and Cost Impacts. This gap includes technology toolsets providing greater insight into supply chain risk and its management.
Gap 3: Inadequate Process Orientation, Including Measurements, Information,
◾
and Integration. This gap requires development of the supply chain as the interrelationship of various processes and how touch points and linkages between functions can be broadened and shared metrics developed.
Gap 4: Insufficient Trust and Relationship-Building Skills
◾ . This gap addresses the
need for strong collaboration, trust, and having the “right” relationships in place.
Gap 5: Lack of ongoing frameworks for supply chain architecture and structure.
◾
This gap includes both the dynamic nature of how supply chains are structures and the level of integration and coordination between supply chain partners.
Gap 6: Insufficient management talent and leadership.
◾ This gap requires the
development of competency models to better identify and prepare individuals for key supply chain roles.
Impact of e-Business on the Supply Chain
While there are different e-business models, collectively they have had a dramatic effect on the operations, designs, and service factors of conventional SCM. The ability to sell to a global marketplace through the ubiquitous presence of the Internet has placed sev-eral unique demands on the supply chain. According to Chopra and Meindl [20], the
impact of e-business on SCM can be divided into two spheres: the first associated with several elements oriented around cost/operations management and the second around sales/ service performance. Providing detail answers to these two groupings of factors is essential to the effective pursuit of a profitable e-business initiative.
Customer Service–Driven Elements
The ability to enter and follow up on orders through the Internet is probably the most radical facet of e-business. Among the critical elements of e-sales impacting the supply chain can be found:
1. Product variety. An e-commerce site enables customers to choose from a much wider array of products than is possible with a ‘bricks and mortar’ store.
Pursuing a “virtual inventory” model means that the supply chains that actu-ally service the customer will be complex, closely federated by information technologies and contractual relationships, and capable of seamless delivery to the customer.
2. Product planning. The ability of e-businesses to utilize networking technolo-gies means that customer demand can be broadcast continuously through the supply chain, providing visibility to requirements all the way back to the manufacturer. This capability will enable supply chains to plan using the customer demand-pull or, at a minimum, more accurate forecasts leading to a much closer match of channel supply and demand.
3. Shortened Time to Market. Because an e-business company can introduce new products to the marketplace much faster than a conventional business, the pressure on the supply chain to acquire and distribute them is much greater.
Supply chain entities will have to cultivate close relationships with manufac-turers and supplying intermediaries so that promotion, pricing, advertising, documentation, forecasting, and other components can be swiftly executed and relayed down the supply chain.
4. Flexible Pricing, Promotions, and Product Offerings. Changes to price, promo-tions, and the product portfolio by the e-business firm must be matched by a mechanism that rapidly communicates these changes to the supply chain.
Such changes will quickly have a bullwhip effect on channel inventories if poorly communicated to channel distributors and manufacturers.
Supply Chain Operations–Driven Elements
A decision to move to an e-business channel format will have a significant impact on the structure, objectives, and capabilities of supply chain operations. Among the critical elements resulting from an e-sales format can be found the following:
Customer Response Time.
◾ The ability of customers to quickly browse online catalogs and generate orders through shopping cart technologies
places a significant burden of expectation on the supply chain. Unless the product can be directly downloaded (such as computer software), customers might have to wait days to physically receive their purchase.
Mechanisms for delivery will need to be devised that are commensurate with the shipping lead times demanded by the customer as well as offered by the competition.
Inventory.
◾ One of the critical elements of e-business mentioned above is the ability of firms to offer an extensive portfolio of products. For companies that select to inventory products, an e-business strategy enables them to aggre-gate inventories at warehouses strategically positioned in key geographical areas. Because demand, regardless of its source, is channeled to these aggre-gation warehouses, e-businesses can stock significantly less inventory than traditional businesses that must disperse duplicate lot sizes of inventories over multilevel channels of physical locations. For “virtual inventory” e-businesses, those organizations must heavily depend on the strength and robustness of their supply chain stocking and delivery partners. Since product variety is one of an e-business’s strategic attributes, stockout of even low-demand, high-variability products risks loss of integrity of site branding.
Facilities.
◾ For those e-businesses that choose to stock all or a portion of their product offerings, selling through the Internet imposes several requirements.
To begin with, the cost of the facilities (including operating expenses) must be carefully calculated to guarantee the promises of product availability and delivery lead time claimed in the Web site prospectus and experienced over time. While it is true that the business can eliminate the cost of operating an existing network of warehouses in favor of a centralized aggregation ware-house, the complexity of serving an entire customer base, often with very small order lot sizes, will impose a significant burden on existing operational procedures, staff, and information technologies to ensure effective execu-tion. In addition, an e-business strategy may force the organization to deepen forward/backward integration of facilities functions currently performed by other channel companies.
Transportation.
◾ For nondownloadable product offerings, e-businesses will have to dramatically improve the quality, capacity, and delivery reliability of transportation both to stocking points and to the marketplace. The failure of e-businesses to actually delivery products to their Web customers in a timely manner was one of the most serious problems that plagued businesses in the early years of the dot.com revolution. Without delivery consistency even the most sophisticated Web site and business proposition will be abandoned for e-businesses that literally can “deliver.”
Information Technology.
◾ Effective e-business requires the close networking of all members of a supply chain. The Internet can serve as a conduit where criti-cal information such as forecasts, the customer demand-pull, and visibility to disruptions in product and/or transportation movement can be used to
foster collaboration and communication. While the cost of SCM systems and networking integration efforts can be steep, businesses must weigh the initial costs versus the ability to execute their business propositions on a continuous basis.
Returns.
◾ Since many e-businesses see themselves as virtual storefronts, they will have to engineer convenient methods for customers to return unwanted products or to engage repair or warrantee service from some node in the sup-ply chain.
Summary and Transition
In their vision of the supply chain of the future, IBM has identified the following three core characteristics [21]:
1. To being with, today’s integrative technologies have enabled the supply chain to be instrumented. This means that supply chain information will increas-ingly be generated by sensors, RFID tags, meters, actuators, GPS, and other devices and systems. In terms of visibility, supply chains will be able to “see”
more events as they actually occur. Dashboards on devices perhaps not yet invented will display the real-time status of plans, commitments, sources of supply, pipeline inventories, and consumer requirements currently locked away in today’s EBS.
2. Integrative technologies will enable supply chains to be more interconnected.
This means that tomorrow’s smarter supply chains will take advantage of unprecedented levels of interaction not only with customers, suppliers, and business systems in general, but also with physical objects that flowing through the supply chain. Besides creating a more holistic view of the supply chain, this extensive interconnectivity will also facilitate collaboration on a massive scale. Worldwide networks of supply chains will be able to plan and make decisions based on real-time data dashboards without clumsy batch simulation or reporting.
3. Integrative technologies will enable supply chains to be more intelligent. This means that business systems will possess the increased capability to assist executives in evaluating trade-offs, enabling them to examine myriad con-straints and alternatives, and then to simulate in real-time various courses of action before decisions are made. These technology-enabled “smart” supply chains will also be capable of learning and making some decisions by them-selves, without human involvement. For example, a system might reconfigure supply chain networks automatically based on user-defined rules and thresh-olds when disruptions occur anywhere in the supply channel. This intelligence will enable supply chains to move past sense-and-respond to predict-and-act modes of network planning and execution.
Realizing such a vision of highly integrated, information-generating supply chains requires the existence of enterprise business software suites composed of modular architectures that can be configured to meet any particular industry or specific business process requirement. The goal of the system architecture is to facilitate, either through existing application suites or through software partners, the creation of configurable, scalable, highly flexible information business sys-tems that provide enterprises with the capability to respond effectively with value solutions and collaborative relationships at all points in the supply channel network. Supply channel connectivity and networking requires a single version of data encompassing demand, logistics, demand-capability alignment, production and processes, delivery, and supplier intelligence across those firms comprising the entire end-to-end supply network. Generating a single view of the supply chain requires information technologies that enable collection, processing, access, and manipulation of complex views of data necessary for determining optimal supply chain design and execution configurations.
The technology tools capable of providing integrated, networked suites of supply chain applications can be separated into three spheres. The first sphere is composed of the core business functions necessary to run the business. Today’s ERP and SCM enterprise system enable companies to access highly componen-tized, modifiable business models easily configured to meet the challenges of sup-ply chain operational efficiency, channel visibility, and marketplace change. In the second sphere can be found applications like CRM, APS, and Internet B2B that provide connectivity, information sharing, event tracking, exception management, and dynamic optimization to reduce lead times, wastes, and increase supply chain agility. Included are technologies that assist in the execution of regulatory compli-ance, security, and oversight. This area includes shipment tracking, channel disrup-tion management, supply chain improvement, and regulatory funcdisrup-tions available in such toolsets as supplier collaboration portals, 3PL, and transportation systems.
The final sphere, automated data collection, consists of toolsets such as EDI and RFID that will not only allow transsupply chain tracking of a product’s position-ing and other related physical attributes, but more importantly, it will enable a company to define future products, services, markets, and competitive advantage.
In this environment the information, and not the product/service, will constitute the key value for tomorrow’s enterprise.
Finally, it would be difficult to think of today’s information technologies without the enabling power of the Internet. By utilizing Web-based applications available to anyone, anywhere at a very low threshold of cost and effort, the connectivity neces-sary to drive true SCM integration became possible for the first time. The Web-enabled business could utilize four distinct, yet fully compatible regions of e-business to manage their supply chains. Through I-Marketing, companies could leverage the ubiquitous use of the Web to transcend the limitations of tradition marketing to reach out to any customers, anytime, anywhere. Through e-commerce, companies
could perform transactions and permit interactions between themselves and the customer over the Internet. Through e-business, companies could apply the tools of B2C commerce to the B2B environment by leveraging catalog hubs and exchanges.
Finally, through e-collaboration, entire supply chains could now be able to move beyond the linear supply chain to a model fostering the integration, synchronization, and collaboration of supply network partner strategies and competencies.
Integrative information technologies have enabled the basic concept of SCM to evolve into three possible approaches coalescing around cost leadership, operations performance, and customer-driven organizations. In the next chapter, these three approaches are discussed in detail.
Notes
1. These five principles can be found in Ross, David Frederick, Distribution Planning and Control: Managing in the Era of Supply Chain Management. (Norwell MA: Kluwer Academic Press, 2004), pp. 752–754.
2. There are many descriptions of what constitutes an effective system. One of the most important is Wight, Oliver W., Manufacturing Resource Planning: MRPII ñ Unlocking Americaís Productivity Potential. Essex Junction, VT: Oliver Wight Limited Publications, Inc., 1982, pp. 100–106. See also Bowersox, Donald J. and Closs, David J., Logistical Management: The Integrated Supply Chain Process. New York: The McGraw-Hill Companies, Inc, 1996, pp. 190–193.
3. For an interesting summary of early software systems see Davenport, Thomas H., Mission Critical: Realizing the Promise of Enterprise Systems. (Boston, Massachusetts:
Harvard Business School Press, 2000, pp.1–54.
4. Davenport, p. 23.
5. Forrester Research, “The Value of a Comprehensive Integration Solution”, (Cambridge, MA: Forrester Research, March 11, 2009).
6. McWhirter, Douglas, “Middleware: Directing Enterprise Traffic,” Customer Relationship Management, 5, 8, 2001, 32.
7. For a detailed review of BPM see “BPM Technology Taxonomy: A Guided Tour to the Application of BPM,” SAP/Accenture White Paper (March 2009).
8. These four points can be found in Haag, Stephen, Paige Baltzan, and Amy Philips, Business Driven Technology. (New York: McGraw-Hill-Irwin, 2006), pp. 120-121.
9. “Top 10 Supply Chain Management Vendors ñ 2009: Profiles of the Leading SCM Vendors,” Business Software, Accessed July 5, 2009 at http://www.business-software.
com/erp-reports/supply-chain-management.php.
10. “2008 ERP Report, Part 4,” Panorama Consulting Group. (Denver CO: 2008), p. 3.
11. “2008 ERP Report, Part 1,” Panorama Consulting Group. (Denver CO: 2008), p. 2.
12. Jutras, Cindy, “ERP in Manufacturing 2009: Extending Beyond Traditional Boundaries,” (Abredeen Group. June 2009).
13. “ERP Software for Manufacturers: Product Directory,” SearchManufacuringERP .com (2009), accessed June 8, 2009 http://viewer.bitpipe.com/viewer/viewDocument.
do?accessId= 10643984.
14. An excellent analysis of the state of the best-of-breed software market can be found in Murphy, Jean V., “ERP or Best-of-Breed? The Question is the Same, But the Answer May Not Be,” Global Logistics and Supply Chain Management Strategies, 12, 12, 2008, pp. 34–37.
15. Chaffey, Dave, E-Business and E-Commerce Management. (New York: Prentice Hall, 2007), p. 573.
16. This section references the e-business breakdown found in Haag, et al., pp. 310–319.
17. For much greater detail see Hoque, Faisal, e-Enterprise: Business Models, Architecture, and Components.” (New York: Cambridge University Press, 2000), pp. 58–87.
18. For a full treatment of B2B models see Kaplan, Steven and Mohanbir Sawhney, “B2B E-Commerce Hubs: Towards a Taxonomy of Business Models,” accessed July 11, 2090 at http://faculty.chicagobooth.edu/steven.kaplan/research/taxonomy.pdf
19. Lummus, Rhonda, Steven A. Melnyk, Robert J. Vokurka, Laird Burns, and Joe Sander,
“Getting Ready for Tomorrow’s Supply Chain,” Supply Chain Management Review, Vol. 11, No. 6, (September, 2007), 48–55.
20. Chopra, Sunil and Meindl, Peter, Supply Chain Management: Strategy, Planning, and Operation, 4th ed. (Boston, MA: Prentice Hall, 2010), pp. 86–99.
21. Moffat, Robert W., “The Smarter Supply Chain of the Future: Global Chief Supply Chain Officer Study,” IBM White Paper (Rochester, NY: IBM, 2009), pp. 34–54.
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