The Ecommerce Impacts On Supply Chain Management Information Technology Essay

E-commerce does not just mean trading and shopping on the Internet. It means business efficiency at all operation levels even at the supply chain level which is the most important part for any manufacturing unit. Executives know it is critical to effective business operations. Supply Chain Management means coordinating, scheduling and controlling procurement, production, inventories and deliveries of products and services to customers. The E-commerce is the backbone of SCM, a very critical component of E-commerce.

Like the ERP wave a few years ago, the current drive towards e-commerce and the Internet is also making companies look at their way of doing business. In today’s world, there is a constant pressure to reduce the cost of doing the business in order to maintain the competitive edge. The major four key aspects of the business: lower costs, faster delivery, higher quality and mass customization. According to some industry estimates, logistics and inventory cost constitute around 68% of the turnover of a manufacturing company. Globally, logistics constitute around 20% of the express cargo and freight industry.

Despite the recession and its inevitable effect on manufacturing, there is a growing market for supply chain management (SCM) applications. With a market climbing to billions range at mid-decade, manufacturers are clearly seeing the necessity of SCM solutions to streamline the management of the total supply chain with the help of e commerce. Integrated supply chain management (SCM) system and e commerce is the backbone to achieve the e-business objectives and to beat competition in the cut throat business environment.

Supply Chain Efficiency can improve customer service – having the right product at the right place at the right time. Supply Chain Efficiency can save money/reduce costs. According to a recent benchmarking study conducted by Pittiglio Rabin Todd & McGrath, one of the founders of the Supply-Chain Council, best in class companies have an advantage in total supply chain management cost of 3 to 6 percent of revenue (Total supply chain management cost is the sum of Order Management, Material Acquisition, Inventory Carrying, and Supply-Chain Finance, Planning, and MIS Costs). A significant number of companies in the India have implemented their Internet platform for Supply Chain Efficiency in the past 2 to 3 years, and the large of them will follow in the next few years.

E Commerce and SCM basics

E-commerce is de¬ned as the use of the Internet and the Web to transact business. E-commerce is different from e-business in that e-business refers to transactions and processes within an organization. For example, a company’s on-line inventory control system is an e-business component and not part of e-commerce. The inventory control system does not directly generate revenue for the company. There are ¬ve major types of e-commerce: business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), peer-to-peer (P2P), and mobile commerce (m-commerce).

A supply chain is the network of activities that deliver a ¬nished product or service to the customer. These include sourcing raw materials and parts, manufacturing and assembling the products, warehousing, order entry and tracking, distribution through the channels, and delivery to the customer.

An organization’s supply chain is facilitated by an information system that allows relevant information such as sales data, sales forecasts, and promotions to be shared among members of the supply chain. At the beginning of the chain are the external suppliers who supply and transport raw materials and components to the manufacturers.

Manufacturers transform these materials into ¬nished products that are shipped either to the manufacturer’s own distribution centers or to wholesalers. Next, the product is shipped to retailers who sell the product to the customer. Goods ¬‚ow from the beginning of the chain through the manufacturing process to the customer. Relevant information ¬‚ows back and forth among members of the supply chain.

Live Example of E commerce role in SCM (Dell computers)

A prime example of E commerce role in SCM which provides the Dell with a sustainable, competitive advantage, such as quick response time, low cost, state-of-the-art quality design, or operational ¬‚exibility. Dell Computer Corporation is a good example of a company using its supply chain to achieve a sustainable competitive advantage. Quick delivery of customized computers and laptops at prices 10-15 percent lower than the industry standard is Dell’s competitive advantage. A customized Dell computer can be en route to the customer within 36 hours. This quick response allows Dell to reduce its inventory level to approximately 13 days of supply compared to Compaq’s 25 days of supply. Dell achieves this in part through its warehousing plan. Most of the components Dell uses are warehoused within 15 minutes travel time to an assembly plant. Dell does not order components instead, suppliers restock warehouses as needed, and Dell is billed for items only after they are shipped. The result is better value for the customer.

Current trends in SCM

Perhaps the most signi¬cant advance in e-commerce with regard to supply chain management is the use of electronic marketplaces that bring thousands of suppliers into contact with thousands of customers. The objectives of net marketplaces are to have suppliers competing on price, to have automated low-cost transactions, and to reduce the price of industrial supplies. Net marketplaces can be classi¬ed on two dimensions: the type of goods supplied (direct or indirect),and the type of purchase (contractual or spot).Indirect goods refer to goods used to support production, while direct goods are goods used in production. Contractual purchasing refers to purchases made according to a contract between companies with an on-going relationship, while spot purchasing refers to occasional purchases from companies without an on-going relationship.

E-distributors are the most common form of net market place. E-distributors provide electronic catalogs representing the products of thousands of suppliers. E-distributors are independently owned intermediaries that provide a single source for customers to make spot purchases. About 40 percent of a company’s items are purchased on a spot basis. E-distributors typically have ¬xed prices, but do offer quantity discounts to large customers (see Chapter 12).The primary bene¬ts of e-distribution to the manufacturing company are lower product search costs, lower transaction costs, wide selection of suppliers, rapid product delivery, and low prices.

E-purchasing companies connect online suppliers offering maintenance, repair parts, and operating supplies (MRO) to businesses who pays fees to join the market. E-procurement companies are typically used for long-term contractual purchasing and offer value chain management services to both buyers and sellers.

Value chain management (VCM) automates a ¬rm’s purchasing or selling processes. VCM automates purchase orders, requisitions, product sourcing, invoicing, and payment. For suppliers, VCM automates order status, order tracking, invoicing, shipping, and order corrections.

On-line exchanges connect hundreds of suppliers to unlimited buyers. Exchanges create a marketplace focusing on spot requirements of large ¬rms in a single industry, such as the automotive industry or electronics industry. Examples of exchanges include ProcureSteel.com (a market for steel products), e-Greenbiz.com (spot marker for nursery supplies), and Smarterwork.com (professional services from Web design to legal advice).

Industry consortia are industry-owned markets that enable buyers to purchase direct inputs from a limited set of invited participants. The objective of an industry consortium is the uni¬cation of supply chains within entire industries through a common network and computing platform. Examples of industry consortia include Covisint.com (automotive industry), Avendra.com (hospitality industry), and ForestExpress.com (paper and forest products).

Current situation of SCM in India

As per a report shared by the government and private firms a whopping $65 billion is lost every year on account of the inefficient supply-chain system in India and this despite the Indian retail sector being in the high-growth mode. The industry is expected to touch $879 billion by 2018, but if the present challenges in its supply-chain system are not addressed, then the sector’s growth could get hampered. The report by apex industry body, CII, and Amarthi Consulting , titled ‘Global competitiveness of retail supply chain-Challenges, Strategies and Recommendations’ stated that, “since Independence only 20 per cent capacity has been added to the railway network but the traffic has increased ten times. In a sector where margins are wafer-thin, the supply- chain management is a critical enabler to profitability and this has to be improved.” Supply-chain costs in India are about 12-13 per cent of the GDP as compared to 7-8 per cent in developed countries. Hence, the country loses out around $65 billion annually. It further explained that challenge also lies in the country’s demography, geographical spread, distinct consumer preferences and differential taxation laws, which needs to be addressed by the proper integration of supply chain management and also the e commerce.

Improving supply chain and e commerce infrastructure, implementation of goods and services tax (GST), reducing intermediaries, and adopting green supply chain practices can help the business to grow much faster. Green supply chains and e commerce involves integrating environmental thinking into the core operations of a company, starting from material sourcing to delivery to end-of-life recycling with the help of internet and electronic commerce. It is also expected that implementing green initiatives along a company’s supply chain can raise productivity, enhance customer and supplier relations, support innovations, and enable growth.

Analysing E-Commerce for Improvement in Supply Chain Management

Here are some of the key questions that need to be answered about integration of e-commerce and SCM for development of the business in a faster way and also to avoid unnecessary burden on the department.

What are the likely impacts of e-commerce on SCM in your business?

What are the main beneficial opportunities for application of e-commerce in the supply chain management for the business?

Which enterprises and which sectors will be best placed to take advantage of integration of e-commerce and supply chain management?

What package of policy and enterprise pre-conditions must be in place for this beneficial application of e-commerce in supply chain management?

How can this ‘e-commerce package’ best be put in SCM so as to beat the cut throat competition?

What are the main threats and negative effects relating to application of e-commerce and SCM?

How can these best issues be addressed or mitigated?

Advantages of using Integrated Approach of E commerce and Supply Chain Management

Freight auditing: This will ensure that each freight bill is efficiently reviewed for accuracy. The result is a greatly reduced risk of overpayment, and the elimination of countless hours of paperwork, or the need for a third-party auditing firm. By intercepting duplicate billings and incorrect charges, a significant percent of shipping costs will be recovered. In addition, carrier comparison and assignment allows for instant access to a database containing the latest rates, discounts, and allowances for most major carriers, thus eliminating the need for unwieldy charts and tables.

Purchasing:- The increased popularity of e-commerce is due to a multitude of operational bene¬ts it can bring to purchasing practices. Examples of these bene¬ts are cost savings resulting from reduced paper transactions, shorter order cycle time and the subsequent inventory reduction resulting from speedy transmission of purchase order related information, and enhanced opportunities for the supplier/buyer partnership through establishment of a web of business-to-business communication networks. For instance, Dell now maintains over 3000 tailored domains for customers. Such di¬€erentiation services, not possible prior to the proliferation of the Internet, allow companies to compete on factors other than price and to forge valuable relationships. Companies like Dell assert that such e¬€orts will actually conserve organizational resources and result in positive returns (Frook, 1998). Supply chains are especially well suited for the fast changing I-commerce environment, as organizations are able to enter and evolve much more quickly and e¬ƒciently than organizations in traditional joint ventures or vertical integration arrangements. Ball and Wright (2000) examine the information value chain and some of its concepts, ¬rst for printed information and second for electronic information.

Online Shipping Inquiry: This gives instant shipping information access to anyone in the company, from any location. Parcel shipments can be tracked and proof of delivery quickly confirmed. A customer’s transportation costs and performance can be analyzed, thus helping the customer negotiate rates and improve service.

Shipment tracking: E-commerce will allow users to establish an account and obtain real-time information about cargo shipments. They may also create and submit bills of lading, place a cargo order, analyze charges, submit a freight claim, and carry out many other functions. In addition, e-commerce allows customers to track shipments down to the individual product and perform other supply chain management and decision support functions. The application uses encryption technology to secure business transactions.

Shipping Documentation and Labeling: There will be less need for manual intervention because standard bills of lading, shipping labels, and carrier manifests will be automatically produced; this includes even the specialized export documentation required for overseas shipments. Paperwork is significantly reduced and the shipping department will therefore be more efficient.

Operations:- Internet trade is not without problems for the supplier. They also discuss several issues of interoperability, building trust, con¬dence and security; and the need for a regulatory and legal framework. Murillo (2001) discusses the implications of e-commerce on supply chain management and its e¬€ectiveness. Emiliani and Stec (2001) discuss the terms and conditions for the online auction and purchasing contracts. Build-to-order (BTO) not only requires Just-In-Time (JIT), but also the most advanced computerized versions of ERP. With its facilitation of real-time communications between suppliers, production functions, marketing functions and the ¬nal customer, e-commerce has become an inherent component of BTO (Doherty, 2000). Kehoe and Boughton (2001) discuss some of the key elements of research that will investigate the role of the Internet within the manufacturing supply chain and these are (a) a detailed examination of the current usage and operation of the Internet within manufacturing supply chains, and establishing industry practice in this area, (b) building a dynamic model of the web-based supply chain in each of the collaborative industrial sectors, (c) HTML prototype for the supply web model, and (d) sector-based models and prototypes. Nowadays, collaborative network of partners is more popular with companies than before to be ¬‚exible and responsive to changing market/customer requirements.

Logistics:- Emiliani (2000) describes the process for conducting downward price B2B online auctions over the Internet for direct material purchasing and presents common issues, process improvement opportunities, and the interpretation of auction results. Van Hoek and Chong (2001) present the experiences of UPS Worldwide Logistics, a company known to be leading in the development and implementation of a fourth-party business model. This model applies information integration initially in logistics and transport operations. But UPS WWL has achieved full supply chain integration and strategic applications of the information availability to the bene¬ts of the clients. It also includes supply web practices in which multiple players team up ¬‚exibly to align to the end consumer. Clarke (1998) presents the concept of ”virtual logistics”. With virtual logistics, the physical and information aspects of logistics operations are treated independently from each other. In such operations, ownership and control of resources is e¬€ected through the Internet (or the Intranet) applications rather than direct physical control, and resources can, thereby, be owned and utilized remotely.

Cost efficiency: E-commerce allows transportation companies of all sizes to exchange cargo documents electronically over the Internet. E-commerce enables shippers, freight forwarders and trucking firms to streamline document handling without the monetary and time investment required by the traditional document delivery systems.

By using e-commerce, companies can reduce costs, improve data accuracy, streamline business processes, accelerate business cycles, and enhance customer service. Ocean carriers and their trading partners can exchange bill of lading instructions, freight invoices, container status messages, motor carrier shipment instructions, and other documents with increased accuracy and efficiency by eliminating the need to re-key or reformat documents.

Changes in the distribution system: E-commerce will give businesses more flexibility in managing the increasingly complex movement of products and information between businesses, their suppliers and customers. E-commerce will close the link between customers and distribution centers. Customers can manage the increasingly complex movement of products and information through the supply chain.

Customer orientation: E-commerce is a vital link in the support of logistics and transportation services for both internal and external customers. E-commerce will help companies deliver better services to their customers, accelerate the growth of the e-commerce initiatives that are critical to their business, and lower their operating costs. Using the Internet for e-commerce will allow customers to access rate information, place delivery orders, track shipments and pay freight bills.

Identifying Supply Chain Management (SCM) Issues

The process of producing a good or providing a service has also evolved over the past several years with business process changes and technological advancements. Business managers first answered the question of how to automate production and reduce costs of labor. While efforts were underway with the “production line”, total quality management brought not only a fast and efficient but high quality method to producing goods. Increasing demand on manufacturers forced many business managers to stock inventory to be ready to meet unpredictable and fluctuating demand on a moment’s notice.

Business managers realized from the bull whip effect, the fine line they had to walk between adequate inventory levels and inventory obsolescence. The actions of the upstream suppliers and downstream customers had a strong effect on a business’ ability to make and move products and provide service.

By thinking of the upstream and downstream businesses as an integrated supply chain, business managers could meet demand while improving revenue growth, asset utilization, and cost reduction through optimal inventory levels maintained at various nodes in the supply chain. Handfield and Nichols have termed this as Logistics Renaissance.

Essentially the supply chain includes internal and external process and information flows. In general, a company or a business unit has control only over the internal processes and the external processes can only be influenced to certain extent. In this analysis, we concentrate only on internal processes and inter-organization information flows.

The methodology developed is still applicable for an integrated supply chain but requires significant work to achieve consensus across all the nodes that are being integrated to agree upon the results. We divide the internal supply chain by product life cycle (only the SCM categories are depicted). At every level of the internal supply chain there is an opportunity to participate in inter-organization information flow. However, many businesses would not share information during the product/service generation phase.

Infrastructure for E commerce in SCM

Infrastructure for E Commerce in SCM consists of Internet connectivity, hardware and software including application systems integration. Nevertheless, training and education cell for E Commerce is important to fully utilize the E Commerce available for SCM. There are di¬€erent E Commerce platforms and systems available to enable the application of E Commerce in SCM (Haeckel, 1999). Walsh and Koumpis (1998) presented a decomposable, ”autonomous agents” approach was adopted to specify information supply chain ”agents” (e.g. suppliers, buyers, distributors, etc.), including their structural relationships, interaction ”protocols” and co-ordination policies. Jayaram et al. (2000) present an empirical study of 57 toptier supplier to the North American automotive industry examined the direct and complementary e¬€ects of information system infrastructure (ISI) and process improvements on time-based performance. In evaluating the formation of customer-supplier relationships, Sarkis and Sundararaj (2002) focus on two major dimensions that will in¬‚uence the formation process. The ¬rst is the type of organizational structure and relationships, and the second major dimension is the electronic commerce environment.

Organizational

Adaptation of e-business infrastructure involves deep level changes that a¬€ect core elements of an organization, including mission, vision, business strategy, goals, culture, technology, training and policies (Mukherji and Mukherji, 1998). The organizational infrastructure requirements include top management involvement, strategic ¬tness of E Commerce, major players in the organization (power brokers), E Commerce skills available, etc. An organization should be a learning unit so that the E Commerce can be absorbed for the bene¬t of SCM. Attaran (2001) focuses on the organizational characteristics of online procurement systems which requires in-house expertise, employeesÕ education, content management, content rationalization, business process reengineering (BPR) implementation, do not count on downsizing and better communication. Cheng et al. (2001) present an e-business infrastructure for construction. The infrastructure focuses on resource planning, teamwork, process improvement tools and techniques, and information management, training and development, and performance measurement. The information systems for supply chain management should be accessibility, compatibility, user-friendly, stability and reliability, minimal training and strong after-sales service. Klouwenberg et al. (1995) argue that the distinction between business architecture and E Commerce architecture is of major importance. In many organizations, the architecture is mainly determined by technical and economic considerations. The organizational aspects are therefore mainly realized by means of the technical opportunities (technology push) and not on the basis of strategic and/or organizational considerations. Within the scope of the business needs, the business architecture o¬€ers the possibility to choose the best E Commerce solutions.

Technological

The industrial revolution that took place in the past decade can be traced to technological innovation such as the Internet and the web. Subsequently, ERP systems have played a major in developing SCM. Also, developments in hardware and telecommunication technologies have occurred in order to meet the rising demands from companies. The ERP systems represent an optimum technology infrastructure that when integrated properly with a process-oriented business design can support the supply chain management systems e¬€ectively (Hicks, 1997; Mullin, 1997). Lau and Lee (2000) propose an infrastructure of a supply chain information system, focusing on the component module necessary for the building up of such a system with a description of the creation of these modules. The proposed supply chain embraces the concept of distributed object technology to enable e¬ƒcient data exchange among various data objects that may reside in distributed platforms over geographically isolated regions. Huang and Mak (2000) develop an overall methodology for enabling better supplier involvement in new product development process and to demonstrate the framework through a prototype of web-based platform on the Internet/intranets using the web technology. Au and Ho (2002) discuss the B2B e-commerce enabled supply chain management and present the E Commerce infrastructure required for SCM. Jayaram et al. (2000) study the e¬€ects of information system infrastructure and process improvements on supply chain time performance. They found that the E Commerce factor along with process improvement variables (standardization and concurrent engineering, CE) had a complementary and signi¬cant positive in¬‚uence on supply chain time performance. SAP R/3 has been widely implemented to create value-oriented supply chains that enable a high level of integration, improve communication within internal and external business networks, and enhance the decision-making process. AlMashari and Zairi (2000) discussed the SAP/R3 implementation case for reengineering supply chain and highlight the importance of E Commerce infrastructure for the successful implementation of SAP/R3 for the reengineering supply chain. Perry and Sohal (2000) analyzed quick response practices and technologies such as EDI, computer-aided design and computer-aided manufacturing in developing supply chains. Sharma and Gupta (2002) present the application of web-centric to improve agility and reduce costs.

Technology management

Information technologies such as XML for representing corporate data, ERP infrastructure that provides support for logistics operations, and web infrastructure allow B2B e-commerce successful or SCM. In the emerging e-procurement marketplaces, ¬rms establish e¬ƒcient web-based electronic relationships that allow for closer integration between buyer-supplier. The reliance on application service providers for high-value e-procurement and other business purchases makes the reliability of knowledge transfer paramount. Clearly, exchanging information must be consistent between buyer to portal and portal to seller and between seller to portal and portal to buyer (Warkentin et al., 2001). Talluri (2000) in his paper highlights the importance of the e¬ƒcient use of information technologies/information systems at strategic, tactical and operational levels of SCM. He presented a multi-objective mathematical model for e¬€ective acquisition and justi¬cation of IT/IS systems for SCM. Spekman et al. (2002) argue that e¬€ective management of one’s supply chain is not easily accomplished. They develop this capability as a core skill that will ultimately separate the winners from the losers. They develop the concept of supply chain competence and use learning as a proxy. Boubekri (2001) describes how ERP is increasingly being used as a technology enabler for SCM and problems associated with its implementation. Motwani et al. (2000) explain the role of IT in managing global technology. There are several researchers (Angeles and Nath, 2000; Nah et al., 2001) whom deal with the information technology management in a supply chain perspectives.

Education and training

Education and training are the most important component of any change process in an organization. In order to be successful, it is important that we have the full co-operation of employees at all levels; otherwise, technologies alone will not help to improve the organizational competitiveness. To implement and subsequently use any IT/ IS, workforce needs to be motivated to work in a transparent and open communication environment. Knowledge workers are important to be successful in capital or technology intensive operations environments. Tracey and Smith-Doer¬‚ein (2001) point out that the human dimension of communication and co-operation across all parties comprises the chain. Van Hoek makes a case for a stronger focus on integrating hot topics and research skill development in logistics courses

Pictorial Representation of relationship among E commerce and SCM

As depicted from above figure, top management participation is important in making strategic decisions in particular, IT investment decisions to achieve an e¬€ective SCM system. It is not just the implementation of a piece of software, but it requires some major changes in business processes and a way the company operates. This requires considerable investment in both capital and people.

Since the market has become global due to trade liberalization policies and e-commerce, it is essential a company chooses the option of global outsourcing or virtual enterprise that is based on core competencies with the objective of being agile to meet the changing market requirements. This requires strategic decisions such as merger and acquisitions with a view to reach the market as quickly as possible and that too with the right products/services. The literature on the strategic planning of IT enabled SCM is further classi¬ed into marketing, economical, organizational and technological perspectives of IT in SCM. The following are the examples of strategic planning for di¬€erent areas of IT in SCM:

• Some companies can implement an IT system to develop an e¬€ective SCM if it has to compete in a market where the speed of delivery and quality are important. • In order to receive ¬nancial and technical support from the government (in particular SMEs), companies implement an IT system to improve their supply chain performance.

• Companies have to compete along multiple competitive performance objectives, this requires the cost reduction as a key criterion, therefore, and they can go for, for example, an Internet-enabled supply chain management.

• Companies have to restructure their business processes with the objective of achieving lean production by implementing an IT system to eliminate non-value-adding activities by improving the communication along the value chain.

• Companies need to develop their e-commerce web site for creating a good image with their customers on technology competencies.

Concluding remarks

It has been demonstrated that E Commerce is an essential ingredient for business survival and improves the competitiveness of ¬rms. As a result of the literature review, we can see that E Commerce has a tremendous in¬‚uence on achieving an e¬€ective SCM. Integrating the supply chain activities is driven by the need to streamline operations to achieve quality service to customers. There are many research articles on E Commerce in SCM, but there is a lack of critical review of the literature with the objective of brings out the pertinent factors that would in¬‚uence the successful application of E Commerce in SCM. In this paper, an attempt has been made to review the literature on E Commerce in SCM and to develop a framework for the development and implementation of E Commerce in SCM. The literature available on E Commerce in SCM has been reviewed based on the major components of E Commerce enabled SCM. Although the literature survey is not exhaustive, it serves as a comprehensive base for an understanding of E Commerce in SCM. This classi¬cation has the objective of bringing out pertinent factors that would support practitioners in their e¬€orts to successfully achieving an E Commerce-enabled SCM. As a result of the literature survey, the major components of E Commerce-enabled SCM comprises of six major areas: (i) strategic planning, (ii) virtual enterprise, (iii) e-commerce, (iv) infrastructure, (v) knowledge and E Commerce management and (vi) implementation. The foundations of a well-developed E Commerce-enabled SCM lie in the preparation of the ground factors of strategic planning and infrastructure from which all development emanates. E Commerce in supply chain strategy needs to be determined by the senior executives in strategic plan. Senior managers and planners should understand that the importance of E Commerce in supply chain and realize that without support of E Commerce systems, it is di¬ƒcult to provides information for making the best supply chain decisions. Besides, the following are comments that derived from the literature survey on E Commerce in SCM:

• The strategic information systems should include the strategic objectives of SCM.

• Information systems architecture needs to be designed for SCM that could be di¬€erent from that of traditional organizations.

• Successful strategic information systems are not easy to implement in SCM. They require major changes in how a business operates internally and with external partner.

• Commercial enterprise information systems require ¬‚exibility in order to accommodate individual organizational characteristics.

• Performance measures and metrics need to be established for measuring the performance and suitability of E Commerce in SCM.

• There is a need for developing standards and legal frameworks for the application of E Commerce in SCM.