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Strategic managementStrategic managementof E-Businessof E-Business

Chapter 6Chapter 6

Transforming external Transforming external relationships with suppliersrelationships with suppliers

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Supply chain definedSupply chain defined

Complex interconnections and relationships Complex interconnections and relationships between all organisations involved in the between all organisations involved in the progression from raw materials to the progression from raw materials to the delivery of goods and services to customersdelivery of goods and services to customers

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Industry supply chainsIndustry supply chains

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SC managementSC management Gaining access to quality suppliersGaining access to quality suppliers Seeking efficiencies in distributionSeeking efficiencies in distribution Improving information flows along supply Improving information flows along supply

chainchain Seeking ways to add value form Seeking ways to add value form

customers; perspectivecustomers; perspective

‘management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole’

(Christopher 1998, p.18)

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LogisticsLogistics

‘‘process of strategically managing the process of strategically managing the procurement, movement and storage of procurement, movement and storage of materials, parts and finished inventory materials, parts and finished inventory (and the related information flows) through (and the related information flows) through the organization and its marketing the organization and its marketing channels in such a way that current and channels in such a way that current and future profitability are maximised through future profitability are maximised through the cost-effective fulfilment of orders’the cost-effective fulfilment of orders’

(Christopher 1998, p. 4)(Christopher 1998, p. 4)

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Benefits of effective SC and Benefits of effective SC and logistics capabilitieslogistics capabilities

Opportunity to add value from customer Opportunity to add value from customer perspectiveperspective– Participating organisation have opportunity to Participating organisation have opportunity to

differentiate themselves from competitiondifferentiate themselves from competition– Information about customer preferences essentialInformation about customer preferences essential

Opportunity for SC to operate more Opportunity for SC to operate more efficiently than othersefficiently than others– Lower prices to customers, or additional Lower prices to customers, or additional

profitabilityprofitability Opportunity to exploit IT and Internet to Opportunity to exploit IT and Internet to

transform SCstransform SCs

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Traditional supply chainsTraditional supply chains

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Old approachesOld approaches

Supplier RetailerDistributorManufacturer

Forecast demandCheck inventoryPlace order

Forecast demandCheck inventoryOrder components/raw materialsMake batchDistribute orders

Forecast demandCheck inventoryPlace order

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Problems with traditional supply Problems with traditional supply chainschains

Batch ordering, resulting in upstream spikes in Batch ordering, resulting in upstream spikes in ordering, with variability in demandordering, with variability in demand

Forward buying, which causes variability in Forward buying, which causes variability in demand and increased costs throughout supply demand and increased costs throughout supply chainchain

Human behaviour (which results in batch ordering Human behaviour (which results in batch ordering and forward buying) results in inefficiencies, and forward buying) results in inefficiencies, inventories grouping in wrong placesinventories grouping in wrong places

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Right supply chain for your product?Right supply chain for your product?

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Right supply chain for your product?Right supply chain for your product?

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Interorganisational Systems Interorganisational Systems (IOS)(IOS)

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IOS definedIOS defined

‘‘an IOS automates the flow of information an IOS automates the flow of information between organisations to support the between organisations to support the planning, design, development, production planning, design, development, production and delivery of products and services’and delivery of products and services’

(Haag et al. 1998)(Haag et al. 1998)

‘‘networked computers that enable networked computers that enable companies to share information and companies to share information and information processing across information processing across organisational boundaries’organisational boundaries’

(Applegate et al. 1996)(Applegate et al. 1996)

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Electronic data interchangeElectronic data interchange

involves electronic transmission of involves electronic transmission of common business transactions between common business transactions between business partnersbusiness partners– Exchange of data electronicallyExchange of data electronically

computer-to-computer transfer of computer-to-computer transfer of transaction information contained in transaction information contained in standard business documentsstandard business documents– Often high volume, routineOften high volume, routine

must use agreed communication must use agreed communication standards and electronic documentsstandards and electronic documents

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Interorganisational information flows in a basic transaction

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Aims of electronic data interchange Aims of electronic data interchange (EDI)(EDI)

Increase speed of information provision, Increase speed of information provision, exchange and processing via ‘paperless’ exchange and processing via ‘paperless’ officeoffice

Cost and time efficienciesCost and time efficiencies

Improved levels of customer serviceImproved levels of customer service

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StandardsStandards– must be directly usable by recipient’s computer must be directly usable by recipient’s computer

system without re-keyingsystem without re-keying must agree format of forms in advance of must agree format of forms in advance of

development of systemsdevelopment of systems

– historically conducted within industry groupshistorically conducted within industry groups ODETTE (Org.for Data TeleTransmission in Europe)ODETTE (Org.for Data TeleTransmission in Europe) SWIFT (Soc. For World-wide Interbank Financial SWIFT (Soc. For World-wide Interbank Financial

Telecommunications)Telecommunications)

– X.12 data interchange protocolX.12 data interchange protocol– EDIFACT EDIFACT (EDI for Admin, Commerce & Transport)(EDI for Admin, Commerce & Transport)

Issues with EDIIssues with EDI

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relatively expensiverelatively expensive– requires leased/private lines of communicationrequires leased/private lines of communication– special software (complex)special software (complex)– trainingtraining

relatively securerelatively secure very fastvery fast challenge of integration with existing systemschallenge of integration with existing systems support JIT operationssupport JIT operations Only extends to ~15-20% of trading networkOnly extends to ~15-20% of trading network

Issues with EDIIssues with EDI

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EDI on InternetEDI on Internet

Web browser becomes interfaceWeb browser becomes interface

use of public networkuse of public network

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lower costslower costs– Internet technologies pervasive and Internet technologies pervasive and

cheapercheaper– lower training costs (leverage browser lower training costs (leverage browser

familiarity)familiarity)– ISP replaces VAN (value added ISP replaces VAN (value added

network)network) worldwide connectivityworldwide connectivity

– standards accepted over Internetstandards accepted over Internet quicker to implementquicker to implement

Advantages of EDI on InternetAdvantages of EDI on Internet

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SlowerSlower– speed somewhat dependent on trafficspeed somewhat dependent on traffic– speed outside control of trading partnersspeed outside control of trading partners

Reduced securityReduced security– public networkpublic network

no one player has controlno one player has control

– risk of attack / fraud / destruction of datarisk of attack / fraud / destruction of data No agreed standards for B2B paymentsNo agreed standards for B2B payments

– ‘‘local’ arrangement arising between banks, etc.local’ arrangement arising between banks, etc.– SWIFT (+ Identrus) now offer B2B payment for SWIFT (+ Identrus) now offer B2B payment for

existing customersexisting customers– Commercial imperatives are driving great activityCommercial imperatives are driving great activity

Disadvantages of EDI on Disadvantages of EDI on InternetInternet

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Re-engineering supply chainsRe-engineering supply chains

Aim to use modern IT to support flows of Aim to use modern IT to support flows of goods, services and information along the goods, services and information along the supply chainsupply chain– Integrated supply chainIntegrated supply chain– Must beMust be

responsive to customer demandsresponsive to customer demands dynamic and robustdynamic and robust end-to-end process thinking about ways value is end-to-end process thinking about ways value is

delivered to customersdelivered to customers

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Re-engineered approachesRe-engineered approaches

Supplier RetailerDistributorManufacturer

Place order

Checks made along supply chain via computer systems for* raw materials / component availability* production / shipping dates* costing Order confirmed with

* delivery date* cost

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Benefits of re-engineered supply Benefits of re-engineered supply chains (IOS)chains (IOS)

reduces paperworkreduces paperwork– reduction in manual activitiesreduction in manual activities

sorting, filing, reconciling, mailing documentssorting, filing, reconciling, mailing documents

reduces ‘hand-offs’reduces ‘hand-offs’– reduction in data entry errorsreduction in data entry errors

improve quality and consistencyimprove quality and consistency decrease time auditing and tracing errorsdecrease time auditing and tracing errors

reduction in inventory levelsreduction in inventory levels– smaller orders placed more oftensmaller orders placed more often

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reduced costsreduced costs– paper, postage, storage and labour costspaper, postage, storage and labour costs

(from ~ $70 to < $1 per transaction)(from ~ $70 to < $1 per transaction) fivefold reduction in time per transactionfivefold reduction in time per transaction tenfold reduction in clerical staff in purchasingtenfold reduction in clerical staff in purchasing

improved customer serviceimproved customer service– access to informationaccess to information– decreased lead timesdecreased lead times– accurate shipping schedulesaccurate shipping schedules

Benefits of re-engineered IOSBenefits of re-engineered IOS

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reduction in payment processing timereduction in payment processing time– reduction in payment delaysreduction in payment delays– greater certainty regarding payment dategreater certainty regarding payment date

improved relationship with trading improved relationship with trading partnerspartners– less time on data entry = more time on less time on data entry = more time on

customer servicecustomer service

Benefits of re-engineered IOSBenefits of re-engineered IOS

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time and place constraints reducedtime and place constraints reduced

audit trail of business transactionsaudit trail of business transactions

Benefits of re-engineered IOSBenefits of re-engineered IOS

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IT-enabled supply chains IT-enabled supply chains

Supplier managementSupplier management– Sourcing, selecting, managing Sourcing, selecting, managing

relationship with suppliersrelationship with suppliers Who are best/worst performing Who are best/worst performing

suppliers?suppliers? How to manage risk associated with How to manage risk associated with

suppliers?suppliers? How/what information should we How/what information should we

share with suppliers?share with suppliers?

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IT-enabled supply chainsIT-enabled supply chains

Supply chain planningSupply chain planning– Links external information to internal ERP Links external information to internal ERP

systemssystems

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Supply chain planning: WalMart Supply chain planning: WalMart exampleexample

• checks inventory• organises restocking• analyses sales data for trends, early indicators• adjusts own manufacturing and distribution scheduling

WalMart

P & G

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Supply chain planningSupply chain planning

* track stock levels at retailer* shipping supplies* adjusting retailer’s inventory level* invoicing* understanding end customer behaviour & preferences* production scheduling

* Monitor activities of supplier _ no deliberate overstocking _ no stock outs _ electronic payments* understand end customer behaviour & preferences* monitor production scheduling & quality control systems

S B

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To implement these systems…To implement these systems…

need a culture of opennessneed a culture of openness accept element of riskaccept element of risk need genuine sense of trustneed genuine sense of trust

Result: Result: nearly all control of inventory is nearly all control of inventory is handed back to suppliers:Vendor handed back to suppliers:Vendor Managed Inventory (VMI)Managed Inventory (VMI)

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Order management and fulfilmentOrder management and fulfilment– Ability to make accurate and reliable Ability to make accurate and reliable

ordersorders Promises to customers in terms of -Promises to customers in terms of -

– CostCost– QualityQuality– TimeTime

– Self-serve systems or planned (system Self-serve systems or planned (system control reordering)control reordering)

IT-enabled supply chainsIT-enabled supply chains

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‘‘Old’ supply chainOld’ supply chain potential problemspotential problems

– erratic customer serviceerratic customer service inventory too high / too lowinventory too high / too low

– no vision of future demand and impact on no vision of future demand and impact on productionproduction poor forecasting / lack of trustpoor forecasting / lack of trust

– too many changeovers in productiontoo many changeovers in production little agreement on what/when/where products are little agreement on what/when/where products are

requiredrequired

– too many stockoutstoo many stockouts inventory not in correct placeinventory not in correct place

Evidence suggests that superior integration along the supply chain is a source of competitive advantage.

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profitable to promiseprofitable to promise– ‘‘Should I take this order now?’Should I take this order now?’

available to promiseavailable to promise– ‘‘Is inventory available to fulfil the order?’Is inventory available to fulfil the order?’

capable to promisecapable to promise– ‘‘Does manufacturing capacity allow order Does manufacturing capacity allow order

commitment?’commitment?’

Benefits of re-engineered Benefits of re-engineered supply chainssupply chains

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Examples of order management Examples of order management and fulfilmentand fulfilment

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Decision support systemsDecision support systems– Gather and analyse vast amounts of dataGather and analyse vast amounts of data– Support decisions regarding quality, price, Support decisions regarding quality, price,

availability, product characteristicsavailability, product characteristics– Demand forecastingDemand forecasting

Combines macroeconomic data, product Combines macroeconomic data, product

lifecycle data, current and estimated future sales, lifecycle data, current and estimated future sales, inputs from trading partnersinputs from trading partners

IT-enabled supply chainsIT-enabled supply chains

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LogisticsLogistics– Planning inventory movementsPlanning inventory movements– Tracking inventoryTracking inventory– Optimising mix of transport optionsOptimising mix of transport options

IT-enabled supply chainsIT-enabled supply chains

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Collaborative product developmentCollaborative product development– (60% components for OEMs come from outside)(60% components for OEMs come from outside)– Innovation / design processesInnovation / design processes– Virtual work space toolsVirtual work space tools– Project managementProject management– CAD/CAMCAD/CAM

IT-enabled supply chainsIT-enabled supply chains

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Benefits of re-engineered supply Benefits of re-engineered supply chainschains

customer satisfactioncustomer satisfaction throughputthroughput inventoryinventory operating costsoperating costs order lead timesorder lead times time from receipt of order to time from receipt of order to

receipt of cashreceipt of cash

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Effective supply chain Effective supply chain re-engineeringre-engineering

What sort of supply chain will add What sort of supply chain will add value for my customers and value for my customers and enhance my profitability?enhance my profitability?– business strategy affects supply chain business strategy affects supply chain

strategystrategy– (Remember: aim for revenue growth (Remember: aim for revenue growth

instead of cost cutting)instead of cost cutting) Can you differentiate yourself via Can you differentiate yourself via

your supply chain structure?your supply chain structure?

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Does the supply chain facilitate order Does the supply chain facilitate order fulfilment?fulfilment?– opportunities to improve service (and reduce opportunities to improve service (and reduce

costs)costs)– order forecasting vs receipt of ordersorder forecasting vs receipt of orders

Do you have necessary infrastructure(s) in Do you have necessary infrastructure(s) in alignment?alignment?

Effective supply chain Effective supply chain re-engineeringre-engineering

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Effective supply chain Effective supply chain re-engineeringre-engineering

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Issues in supply chain Issues in supply chain re-engineeringre-engineering

ownership & cooperationownership & cooperation– who “owns” the supply chain?who “owns” the supply chain?– how to get agreement on required how to get agreement on required

transformation?transformation? compatible IT infrastructurescompatible IT infrastructures

– how easy is it to integrate into existing how easy is it to integrate into existing systems?systems?

legal issueslegal issues

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Issues with supply chain re-Issues with supply chain re-engineeringengineering

Full efficiency / effectiveness gains not achieved Full efficiency / effectiveness gains not achieved until entire supply chain participatesuntil entire supply chain participates– ? IS/IT maturity / legacy / infrastructure of all players? IS/IT maturity / legacy / infrastructure of all players– BPR required across entire supply chainBPR required across entire supply chain– Emergence of value nets / supply netsEmergence of value nets / supply nets

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ProblemsProblems Lack of integration between SCM Lack of integration between SCM

systems and existing internal systemssystems and existing internal systems Change management issuesChange management issues

– Unclear objectivesUnclear objectives– Lack of executive sponsorship & buy-inLack of executive sponsorship & buy-in– Viewed as IT rather than business initiativeViewed as IT rather than business initiative

Supplier relationship and readinessSupplier relationship and readiness– Ability of SMEs to afford / have ability to Ability of SMEs to afford / have ability to

participateparticipate– Involvement of strategic partnersInvolvement of strategic partners