2. 3 |677 |189. 5 |22. 6 |6. | |Atyrau Oil Refinery| | | | | | | | |4. 6 |2. 7 |418 |245. 4 |14 |8. 2 | Having a need to use other countries refineries local oil producers burden the huge logistic cost for pipelines usage. On the Map below the major pipelines in Kazakhstan are represented: [pic] The research of Fasanghari M. et al(2008) showed that the implication of tracking IT application to the regional distribution centers allow to monitor the pickups and deliveries be on time.
This point is important for a company since it can fairly evaluate and measure the performance of each particular pipeline/shipments and get the data from the carriers it using. This tracking application system enables transportation managers to meet the delivery deadline on time, or at least warn about delays. Reporting requirements and processing are more easily controlled and perform through the usage of IT tracking system. Another positive point IT implementation has on SCM is the improving the degree of Order Cycle Integration (OCI). OCI includes: reducing time for fulfilling customer’s order, reduce the stock out and carrying cost in pipeline, decrease time of customer service.
SCM: IT on Marketing, Purchasing and Firms: Bakos and Brynjyoolfsson in their research have proposed that wide usage of IT in SCM positively influences the profitable and liable relationship with the customers. Soonhong Min and Mentzer J. T. , (2000) stated, that marketing usually focuses on three main aspects: customer, coordinated marketing and profitability. Marketing concept strongly influences the SCM, inter organizational relationship and firm management. Marketing guides firm for profit maximization through a satisfaction of customers. The link between IT on Marketing in SCM is supported by the idea, that successful customer relationship is associated with open and high level information sharing.
Information sharing is considered as a data transmission from one supplier to another, which is critical for collaborative inter firm relationship. SCM: IT on Customer relationship: Many mangers argue that customer satisfaction and high quality customer service are very valuable for the total firm performance, it pushes firm to deliver better quality service with lower costs. With higher usage of IT, today its very popular among companies to receive customer orders, complains or suggestions in on-line form and act on it accordingly in a fewer time. IT implemented bring a big benefit to both customers and firms. 3. 3 Types of IT for Kazakhstan R. Mishra (2004), has identifies five general levels of individual company participation in the SCM with the rest involved companies.
The types of IT applications methods, that also can be implemented in Kazakhstan for oil supply, are provided: Remote Input/Output Model: in this situation, the remote participant with in the application system operates with the support of one or more high level participants; Application processing mode: in this case, the participant is himself developing, maintaining and operates a single application. For example participant develops the data about order processing system and then shares it with other participants; Multi participant exchange mode: in this situation, the company creates the network itself and then shares it with lower level participants with who is has a business established. Network control node: in this case the participant develops reverse application, that may be used by other different lower level firms. Integrating network node: in this situation, the member becomes official data collector and processor, that collaborate with lower level class firms in the real time. Following the idea of R.
Mishra (2004), the models and nodes mentioned above could be implemented by using special information software applications: Electronic data interchange (EDI), bar coding and Scanners, data warehouses and enterprise recourse planning tool. Some of them are appropriate for usage in Oil supply chain. The software products have a great potential to influence in positive manner the performance of oil companies: reduce paper work, increase productivity of employees, decrease time for service providing and transportations, decrease operating costs. Electronic Data Interchange (EDI) – represent the ability to firms to share the information electronically, not using the usual tools (mail, courier etc. EDI allows firms to faster the process of information flow, improve customer service, reduce paper work, increase productivity and cost efficiency, in general it positively influenced competitive advantage of the firm. Enterprise Resource Planning (ERP) tool: many western firm already consider EPR as a core tool in its SCM. EPR enables producers to avoid manual activities, records associated with financial processing, customer and order fulfillment. This software system achieves high level of inter companies integration by combining the necessary data in a single mode. 4. Research methodology Hypothetically, the analysis would be based on questioners research for oil company’s managemen, who are going to implement new software in the company. The aim of the research is to identify the points that are problematic in supply chain and requires modernization.
The questioner aimed on gathering the information about process that are taking place in the company’s supply chain, identifying main problems and getting know the expectations of the company, which is going to implement new information technology. The questioner is divided on 3 main parts: • Objects of account and transportation • Process in the warehouses, pipelines – the method of accounting and reporting • Company’s expectations In more detailed representation the questionnaire will contain the following sections: Part 1 1. Which stage of oil production the company is operating with? 2. Type of warehousing? 3. The size and volume of warehouses? 4. Average time of inventory/oil keeping in the warehouses 5. Monthly amount of inventory/oil turnover Part 2 1.
To choose the process that are taking place in the company’s operations: |Proccess |Documents required |Type of registering/accounting of documents(manual or electronic) | |Shipment | | | |loading | | | |warehousing | | | |sorting | | | |Package and transporting | | | |Others | | | 2. What type of inventory identification is now used by the company? 3. What type of software is now used by the company? 4. Describe the inventorization process? What types of documents are used? 5. Period of accountability and reporting? 6. How much time is used for serving 1 unit of inventory, including document fulfilling and registration? 7. What type of technique, beside of pipelines, is used for transportation? 8. How the product is monitored during the transitions/ transportation? Part 3. 1. What type of clients are served by the company? 2. What are usual problems company has? 3.
What actions are taken to avoid these problems? 4. What is implemented for effective work of the company? Innovations? 5. What are stages of the company’s activities that take most of the working time? 6. On which of these stages most mistakes take place? 7. What is the aim/ purpose/expectation of the company from the IT implementation to SCM? 5. Analysis and Interpretations: From the questioner its becoming more clear about the company’s activities, problems and expectations if the IT innovations are implemented. There should be an individual approach to each company, so that IT implemented in reality take benefits and lead to process innovation.
Different firms, even in the same business environment and sphere of operations have different needs, problems, aims and expectation – so, there should be a unique approach for each of them. The General, simple model of research is offered. 6. Conclusion The paper represents the general role of IT in the SCM. Firstly the definition of supply chain management is provided and then the link of IT to it is described: the benefits of implementing IT to the usual firms SCM. The accent of the paper is concentration on Oil and Gas Industry in Kazakhstan and IT implementation to oil supply chain particularly. During the preparation of this paper the examples and world known tendency were used and theoretically implemented to Kazakhstani reality.
The research mythology offered is aimed to the oil producer company, which are willing to innovate the production process and create benefits for firm’s production. The questioner must be created individually for the companies – because different firms may have different needs, levels of development and expectations from the software applications. References: 1. Mishra R. K. , (2004), “Role of Information Technology in Supply Chain Management”, http://www. indianmba. com/Faculty_Column/FC461/fc461. html 2. Fasanghari M. , Habibipour Roudsari F,. Kamal ChaharsooghiS. , (2008), “Assessing the Impact of Information Technology on Supply Chain Management”, World Applied Sciences Journal 4 (1): 87-93, http://idosi. rg/wasj/wasj4%281%29/13. pdf 3. Hanfield R. , “What is the Supply Chain Management”, http://scm. ncsu. edu/scm-articles/article/what-is-supply-chain-management 4. “What is the Supply Chain Management”, http://searchmanufacturingerp. techtarget. com/definition/supply-chain-management 5. Hetnet Consulting, research on SCM “AMR Research” and “Forrest group”, http://www. hetnet. ru/business/solutions/20/ 6. Abdekerimov G. , (2009), “Proccess Optimization of logistic chain: Russia-Kazakhstan” 7. Nathan J. , (2008), “Kazakhstan Oil Supply Chain: Despite Upstream Synergy, the Republic Faces Downstream Challenges in Global Markets”, http://organizations. bloomu. du/gasi/Proceedings%20PDFs/Nathan1. pdf 8. Sridharan U. , Caines, R. and C. Patterson (2005), “Implementation of Supply Chain Management and its Impact on the Value of Firms”, Supply Chain Management, Vol. 10, 313-318. 9. Cavenagh A. (1999) “Caspian Oil Project Has a Slow Road to Syndication. ” Project Finance International, 50-51. 10. Gaudenzi, B. and Borghesi A. , (2006), “Managing Risks in the Supply Chain using AHP method”, International Journal of Logistics Management, vol. 17, 114-136. 11. Christopher M. , (2007), “Supply-Chain Management Issues In The Oil And Gas Industry”, Journal of Business & Economics Research, Volume 5, Number 6 27 12.
Kazinform, (2006), ”New technologies lead to Oil and Gas Exploration Increase from 2006 to 2010”, http://ru. government. kz/site/news/economics/2006/06/07 13. Bakos, J. Y. and Brynjyoolfsson E. , (1993), “From vendors to partners: Information technology and incomplete contracts in buyer-supplier relationships”. J. Org. Comput. , 3(3): 301-329. 14. Soonhong Min and Mentzer J. T. , (2000), “The role of Marketing in the Supply Chain management”, http://forums. utk. edu/readings/RoleMarketingSC. pdf KAZAKHSTAN INSTITUTE OF MANAGEMENT, School of General Education Management Information System Fall 2011 [pic] Implementation of Information technology to Supply Chain Management in
