Fourth, EDI addresses one-to-one, business-to-business links between entities without holistically tackling the problem of end-to-end efficiency along the entire supply chain.
The bottom line is this: EDI will remain in SCM, at least for the time being, since it has the advantage of higher data security than the Internet and it can carry large transaction volumes. However, a growing number of experts agree that the economics of the Internet versus EDI appear overwhelming (Bartholomew, 1997).
- Organizational Applications Of Ecommerce
E-Commerce has influenced two important areas of organizational applications: just-in-time (JIT) purchasing, and supply chain management (SCM). The main focus of JIT purchasing is to reduce inventories in the manufacturing cycle. Supply chain management refers to a broader area that integrates several processes such as purchase of raw materials as well as delivery of finished goods. SCM enables organizations to source raw materials from and/or
distribute finished goods to anywhere in the world. SCM provides a centralized global management strategy and enables businesses to manage information not only within itself but also across other industries and enterprises.
In the context of JIT purchasing, an important issue to be considered is the industry structure. Purchasing strategies will differ for digitizable products as opposed to traditional materials. Purchasing function entails information gathering regarding price, quality, features and price of required raw materials or parts/subassemblies. E-commerce provides an inexpensive and efficient way to gather such information.
Another noteworthy feature is the elimination of intermediaries. Does the electronic marketplace always ensure lower prices? Lee (1998) refers to the Japanese experience of AUCNET where the product cost was higher when bought through the electronic market (e-market). One probable reason for this phenomenon could be the increased number of potential customers available to sellers via emarket.
Typically, electronic marketplaces do not list the market price of goods. Generally, producers offer asking prices and customers decide the quantities to be purchased at relatively fixed prices (Lee, 1998). The essence of JIT purchasing is prompt deliveries. Even though this may mean negotiations with suppliers at times, e-commerce provides a variety of choices for the purchaser.
Supply chain management pertains to the efficient utilization of inventories. In order to achieve this, purchase and process functions have to interact closely with suppliers. SCM envisages a small number of suppliers who are virtual partners with manufacturers. E-commerce affords a way through which databases can be shared by suppliers and manufacturers. Inventory management becomes easier as time cycles of order-ship-bill process get reduced. This should lead to reduced inventories and make out-of-stock occurrences very rare.
SCM can be considered as an extension of JIT as it includes prompt delivery of products to customers. For corporate success, besides good product quality, product delivery without deviating from the committed time schedules is equally critical. E-commerce can play an important role in the latter area by providing the customer to directly access the manufacturer’s database.
One of the difficulties in successfully implementing SCM is the changing operational conditions. Conveying of information, regarding design changes and price revisions through electronically linked organizations, is no longer a problem. Electronic payment systems can ensure that payments can be sent and received without any delay. E-commerce can also improve the productivity of sales personnel. Improved communication among customers and
personnel in sales and production will result in increased productivity.
- The Role Of E-Commerce Technologies In SCM
The benefits offered by EDI pale in comparison with those available via E-commerce-based technologies (Cross, 2000). Some may even view the Internet’s impact on SCM as rivaling that of the interstate highway system on the transportation industry (Carter el al., 2000). E-commerce-based technologies are capable of delivering a holistic system that incorporates what EDI is already capable of accomplishing —combining it with broad-based access and cost effective, real-time document transmission and distribution (e.g., Larson and Kulchitsky, 2000). This section discusses how E-Commerce technologies can help achieve these and other objectives, and how some businesses are actually using these technologies to realize these goals.
The evidence of e-enabled SCM is especially visible in the high technology environment where product life cycles are often measured in months or even days. Corporations like Cisco, Dell, and IBM lead the revolution by developing comprehensive and global supply chains characterized by low inventory levels, lean production, demand collaboration, and deferred assembly—resulting in lower costs and greater responsiveness to changing market conditions (Cross, 2000).
A case in point is IBM. It has realized significant benefits from e-enablement. Since 1994, IBM has reduced inventory write-offs by $800 million, increased on-time delivery from 90% to 98%, and reduced order time from two weeks to realtime.
On the supply side, the big blue has reduced the cost of purchasing goods and services by $4.2 billion (Cross, 2000).
Extranets link various partners in the supply chain using a public or private communications infrastructure. The availability of the Internet to electronically transfer massive amounts of information over the extranets with minimal time and effort has resulted in effi- Issues and Trends of IT Management in Contemporary Organizations 349 cient and effective sharing of information among business partners.
Companies have used the Internet and extranets to, among others, reduce delivery costs and increase the number of deliveries.
A case in point is General Electric. GE has used the Internet to schedule shipments out of its warehouses in metropolitan areas. The numbers of deliveries per hour has increased significantly while transportation costs per order have dropped dramatically (Lancioni et al., 2000).
Firms would benefit from increased use of the Internet in purchasing activities, and the potential for significant cost savings and productivity improvement suggests so (Deeter-Schmelz et al., 2001).
The E-commerce technologies can also increase the value of the information that can be transmitted back and forth in the context of SCM.
A case in point is, again, General Electric. In 1996, GE decided to streamline, using the Web, its procurement process for certain products that require a formal request for proposal (RFP). GE believed that it can use the Web to reduce both the time and cost involved in the process. In fact, cycle time for the RFP process dropped from 29 days using the manual process down to 4 to 12 days over the Web (Cross, 2000).
E-commerce technologies increase the value of the information that can be exchanged. Previously, via EDI, only transactions could have been transmitted back and forth. E-commerce technologies are helping SCM become more of a global business-to-business phenomenon by greatly increasing the size of the audience that can be reached.
The one-to-one nature of EDI in SCM has definitely been superceded by the many-to-many capabilities of E-commerce technologies.
A case in point is the Automotive Network Exchange (ANX) recently established by the big three automakers: General Motors Corporation, Ford Motor Company, and Daimler- Chrysler AG. Even though the project is presently in its infancy, it still makes the point. The goal here is to create a very large virtual marketplace using a reliable, secure, highly efficient extranet where all automakers can conduct business with suppliers and other business partners (Peters, 2000).
- E-Commerce Facilitated Supply Chain Management
The impact of e-commerce on supply chain management (SCM) has to be analyzed in two stages. In the first stage we study the business environment to decide whether the marketplace is dominated by suppliers, buyers, or intermediaries. Then we look at the technological interface among those entities.
In supplier-oriented marketplace, the ‘electronic store’ is defined by the supplier. An example of this business model is Dell (Turban et al, 2000). 90 percent of the computers sold by Dell was for business customers. In a buyeroriented marketplace, potential suppliers are required to bid on the buyer’s server. General Electric is an example of this type of business model. In an intermediary-oriented marketplace, customer’s order information, supplier’s product information are handled by the intermediaries’ server. Boeings’ PART is an example of an intermediary mall.
The technological interface among the B2B e-commerce entities is currently being provided by the following three initiatives: universal description, discovery and integration (UDDI), e-business Extensible Markup Language (ebXML), and XML/edi (Bloomberg, 2001). UDDI is an XML-based registry service established by IBM, Ariba, and Microsoft. UDDI provides Green Pages where companies can specify their purchase order formats in addition to automated White Pages and Yellow Pages. United Nations has sponsored the ebXML initiative to create a single global marketplace. The objective is to create a framework where business and technology vendors can create consistent, robust, and interoperable e-business components. An attempt to add the advantages of XML to legacy Electronic Data Interchange (EDI) systems has resulted in XML/edi.
The incorporation of software agents to EDI is expected to resolve the ambiguities in the legacy EDI systems.
UDDI has the advantage of being a straightforward interface but lacks elements that automate the quality and timeliness requirements of direct procurement. While it has the potential to address these requirements, ebXML is more complex and more difficult to implement. XML/edi will always be an upgrade to an antiquated system, unlikely to appeal to companies that are not already using EDI.
From the buyer’s perspective, the goal is to achieve automatic procurement from several suppliers with an emphasis on quality and timeliness. In addition, the buyer is also interested in supplier’s catalog data in order to ensure consistent product specifications. On the other hand, the supplier is interested in maximizing the number of customer companies. Suppliers want to be involved in buyer’s inventory management so that a demand signal automatically triggers an appropriate order.
In order to automate supply chain, one of the essential requirements is interoperability. In this regard, UDDI is particularly useful. As both Ariba and Commerce One support UDDI, companies that use e-marketplaces supplied by those vendors will be able to connect with each other.
Another important issue that contributes to the success of supply chain automation is the need for constant site monitoring. Ensuring smooth working of a site while the user environment changes will ensure customer retention (Mitchell, 2001). We now have developers offering performance management tools that predict the performance of e-business applications.
- Successful Deployment Of E-enabled SCM: Some Managerial And Technical Issues
This section identifies some of the managerial and technical issues corporations will face in order to e-enable their SCM.
- Managerial Issues
The emerging environment in today’s global marketplace is one where businesses no longer compete with each other as autonomous, individual firms. Rather than simply brand versus brand or store versus store, competition is now on a supply chain versus supply chain basis (Lambert and Cooper, 2000). The supply chain cannot be viewed merely as a series of one-to-one, business-to-business links between the entities along the chain. Even the early papers had emphasized that the entire supply chain needs to be viewed as a single entity— albeit a network of multiple legal entities and relationships. Management of the individual business firm should learn to identify, develop, and exploit synergies offered by coordination and integration throughout this network of entities and relationships along the firm’s supply chain.
The people using the new E-commerce technologies and their willingness and ability to embrace changes may pose the biggest barrier to e-SCM collaboration (Taninecz, 2000). A detailed survey of Fortune 500 executives found that three main barriers to SCM are lack of functional expertise, lack of management expertise, and ineffective change management (Cottril, 2000). Top management can play a big role in alleviating these barriers by hiring people with appropriate technical, functional, and management expertise and by providing guidance and training to those employees who may have difficulty with organizational changes induced by e-SCM.
To encourage inter-organizational coordination and collaboration, it is necessary for the other firms along the supply chain to recognize that the application of E-commerce technologies would benefit not only the firm advocating the use of such technologies across supply chain entities. In particular, supply chain managers should ensure that the other entities involved do perceive the implementation of new technology as being not merely an added burden in terms of effort and cost, but actually translating into benefits that outweigh the additional cost.
- Technical Issues
Many strategic managers have not embraced e-enabled management practices as a management concept. As a result, working towards an e-enabled SCM is being hindered by the lack of proper vision. Strategic managers should accept and encourage development and deployment of e-enabled management practices.
The majority of businesses do not yet have an e-strategy. To succeed in e-business, corporations must have an integrated e-business strategy considering both customer needs and corporate business objectives (Caldwell, 2000). The e-strategy must be integrated with the overall business strategy.
Many businesses do not also have an e-SCM strategy. Since Ecommerce technologies are being used more and more in enhancing what supply chains have to offer, it is important for businesses to develop an e-SCM strategy especially if they want to play a proactive role in using e-enabled supply chains that take advantage of some of the benefits these technologies have to offer. In order to operate effectively, organizations moving to e-SCM will require access to a wide range of E-commerce technologies including intranets, extranets, and access to the Web. Top management must be willing to spend money to put the E-commerce technological infrastructure in place.
Security protection is still an issue in using E-commerce technologies.
Before e-SCM reaches its full potential, security must be in place to give suppliers and other trading partners the confidence that information and communication are securely handled. Businesses must develop a strong information technology infrastructure that will establish appropriate security measures such as a “firewall,” network integrity, authentication, and authorization. Top management must help develop such a strong IT infrastructure.
One of the biggest problems in making SCM more efficient and effective is the fact that many links along the supply chain are reluctant to swap information back and forth (Frederick, 2000). One of the basic premises of successful e-SCM is that organizations are willing to share information with their business partners on their internal operations including inventory, orders, and shipments. E-commerce technologies can help swap enormous amount of information back and forth quickly but cannot do so without help and approval of top management. Top management must help create a climate of trust and true partnership among the partners.
- Case Studies
- Streamline.com
After an interview to determine what the family wants to consume, Streamline installs 2 containers in the home
• Dry
• Refrigerated
The company driver uses a keypad lock to gain access to the garage – even when nobody is home!
The driver delivers fresh food and other products on a convenient schedule The driver puts the products into the refrigerator or dry storage and replaces as consumed
- Land’s End
- Market segment – women looking or new beachwear
- Problem – they don’t want to try suits on in a store
- Electronic solution – Swim Suit Finder!
- Detail – site allows the shopper to use virtual reality to insert hair, face, body shape, skin tone, and then choose from hundreds of styles to select the suit(s) of choice
- Each custom-made suit is delivered to the home
- First-year sales – $60 million
- Returns – zilch
- Toyota
- Objective – to build a car in only 5 days after the consumer has ordered from the dealer First requirement – overhaul parts procurement which had 30-day lead time Cambridge, Ontario site chosen for pilot Logistics “kaizen” will ensure right colors and combination of parts arrive exactly when needed at the plant
- New system assigns each supplier a circuit resembling a postal route
- Trucks travel from supplier to supplier, exchanging empty containers for parts, then take parts to a regional “cross-dock” for sorting into small lots
- Boeing Aircraft, Rocketdyne Division
- Decreased manufacturing costs by 97%
- Cut the development cycle by 50%, from 2 years to 1
- Reduced manufacturing cycle time by 63%, from 2 years to 9 months
- Reduced number of parts from hundreds to 6
- Created a knowledge depository for re-use on subsequent projects
- Extranet with 100 value chain members to develop new rocket combustion engines
- Advanced supply chain management and the Internet
- Software from ipTeam and Nexprise Linked CAD capability and with Raytheon (Texas – guidance system), Lockheed (Alabama – launch vehicle), Howmet (Michigan – complex castings), and Boeing (California – assembly)
- Online drawing and spec transfer, changes, consensus, and approval)
- Gillette Girlz.com
- 3 Gillette women decide to make a move on the Web
- Found finances internally to set up a site to chase a specific consumer group with a problem set and offer a solution and sell Gillette products
- Work was kept “under wraps” until success was achieved
Consumers
Problem
- Moms won’t teach them how to shave legs and under arms Solution
- Web site tutorial
Location
- Used Center Player site – Click Chick.com with link to Gillette Girlz.com
Results
- 4 weeks online – 190,000 visits
Average stay
- 17.5 minutes (average – 10 seconds)
A Gillette Net Marketing Site
- Linked to teen sites
- Target audience real value-driven marketing “How to Shave”
- By the by, you can go to “TheEssentials.com” to buy Gillette
Gillette Direct Web Sales
- Notice the look
- All Gillette/Baun products
- Premium pricing
- Dell Online Support Program
Dell’s OpenManage Resolution Assistant uses technology from Motive Communications, over a secure, encrypted, virtual, private network to provide remote diagnostics and proactive notices of problems based on its knowledge about a system’s configuration.
- Cisco and Federal Express
- FedEx is scheduled to coordinate all of Cisco’s shipping for the next 2 years – 80% Web sales
- In the following 3 years, eliminate all Cisco warehousing
- Parts made in US, Mexico, Scotland, Taiwan, and Malaysia held at local warehouse so full order can be shipped to
- customer at once
- With 40% annual growth, Cisco can’t build enough warehouses, hold inventory, and pay reshipping costs
Advanced concept – merge the orders in transit
- 100+ packages for one customer shipped when manufactured
- Coordinated to arrive at customer site within hours of each other
- Parts assembled on site
- Zero warehousing
FedEx created new system using existing infrastructure
- Routes selected automatically for endless Cisco shipment possibilities – every shipment custom planned
- Software selects best possible transportation mode
- Customs controls between countries handled
- Real-time status available via the Internet/extranet
- Shell Chemical Company
Feature of the new system
- Through SIMON, Shell Chemical keeps vital inventory; customers pay upon use for what is consumed
- Shell Chemical is the sole source supplier, tied to a supplier/customer business model
- Customers reduce safety stocks to bare minimums
Lotus-based SIMON
- Extracts data on amount of product consumed in past 24 hours
- Determines the amount of new product that arrived and was unloaded in same period
- Draws information on current and anticipated product schedules
- Compares data against known changes to schedules
- Data is replicated back to central customer service center for automatic reconciliation with SAP/MRP systems, generating an automatic re-supply plan
SIMON features
- When plan indicates a stocking level below accepted minimum, electronic purchase order and shipment is initiated
- All information pertaining to status is accessible to customers
- Invoices are issued monthly, based on consumption, not shipments
- Introduced to 23 of the most strategic customers
- Short-term (12 months) results was plus $20 million in product sales
Customer benefits
- Eliminates excess safety stock, reducing working capital and carrying costs
- Facilitates timely, low-cost re-synchronization of supply chain
- Ensures product is on site when needed
- Creates shorter response time to changing conditions
- Reduces transaction costs – data entry, invoicing, payables, etc.
- Smoothes erratic order patterns
- Reduces order management costs
- Streamlines financial accounting
- conclusion
Internet-based technology provides the fuel and the spark for many changes to today’s industry societies. Initially, these changes will mainly increase the efficiency of carrying out commercial transactions. Over the mid-term, Internet-based technology will facilitate and accelerate key ongoing trends, and thereby improve SC coordination, and enable more radical restructuring and innovation. To exploit these opportunities, senior management should a) move expeditiously to implement E-commerce; b) assess their current competitive position vis-a-vis the accelerating trends noted above; c) determine whether they wish to lead, track, or lag these trends; and d) develop new multi-functional skills and more flexible systems.
- references
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Bloomberg, J. (2001). “What XML Will Do for Supply Chain Automation?” Ecomworld.com, February 5.
Choi, S. et al. (1997). The Economics of Electronic Commerce, Macmillan Technical Publishing.
Cunningham, P. and F. Froschl, F. (1999). Electronic Business Revolution, Berlin: Springer.
Kalakota, R and Whinston, A. B. (1996a). Readings in Electronic Commerce, Reading, MA.: Addison-Wesley Publishing.
Kalakota, R and Whinston, A. B. (1996b) Frontiers of Electronic Commerce, Reading, MA.: Addison-Wesley Publishing.
Lee, H. G. (1998). “Do Electronic Marketplaces Lower the Price of Goods?” Communications of the ACM, Vol. 41, No. 1, pp. 73 – 80.
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Turban, E. et al. (2000). Electronic Commerce: A Managerial Perspective, NJ: Prentice Hall.
