Internet Based Supply Chain Management

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    Internet Based Supply Chain Management - Document Transcript

    1. ARTICLE IN PRESS International Journal of Information Management 23 (2003) 493–505 Internet-based supply chain management: using the Internet to revolutionize your business Zillur Rahman* Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee (UA)-247667, India Abstract The Internet has emerged in the recent past as a dynamic medium for channeling transactions between customers and firms in virtual marketplace. In particular, the World Wide Web has emerged as a powerful new channel for supply chain, rendering many intermediaries obsolete, and radically revamping the value chain. The Internet is challenging the traditional supply chain structures that firms have employed to get goods and services to market. In addition, it is forcing firms to re-evaluate their value proposition to customers, and meet the challenges of more nimble rivals. In this article, the author discusses how Internet is being used in the management of various areas of supply chain. r 2003 Elsevier Ltd. All rights reserved. Keywords: Supply chain; Internet; Supply chain management; Business-to-business 1. Introduction The growth of the Web has been phenomenal, and there has been a corresponding growth in commerce on this robust platform. While some firms and industries have rapidly absorbed this new paradigm of competition, there are several others that have been slow to respond to change. This has been partly due to structural reasons, but also in part due to inability and unwillingness by entrenched players to gasp the magnitude and speed of change imposed by competition in such a networked economy. Nowhere have these changes been more evident than in supply chain functions (procurement, inventory control, logistics) (Soloner & Spence, 2002). In the last decade, supply chain management (SCM) has moved from a low profile, ancillary concern to a recognized strategic *Tel.: +91-1332-85081; fax: +91-1332-73560. E-mail address: zrahman786@yahoo.com, yusuffdm@iitr.ernet.in (Z. Rahman). 0268-4012/$ - see front matter r 2003 Elsevier Ltd. All rights reserved. doi:10.1016/j.ijinfomgt.2003.09.004
    2. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 494 component with tangible, positive impact on the firms bottom line. Time was when companies looked at their supply chains as a means of focusing on their own core competencies, of leveraging those of vendors, of lowering their costs, and of becoming more responsive to customers. With the advent of Internet and www; the goals would be superseded by a single superobjective: competing on the basis of how well managed your supply chain is (Lancioni, 2000). Successful SCM requires a change from managing individual functions to integrating activities into the key supply chain process. The advantages far outweigh the effort involved in accessing the final product; a seamless supply chain that operates fluidly and benefits the entire chain. Several parallel forces reshaping the world of global business are contributing to this shift of the supply chain from a position where it was critical to cost and quality to one where it is becoming one of the most powerful ways for companies to offer greater, and differentiated, value to customers (Boyer, 2001). Manufacturing is giving way to assembling on shop floors since companies no longer find it either economical or quality smart to be vertically integrated. For example, the Mumbai-based BlowPlast used to buy lock components and give them to an assembler. It would then test them before passing them on to its manufacturing line. Today, it procures entire lock assemblies tested and certified for quality by its vendor. This was the result of \" an analysis of transaction-cost vis-a-vis material costs, which revealed the inefficiencies in the system. Indeed, every component and raw material and, in some cases, even the design that goes into a product needs increasingly specialized manufacturing expertise. Larsen & Toubro, for instance, outsources its CAD/CAM designs for gas turbines for power stations instead of doing itself. Hero Motors shops for its post-engineering moulds and dyes in Taiwan, Japan, and Europe. Reebok outsources its entire product range, limiting itself to marketing. Any company that focuses only on value adding to inputs can benefit by outsourcing from specialists (Business Today, 2000 February 7). Thus there are the competitive advantages in shifting from the shop floor to getting those inputs into the company, or, from manufacturing to managing the supply chain. Consider how the Delhi-based Liberty Shoes is able to introduce 1000 new styles every year. While the dummy foot is created in Italy, Korea, Spain or Germany, moulds for soles also come from Italy and Germany. The uppers are designed indigenously through internal CAD/CAM facilities and specialized designs are also brought from design studios in Europe. At the same time, another major upheaval is taking place in all industries around the world: the emergence, in the post-net economy, of the truly global marketplace (This is turning the conventional wisdom of SCM upside down in many cases (Fisher, Hammod, Obermeyer, & Raman, 1994). In the past, a great supply chain meant long-term relationships with vendors, with the company and the supplier working together to improve design, boost quality, reduce costs, and share the benefits. Good supply chain managers have been shopping in labor-intensive countries with low-cost manufacturing bases. But, even there, the assumption was that the relationships are meant to be long term. But now, it has become quicker, cheaper and, by implication, smarter to shop globally, using the Net (Harvey & Richey, 2001). The supplier could be different each time since pricing of Net-based transactions is becoming flexible, being determined more by demand and supply at the specific time you want to make your purchase rather than by any fixed-pricing strategy on the part of the seller (Poirier & Bauer, 2002).
    3. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 495 For instance, when the Bangalore-based Wipro’s fluid power division needs rubber seats for its hydraulic cylinders, it shops for suppliers in the UK, Japan, the US, and Germany on the Net for the best bargain each time it needs to import them. Lift manufacturer Otis Elevators found an excellent bargain for its traveling cables in the form of a Swiss supplier, which lowered the input costs by 25%. The outcome of these two forces is that the supply chain can no longer be the carefully cultivated, long-term relationship-driven construct that it used to be (Reyonlds, 2000). Instead, finding the right supply chain, given your strategic needs, will be a constant matter of choosing the right options from a menu which is itself in a constant state of flux (Rayport & Sviolka, 1995). Few challenges are tougher—particularly since this will not allow you to abandon earlier practices like Just-in-time supplies or collaborative design. That is why competition in tomorrow’s markets will, essentially, be a clash between competing supply chains explaining why your supply chain can be a source of competitive advantage (Kalokota & Robinson, 2000). Competitive advantage flows from the ability of a company to perform activities on the industry’s value chain designing, or manufacturing, or servicing, for instance—in a way that offers greater value to the customer than those of competitors. In this deconstructed value chain, major value addition is done not by the manufacturer and the marketer, but by those who supply the components and raw material. In the TV industry, for instance, tuners and electronic gadgets undergo such changes that all TV manufacturers rely heavily on the supplier’s ability to introduce new concepts and components. The focus, in this situation, must shift from building differentiation into the company’s activities to ensuring that the players in its supply chain are building differentiation into theirs. A carmaker, thus, cannot expect to offer value to its customers from the way that it assembles its vehicles. Instead, it must ensure that its suppliers perform their tasks such that the specific component that each manufactures can offer give greater value to the customer. So, the aggregation of the unique customer value that a company can extract from its entire supply chain can provide it with a definitive advantage. 2. Objectives of the study In order to determine to what extent Indian companies are using the Internet in the operations and management of their supply chains, the author conducted a nation-wide survey of firms that appeared in the list of 1000 companies published by Business Standard, a leading business daily in India (Business Standard, 2002). The objectives of the study were to determine 1. whether firms use the Internet in their supply chains, 2. how and to what extent the Internet is used in customer service, 3. how and to what extent the Internet is used in purchasing, 4. how and to what extent the Internet is used in material handling systems, 5. how and to what extent the Internet is used in the transportation operations and management of transportation fleet, 6. how and to what extent the Internet is used in the backing of products.
    4. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 496 3. Methodology 3.1. Sample All the companies that appeared in the list of 1000 companies were sent an E-mail questionnaire. The research questionnaire was three pages in length, covering all aspects of SCM (see Appendix A for a listing of the issues that were covered). One hundred and forty completed questionnaires were returned via E-mail, a response rate of 14%. Although this is a relatively low response rate, the number of returns may be compensated by the extreme heterogeneity of the industries and companies represented by the respondents (see Appendix B for a listing of respondent industries and companies). Beside the seven substantive supply chain decision areas (see Appendix A), the questionnaire also addressed Extranet and Intranet usage. All of the supply chain dimensions addressed in the questionnaire were analyzed using student T-test, multiple response, and cross-tab analyses. Internet, Extranet, and Intranet usage was also explored by contrasting the size of the firm (measured in terms of sales). 3.2. Findings A total of 80% of the respondents indicated using the Internet in some part of their SCM. This result should be viewed with caution due to the self-selection bias inherent in this type of survey. In light of those firms who do use the Internet for SCM, the most popular application (Table 1) was for the management of their transportation systems. The area in which the Internet was least used in SCM was production scheduling. Tables 2–8 provide results for how and to what extent the Internet is used in each of the logistics functional areas (1—little usage; 5—high usage). 3.3. Supply chain management (SCM) The research showed that the most popular use of the Internet for SCM is in transportation, followed next by order processing, managing vendor relations, purchasing procurement, and customer service (see Table 1). The ranking is explained by the level of operating activity in each area, i.e., shipment frequency, the number of orders received, and the level of expenditures made Table 1 Internet applications by logistics decision area Application % using Rank Purchasing/procurement 49 4 Inventory management 30 6 Transportation 50 1 Order processing 45 2 Customer service 37 5 Production scheduling 07 7 Relations with vendors 40 3
    5. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 497 Table 2 Purchasing/procurement applications % using Rate of usage EDI with vendors 30 2.14 Purchase from catalogs 32 2.50 Communicate with vendors 45 3.00 Negotiate with vendors 29 2.00 Check vendor price quotes 30 2.00 Damaged products to vendors 15 1.00 Vendor warranty issues 15 1.00 Table 3 Inventory management applications % using Rate of usage EDI programs with vendors 25 3.55 JIT delivery programs 25 3.50 Communicate out-of-stock 32 3.65 Order ship date delays 38 3.00 Raw material inventory levels 22 3.17 Emergencies affecting inventory 32 3.05 Finished goods inventory levels 25 3.20 Field warehouses/depots inventory levels 35 3.17 Field depots on out-of-stock 27 3.05 Table 4 Transportation applications % using Rate of usage Pickups, regional distribution centers 22.3 3.18 Drop-offs, regional distribution centers 21.9 2.94 Monitor on-time arrivals of carriers 41.1 3.07 Managing claims, overall performance 26.0 2.43 by firms to support each one. The use of the Internet in customer service, inventory management, and production planning and scheduling will become more popular as the technology develops. 3.4. Purchasing and the Internet The research demonstrates that the Internet is utilized in a variety of procurement applications including the communication with vendors, checking vendor price quotes, and making purchases from vendor catalogs (Table 2). Vendor negotiation has also been streamlined through the use of the Internet. Face-to-face negotiations are not used frequently because the negotiations are
    6. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 498 Table 5 Order processing applications % using Rate of usage Customer order status/placement 52.1 3.26 Vendor order efforts 27.3 3.05 Customer on out-of-stock 28.8 3.33 Check customer credit 22.3 2.88 Check vendor credit 21.5 2.53 Returned customer merchandise 21.5 3.67 Total customer order cycle performance 22.4 3.30 Credit processing status to customers 21.5 2.00 Obtain price quotes from vendors 19.2 2.36 Provide price quotes to customers 31.1 3.00 Table 6 Customer service applications % using Rate of usage Receive customer complaints 43.8 2.59 Provide technical service 29.8 2.81 Notify customers of emergencies 33.9 2.79 Sell to customers 47.9 2.63 Manage outsourcing of service 15.1 2.36 Table 7 Vendor relations applications % using Rate of usage Vendor deliveries 26.0 2.95 Vendor raw material stock levels 13.7 1.40 Purchase from on-line catalogs 4.11 2.17 Receive queries from vendors 38.4 2.00 Provide vendor information from queries 28.8 2.05 Vendor ratings on overall performance 23.3 2.24 Process returns/damaged products 24.7 3.00 Ratings of on-time performance of carries 20.5 1.80 conducted through the Internet. This includes the bargaining, renegotiation, price, and term agreements. 3.5. Inventory management and the Internet One of the most costly aspects of supply chains is the management of inventory. The research has shown that the most popular use of the Internet in this area is the communication of
    7. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 499 Table 8 Production scheduling applications % using Rate of usage Coordinate schedules with vendors 21.9 2.63 Coordinate schedules with field depots 13.7 2.50 Coordinate with JIT of vendors 20.5 3.00 Coordinate schedules with multiple Indian 19.1 2.07 sites Coordinate schedules with multiple 16.4 1.92 International sites stock-outs by customers to vendors, or the notification of stock-outs by companies to their customers. The Internet has enabled companies to more quickly institute EDI information programs with their customers (Table 3). The Internet has affected inventory, management most dramatically in the ability of firms to be proactive in the management of inventory systems. This is demonstrated in the ability of firms to notify customers of order-shipping delays and inventory emergencies. The research showed that the information available to inventory managers is becoming more readily available because of the reporting systems that can be used through the Internet. The Internet also provides managers with the ability to track out-of-stock inventory items in field depots. The overall benefit of the Internet to firms in managing inventory in their supply chains is to keep inventory levels low, reduce overall holding costs, and still provide high levels of customer service. 3.6. Transportation and the Internet The most popular use of the Internet in supply chains is in the management of transport. Transportation typically is the second highest cost component in a supply chain (see Table 4). The research showed that the monitoring of pickups at regional distribution centers by carriers is the most popular application of the Internet in this area. This enables transportation managers to make sure that the motor carriers they use are meeting their promised arrival times. It also provides managers with the information they need to inform carriers of shipment delays as they occur, and to not have to wait for days before the information becomes available for corrective measures to be taken. 3.7. Order processing and the Internet The second most popular use of the Internet in supply chains is in order processing applications (see Table 5). The most frequent use of the Internet here is in order placement and order status. Over half of the firms use the Internet for this purpose. This has dramatically reduced the costs of order processing, which before the Internet accounted for approximately 18–20% of the total cost of managing a supply chain system. A major component of this cost saving is the reduction of paperwork involved in traditional order processing systems because of the Internet. The reduction in order-cycle time, or the time between the order is placed and the time it is received by a
    8. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 500 customer has been reduced by as much as one-half. The study revealed that the most frequent rate of usage of the Internet in order processing was in the handling of return goods (3.67%) followed by out-of-stock notification of the customer (3.33%). Of course, the greatest usage of the Internet here is in order placement and order status (52.1%). The accuracy of pricing is of utmost importance in order processing, and the Internet provides companies with the ability to check vendor prices on-line before an order is placed (Table 5). 3.8. Customer service and the Internet The Internet has provided firms with the ability to offer their customers another way to contact the firm regarding services issues. The research shows that 43.8% of the companies use the Internet to receive customer complaints, while 33.9% utilize it for emergency notifications (see Table 6). The Internet also gives customers 24-hour access to a company’s service department, enabling customers to immediately notify companies of any services issues or problems that may arise. The overall effect has led to reduced response times and resolutions of customer service problems. The two-way communication capability of Internet can have a profound effect on cementing customer–firm relationships. Experience with Internet service systems shows that customers whose service issues are dealt with quickly and to their satisfaction, are more likely to want to purchase the firm’s products again. The Internet can build strong product and service loyalty if used appropriately in the customer service area. 3.9. The Internet and vendor relationships The Internet has proven itself to be an important communication link with vendors. The research showed that the most widespread use of the Internet here is in purchasing from on-line catalogs (41.1%). An example of this is shown in the results of the research in Table 7. The receipt of queries from vendors (38.4%), providing vendors with information (28.8%), and the processing of return and damaged goods (24.7%) were all handled by the Internet. Again, the Internet enables vendors and their customers to handle these functions on a 7-day/24-hour basis. 3.10. The Internet and production scheduling The Internet has enabled Indian firms to minimize the difficulty in their production scheduling by improving the communication between vendors, firms and customers. In addition, the study showed that 21.9% of the firms are beginning to use the Internet to coordinate their production schedules with their vendors (see Table 8). This communication is not only being done domestically, but internationally as well, with over 16.4% of the firms coordinating their production schedules with multiple overseas sites. 3.11. Intranet usage The research showed that 70.4% of the firms indicated the use of Intranet. The principal use of an Intranet was for communication (59%).
    9. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 501 3.12. Extranet usage The use of an Extranet was also explored, with 30.1% of those using the Internet for SCM indicating that they also use an Extranet. Significant results for those using an Extranet included those in inventory management decisions where Extranet users were more likely to use EDI programs with vendors (t ¼ 3:96; po0:001); those who were more likely to use the Internet to communication with customers on out-of-stock (t ¼ 2:43; po0:024); those who were more likely to notify customers on order shipping delays (t ¼ 2:40; po0:25); and those who were more likely to use the Internet to communicate with field warehouses and depots on inventory levels (t ¼ 2:49; po0:23). Those who used the Extranet were also more likely to use the Internet for scheduling pickup at regional distribution centers (t ¼ 2:31; po0:036); receive customer complaints (t ¼ 2:26; po0:033); and receive information queries from vendors (t ¼ 3:05; po0:006). 3.13. Company size and the Internet Internet usage was also explored in the context of the size of the firm with sales volume. The results for the size of firm determined by sales indicate that smaller firms use the Internet more (1) to communicate with vendors on finished-goods inventory levels (t ¼ 2:09; po0:059); (2) to communicate with customers on out-of-stocks (t ¼ 2:11; po0:049); (3) to check the credit status of customers (t ¼ 2:56; po0:022) and of vendors (t ¼ 2:75; po0:016); (4) to obtain price quotes from vendors (t ¼ 5:92; po0:001); and (5) to provide technical service (t ¼ 2:95; po0:008). Conversely, larger firms use the Internet more to purchase items from vendor on-line catalogs and supply lists (t ¼ À2:02; po0:053) and to provide vendors with ratings for the on-time performance of their carriers (t ¼ À2:25; po0:043). 4. Management implications The advent of Internet has transformed industries and redefined the rules of competition. The old rules still exist, but they have also given way to new channels and info-mediaries, and changed the nature of relationships between businesses and between businesses and their customers. Given current trends, the Internet’s influence will continue to grow into the foreseeable future as businesses collaborate with suppliers and partners; source, produce and distribute products and services globally. The Internet has and will continue to provide managers with fast and accurate information from a wide range of operating areas including transportation, inventory, purchasing, customer service, production scheduling, order processing, and vendor operations to enable them to improve profitability of their supply chain. On a continuing basis, the Internet will enable logistics managers to monitor their supply chain operations and reduce costs when inefficiencies arise. The effects of this are and will continue to affect the profitability of firms dramatically.
    10. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 502 Appendix A Supply chain management decision areas Purchasing/procurement Inventory management Transportation Order processing Customer service Production scheduling Relations with vendors Purchase/procurement decision areas EDI programs with vendors On-line purchasing from vendor catalogs Communicating with vendors Negotiation with vendors Checking price quotations of vendors Arranging for returned/damaged products to vendors Dealing with warranty issues of vendors Inventory management decision areas EDI programs with vendors Coordination of JIT delivery programs Communication with customers on out-of-stocks, etc. Notification of delays in order ship dates to customers Communication with vendors on raw-material inventory levels Communication with customers on emergency situations affecting inventory levels Communication with vendors on finished-goods inventory levels Communication with field warehouses and depots on field inventory levels Communication with field depots on out-of-stock situations, emergencies, etc. Transportation management decision areas Scheduling pickups at regional distribution centers Scheduling drop-offs at regional distribution centers Monitoring on-time arrivals of carriers Managing claims status and processing communication with carriers on overall performance Order processing management decision areas Communication with customers on orders status Communication with vendors on order efforts Communication with customers on out-of-stocks Check credit status of customers Check credit status of vendors Communication with customers on returned merchandise
    11. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 503 Providing total order-cycle performance for customers Providing credit-processing status to customers Obtaining price quotes from vendors Providing price quotes to customers Customer service management decision areas Receipt of customer complaints Providing technical service Notifying customers of emergencies in the supply chain-strikes, fires, etc. Use of Internet to sell to customers Manage the outsourcing of customer service functions Production scheduling decision areas Coordination of production schedules with vendors Coordination of production schedules with field depots Coordination of production schedules with JIT schedules of vendors Coordination of production schedules of multiple manufacturing sites in India Coordination of production schedules of multiple manufacturing sites at international locations Vendor relations decision areas Coordination of deliveries of vendors to field warehouses and depots Communication with vendors regarding raw-material stock levels at their plant sites Purchasing of items from vendor on-line catalogs—supply lists Receipt of information queries from vendors Provision of information regarding vendor queries Providing vendors with service ratings on their overall performance Processing of returned materials, damaged products to vendors Providing vendors with ratings of the on-time performance of their carriers Appendix B Respondent industries Auto ancillary * Automobile-2/3 wheelers, HCV/MCV/LCV, tractors * Breweries/distilleries * Cement and cement products * Ceramic tiles/sanitary ware * Chemicals * Cigarettes * Construction * Domestic appliances—audio/video, white goods and others *
    12. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 504 Electrical equipment * Electronics * Engineering * Entertainment * Fertilizers * Food products * Hotels * Information technology * Leather footwear/products * Moulded luggage * Packaging—metallic and polys/BOPP film * Paints * Paper * Personal care products * Pharmaceuticals * Power * Services—couriers/transport * Shipping * Steel—alloys, composite, HR/CR/GP/CG, strips/bars/wires, tubes/pipes * Sugar * Tea/coffee * Telecommunication * Textile—cotton, manmade fibers, readymade apparels, silk/jute/woolen, spinning/weaving/ * processing, texturing Trading * Tires * References Boyer, K. K. (2001). E-operations. A guide to streamlining with the Internet. Business Horizons, Jan–Feb, 47–54. Business Standard. (2002). BS 1000. March, New Delhi. Business Today. (2000). Logistics: Your next source of competitive advantage. Feb 7, 74–83. Fisher, M., Hammod, J. H., Obermeyer, W. R., & Raman, A. (1994). Making supply meet demand in an uncertain world. Harvard Business Review, May–June. Harvey, M. G., & Richey, R. G. (2001). Global supply chain management. Journal of International Management, 7(2), 105–128 (Summer). Kalokota, R., & Robinson, M. (2000). E-business: Roadmap for success. Pearson Education Asia, New Delhi, pp. 195–263. Lancioni, R. (2000). New developments in supply chain management for the millennium. Industrial Marketing Management, 29(1), 1–6. Poirier, C. C., & Bauer, M. J. (2002). E-supply chain: Using the internet to revolutionize your business. International Journal of Quality and Reliability Management, 109(4), 485–486. Rayport, J., & Sviolka, J. (1995). Exploiting the virtual value chain. Harvard Business Review, Nov–Dec, 75. Reyonlds, J. (2000). E-commerce: A critical review. International Journal of Retail and Distribution Management, 28(1), 417–444.
    13. ARTICLE IN PRESS Z. Rahman / International Journal of Information Management 23 (2003) 493–505 505 Soloner, G., & Spence, A. M. (2002). Creating and capturing value: Perspectives and cases in electronic commerce. New York, NY: Wiley. Zillur Rahman is Assistant Professor in the Department of Management Studies at Indian Institute of Technology Roorkee, India. He holds a Master of Business Administration degree and Ph.D. in Business Administration from The Aligarh Muslim University, India where he was also a Lecturer in the Department of Business Administration. He has published extensively in various National and International journals. His current research is focused on International Business, Information Systems, E-Commerce, and Strategic Management.

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