supply chain management in electronic businesses

8/3/2019 Supply Chain Management in Electronic Businesses

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UNIVERSITY OF CRAIOVAFACULTY OF ECONOMICS AND BUSINESS ADMINISTRATIONMASTER INTERNATIONAL BUSINESS ADMINISTRATION

SUPPLY CHAIN MANAGEMENT INELECTRONIC BUSINESSES

Scientific Coordinator: Professor Amelia Badica

Graduate : Gu Sergiu-Adrian


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Craiova, 2009

ACKNOWLEDGEMENTS

I greatly appreciate my advisor, professor Amelia Badica, for her guidance and

support in shaping and accomplishing of this disseration. This project would not have beenpossible without her generous assistance. I also am deeply grateful to all my professors fortheir education, encouragement and support.

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CONTENTS

Acknowledgements1Introduction4

CHAPTER I

1. SUPPLY CHAIN MANAGEMENT (SCM)......................................................................61.1. Supply Chain Management the concept...61.2. Evolution of Supply Chain Management........................................................................8

1.2.1. The Evolving Structure of Supply Chains..101.3. Stages of Supply Chain Management Development.13

1.3.1. First Stage Logistics Decentralization...........................................................141.3.2. Second Stage Total Cost Management...........................................................141.3.3. Third Stage Integrated Functions ..................................................................15

1.3.4. Fourth Stage Supply Chain Management......................................................151.3.5. Fifth Stage e-Supply Chain Management ......................................................161.4. Electronic Supply Chain Management (e-SCM)...17

1.4.1. Characteristics of e-SCM....171.4.2. e-Supply Chain Synchronization.18

CHAPTER II

2. E-BUSINESS AND SUPPLY CHAIN MANAGEMENT...202.1. Electronic business.........................................................................................................20

2.1.1. Subset..212.1.2. Models.............................................................................................................222.1.3. Classification by Provider and Consumer.......................................................22

2.2. Effects of e-Business on the Supply Chain Management..232.2.1. e-Business and Change...242.2.2. e-Transformation.25

2.3.Information systems that support the supply chain integration and management 272.3.1. Data Capture and Data Communications282.3.2. Data Storage and Retrieval..292.3.3. Data Manipulation and Reporting...302.3.4. Internal Data Integration.31

2.3.4.1. ERP and the Internet322.4. E-Business and Supply Chain Integration.34

2.4.1 Barriers to Using the Internet in Supply Chain Integration.352.5. Electronic Commerce and Supply Chain...36

2.5.1 Procurement and E-Commerce372.5.1.1. Process and E-Procurement..412.5.1.2. A Model for E-Procurement.42

2.6. e-Collaboaration.452.7. The influence of IT architecture of an organization on its potential to reshape itsSupply Chain Management...47

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2.8. The State of Supply Chain Intergration in Romanian Companies.492.8.1. Avicola Calarasi..492.8.2. S&D Pharma...50

Conclusions...51Bibliography..51

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INTRODUCTION

All around us, due to advancing technology, evolve faster than ever before. Nothinghas rocked the way in which companies do business as the emergence of the Internet.

Market forces, conducted by the speed of communications that is facilitated byelectronic networks, are making product life cycles shorter and shorter. Customer needs andtastes change rapidly. Product inventories are always in danger of becoming obsolete.

To counter this tendency, organizations are increasing their expertise andefficiencies in the process of designing and producing new products and in the process ofdelivering and servicing existing products. Companies that develop higher skill levels inthese areas are clearly better able to ride the waves of change and profit from developmentsin the markets they serve.

The processes involved in the designing, building, and delivering of products to the

customers that need them have come to be collectively referred to as supply chainmanagement.

Electronic management of business supply chains coordinates all business partnersin the supply chain over electronic networks and gives all parties an up-to-the-minuteoverview of all available inventories.

Due to the numerous challenges and difficulties that firms face in present's rapidlychanging business environment, establishing an effective supply chain is becoming acorecompetency for many organisations. Effective supply chain management is no longer anoption; it is a requirement for survival. Companies within the supply chain must reach newlevels of communication and cooperation. Rather than treating each other as adversaries

and attempting to gain competitive advantages at the expense of each other, companies witheffective supply chain strategies are able to break the traditional paradigms. To survive intodays competitive business climate, organizations must take a broad view of their productand/or service flow. They must consider that the opportunities for system optimization offermuch greater potential to bottom-line business results than can be obtained from minorefficiency improvements that stem from the more traditional approach to local businessmanagement. Supply chain management allows a much more proactive approach to thetypical issues facing businesses in the 2000s. It allows managers the chance to see theimpact of local decisions within any element of the entire supply chain on the global resultsof that chain. Conversely, not practicing these supply chain philosophies and not assumingthis global view will render those companies noncompetitive. Those who practice effective

supply chain management techniques will surpass and ultimately defeat those who do not.

Companies must increasingly recognize the need to explore supply chainmanagement in order to maximize the value being added along the supply chain. The needfor implementing SCM is more apparent and pressing than it has ever been. And whilesome business ventures do recognize and approach this need, they should certainly beaware of some of the problems associated with the implementation of SCM. In order to dealwith the accompanying challenges, organisations must embrace IT, e-business, and the

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Internet that allow increasingly better opportunities for assisting with SCM and improvingbusiness performance.

Business can do more now with electronic technology than could even be imaginedonly a few years ago. And, the rate of development promises to increase. Certainly, thosetools will make managing a complex supply chain ever more possible. However, the dangerexists that business leaders will assume that the tools in and of themselves will provide all

the results that they seek.This is simply not true. The technology, no matter how advanced it will become, willforever be only a tool and will not accomplish the synchronization of the supply chainwithout significant behavioral change throughout every element of the system. Howelements of the chain work with each other through real-time communication andcoordination will make the difference. Technology is only a tool. How we use thattechnology to help coordinate the efforts of the entire supply chain will determine its value.

This project has the aim to approach the topic of supply chain management as oneof central importance for the successful implementation of business today and to explorehow electronic businesses are changing supply chain management with reference to its

past trends, present operations and future techniques. Since manyorganizations employing SCM have continously confronted problems with its realization,numerous keys to these problems have been offered. These include the sharing ofinformation with parties along the supply chain as well as the utilization of advances ininformation technology. In fact, the importance of in-depth knowledge of different e-business models and the Internet as tools of transforming SCM has been suggested.Thisproject will not only focus on the recognition of the technologicalbreakthroughs, but also the changes that have taken place with theindustry after the introduction of e-Business concepts into supply chainmanagement.

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CHAPTER I

1. SUPPLY CHAIN MANAGEMENT

1.1. Supply Chain Management the concept

Supply Chain Management (SCM) was once a dream, a concept more than a reality, sincethere were many necessary components of supply chain management that could not be fullyachieved. A key barrier to full supply chain management was the cost of communicatingwith and coordinating among the many independent suppliers in each supply chain. Anentire supply chain stretches from the creation of raw materials to the delivery of the

finished consumer goods. Because firms are involved in many,many supply chains, activesupply chain management is practical only for items essential to the firms market success.Managers are increasingly interested in actively managing their supply chains

because of three environmental changes. First, technology has been developed to simplifycommunication between members of the supply chain.Second, new management paradigmshave developed that are being widely shared among supply chain members so that it issimpler for these managersto coordinate their efforts. Third, the development of a highly trained workforce allowsemployees at each stage of the supply chain to assume responsibility and the authoritynecessary to quickly make decisions and take actions required to coordinate the supplychain.

While the three changes above make supply chain management possible, it iscompetition in the marketplace that is pushing firms to make SCM a reality. Those whomaster SCM gain a competitive advantage. So, SCM means money. And, SCM means jobs.

For the past 30 years the business world has been inundated by concepts and jargon.These include: Materials Logistics Management (MLM), Just-in-Time (JIT),MaterialsRequirements Planning (MRP), Theory of Constraints (TOC), Total Quality Management(TQM), Agile Manufacturing, Time Based Competition (TBC), Quick ResponseManufacturing (QRM), Customer Relationship Management (CRM), and many more.These ideas are not replaced or superseded by SCM. Rather, SCM incorporates all of theseideas to improve and manage the entire supply chain instead of just one firm in the supplychain.

Over the past 25 years, managers have learned to view their firms as a system ofclosely linked processes which deliver products and/or services to customers. Nowmanagers are recognizing that their entire firm is just one link in a chain of firms whosepurpose is to serve the customer. By increasing the integration of the entire supply chain,all the firms in the chain can increase their profits.

The APICS dictionary defines the term supply chainas either the processes from theinitial raw materials to the ultimate consumption of the finished product linking acrosssupplier-user companies, or as the functions within and outside a company that enable the

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value chain to make products and provide services to the customer. The APICS dictionarydefines value chain as those functions within a company that add value to theproducts or services that the organization sells to customers and for which it receivespayment.The differences between the definitions of the supply chain and the value chain areillustrated in Figure 1.1. In Figure 1.1. the supply chain is shown as a series of arrows

moving from the raw materials stage to the final customer. Each of these arrows representsan individual firm, which has its own value chain. In Figure 1.1. this value chain is enlargedfor one firm in the supply chain so that some of the internal functions of the firm that addvalue can be shown. In this example note that purchasing, marketing, and operationsmanagement are shown as part of the firms internal value chain. These are internalfunctions of the firm and they occur in every firm that is a member of a supply chain.

Figure 1.1. Supply Chain

(Source: Basics of Supply Chain Management)

Another term used in some firms is pipeline. A pipeline is the supply chain for just one partused in a product. In these firms a supply chain for a complex product consists of manypipelines. An example of a pipeline would be a product that begins with rolledsteel.. A second step in the pipeline is the cutting process. This is followed by the

stamping of the steel into a fender or other component. The component is then assembledinto the final product. For example, it may be a fender which is assembled onto a car body.Figure 1.1. also illustrates that the supply chain consists of more than the movement

of physical goods between firms. It is also involves the flow of information between firms.This communication is necessary to manage and maintain the supply chain. Another supplychain flow is the flow of money. This is also shown in Figure 1.1. to illustrate that theprimary purpose of every firm in the supply chain is to make money. This helps to remindall supply chain members that increasing their own income requires them to do everythingin their power to improve the operations of the supply chain.

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Supply chains comprise the companies and the business activities needed to design,produce, deliver, and use a product or service.

Anything or anyone that influences a products time-to-market, price, quality,information exchange, and delivery, among other activities is part of the supply chain.

The supply chain management aims at integrating efforts in terms of target 7Rs,i.e., creating the right product, at the right time and right place, in the right quantity and inright condition for the right customer at the right cost (Kapoor and Kansal, 2003). Awellplanned SCM system helps an organization achieve:

1. Lower costs

2. Competitive edge

3. Reliability of delivery

4. Order fulfillment accuracy

5. Flexibility in replenishment

6. Accuracy of documentation

7. Continuity of supply

8. Quality of company sales, technical and service representation.

Firms depend on their supply chains to provide them with what they need to surviveand thrive. Every business fits into one or more supply chains and has a role to play in eachof them.

The pace of change and the uncertainty about how markets will evolve has made itincreasingly important for companies to be aware of the supply chains they participate inand to understand the roles that they play. Those companies that learn how to build andparticipate in strong supply chains will have a substantial competitive advantage in theirmarkets.

1.2. Evolution of Supply Chain Management

The practice of supply chain management is guided by some fundamental concepts thathave not changed much over centuries. Napoleon Bonaparte made a remark, An armymarches on its stomach." Napoleon was a skillful general and a master strategist and hisremark illustrates that he clearly understood the importance of what we call today an

efficient supply chain. Unless the soldiers are fed, the army cannot be efficient.

The term "supply chain management" arose in the late 1980s and started to be usewidely in the 1990s. Some definitions ofsupply chain are presented below:

"A supply chain is the alignment of firms that bring products or services tomarket.from Lambert, Stock, and Ellram in their book Fundamentals ofLogistics Management (Lambert,Douglas M., James R. Stock, and Lisa M. Ellram,

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1998, Fundamentals of Logistics Management, Boston, MA:Irwin/McGraw-Hill,Chapter 14)

A supply chain consists of all stages involved, directly or indirectly, in fulfilling acustomer request. The supply chain not only includes the manufacturer andsuppliers, but also transporters, warehouses, retailers, and customers themselves.

from Chopra and Meindl in their book Supply Chain Management: Strategy,Planning, and Operations (Chopra,Sunil, and Peter Meindl, 2001, Supply ChainManagement: Strategy, Planning, and Operations, Upper Saddle River, NJ:Prentice-Hall, Inc. Chapter 1).

A supply chain is a network of facilities and distribution options that performs thefunctions of procurement of materials, transformation of these materials intointermediate and finished products, and the distribution of these finished products tocustomers.from Ganeshan and Harrison at Penn State University in their articleAn Introduction to Supply Chain Management published athttp://silmaril.smeal.psu.edu/supply_chain_intro.html (Ganeshan, Ram, and TerryP. Harrison, 1995,An Introduction to Supply Chain Management, Department ofManagement Sciences and Information Systems, 303 Beam Business Building,Penn State University, University Park, PA).

Having the definition of supply chain we can define supply chain management asthe actions we can do to influence the behaviour of supply chain to get the expected results.Some definitions ofsupply chain managementare:

The systemic, strategic coordination of the traditional business functions and thetactics across these business functions within a particular company and acrossbusinesses within the supply chain, for the purposes of improving the long-termperformance of the individual companies and the supply chain as a whole.fromMentzer, DeWitt, Deebler, Min, Nix,Smith, and Zacharia in their article DefiningSupply Chain Management in the Journal of Business Logistics (Mentzer, JohnT.,William DeWitt, James S. Keebler, Soonhong Min, Nancy W. Nix, Carlo D.Smith, and Zach G. Zacharia, 2001, Defining Supply Chain Management, Journalof BusinessLogistics,Vol. 22, No. 2, p. 18).

Supply chain management is the coordination of production, inventory, location,and transportation among the participants in a supply chain to achieve the best mixof responsiveness and efficiency for the market being served.

There is a basic pattern to the practice of supply chain management. Each supplychain has its own unique set of market demands and operating challenges and yet the issuesremain essentially the same in every case. Companies in any supply chain must makedecisions individually and collectively regarding their actions in five areas:

1. ProductionWhat products does the market want? How much of which productsshould be produced and by when? This activity includes the creation of masterproduction schedules that take into account plant capacities,workload balancing,quality control, and equipment maintenance.

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2. InventoryWhat inventory should be stocked at each stage in a supply chain? Howmuch inventory should be held as raw materials, semifinished, or finished goods?The primary purpose of inventory is to act as a buffer against uncertainty in thesupply chain. However, holding inventory can be expensive, so what are the optimalinventory levels and reorder points?

3. LocationWhere should facilities for production and inventory storage be located?Where are the most cost efficient locations for production and for storage ofinventory? Should existing facilities be used or new ones built? Once thesedecisions are made they determine the possible paths available for product to flowthrough for delivery to the final consumer.

4. TransportationHow should inventory be moved from one supply chain locationto another? Air freight and truck delivery are generally fast and reliable but they areexpensive. Shipping by sea or rail is much less expensive but usually involveslonger transit times and more uncertainty. This uncertainty must be compensated forby stocking higher levels of inventory. When is it better to use which mode oftransportation?

5. Information How much data should be collected and how much informationshould be shared? Timely and accurate information holds the promise of bettercoordination and better decision making. With good information, people can makeeffective decisions about what to produce and how much, about where to locateinventory and how best to transport it.

The sum of these decisions will define the capabilities and effectiveness of a companyssupply chain. The things a company can do and the ways that it can compete in its marketsare all very much dependent on the effectiveness of its supply chain. If a companysstrategy is to serve a mass market and compete on the basis of price, it had better have asupply chain that is optimized for low cost. If a companys strategy is to serve a marketsegment and compete on the basis of customer service and convenience, it had better have asupply chain optimized for responsiveness. Who a company is and what it can do is shapedby its supply chain and by the markets it serves.

Each market or group of customers has a specific set of needs. The supply chains thatserve different markets need to respond effectively to these needs. Some markets demandand will pay for high levels of responsiveness. Other markets require their supply chains tofocus more on efficiency. The overall effect of the decisions made concerning each driverwill determine how well the supply chain serves its market and how profitable it is for theparticipants in that supply chain- (Figure 1.2.).

1.2.1. The Evolving Structure of Supply Chains

The participants in a supply chain are continuously making decisions that affecthow they manage the five supply chain drivers. Each organization tries to maximize its performance in dealing with these drivers through a combination of outsourcing,partnering, and in-house expertise. In the fast-moving markets of our present economy a

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company usually will focus on what it considers to be its core competencies in supply chainmanagement and outsource the rest.

Figure 1.2. The Five Major Supply Chain Drivers

Source: adapted from Essentials of Supply Chain Management

This was not always the case though. In the slower moving massmarkets of theindustrial age it was common for successful companies to attempt to own much of theirsupply chain. That was known as vertical integration. The aim of vertical integration was togain maximum efficiency through economies of scale (see Figure 1.3.).

5.

INFORMATION

The basis formaking these

decisions

3.LOCATION

Where best to do whatactivity

2.INVENTORY

How much to makeand how much tostore.

4.TRANSPORTATION

How and when to move

the product

1.PRODUCTION

What, how, andwhen to produce

RESPONSIVENESS versus EFFICIENCY

The right combination of efficiency and responsiveness in each of thesedrivers enables a supply chain to "increase throughput whilesimultaneously diminishing inventory and operating cost "

The Five Major

Supply Chain Drivers

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Figure 1.3. Old Supply Chains versus New

Source: Essentials of Supply Chain Management

Globalization, highly competitive markets, and the rapid pace of technologicalchange are now driving the development of supply chains where multiple companies worktogether, each company focusing on the activities that it does best. Mining companies focuson mining, timber companies focus on logging and making lumber, and manufacturingcompanies focus on different types of manufacturing from making component parts todoing final assembly. This way people in each company can keep up with rapid rates ofchange and keep learning the new skills needed to compete in their particular business.

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Where companies once routinely ran their own warehouses or operated their ownfleet of trucks, they now have to consider whether those operations are really a corecompetency or whether it is more cost effective to outsource those operations to othercompanies that make logistics the center of their business. To achieve high levels ofoperating efficiency and to keep up with continuing changes in technology, companies needto focus on their core competencies. It requires this kind of focus to stay competitive.

Instead of vertical integration, companies now practice virtual integration.Companies find other companies who they can work with to perform the activities calledfor in their supply chains. How a company defines its core competencies and how itpositions itself in the supply chains it serves is one of the most important decisions it canmake.

1.3. Stages of Supply Chain Management Development

The SCM concept could be said to consist of five distinct management stages. The first canbe described as the era of internal logistics departmentalism. In the second stage, logistics

began the migration from organizational decentralization to centralization of core functionsdriven by new attitudes associated with cost optimization and customer service. Stage threewitnessed the dramatic expansion of logistics beyond a narrow concern with internalwarehousing and transportation to embrace new concepts calling for the linkage of internaloperations with analogous functions performed by channel trading partners. As the conceptof channel relationships grew, the old logistics concept gave way, in stage-four, to fullsupply chain management. Today, with the application of Internet technology to the SCMconcept, we can describe SCM as entering into stage five, e-SCM. These stages areportrayed in table 1.4.

TABLE 1.4.SCM Management Stages

SCM Stage Management Management Focus Organizational Design

Stage 1 to 1960s

Warehousing andTransportation

Operations performanceSupport for sales/marketingWarehousingInventory controlTransportation efficiencies

Decentralized logisticsfunctionsWeak internal linkagesbetweenlogistics functionsLittle logistics management

authorityStage 2 to 1980

Total CostManagement

Logistics centralizationTotal cost managementOptimizing operationsCustomer serviceLogistics as acompetitive advantage

Centralized logisticsfunctionsGrowing power oflogisticsmanagement authorityApplication of computer

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Stage 3 to 1990

Integrated LogisticsManagement

Logistics planningSupply chain strategiesIntegration withenterprise functionsIntegration with channel

operationsfunctions

Expansion of logisticsfunctionsSupply chain planningSupport for TQMExpansion of logistics

managementfunctions

Stage 4 to 2000

Supply ChainManagement

Strategic view of supplychainUse of extranettechnologiesGrowth ofcoevolutionary channelalliancesCollaboration to

leverage channelcompetencies

Trading partnernetworkingVirtual organizationMarket coevolutionBenchmarking andreengineeringSupply chain TQMmetrics

Stage 5 2000+

e-Supply ChainManagement

Application of theInternet to theSCM conceptLow-cost instantaneoussharing of alldatabasese-InformationSCM synchronization

Networked, multi-enterprise supplychain.coms, e-tailers, andmarketexchangesOrganizational agilityand

scaleability

Source: Adapted from e-Supply Chain Management

1.3.1. First Stage Logistics Decentralization

Historically, the first stage of SCM occurred in the period extending from the late19th century to the early 1960s. During this era logistics was not perceived as a source ofsignificant competitive advantage. Viewed essentially as an intermediary functionconcerned with inventory management and delivery, it was felt that logistics could notmake much of a contribution to profitability and, therefore, was not worthy of much capital

investment.

In an era when process and delivery cycle times were long, global competitionpractically non-existent, and the marketplace driven by mass production and massdistribution, logistics decentralization was a minor problem for most companies.

1.3.2. Second Stage Total Cost Management

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The second stage in the evolution of SCM can be said to revolvearound two critical focal points. The first can be described as theconcerted effort made by companies to centralize logistics functions intoa single management system. By merging what previously had been aseries of fragmented functions into a single department, it would bepossible to decrease individual costs associated with transportation,

inventory, and physical distribution, while simultaneously increasing theproductivity of the logistics system as a whole. Second, it was hopedthat centralization would facilitate the application of the total costconcept to logistics. The objective of this strategy is to strive to minimizethe total cost of logistics, rather than focus on reducing the costs of oneor two specific logistics functions, such as transportation orwarehousing. A much larger assumption was that, because logisticscosts and customer service were reciprocal, it would be easy to calculatethe cost trade-offs necessary to balance total logistics costs withmarketing and sales objectives.

1.3.3. Third Stage Integrated Functions

During the 1980s, enterprise executives became increasinglyaware that focusing solely on the total cost of logistics represented apassive approach to channel management. This awareness was drivenby the radical changes occurring in what was rapidly becoming a globalmarketplace. If the decade could be compressed into two quintessentialcatchwords, they would be competition and quality management.

One of the most significant results of the challenges of the 1980swas the recognition that logistics itself constituted a significantcompetitive weapon. Up to this period, most executives had viewed

logistics as playing a tactical role, with little impact on corporatestrategic planning. By the mid-1980s, however, companies began tounderstand that, by enabling organizations to pursue bothcost/operational and service/value advantages through continuousprocess improvement and closer integration with channel partners,logistics could provide enormous strategic value.

1.3.4. Fourth Stage Supply Chain Management

During the mid-1990s, companies began to expand the concepts ofintegrated logistics and supply channel management to embrace the

new realities of the marketplace. The acceleration of globalization, theincreasing power of the customer demanding ever higher levels ofservice and supplier agility, organizational reengineering, third-partyoutsourcing, and the growing pervasiveness of information technologieshad forced businesses to look beyond the integrated logistics paradigmin the search for new strategic models. The pressure of responding tothese new challenges compelled organizations to implement what onlycan be called a dramatic paradigm shift from stage-three logistics toSCM. The fundamental feature of the integrated logistics model was the

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merger of channel management functions with those of trading partnerstargeted at improving customer service and total cost reduction acrosswhole channels. In contrast, at the core of phase four organizations is adistinct recognition that competitive advantage can only be built byoptimizing and synchronizing the productive competencies of eachchannel trading partner to realize entirely new levels of customer value.

Using the supply chain operations reference (SCOR) model as a benchmark, thedifferences between stage-three logistics and stage-four SCM can be clearly illustrated.

Plan . In stage-three logistics, most business functions were still inward looking.Firms focused their energies on internal company scenario planning, businessmodeling, and corporate resource allocation management. ERP systems andsequential process management tools assisted managers to execute channel-levelinventory flows, transportation, and customer fulfillment. In contrast, stage-fourSCM companies began to perceive themselves and the supply networks to whichthey belonged as .valuechains.. Knowing the total cost to all network partners andoptimizing the customer-winning velocity of collective supply channel

competencies became the central focus. Companies began to deploy channeloptimizationsoftware and communications enabling tools like EDI to networktheirERP systems, in order to provide visibility to requirements needsacross the entirenetwork.

Source. Companies with stage-three sourcing functions utilize the integratedlogistics concept to merge their procurement needs with the capabilities of theirchannel suppliers. The goal is to reduce costs and lead times, share critical planningdata, assure quality and delivery reliability, and develop win-win partnerships. Incontrast, stage-four SCM sourcing functions perceive their suppliers as extensionsof a single supply chain system. Besides achieving the benefits of integratedlogistics, a critical goal of SCM-driven companies is to utilize channel data to

execute volume purchasing to benefit all network trading partners. When possible,computerized extranet technologies are used to assemble channel collaborativerelationships pointing toward consortia buying. Transportation and warehousingcosts are reduced by the joint utilization of outsourcing opportunities, therebyreducing the overall assets invested in channel inventories.

Make . Stage-three organizations resist sharing product design and processtechnologies. Normally, collaboration in this area is undertaken in response toquality management certification or when it is found to be more economical tooutsource manufacturing. There is minimal networkingbetween trading partnerswhen it comes to computer aided design (CAD) and ERP manufacturing databases.Stage-four companies, on the other hand, seek to make collaborative design

planning and scheduling with their supply chains a fundamental issue. Whenpossible, they seekto closely integrate their ERP systems to eliminate time and costup anddown the supply channel. SCM firms also understand that speedy productdesign-to-market occurs when they seek to leverage the competencies andresourcesof channel partners to generate .virtual. manufacturing environments that arecapable of being as agile and scaleable as necessary to take advantage of everymarketplace opportunity.

Deliver . Customer management in stage-three companies is squarely focused onmaking internal sales functions more efficient. A heavy priority is placed on basic

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available-to-promise functionality, finished goods management, and determiningthe proper timing of distribution channel differentiation.While there is some limitedsharing of specific information on market segments and customers, databases areconsidered proprietary,and pricing data is rarely shared. In contrast, stage-four SCMfirms are focused on reducing logistics costs and channel redundancies byconverging channel partner warehouse space, transportation equipment, and

delivery capabilities. Customer management looks toward automation tools tofacilitate field sales, capability to promise tools,customer relationshipmanagement(CRM) software, mass customization, and availability of general supply chainrepositories of joint trading partner market andcustomer data.

1.3.5. Fifth Stage e-Supply Chain Management

Today, the application of Internet technology has propelled the SCM concept to anew dimension. Originating as a management method to optimize internal costs andproductivities, SCM has evolved, through the application of e-business technologies, into a powerful strategic function capable of engendering radically new customer value

propositions through the architecting ofexternal, Internet-enabled collaborative channelpartnerships. Actualizing e-SCM is a three-step process. Companies begin first with theintegration of supply channel functions within the enterprise. An example would beintegrating sales and logistics so that the customer, rather than departmental measurements,would receive top attention. The next step would be to integrate across trading partnerschannel operations functions, such as transportation, channel inventories, and forecasting.Finally, the highest level would be achieved by utilizing the power of the Internet tosynchronize the channel functions of the entire supply network into a single, scaleablevirtual enterprise, capable of optimizing core competencies and resources from anywhereat any time in the supply chain to meet market opportunities.

1.4. Electronic Supply Chain Management e-SCM

The immense changes brought about by the dynamics of todays global marketplace andthe breakthroughs occurring in Internet-based technologies have elevated the effectivemanagement of the supply chain to new levels of importance. As companies findthemselves under constant pressure to develop fast, flexible, scalable product and servicecapabilities that empower customers to choose and transact the product/ service solutionsthey value the most, digitally and in real time, they have been increasingly turning to theirbusiness trading partners for sources to enrich their competitive competencies. Increasingly,it has become apparent that traditional business paradigms centered solely on closed,internal performance metrics are rapidly being replaced by new models coalescing around

the recognition that, to continuously recreate competitive advantage, companies must worktogether across enterprise boundaries and optimize interchannel processes and innovativecapabilities.

Electronic Supply Chain Management(e-SCM) is a tactical andstrategic management philosophy that seeks to network the collectiveproductive capacities and resources of intersecting supply channelsystems through the application of Internet technologies in the searchfor innovative solutions and the synchronization of channel capabilities

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dedicated to the creation of unique, individualized sources of customervalue.

1.4.1. Characteristics of e-SCM

The merger of SCM and the Internet calls for a transvaluation of formerperspectives of the tactical and strategic importance of the supply chain. Past definitions ofSCM were more or less preoccupied with attempts to extend the concepts of supply channelintegration to the performance of operations activities associated with optimizingmanufacturing and logistics processes and accelerating the flow of inventory andinformation through the network system. Laboring under the limitations of intranet andextranet technology tools, such as EDI, the best companies could hope to accomplish wasto structure private value-added networks (VANs) that permitted the transmission of anarrow band of information from a narrow group of supply partners. With the emergence ofInternet technologies, the concept of supply channel management has moved to a wholenew dimension. In the past, the primary problem inhibiting full activation of the SCM

model was the mechanism that would provide the interlocking connectivity between business systems. The Internet solves this gap in SCM collaboration. Todays Webapplications provide whole supply chains with the capability to instantaneously sharedatabases, forecasts, inventory and capacity plans, product information, financial data, and just about anything else companies may need for effective decision-making. And theintegration can be global, 24 7 365, with 100% accuracy.

1.4.2. e-Supply Chain Synchronization

To meet the challenges of doing business in todays marketplace, companies like Aspect

have been engineering new methods for linking together real-time e-information. The resultof this effort is the concept of e-supply chain synchronization (e-SCS), and it is abouttransmitting e-information as fast as possible through the supply channel and interlinkingall network nodes to achieve a seamless supply chain response to the customer. Theobvious goal of e-SCS is to utilize technology to achieve a direct linkage between demandand supply at all points in the channel network. The value of such synchronization isobvious: minimization of work-inprocess inventories, elimination of the .bullwhip. effectthrough the distribution channel, overall reduced costs, and the perfect matching ofcustomer requirements with available product.

e-SCS enables whole supply chains to concurrently manage the ever-

increasing complexity of todays e-business and collaborativerelationships and can provide the following advantages:

Ability to network companies in a supply chain community, inorder to manage channel complexities by engineering enhancedplanning and decision- making capabilities, starting with internalERP systems, and extending connectivity to Internet-linkedchannel trading partners.

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Ensuring that supply channel costs are minimized and that theyare, as much as possible, the most competitive across geographiesand companies.

Capturing the most profitable customers, on a global basis, bycreating more compelling, value-based relationships than other

supply chain networks.

Securing access to the most value-added suppliers, on a globalbasis, by establishing superior Internet-enabled supply chains thatoffer businessto- business technology and trading partnerrelationships.

Engineering flexible, agile organizations and supply networks thatcan leverage an array of Internet technologies, ranging fromcollaborative product commerce to multi-channel e-informationvisibility to capitalize on changes to customer demand and shifts

in supply-side dynamics.

Establishing effective e-SCS in a supply channel ecosystem willrequire network trading partners to create channel structures, integratedplanning and control, and information architectures capable ofpromoting continuous channel synchronization through collaborativedesign. A successful e-SCS channel will contain the following keycomponents: a market-winning strategy, synchronized relations withpartners, technologies that enable channel synchronized e-information,and performance metrics that assist cross-channel teams tocontinuously review channel capabilities and reformulate channel

decisions (see Figure 1.5).

Figure 1.5.e-Supply chain channels.

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Source: Introduction to e-Supply Chain Management

CHAPTER II

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2. E-BUSINESS AND SUPPLY CHAIN MANAGEMENT

2.1. Electronic Business

Electronic business is an innovation that modern day organisations cannot do without. It isbased on technology, evolves with technological developments, digitises and automatesbusiness processes, is global and leads to improved competitiveness, efficiencies, increasedmarket share, and business expansion. Technological developments applied to e-businessresults in new issues in the organisation, in dealing with business partners and customers,requires new laws and regulations and automated business processes. Conducting businesselectronically is a change from traditional ways of doing things, leading to large scaletransformation of existing business. To attain business efficiencies from e-business, it isimperative that organisations effectively manage the e-business environment, and allassociated changes to digitize and maintain the environment.

In this chapter we concentrate on various forms of electronic business applicationsdivided: e-commerce, e-procurement and e-collaboration . e-Commerce helps a network ofsupply chain partners identify and respond quickly to changing customer demand capturedover the Internet. e-Procurement allows companies to use the Internet for procuring director indirect materials, as well as handling value-added services like transportation,warehousing, customs clearing, payment, quality validation, and documentation. e-Collaboration facilitates coordination of various decisions and activities beyondtransactions among the supply chain partners, both suppliers and customers, over theInternet (e.g., coordination of engineering changes in the bill-of-materials for a product thatis manufactured by an outsourced partner).

Electronic Business, commonly referred to as "eBusiness" or "e-Business", may bedefined as the utilization of information and communication technologies (ICT) in supportof all the activities of business. Commerce constitutes the exchange of products andservices between businesses, groups and individuals and hence can be seen as one of theessential activities of any business. Hence, electronic commerce or eCommerce focuses onthe use of ICT to enable the external activities and relationships of the business withindividuals, groups and other businesses

Electronic business methods enable companies to link their internal and externaldata processing systems more efficiently and flexibly, to work more closely with suppliersand partners, and to better satisfy the needs and expectations of their customers.

In practice, e-business is more than just e-commerce. While e-business refers tomore strategic focus with an emphasis on the functions that occur using electroniccapabilities, e-commerce is a subset of an overall e-business strategy. E-commerce seeks toadd revenue streams using the World Wide Web or the Internet to build and enhancerelationships with clients and partners and to improve efficiency using the Empty Vesselstrategy. Often, e-commerce involves the application of knowledge management systems.

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E-business involves business processes spanning the entire value chain: electronic purchasing and supply chain management, processing orders electronically, handlingcustomer service, and cooperating with business partners. Special technical standards for e-business facilitate the exchange of data between companies. E-business software solutionsallow the integration of intra and inter firm business processes. E-business can beconducted using the Web, the Internet, intranets, extranets, or some combination of these

2.1.1. Subsets

Electronic business applications can be divided into three categories:

1.Internal business systems:

Customer Relationship Management (CRM)

Enterprise Resource Planning (ERP)

Document Management Systems (DMS)

Human Resources Management (HRM)

2. Enterprise communication and collaboration:

VoIP

Content Management System (CMS)

e-Mail Voice Mail

Web conferencing

Digital work flows (or business process management)

3. Electronic commerce - business-to-business electronic commerce (B2B)or business-to-consumer electronic commerce (B2C):

internet shop

supply chain management (SCM)

online marketing

offline marketing

2.1.2. Models

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When organizations go online, they have to decide which e-business models best suit theirgoals.

A business model is defined as the organization of product, service and informationflows, and the source of revenues and benefits for suppliers and customers. The concept ofe-business model is the same but used in the online presence. The following is a list of the

currently most adopted e-business models: E-shops

E-commerce

E-procurement

E-malls

E-auctions

Virtual communities

Collaboration platforms

Third-party marketplaces

Value-chain integrators

Value-chain service providers

Information brokerage

Telecommunication

2.1.3. Classification by provider and consumer

Roughly dividing the world into providers/producers and consumers/clients one can

classify e-businesses into various categories (see Figure 2.1.). Companies (business), publicinstitutions (administration), as well as private persons (consumer) can be both service providers and service consumers. What is important is that the electronic businessrelationship generates added value, which may take the form of either a monetary or anintangible contribution.

Figure 2.1 shows the three most important groups of market participants, along withtheir possible business connections. Each of these participants can appear as a provider orconsumer of services. Thus, nine basic business relationships develop in total.

A further subset of exchange relationships are termed electronic government

(eGovernment), namely the options A2A, A2B, and A2C. Administration-to-administration means the use of information and communication technologies by localgovernment to electronically organize internal administrative channels. This can take placewithin a single level of administration (see the virtual community in Fig. 2.1), or betweendifferent levels of administration. In addition, officials can make offers to citizens (optionA2C, where C means Citizen) or to companies (A2B). Electronic votes and elections, areexamples of A2C.

Figure 2.1. Various electronic business relationships

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Source: eBusiness and eCommerce

The letter A stands for administration and concerns not only government but also

nongovernmental organizations (NGOs), such as nonprofit organizations (NPOs). The letterC stands for consumer or citizen. It is important to note that people can also appear asproviders in the service provider and service consumer matrix. For example, option C2Crefers to an electronic business relationship between individuals. Moreover, consumers orcitizens can provide services for companies (C2B) or for administrative units (C2A).

2.2. Effects of e-Business on the Supply Chain Management

A huge Gross Domestic Product (GDP) deficit between America and Third Worldcountries has been evident since the early 1970s. As the result, many American companieshave decided to either close their production lines in America or move their factories to

lower cost countries or they have bought products from Asian manufactures based in Japan,Korea, and Taiwan. This enabled them to gain bigger marketing power by gaining access toa cheaper production price. The supply chain has lengthened from a few hundred miles to atleast ten thousand miles but the product prices, in addition to shipping costs, are stillcheaper than before they made this change.

In the 1970s, finding a manufacturer, or starting a new company, in another countrywas not easy, especially when facing cultural differences and legal issues. Also, bringingthe products across the Pacific Ocean back to the United States can be very difficultbecause more third parties are involved in the supply chain. Information from Asia is not

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easy to find and much of the secondary information could be deemed useless or incorrect.These difficulties had brought some new jobs into the business (supply chain environment),such as brokers and agencies. In the first stage of business globalization, during 1970 to1980, brokers and agencies had done a good job with helping companies on both sides ofthe Pacific Ocean. They provided the manufactures information to American companiesand brought American business to Asian manufactories.

Though this new pattern of the supply chain dealing with brokers and agencies hadsatisfied the demand from consumers in the United States and also brought huge revenue toAsian manufacturers. Marketing is about competition such as price, promotion, product,and placement. In the 1980s, the growing GDP in Asia had raised price of products cast asubsegment decline in companies profits. Once again, in mid-1980s, some companiesdecided to move their orders to other undeveloped countries such as China, the Philippines,and Vietnam. The second move seemed enough to keep the products prices as low asconsumers demanded at the time. However in the 1990s, the usage of the Internet gave theconsumers huge leverage to compare prices from different sources.

The Internet did not only give consumers more power to compare products prices,but also allowed companies to find more distributors easily. Also, American companies andAsian manufactures could easily reach each other without the necessity to pay commissionsto agencies and brokers. This change has shaken up the whole supply chain environmentbecause the Internet has collected huge amounts of information together for every one ofus. Some industries have started to build up their internal information systems to connectthe external web base delivery levels of need and to reach the goal of customization andpersonalization. The web-based applications have impacted brokers and agencies heavilyand, as a result, forced some of them to go out of business. If web based applications canprovide information to everyone in the market, the next stage of the supply chain in e-Business will concentrate on reducing the length of transaction process, and moredistributors.

2.2.1. E-Business and ChangeE-business not only helps organizations to conduct business on-line but also helps

to connect the organization with all its internal and external value chain components; valuechain-suppliers, logistics providers, wholesalers, distributors, service providers, and endcustomers for many different purposes (Fahey, Srivastava, Sharon, & Smith, 2001). E- business, in spite of its pervasiveness, visibility, and impact, often remains a poorlyunderstood phenomenon. It has been stated that e-business embodies the most pervasive,disruptive, and disconcerting form of change (Fahey et al., 2001). E-business createsintegrated networks of relationships with channels, end customers, suppliers, providers, andeven rivals that were not possible before. E-business is transforming the solutions available

to customers in almost every industry. Customers can shop on a 24/7 time schedule andcompanies can offer many self-service applications and deliver products and services on therequest of customers when they want it and where they want it. These new solutions openup possibilities for customer value creation and delivery that were simply unimaginable amere three years ago. E-business, due to its ability to target customers 1-to-1, offers theplatform for new forms of marketplace that have been changing the competitive rules of thegame. E-business is dramatically reshaping every traditional business process: fromdeveloping new products and managing customer relationships to acquiring humanresources and procuring raw materials and components (Sharma, 2001; 2003). It places an

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especially heavy premium on new forms of integrated and intensive relationships withexternal entities, new sets of perceptions held by customers, channels, suppliers, and, ofcourse, significant new knowledge (Ginige, Murugesan, & Kazanis, 2001).

'Change management' is the process of managing the effective implementation oforganizational strategies, ensuring that permanent changes in goals, behaviors,

relationships, processes and systems are achieved for business advantage (Bridges, 1991).Successful organizational change requires sophisticated planning, design, communicationsand implementation management, with continuous stakeholder involvement (Bryson &Anderson, 2000), and it needs proactive planning and implementation. A failed change cancreate poor morale, lack of credibility, customer irritation, competitors' advantage, andresistance to further change. Change management requires an understanding of all the points of impact, a system view; meticulous planning and scheduling, and excellentcommunications and HR management (Buchanan & Badham, 1999; Carnell, 1995). Thenew e-business technologies necessitate not just the reengineering of existing processes butalso mandate design, development, and deployment of fundamentally new ways ofconceiving and executing business processes (Fahey et al., 2001). Senior executives inevery organization thus confront a central challenge: how to transition from traditionalbusiness methodologies into e-business transformation and how to manage the changesuccessfully. According to Gartner Group, 80% of all e-business downtime incidents arecaused by problems not due to failure of IT processes but to poorly executed changes(Liebmann, 2001). It is important to understand just how challenging change has becomefor technology teams. E-business applications now rely on an incredibly complex chain ofelements, each of which must be in good working order and well-behaved in relation toevery other element in the end-to-end chain for the whole thing to work. These elementsinclude network hardware, servers running various operating systems, highly"componentized" software across multiple tiers, diverse types of web content, securitysystems, storage devices, processes, people, applications and more (Wargin & Dobiey,2001).

2.2.2. E-Transformation

Several trends in the marketplace are already pointing to the signs of e-transformation, allof which are focused on allowing businesses to get to the customer faster, with morevelocity and more value. E-transformation involves changes in how a company doesbusiness, how it enters new markets, how it communicates across the enterprise, and how itdeals with suppliers (Budhwani, 2001 ). Above all, transformation is about customers changing the means by which companies find, sell to, service, and communicate with them(Wilder, 1999 ). In a Information Week Research survey of 300 IT executives, the most

common "transformational" initiative under way at their companies was interaction withcustomers (Wilder, 1999 ). An e-transformed company is a company that has implementeda combination of aggressive deployment of e-business enablers to change business andsupply-chain components. Examples of e-transformation are everywhere. Automanufacturers are bringing on-line processes to a sales culture that has never been before.Many companies are offering on-line access to their products and services and offeringself-service applications. Airline industry is bringing IT to bear on virtually every aspect ofits customer experience.

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E-transformation not only helps companies to hack away at the intermediariesbetween them and their customers, but also to reward and reinforce the links that aredelivering new and different types of values to customers. Companies undertaking e-transformation are concurrently applying value management principles, reengineering theircore business processes, and implementing enabling e-technologies - all with the intent ofdeveloping and implementing innovative business models. E-technologies provide the

opportunities to build new business models but do not assure their success. To stay ahead,the e-transformed company will need to continue to implement innovation. The e-transformation strategic direction will provide the high-level description of new businessconcepts and the required modifications to the existing business model, organizationalcapabilities and infrastructure, and method of interaction with customers and externalpartners (Schuh, Mueller, & Tockenbuerger, 2002). At its core, e-transformation is aboutbreaking down walls - internal walls between business and IT and between other companyfunctions - but even more radically, walls between what is inside and outside the company.The Internet, of course, offers an unprecedented vehicle to do that for customers, suppliers,and business partners. But it is not just about opening doors with extranets and customerself-service web sites. It is about a new mind-set - opening the company to newpartnerships and new ideas from unexpected sources. The Process-Technology-People (P-T-P) approach describes the operational behavior of organizations, in how an organization's business processes interact with each other, with the processes of its customers andsuppliers, and with other external business processes. This simple, yet powerful frameworkis based on the fact that the processes are performed by people using relevant informationsystems applications and technologies. The interaction between business processes occurs,in fact, via the interconnection of applications and technologies, and via the cooperation ofpeople. Thus the change management framework is divided into five different dimensions.The e-transformation model based on Process-Technology-People (P-T-P) Model (Sharpe,1989) is presented in Figure 2.2.

Figure 2.2: E-Transformation model

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Source: E-Business Innovation and Change Management

2.3. Information systems that support the supply chain integration and

management.

Information technology can support internal operations and also collaborationbetween companies in a supply chain. Using high speed data networks and databases,companies can share data to better manage the supply chain as a whole and their ownindividual positions within the supply chain. The effective use of this technology is a keyaspect of a companys success.

All information systems are composed of technology that performs three mainfunctions: data capture and communication; data storage and retrieval; and datamanipulation and reporting. Different information systems have different combinations of

capabilities in these functional areas. The specific combination of capabilities is dependenton the demands of the job that a system is designed to perform. Information systems thatare employed to support various aspects of supply chain management are created fromtechnologies that perform some combination of these functions.

2.3.1. Data Capture and Data Communications

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The first functional area is composed of systems and technology thatcreate high speed data capture and communications networks. It is thistechnology that can overcome the lag times and lack of big pictureinformation that gives rise to the bullwhip effect.We will look at:

The Internet Broadband

EDI XML

The Internet

The Internet is the global data communications network that uses what is known as InternetProtocol (IP) standards to move data from one point to another. The Internet is the universalcommunications network that can connect with all computers and communication devices.Once a device is hooked into the Internet it can communicate with any other device that isalso connected to the Internet regardless of the different internal data formats that they mayuse.

Before the Internet, companies had to put in expensive dedicated networks to

connect themselves to other companies and move data between their different computersystems. Now, with the Internet already in place, different companies have a way to quicklyand inexpensively connect their computer systems. If needed, extra data protection andprivacy can be provided by using technology to create virtual private networks (VPNs) thatutilize the Internet to create very secure communication networks.

Broadband

Basically, this means any communications technology that offers high speed (faster than a56Kb dial-up modem) access to the Internet with a connection that is always on. Thisincludes technologies such as coaxial cable, digital subscriber line (DSL), metro Ethernet,fixed wireless, and satellite. Broadband technology is spreading and as it does, it becomes

possible for companies in a supply chain to easily and inexpensively hook up with eachother and exchange large volumes of data in real-time.Most companies have connected themselves internally using local area network

(LAN) technology such as Ethernet that gives them plenty of internal communicationscapability. Many companies have connected some or all of their different geographicallocations using wide area network (WAN) technology such as T1, T3, or frame relay.Whatnowneeds to happen is high speed, relatively low cost connections between separatecompanies and that is the role that broadband will play.

EDI

Electronic Data Interchange (EDI) is a technology that was developed to transmit common

types of data between companies that do business with each other. It was first deployed inthe 1980s by large companies in the manufacturing, automobile, and transportationindustries. It was built to automate back office transactions such as the sending andreceiving of purchase orders (known as an 850 transaction), invoices (an 810), advanceshipment notices (an 856), and backorder status (an 855) to name just a few. Itoriginally was built to run on big, mainframe computers using value added networks(VANs) to connect with other trading partners. That technology was expensive.

Many companies have large existing investments in EDI systems and find that it isvery cost effective to continue to use these systems to communicate with other businesses.

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Standard EDI data sets have been defined for a large number of business transactions.Companies can decide which data sets they will use and which parts of each data set theywill use. EDI systems can now run on any type of computer from mainframe to PC and itcan use the Internet for data communications as well as VANs. Costs for EDI technologyhave come down considerably.XML

XML (eXtensible Markup Language) is a technology that is being developed to transmitdata in flexible formats between computers and between computers and humans. WhereEDI uses rigid, pre-defined data sets to send data back and forth, XML is extensible andonce certain standards have been agreed upon, XML can also be used to communicate awide range of different kinds of data and related processing instructions between differentcomputer systems. XML can also be used to communicate between computers and humansbecause it can drive user interfaces such as web browsers and respond to human input.Unlike EDI, the exact data transactions and processing sequences do not have to bepreviously defined when using XML.

There are many evolving XML standards in different industries but as yet none ofthese standards has been widely adopted. The industry that has made the most progress inadopting XML standards is the electronics industry. They are beginning to implement theRosettaNet XML standards (www.rosettanet.org).

In the near term, XML and EDI are merging into hybrid systems that are evolving tomeet the needs of companies in different supply chains. It is not cost effective forcompanies with existing EDI systems that are working well enough to replace them withnewer XML systems all at once. So XML extensions are being grafted onto EDI systems.Software is available to quickly translate EDI data to XML and then back to EDI. Serviceproviders are now offering Internet-based EDI to smaller suppliers who do business withlarge EDI-using customers.

In the longer term, EDI will be wholly consumed by XML as XML standards areagreed upon and start to spread. As these standards spread they will enable very flexiblecommunications between companies in a supply chain. XML will allow communicationsthat are more spontaneous and free form, like any human language. This kind ofcommunication will drive a network of computers and people interacting with othercomputers and other people. The purpose of this network will be to coordinate supplyoperations on a daily basis.

2.3.2. Data Storage and Retrieval

The second functional area of an information system is composed of technology thatstores and retrieves data. This activity is performed by database technology. A database isan organized grouping of data that is stored in an electronic format. The most common typeof database uses what is called relational database technology. Relational databases storerelated groups of data in individual tables and provide for retrieval of data with the use of astandard language called structured query language (SQL).

A database is a model of the business processes for which it collects and stores data.The model is defined by the level of detail in the data it collects. The design of everydatabase has to strike a balance between highly aggregate data at one extreme and highlydetailed data at the other extreme. This balance is arrived at by weighing the needs andbudget of a business against the increasing cost associated with more and more detaileddata. The balance is reflected in what is called the data model of the database.

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As events occur in a business process, there are database transactions. The datamodel of the database determines which transactions can be recorded since the databasecannot record transactions that are either more detailed or more aggregated than providedfor in the data model. These transactions can be recorded as soon as they happen and that iscalled realtime updating or they may be captured and recorded in batches that happen ona periodic basis and that is called batch updating. A database also provides for the

different data retrieval needs of the people who use it. People doing different jobs will wantdifferent combinations of data from the same database. These different combinations arecalled views. Views can be created and made available to people who need them to dotheir jobs. For instance, consider a database that contains sales history for a range ofdifferent products to a range of different customers. A customer view of this data mightshow a customer the different products and quantities they purchased over a period of timeand show detail of the purchases at each customer location. A manufacturer view mightshow all the customers who bought their group of products over a period of time and showdetail for the products that each customer bought.

2.3.3. Data Manipulation and Reporting

Different supply chain systems are created by combining processing logic to manipulateand display data with the technology required to capture, communicate, store, and retrievedata. The way that a system manipulates and displays the data that flows through it isdetermined by the specific business operations that the system is designed to support.Information systems contain the processing logic needed by the business operations theysupport. Chopra and Meindl define several kinds of systems that support supply chainoperations:

Enterprise Resource Planning (ERP) Procurement Systems Advanced Planning and Scheduling

Transportation Planning Systems Demand Planning Customer Relation Management (CRM) and Sales Force Automation (SFA) Supply Chain Management (SCM) Inventory Management Systems Manufacturing Execution Systems (MES) Transportation Scheduling Systems Warehouse Management Systems (WMS)

Supply chain management is driven by the customer. It requires communication toall participants in the supply chain of the customers needs and wants as well as how wellthese needs and wants are being met. To facilitate managing the linkages in the supplychain, many types of software tools have been developed. These software programs are notthe strategy, rather they are tools to implement a firms strategy. The strategy is to focus theentire supply chain on satisfying the needs of the customer. Installing and using these toolsis not the goal of the firm; the goal is to improve management of the supply chain. Theinformation technology is an enabling technology that allows managers to do their job

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better because they have information that is more complete and more accurate than theywould otherwise have.

There is a variety of software packages for each link in the supply chain. Ascomputers and telecommunications equipment become cheaper, there will be even moreadvanced types of software available. To simplify the presentation of the types and role of

the software used, software will be discussed here in 3 major sections. The internal linkages(software integrating our own firms functions) will be discussed first, because this usuallyserves as the platform for integrating the firm with other software. Second, software thatlinks our firm to our customers will be examined. Third, software that links our firm to oursuppliers will be the final type that is reviewed.

2.3.4.Internal Data Integration

A common type of software used by firms to manage their internal portion of thesupply chain is enterprise resources planning (ERP) system. An ERP system attempts tointegrate all of the information processes in the organization and to use this integration to

improve performance for the customer.

An enterprise resources planning system is a set of software modules that provides acompany with the capability of automating the transactions involved with its businessprocesses. The ERP system provides a common database and establishes uniform policiesand practices across the entire enterprise. This allows real-time access to the data. An ERPsystem is an outgrowth of the traditional manufacturing software systems such as MaterialRequirements Planning Systems (MRPII). The traditional systems focused on planning andoptimization of these plans. The ERP system expanded beyond these to serve additionalfunctions in the firm.

ERP systems provide more data integrity, use of accessible databases, andconsolidation of many different incompatible systems. The ERP system focuses oncapturing all of the transactions in a firm. But, the ERP system does not suggest whichdecisions to make about the supply chain.

Enterprise resources planning (ERP) 1) An accounting oriented informationsystem for identifying and planning the enterprise-wide resources needed to take, make,ship, and account for customer orders. An ERP system differs from the typical MRPIIsystem in technical requirements such as graphical user interface, relational database, use offourth-generation language and computer assisted software engineering tools indevelopment, client/server architecture, and open-system portability. 2) More generally, a

method for the effective planning and control of all resources needed to take, make, ship,and account for customer orders in a manufacturing, distribution, or service company.

APICS Dictionary, 9th edition, 1998

Some software suppliers are developing interfaces for the ERP systems to interactwith other ERPs across the web to allow Enterprise Supply Chain Management systems.These would address supply chain management and planning across an entire supply chain(i.e., the customer, suppliers, different divisions, etc.).

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2.3.4.1. ERP and the Internet

Enterprise resources planning (ERP) will not be killed by the Internet. To be useful on theNet though, ERP systems will require a front end that will allow interaction with customers

and increased use internally. The fixes to this system will require an enormous effort.

It is here in the area of customer linkages that technologies seem to be advancingthe most rapidly. Technologies that are simplifying the process of integrating the supplychain from the customer order to the suppliers product delivery include relational databasesystem with real-time data, local area networks (LAN),wide area networks (WAN), andimproved communications capabilities including the Internet and the World Wide Web.

Local area network (LAN)A high-speed data communication system for linkingcomputer terminals, programs, storage, and graphic devices at multiple workstationsdistributed over a relatively small geographic area such as a building or campus.


Wide area network (WAN)A public or private data communication system forlinking computers distributed over a large geographic area.


The goal many firms have when installing this technology is to shorten the time ittakes to receive an order, process it, prepare the product, and ship it to the customer. Thepurpose of shortening this order cycle is to increase customer service. To have the

technology effectively reduce the order cycle requires that all appropriate personnel receivethe necessary training so that they can turn the information obtained into knowledge andthen act on this knowledge. Indeed, in one of its advertisements, SAP, the manufacturer ofR/3, states that the rapid evolution of supply chain management is being driven by theintegrated technology. It is this technology that enables companies to reengineer operationsand link their entire business to align the flow of the goods with the markets demands. Theemerging technology is increasingly capable of supporting interactive collaborationbetween all members in the supply chain.

The revolution in U.S. manufacturing philosophy that occurred after 1980 was tomove from the push systems toward shop floor systems that pull materials into the process.

The revolution occurring now is to extend this pull of materials from the customerthroughout the entire supply chain.

For production to be able to respond to the customers needs, it must know thecustomers needs.Many firms are striving hard to produce and deliver their product veryquickly to the customer so that they do not have to carry finished goods.Many attribute DellComputers phenomenal success to their ability to customize a customers personalcomputer and deliver it quickly. Dell can do this because of the way it has organized itsfactory floor and the speed with which it can move information around the organization.

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Whenever possible, firms want to use actual customer orders to schedule theirfactories. They prefer not to guess about potential demand. These firms do not schedulebased on a forecast or a production plan because the shops production lead time is shorteror equal to the length of time that a customer is willing to wait for a product. Theirproduction process may be facilitated by flexible manufacturing environments which canprocess a wide range of volumes. And their administrative systems are supported by

software which helps to quickly schedule the shop as the orders come in. In thisenvironment, the customers may communicate on-line with the factory. This capabilityhelps the firm replan quickly as the conditions change.

EDI has not progressed as rapidly as expected over the past decade. It was difficultto implement and it required intercompany standardization of how the transactiondocuments should be organized. Further there were often problems between points ofconnection. A typical EDI system is illustrated in Figure 2.3

Most EDI systems do not operate in real time. They batch process the data. TheInternet makes it feasible to conduct exchanges between companies on a transaction-by-transaction basis.

While there are enormous potential savings from placing the entire supply chainonline, it is difficult to achieve this. There are technological, logistical, and conceptualbarriers to accomplishing this. In the auto industry, the Big 3 began electronically linkingsuppliers before 1985 with the goal of improving the flow of materials. That was to be justthe first step, while later steps would incorporate engineering design systems and financialtransaction systems. As part of this, the Automotive Industry Action Group (AIAG foundedin 1981 to develop specific product-oriented standards) established industry-wide electroniccommunication standards in the mid-80s. Great progress has been made. All or most of thetier 1 suppliers electronically communicate purchase orders and releases for production, butthe more sophisticated data is not shared electronically and few of the tier 1 suppliers arelinked electronically with their own suppliers.

One barrier has been the incompatibility of the different software systems used bythe OEM and its suppliers. Further, many engineers prefer working with 2-dimensionalfigures on paper to looking at 3-dimensional files on the computer. Another barrier is thateven some of the suppliers who have EDI capability do not incorporate it into their overallmanufacturing and inventory-management information systems. The information comes inon one system, and then it is keyed into second system.

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Figure 2.3. Electronic Data Interchange (EDI) in Business-to-Business Communication

Source: Basic of Supply Chain Management

2.4. E-Business and Supply Chain Integration

The widespread availability and use of the Internet offers companies opportunitiesthat did not exist before. These opportunities are made possible because it is now so easyand relatively inexpensive for companies to connect to the Internet. Once connected,

companies can send data to and receive data from other companies that they do businesswith regardless of the particular computers or software that individual companies may beusing to run their internal operations. Based on this data sharing, opportunities exist toachieve tremendous supply chain efficiencies and significant increases in customer serviceand responsiveness. These are the results of better supply chain integration.

E-business encompasses the evolving set of principles and practices that companiesare employing to gain the benefits inherent in better supply chain integration. In the wordsof Professors Hau Lee and Seungjin Whang of Stanford University, e-business specificallyrefers to, the planning and execution of the front-end and back-end operations in a supplychain using the Internet.

In a white paper titled E-Business and Supply Chain Integration published by theStanford Global Supply Chain Management Forum (www.stanford.edu/group/scforum/)professors Lee and Whang lay out four key dimensions of the impact of e-business onsupply chain integration.These four dimensions create a sequence of greater and greaterintegration and coordination among supply chain participants. This sequence culminates inthe creation of whole new ways to conduct business. The four dimensions are:

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1. Information integrationIs the ability to share relevant information amongcompanies in a supply chain. This includes data such as: sales history anddemand forecasts; inventory status; production schedules; productioncapacities; sales promotions; and transportation schedules. This data shouldbe available to the people who need it in a real-time, on-line format via theInternet or private network.

2. Planning synchronizationRefers to the joint participation of companies ina supply chain in the demand forecasting and inventory replenishmentscheduling. It also includes the collaborative design, development, andbringing to market of new products.

3. Workflow coordinationIs the next step after planning synchronization. Itis the streamlining and automation of ongoing business activities acrosscompanies in a given supply chain. This includes activities such aspurchasing and product design.

4. New business modelsCan emerge as a result of supply chain integrationmade possible by the Internet. Roles and responsibilities of companies in a

supply chain can be redesigned so that each company can truly concentrateon the activities that are its core competencies. Non-core activities can beoutsourced to other companies. New capabilities and efficiencies willbecome possible.

2.4.1.Barriers to Using the Internet in Supply Chain Integration

The major barrier to increased supply chain integration is the mind set of the managers ofthe different firms involved. With or without an Internet, most managers view their firm asbeing an independent system. They do not have a systematic view of the supply chain.Given this attitude, it is difficult for a firm to develop the openness necessary to shareinformation freely over an extranet.

Cisco Systems outsources all of its manufacturing. It has its suppliers post theirquotes and forecasts on Ciscos Website each quarter. Then Cisco selects its suppliers andcontract manufacturers (Economist, June 26, 1999).

A second barrier to integrating the Internet into a company is the need for servicesin addition to products. This is an opportunity as well as a challenge. Firms will have theopportunity to sell services as well as a product to customers on the Net. The challenge isthat many of the services will not be provided by the firm selling the product. Instead, theservice may be outsourced to a partner. For example, one service provided by the HomeDepot chain of building supply stores is that contractors can be given account numbers. Thecontractor can use that account number to log onto Home Depots Website. The Websitewill provide services such as material estimates and work schedules for jobs. It will alsoallow the contractor to schedule deliveries.

Dell Computers Factory

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Dell sends orders to its factory in Ireland (responsible for manufacturing PCs for Europe)from its Website and call centers. This information is relayed to its suppliers, so that theyknow the components needed and when they are needed. As the components enter, they areassembled and the final assembled computer is shipped a few hours later.

Dell sells over $15 million of computers from its Website each day. Dells suppliers

have real-time access to information about orders that Dell receives over the Internet. Dellalso allows customers to track the progress of their order from the factory to their doorstepon the Internet.

2.5. Electronic Commerce and Supply Chain

The Internet can help companies lower costs throughout their supply chain.It is alsopossible to use the Internet to improve customer service. Industry is just starting to use theInternet, but as industrial leaders begin to use it they will force others in their industry to dothe same thing. Both large firms and small firms will embrace the Internet over the nextfew years. The computer industry has already done so. As the use of the Internet allows

decreased costs and increased customer contact, these firms will become more competitiveand put increasing pressure on their competition to take the same steps.

What firms who are leaders in the Internet applications are striving to achieve is thetransfer of many of their core processes to the Web. This means that firms will needWebsites that can support online transactions and can share data with their customersdatabases and their suppliers database. Past investments in information technology haveprimarily been focused on improving the internal operations of the firm. The Internetallows increased communication and connection with the outside worl

supply chain management in electronic businesses

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