Introduction to Supply Chain management(Lesson 8)

Edited By JQuek

Understanding and remembering the key definitions of E-Business

Compare and contrast E-Business theory and reality

E-Fulfillment, E-Business opportunities and Supply Chain Management Distribution Strategies

Objectives for today’s lesson

What is E-Business?

E-business is a collection of business models and processes motivated by Internet technology, and focusing on improving the extended enterprise performance

E-commerce is the ability to perform major commerce transactions electronically◦e-commerce is part of e-Business◦ Internet technology is the driver of the business change◦The focus is on the extended enterprise:

Intra-organizational Business to Consumer (B2C) Business to Business (B2B)

What E-Business set out to do E-business strategies were supposed to:◦Reduce cost◦Increase service level◦Increase flexibility◦Increase Profit

But the reality is different…..

Amazon.com Example◦Founded in 1995; 1st Internet purchase for

most people◦1996: $16M Sales, $6M Loss◦1999: $1.6B Sales, $720M Loss◦2000: $2.7B Sales, $1.4B Loss◦Last quarter of 2001: $50M Profit

Total debt: $2.2B Peapod Example◦Founded 1989◦140,000 members, largest on-line grocer◦Revenue tripled to $73 million in 1999◦1st Quarter of 2000: $25M Sales, Loss:

$8M

Furniture.com – launched in 1999, with thousands of products.

- $22 Million in sales the first nine months

- Over 1,000,000 visitors per month

- Died November 6, 2000

◦Logistics costs too high

Dell Example:◦Dell Computer has outperformed the

competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000%.

The Book Selling Industry

From Push Systems...◦Barnes and Noble

...To Pull Systems◦Amazon.com, 1996-1999◦No inventory, used Ingram to meet most demand◦Why?

And, finally to Push-Pull Systems◦Amazon.com, 1999-present

7 warehouses, 3M sq. ft.,◦Why the switch?

Margins, service, etc. Volume grew

The Grocery Industry

From Push Systems...◦Supermarket supply chain

...To Pull Systems◦Peapod, 1989-1999

Picks inventory from stores Stock outs 8% to 10%

And, finally to Push-Pull Systems◦Peapod, 1999-present

Dedicated warehouses allow risk pooling

Stock outs less than 2%

Challenges for On-line Grocery Stores Transportation cost◦Density of customers◦Very short order cycle times

Less than 12 hours

◦Difficult to compete on cost Must provide some added value such as convenience

Is a push-pull strategy appropriate? What might be a better strategy?

Less than 300,000 shoppers

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Source: D. Ratliff

A New Type of Home Grocer Grocerystreet.com◦On-line window for

retailers◦The on-line grocer picks

products at the store based on customer’s in-coming order (online).

◦Customer can then pick up the products at the store and pay or pay for delivery of the goods to their homes.

The Retail Industry

Brick-and-mortar companies establish virtual retail stores◦Wal-Mart, K-Mart, Barnes & Noble, Circuit City

An effective approach - hybrid stocking strategy ◦High volume/fast moving products for local storage◦Low volume/slow moving products for browsing and

purchase on line (risk pooling).

Channel conflict occurs when manufacturers (brands) dis-intermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the Internet.

How should we lessen the channel conflict if we are able to?

Is there a risk of channel conflict?

E-Fulfillment

How have strategies changed?◦From shipping cases to single items◦From shipping to a relatively small number of stores to

individual end users

Lower Cost of Production of online catalogs Online catalogs lowers entry barriers to catalog selling On-line catalog customers find the marketer rather than the

marketer finding them. On-line catalogs give the marketer worldwide exposure, 24-

hour accessibility, and the ability to quickly change price and product. on-line catalogs are used to increase brand awareness, increase product usage, generate print catalog requests, collect prospect addresses and demographics, and provide two-way communication with customers.

What is the difference between online selling and catalog selling?

On-line catalog marketing promotes a strong brand name, Internet savvy customer service reps, relevant editorial content, interactive features that get viewers involved in the site, easy movement around the site, and secure purchase transactions.

What is the difference between online selling and catalog selling?

E-Fulfillment Requires a New Logistics Infrastructure

Traditional Supply Chain e-Supply Chain

Supply Chain Strategy Push Push-Pull

Shipment Type Bulk Parcel

Inventory Flow Unidirectional Bi-directional

Reverse Logistics Simple Highly Complex

Destination Small Number of Stores Highly Dispersed Customers

Lead Times Depends Short

E-business Opportunities:

Reduce Facility Costs◦Eliminate retail/distributor sites

Reduce Inventory Costs◦Apply the risk-pooling concept Centralized stocking Postponement of product differentiation

Use Dynamic Pricing Strategies to Improve Supply Chain Performance

Supply Chain Visibility◦Reduction in the Bullwhip Effect

Reduction in Inventory Improved service level Better utilization of Resources

◦ Improve supply chain performance Provide key performance measures Identify and alert when violations occur Allow planning based on global supply chain data

Distribution Strategies

Warehousing Direct Shipping◦No Demand Chain

needed◦Lead times reduced◦“smaller trucks”◦no risk pooling effects

Cross-Docking

Cross Docking

Definition of Cross Docking

a practice in logistics of unloading materials from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between.

may be done to sort material intended for different destinations, or to combine material from different origins into transport vehicles (or containers) with the same, or similar destination.

Characteristics of Cross-Docking:

Goods spend at most 48 hours in the warehouse Cross Docking avoids inventory and handling

costs, Stores trigger orders for products.

StrategyAttribute

DirectShipment

CrossDocking

Inventory atWarehouses

RiskPooling

TakeAdvantage

TransportationCosts

ReducedInbound Costs

ReducedInbound Costs

HoldingCosts

No WarehouseCosts

No HoldingCosts

DemandVariability

DelayedAllocation

DelayedAllocation

Distribution Strategies

What is transhipment?

Transhipment is the shipment of goods or containers to an intermediate destination, then to yet another destination.

One possible reason for trans-shipment is to:- change the means of transport during the journey (e.g., from

ship transport to road transport), known as trans-loading) Another reason is to combine small shipments into a large

shipment (consolidation) Dividing the large shipment at the other end

(deconsolidation). Trans-shipment usually takes place in transport hubs. Much

international trans-shipment also takes place in designated customs areas, thus avoiding the need for customs checks or duties, otherwise a major hindrance for efficient transport.

Transhipment