E-Commerce Role in Supply Chain

Management and Supply Chain Restructuring

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Submitted by: MOHAMMED SHAKER AL-JISHI
Qatif 31911
P.O. Box 555
Mobile: 0504841677
E-Mail: aljishi_mohd@yahoo.com
August 2004
E-Commerce Role in Supply Chain Management and Supply Chain
Restructuring
Mohammed Shaker Al-Jishi
Abstract
Supply chain management has been
affected by the E-Commerce since its early
age. The evolution of the Internet and the
electronic communication makes the
companies think about the
competitiveness, how they can reach the
global market, increase the customer
response, and the main thing is to be more
efficient and effective in doing business.
The technological advancement is
changing the market place and driving the
companies to restructuring their business
process specially their supply chain,
strategic alliance and partnership.
Business can take the advantage of
technology and the global market to gain
visibility between the supply chain
network partners, and that will lead to
better customer response to a range of
variability. E-commerce technology
changes the supply chain process to be
more effective, and more manageable.
When a company use the web technology
they shouldnt use it to automate the
process only, but they should restructure
the whole supply chain process, and the
objective of the company should be
applying an adaptive supply chain
network. The adaptive supply chain
network make sure that transparent
information flow between the partners,
synchronized planning, workflow
coordination, and finding of new business
module.
1. Introduction
We are in a competitive edge because of
many factors such as: economy, market,
and technology, which force the
companies to respond and act fast with
these changes and plan for restructuring
the supply chain carefully to gain a
competitive advantage. A business
process can be viewed as a structure of
activities designed for action with focus on
end customer and on the dynamic
management of flows involving product,
information, cash, knowledge and ideas
(Stock and Lambert, 2001). The
companies should take into consideration
the customers needs, and that can be
achieved through the collaboration of the
supply chain partners.
The E-Commerce (EC) market was
founded along with the growth of the
Internet. By 1995, EC began to mature
with the emphasis of a variety of secure
transaction processing service, and EC has
been an increasing trend for companies to
publicize their businesses on the internet
in order to increase their visibility as a
business norm as will as to sell on the
Internet (Westland and Clark, 1999). The
Internet has changed every thing in how
the businesses are done, Andy Grove, the
chairman of Intel, says in five years time,
all companies will be Internet companies
or they wont be companies at all (The
Economist, 1999a).
To stay competitive, companies need to
meet greater collaboration and
coordination between them and other
supply chain partners. There is one way to
do that, which is supply chain integration.
The information technology and specially
the internet technology play a major role
ingoing with the supply chain integration.
The Internet can redefine how back back-
end operation- product design and
development, procurement, production,
inventory, distribution, after-sales service
support and even marketing- are
conducted, and in the process alter the
roles and relationships of various parties,
fostering new supply networks, services
and business module.(Lee, H. L, Whang,
S. , 2001)
The E-Commerce already has its impact in
the supply chain integration but still in its
beginning level. This paper will present
how e-commerce can eliminate many
problems through restructuring the supply
chain to be integrated, and emphasis on
four key dimensions: Information
Integration, Planning Synchronization,
Work flow Coordination, and New
Business Module. (Lee, H. L, Whang, S. ,
2001)
2. E-Commerce & Supply
Chain Integration
The evolution of the communication and
information technology, and in particular
the Internet, enabled the companies to
respond more to their customers. InE -
Commerce, customers need to place an
order in the Internet and have response in
seconds or minutes, enabling processing
their order faster and shorter order cycle.
Also the customers need quality and low
price products. If the companies did not
do so the customer will not come back,
they will go to other competitors. That will
be a big challenge to the dot-com
companies, and the solution for that is to
restructure their supply chain and integrate
the supply chain with the suppliers, to
form supply chain network. The supply
chain configurations evolving in todays
digital economy reshape the historical
chain into networks or business-webs.
(Tapsupply chainott et al., 2000). That
supply chain network will help in acting
faster to the customer needs, and also
reduce the cost; all that can be done
through collaboration between the partners
in that network.
2.1. Technology and Supply
Chain Restructuring
To meet the supply chain integration we
need to restructure the organization supply
chain, and that will be by using
information technology or web
technology. There are three options for
integration (Chaffey, 2002): first, vertical
Integration: the extent to which supply
chain activities are undertaken and
controlled within the organization.
Second, vertical disintegration
(disaggregation): it is in the middle, it
moves to outsourcing and have network of
suppliers. Third, virtual integration: the
majority of supply chain activities are
undertaken and controlled outside the
organization by third party. The virtual
integration should be the target for rapid
market penetration (dot-come approach).
The information system (IS) and the
electronic communication have a great
impact on supply chain. It increases
efficiency of individual process, reduced
complexity of supply chain, improve data
integration between elements of the supply
chain, reduce cost through outsourcing,
and innovation. (Chaffey, 2002).
When the supply chain restructured with
the new technology it will deliver many
benefits to the customer at the end of the
supply chain. It will fast lead times and
lower costs through reducing inventory
holdings, increase convince through
24h/7d/365d, increase choice of supplier
leading to lower cost, the facility to tailor
produce more readily, and increase
information about products and
transactions.
The IS also supports both the upstream
supply chain management and the
downstream supply chain management. It
supports the upstream supply chain
through two key activities procurement
and upstream logistic. The IS also
supports the downstream supply chain in
two key activities which are outbound
logistic and fulfilment.
The e-business, or Internet computing,
module, has now emerged as perhaps the
most compelling enabler for supply chain
integration. Because it is open, standards-
based and vertically ubiquitous, businesses
can use the internet to gain global
visibility across their extended network of
trading partners and help them respond
quickly to changing business conductions
such as customer demand and resource
availability. (Lee, H. L, Whang, S.,
2001). With the web technology, such as
TCP/IP and XML plus three new
standards: WSDL, SOAP, and UDDI, the
integration and interconnection software
become easier, cheaper, and faster.
2.2. Dimensions of the Impact of
E-Commerce on Supply Chain
Integration
When we talk about the impact of E-
Commerce on supply chain integration,
there are many dimensions where we can
found that impact. The emphasis will be in
four key dimensions that are mentioned by
Lee, H. L, and Whang, S. in Stanford
global supply chain Management forum in
2001.
Table 1: Supply chain Integration Dimensions
2.2.1. Information Integration
Information integration is the most
important dimension in the supply chain
integration. It means the sharing of
information between the members in the
supply chain network, and therefore
provides the customers with the
information whenever they want it. Bill
Gates says (Gates, 1999) How you
gather, manage and use information will
determine whether you win or lose. That
could be any data that parties can share on
a real-time, on-line to influence the
performances and actions of other
members in the supply chain.
2.2.2. Planning Synchronization
After the organization reaches the
information integration then it starts the
planning synchronization with the supply
chain members, in how they will
collaborate in joint design and execution
of plans, in order to forecast what the
market needs, come up with new products
or service, and replenishment.
2.2.3. Workflow Coordination
Workflow coordination refers to
streamlined and automated workflow
activities between supply chain partners.
Here, we take integration one step further
by defining not just what we would do
with shared information, but how.
(Lee, H. L, Whang, S., 2001). The
Workflow Coordination is simply the
automation of the business workflow
process internally or cross-company,
relaying on the technology.
2.2.4. New Business Module
To bring new business module is the most
important aim of adopting e-commerce
approach to supply chain. It is not only
about improvement in efficiency and
effectiveness it revised the whole thing
including the value chain. A supply chain
network may jointly create new products,
pursue mass customization, and penetrate
new market and customer segment. (Lee,
H. L, Whang, S., 2001).
3. Electronic Information
Integration
To meet supply chain integration you need
to integrate electronic information. The
companies across the supply chain need to
have an access to real-time and accurate
information in order to coordinate their
product, information and financial flows.
To get the most of the electronic
information integration the companies
must approach an adaptive supply chain
network.
3.1. Value Network and
Information Hub
Increase the customer responsiveness and
reduce the time to market depends on how
partners can be involved outsourcing some
process that is considered of internal value
chain of the company. Information Hub is
a node in the supply network that makes
the partners in the network interact with
each others and share information.
The value network definition: is the link
between an organization and its strategic
and non-strategic partners that form its
external value chain (Chaffey, 2002). The
strategic partners are those related to core
value chain like inbound logistics,
manufacturing, and product warehousing.
The non-strategic partners are the service
partners like finance, human resources,
and admin. The strategic and non-strategic
partners are linked to core value chain
activities through value chain integrator,
which can be strategic outsourcer or ISP
provider; they also can be linked directly
to core value chain.
There are also two other main partners: the
upstream value chain partners and the
downstream partners. The upstream
partners are the supplier and buy-side
intermediaries. The downstream partners
are the sell-side intermediaries and
fulfillment.
As a company outsourcers more and
more activities, management of the link
between the company and its partners
become more important (Chaffey, 2002).
The trend now is going to outsourcing
many of the company activities so the
company can concentrate in its core
business to deliver value to the customer
as product or service. With outsourcing,
the company should be careful in
managing the value network.
3.2. Enabling Adaptive Supply
Chain Network
Today, there are many competitive
pressures that companies need to adapt.
Effective supply chain integration and
synchronization among partners can
eliminate excess inventory, reduce lead
times, increase sales, and improve
customer service (Anderson and Lee,
1999).
To manage the competitive pressures need
to be managed through the adaptive supply
chain networks to increase efficiency and
enhance the value chain. Management of
visibility, management of velocity, and
management of variability across the
supply network are the three key process
enablers that need to be mapped to the
three key information enablers-quality of
information, timeliness of information and
depth information-to maximize network
responsiveness and thereby enhance the
efficiency of value creation. (SAP AG,
2002).
Table 2: Characteristic of Traditional and Adaptive Supply Chain Network
3.2.1. Visibility and Information
Quality
The companies now are transition from
individual companies to supply network
companies because of the high
competition. For rapid response visibility
of information to both intra- and inter-
organizational is critical. The advance in
the information technology especially the
web technology and EC makes it much
easier for information visibility starting
from ordering, through supplier, then
check inventory, and finally product to
shipment.
Distributors, logistics service providers,
and all relevant departments across
different organizations can have full
visibility of the order flow, both into the
system and back to the customer. The
customer, in return can track the shipment
of the order and make changes based on
predefined rules. (SAP AG, 2002). The
customer who uses the system should have
a total visibility to track the order, which
is the goal, should be reached in this stage.
Figure 1 : Enablers of Adaptive Supply Chain Network
3.2.2. Velocity and Information
Timeliness
After the organization overcomes the
visibility barriers and can share the
accurate information in the supply chain
network, the next step is to increase the
velocity of response to the information to
be accessed and distributed rapidly across
the supply chain network. Velocity of
response is the key differentiator in the
performance of the business.
Most of the companies that create
extraordinary value than their peers are
because of their ability to plan rapidly and
efficiently move the information and
physical assets through the supply chain
network at far greater velocity than their
competition. This enables them to
maintain margin parity with the
competition and create returns on assets
and invested capital that far exceeds the
norm. The success of a firm's SCM
would depend upon the accuracy and
velocity of the information which every
business partner provides (Zheng et al.,
2000).
3.2.3. Variability and Information
Depth
Once the business becomes more dynamic,
demand will be more customized and the
traditional strategies of planning,
forecasting, and bush products will not
work. The organization needs to focus in
its core competencies to be more efficient
and that can be achieved through
managing variability. With this demand on
mass customization the organization will
require the companies within the supply
chain network to access to more depth
information. Successful network partners
will share information about orders,
inventory, short-term and long-term plans,
profit margins, and more to far greater
extent than is done today (SAP AG,
2002).
Variability can be met through the bull
supply chain, instead of the old push
supply chain strategy where the companies
made the products and push them to the
customers. The bull supply chain, it also
called Bullwhip, make the companies
search what the customers need and create
product or services according to their
requirements. The causes of the bullwhip
effect have been identified as: demand
forecasting, order batching, price
fluctuation and rationing game (Lee et
al., 1997). Basically, the bullwhip effect
is largely caused by variability of
ordering. The supply chain network will
be more efficient if the network partners
stop their concerns about confidential
information, and share the information
with others in the supply chain network,
that will lead to more profitability and
more efficiency in doing business. The
depth of information visibility will allow
organization better manage variability to
respond in real time to changing customer
demand, and increase profit on plans
execution.
Figure 2 : Information Sharing and Bull Supply Chain (Bullwhip Effect)
Evolution To An Adaptive Supply
Chain Network
Companies must go through certain stages
to create an adaptive supply chain
network. The time needed to do so depend
on the level of technology, the process
maturity, and the characteristic of the
industry. The three key stages to the
evolution are integrated, collaborative, and
adaptive (SAP AG, 2002).
Integration
Integration is the first and most important
step to adaptive supply chain network. A
lot of companies are aware of the role of
the supply chain integration and many of
them have already persuaded this to gain
competitiveness. The EC has promised
new level of integration with all the
technology standards to support
integration. Integrated supply chain means
that visibility quality of information is
met.
Collaboration
This stage is depending on the timeline of
information exchange. The information
should be accessed between the supply
chain network partners in real-time and
faster, which shows the degree of
collaboration. Efficiency of collaboration,
that is the planning and execution velocity,
takes place in non-integrated
environments. The top management of
leading manufacturer considers that the real
benefits of investing in IT to facilitate SCM lie
in the development of partner relationships
with its customers
Adaptation
The role of the integrated and
collaboration network in the adaptive
supply chain network is to manage
variability, and help in capitalization on
the mass customization and peer-to-peer
relationship. There are many benefits the
adaptive supply chain companies; big
benefits are available-to- promise (ATP)
and capable-to-promise. Simple example
of ATP is when a customer order, order
promising routes to all sites could fill the
order and check the request date and
quantity, and then it sends the result of the
delivery date and amount to the customer.
If the material isnt available the system
use capable-to-promise to address the
production schedule and establish a date
for the product promised. All these steps
are system-to-system conversation, if the
customer makes changes in the order the
steps are repeated and a new response
delivered within hours or minutes.
Figure 3: Stages of Adaptively
Planning Synchronization
What comes after collecting the required
information and sharing it among the
supply chain members (information
integration) is the planning
synchronization step. In planning
synchronization, the data is available to
supply chain members but what is
important at this step is not the data but
rather what to do with this data. Deciding
what actions to be taken upon the shared
data, putting the required replenishment
plans and making the clear coordination
between the supply chain members on
how to carry them out later on, can solve a
lot of problems such as the bullwhip
effect. By following these steps, one can
say that partners are on the right way of
implementing the integration process.
Looking at the planning synchronization
from the Internet point of view, it is easy
to see how the Internet has simplified and
improved this process at the same time. A
brilliant example in this area is the
Collaboration Planning, Forecasting and
Replenishment (CPFR) initiative. In
CPFR, both the buyer and the seller make
use if the internet to share forecasts, detect
major variances, exchange ideas and
collaborate to reconcile differences, so that
eventually, both have a common forecast
and replenishment plans (Lee, H. L,
Whang, S., 2001). Collaboration through
the Internet can achieve satisfaction for all
parties in the integration process.
In the business-to-business world, lots of
companies have applied the Internet-based
collaboration. The case of Adaptec
illustrates the value of Internet-based
collaboration to a company faced with
evolving supply processes, innovative
products, and a geographically dispersed
supply chain. Using a software
application called Alliance (developed by
Extricity, now part of Peregrine), the
company communicates in real time with
its design center in California, its foundry
in Taiwan, and assembly plants in Japan,
Hong Kong and Singapore, exchanging
detailed and complex design drawings,
prototype plans, test results, and
production and shipment schedules. This
greatly facilitates their ability to check
demand and supply levels, and respond
quickly to potential mismatch problems.
It also helps shorten their product
development times. With the use of
Alliance, Adaptecs cycle time was cut by
more than half (Lee, H. L, Whang, S.,
2001).
One thing remains have to be mentioned
here, the profits that follow collaboration.
To achieve good business, partners have to
put smart programs and synchronized
replenishment plans as to increase their
profits and stay competitive.
4. Electronic Workflow
Coordination
4.1. Procurement
Once the data is shared, actions and
replenishment plans on what to do with it
are decided, now comes the time to
answer the question: how are we going to
implement the agreed upon plans?
Coordination between partners on how to
integrate process and automate the
business activities & processes is called
Workflow coordination. This includes
procurement, order execution, engineering
change, design optimisation and financial
exchange. In this report, two examples
will be given on two activities namely
Order Processing & Financial Flows and
Engineering and Product Change, to show
the importance of coordinating the
workflow and how it improves the supply
chain operations as related to cost, time,
reliability and accuracy. Carbone (1997)
identified some of the key characteristics
of e-procurement as follows:
Reduction in transaction costs;
Quicker and more accurate
transaction processing;
Elimination of maverick buying;
Reduced inventory;
Improved order tracking;
Improved information
management;
Increased contract compliance;
Lower prices; and
Increased employee satisfaction.
4.2. Order Processing &
Financial Flows
Order processing service is to facilitate
and process orders, as well as coordinate
rebates, discounts, and other financial
exchanges for operators (like restaurants),
distributors and manufacturers in the
foodservice industry. Its mission is to
develop easy-to-use services that lower
costs and provide valuable information for
all members of the foodservice supply
chain. Its solution replaces the traditional
time-consuming, error-prone purchasing
systems with a secure and user-friendly
client program for food operators to order
food products on the Web. In addition, the
Web site serves as an information hub that
links buyers and suppliers in the food
service market. (Lee, H. L, Whang, S.,
2001)..
4.3. Engineering & Product
Change
As everybody knows, lots of products are
in continuing progress. That forms a big
challenge for their vendors managing the
product rollover. It is a time and effort
consuming process and sometimes could
be financially risky activity in case not
managed properly. Especially in the
technology market, that could be a very
complicated process due to the significant
number of times the product undergoes an
update, version change, an enhancement
or a replacement. The headache involved
every time is covering almost all parties
including the suppliers, design team,
management team, support and
procurement. Thus, using an Internet-
based solution is very important in such
circumstances where lots of processes and
complex operations are to be streamlined
and automated.
5. New Business Module and
Revised Value Chain
Supply chain integration process using the
e-business techniques has opened the
horizon in front of its partners to improve
their business. New ways, strategies and
business models have come to life after
the emergence of the Internet that no body
thought of before. Actually, there are so
many business models examples. This
report is going to highlight few of these
examples as in the following sections.
5.1. Supply Chain Restructuring
Supply chain process has to coexist with
the continual progress accompanied with
the technology market not only that but
rather making use of this progress. For
example, some of the supply chain
processes and operations can replace
others in a way to improve the overall
performance and efficiency of the process.
Cisco, a giant company in the networking
world, has made use of the Internet in
producing a system to link Cisco with its
partners. All information is exchanged
through this system and the products are
delivered to customers through the
subcontractors manufacturers with no
stopping at Cisco distribution centres.
This can be called substitution of physical
flows with information flows. Using this
model, Cisco has succeeded in reducing
the cost, lowering the inventory, speeding
up the process and achieving more
accurate orders delivery.
5.2. Product Upgrade
In addition to the large number of
companies allowing their customers to
update their software through the Internet
like the anti-viruses software, other
companies came up with the possibility to
upgrade their physical products as well.
This could be a PC, wireless phone,
communication satellites and complete
management system. Over the Internet,
certain installations can change the logic
and upgrade the system as intended by the
company. A good example in this area is
Xilinx; the market leader for field
programmable logic.
5.3. Mass Customization
The nature of the human beings results in
different tastes likes and dislikes. Many
businesses has put this in mind and given
their customers the option to select the
products according to their preferences
and desires using a nice and user-friendly
site on the Internet. While providing
personalized services, this has
strengthened the relationship between the
company and its users.
5.4. Service and Support
Maintaining, giving help and support to a
certain product after selling it is a
time, cost and effort consuming process.
Using the Internet for data exchange to
remotely diagnose, analyse and identify
what problems might be in a product is a
much better solution especially in the PC
support area. Big companies always need
their networks and PCs up and running. A
moment of failure possibly will cost the
business hundreds, thousands or even
more. As an example, a software
company called tuneup.com developed a
remote maintenance service aimed at
helping individual and companies keep
their PCs running. A subscriber of the
service would allow the service center to
remotely collect data on her computer,
checking viruses and other anomalies,
alerting the customer, and providing
online fixes (Lee, H. L, Whang, S.,
2001).
6. Conclusion
The E-Commerce has a great effect in the
way businesses are done, it has its impact
in the supply chain management and how
it can be integrated a wide range of supply
network partner. With new technology of
E-Commerce, the supply chain has
become much more effectively than the
way it has done before, it brings new
business to the companies, a new global
market, and greater competitive
advantage. Some of the trends that E-
Commerce derived to supply chain are:
information sharing, collaboration
between partners, mass customization,
concentration on core business,
partnership and outsourcing, and
intelligence demand management. These
trends can be applied to an adaptive
supply chain be increasing the visibility
and velocity. The Internet technology and
its standards help companies comes up
with innovative solution that accelerates
the implementation of the core supply
chain principles. Table 2 below
summarizes the impact of E-Business on
supply chain as Lee, H. and Whang, S.
(2001) mentioned.
In the future, the E-Commerce application
that supports the integration of the supply
chain management will increase to create
new visionary of supply chain integration,
to achieve more information sharing, more
collaboration between the companies, and
increase efficiency. This integration effort
will be different from the old or traditional
ones, which can be achieved through the
adaptive supply chain network.
Table 3: Example of E-Business Impact on Supply Chain Integration and Business
Processes (Lee, H. L, Whang, S., 2001).
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