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Chopra2 ed ch18new (1)


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Chopra2 ed ch18new (1)

  1. 1. © 2004 Prentice-Hall, Inc. 18-1Chapter 18E-Business and the Supply ChainSupply Chain Management(2nd Edition)
  2. 2. © 2004 Prentice-Hall, Inc.OutlineThe Role of E-Business in a Supply ChainThe E-Business FrameworkThe B2B Addition to the E-Business FrameworkE-Business in Practice
  3. 3. © 2004 Prentice-Hall, Inc.Role of E-Business in a Supply ChainE-business: Execution of business transactionsover the InternetB2C: Business to consumerB2B: Business to business
  4. 4. © 2004 Prentice-Hall, Inc.E-Business TransactionsProviding information across the supply chainNegotiating prices and contractsAllowing customers to place ordersAllowing customers to track ordersFilling and delivering orders to customersReceiving payment from customersPlacing orders with suppliersPaying suppliersThese transactions were previously done throughother channels
  5. 5. © 2004 Prentice-Hall, Inc.The Impact of E-Business onSupply Chain PerformanceImpact of E-Business on Responsiveness (whichprimarily affects a company’s ability to grow andprotect revenue)Impact of E-Business on Efficiency (whichprimarily affects a company’s costs)
  6. 6. © 2004 Prentice-Hall, Inc.Impact of E-Businesson ResponsivenessOffering direct sales to consumers24-hour access from any locationWider product portfolio and information aggregationPersonalization/customizationFaster time to marketFlexible pricing, product portfolio, and promotionsPrice and service discriminationEfficient funds transferLower stockout levelsConvenience/automated processesPotential revenue disadvantage of e-business (for customerswho require a short response time)
  7. 7. © 2004 Prentice-Hall, Inc.Impact of E-Business on CostInventoryFacilitiesTransportationInformation
  8. 8. © 2004 Prentice-Hall, Inc.The B2C E-Business Scorecard(Table 18.1)++ Very positive; + Positive; = Neutral; - Negative; -- Very negativeInformationPrice discriminationTransportationFlexible pricingFacilitiesTime to marketInventoryPersonalizationConvenienceProduct portfolioLower stockouts24-hour accessEfficient fundstransferDirect salesImpactAreaImpactArea
  9. 9. © 2004 Prentice-Hall, Inc.Applying the E-Business FrameworkPC IndustryBook IndustryGrocery IndustryMRO Supplies Industry
  10. 10. © 2004 Prentice-Hall, Inc.Revenue Impact of E-Businesson the PC Industry (Dell)Sells PCs directly to customers and starts assembly afterreceiving a customer orderRevenue disadvantage for customers who do not want towait or who need a lot of help setting up a computerRevenue advantages:– Offer virtually unlimited different PC configurations– Bring new products to market faster– Fast at providing customized PCs– Price flexibility– Direct selling eliminates distributor and retailer margins– Negative working capital
  11. 11. © 2004 Prentice-Hall, Inc.Cost Impact of E-Businesson the PC IndustryInventory costs – geographic aggregation,postponement, dampening of bullwhip effectFacility costs – no physical distribution or retailoutlets; customer participationTransportation costs – higher outboundtransportation costs (PCs are shippedindividually)E-Business impact for Dell (Table 18.2)– Significantly improved performance– Exploited every advantage provided by the Internet
  12. 12. © 2004 Prentice-Hall, Inc.The Impact of E-Business on DellPerformance (Table 18.2)++ Very positive; + Positive; = Neutral; - Negative; -- Very negativeImpactAreaImpactArea=Information=Price discrimination-Transportation++Flexible pricing++Facilities++Time to market++Inventory++Personalization=Convenience++Product portfolio+Lower stockouts+24-hour access++Efficient fundstransfer++Direct sales
  13. 13. © 2004 Prentice-Hall, Inc.Value of E-Business for aTraditional PC ManufacturerPotential value for traditional PC firmUse e-business to sell customized PCs that arehard to forecastSell standard configurations through traditionalchannelsIntroduce new models on the InternetAllows lower inventory
  14. 14. © 2004 Prentice-Hall, Inc.Revenue Impact of E-Businesson the Book Industry (Amazon)Negative:– An additional stage in the supply chain – the distributor (thisis more of a cost impact)– Downward price pressure– Does not attract customer who has a short response timerequirement or prefers to examine a book before purchasePositive:– Offers millions of books– Uses Internet to recommend books– Provides reviews and comments from other customers– Quickly introduces new titles– Allows shopping 24 hours, 7 days/week
  15. 15. © 2004 Prentice-Hall, Inc.Cost Impact of E-Businesson the Book IndustryInventory costs – geographic aggregation of high-volume books; purchases low-volume books fromdistributor after customer orderFacility costs – no retail outlets, but higher order-processing costsTransportation costs – very highE-business impact at Amazon (Table 18.3)– Mixed, few profits as yet– There are not as many advantages to selling books on theInternet compared to selling PCs
  16. 16. © 2004 Prentice-Hall, Inc.Impact of E-Business (Table 18.3)++ Very positive; + Positive; = Neutral; - Negative; -- Very negativeImpactAreaImpactArea-Information=Price discrimination--Transportation+Flexible pricing+Facilities+Time to market+Inventory+Personalization=Convenience++Product portfolio+Lower stockouts+24-hour access=Efficient fundstransfer=Direct sales
  17. 17. © 2004 Prentice-Hall, Inc.Value of E-Business for aTraditional Bookstore ChainCan benefit from setting up complementarye-businessCarry high-volume books in stores, sell low-volumebooks online to take advantage of aggregationProvide access to online business in storesCan possibly use technology to print a book ondemandCan deliver books sold online to stores and allowcustomers to pick them up there
  18. 18. © 2004 Prentice-Hall, Inc.Revenue Impact of E-Businesson the Grocery Industry (Peapod)Online grocerSelling convenience, especially in urban areasSpecialty food stores also sell conveniencePeapod provides a customized shoppingexperience based on customer preferences, whicha supermarket cannot doProvides opportunities for targeted advertising;selling information about customers
  19. 19. © 2004 Prentice-Hall, Inc.Cost Impact of E-Businesson the Grocery IndustryInventory costs: lower inventories, but aggregation islimited because of the need for local fulfillment centers andthe fact that most groceries are staples with steady demandFacility costs: no retail outlets, but higher order processingcostsTransportation costs: higher transportation costs– inbound and outbound transportation costs– groceries have a relatively low value-to-weight ratioE-business impact at Peapod (Table 18.4)– some revenue advantages but higher costs– less cost advantage for groceries than for books or PCs
  20. 20. © 2004 Prentice-Hall, Inc.Impact of E-Businesson Peapod (Table 18.4)++ Very positive; + Positive; = Neutral; - Negative; -- Very negative-Information=Price discrimination--Transportation+Flexible pricing-Facilities=Time to market=Inventory+Personalization++Convenience=Product portfolio=Lower stockouts+24-hour access=Efficient fundstransfer=Direct salesImpactAreaImpactArea
  21. 21. © 2004 Prentice-Hall, Inc.Value of E-Business for aTraditional Grocery ChainE-business could be a beneficial complement to atraditional grocerE-business used to offer convenience to customerswho are willing to pay for itCan offer a wide range of services at differingprices based on the amount of work done by thecustomerAlbertson’s is an example of this approach
  22. 22. © 2004 Prentice-Hall, Inc.Using E-Business to SellMRO Supplies: Grainger.comGrainger is a distributor of maintenance, repair,and operating suppliesTraditional part of the business is through catalogor in-person ordersAlso sells online:–––
  23. 23. © 2004 Prentice-Hall, Inc.Revenue Impact ofE-Business for GraingerPrices for MRO supplies will drop because of theInternetBut revenue enhancement for Grainger– Customer can access all 220,000 items (limited to 80,000in catalog)– Searching for items is simpler on the Internet– FindMRO and OrderZone allow the offering of a largervariety of products– A new product can be offered for sale as soon as it isintroduced– Customers can place and check on orders anytime
  24. 24. © 2004 Prentice-Hall, Inc.Cost Impact of E-Businesson Grainger (MRO supplies)Inventory costs – slightly lower throughaggregation and lower lead timesFacility costs – lower order processing costs,some branches may be closedTransportation costs – no change likelyE-business impact at Grainger (Table 18.5)– Marginal improvement in revenue– Decrease in order processing cost– Benefits to customers
  25. 25. © 2004 Prentice-Hall, Inc.Impact of E-Businesson Grainger (Table 18.5)++ Very positive; + Positive; = Neutral; - Negative; -- Very negative-Information=Price discrimination=Transportation+Flexible pricing+Facilities+Time to market=Inventory+Personalization+Convenience++Product portfolio=Lower stockouts+24-hour access=Efficient fundstransfer=Direct salesImpactAreaImpactArea
  26. 26. © 2004 Prentice-Hall, Inc.The B2B Addition to theE-Business FrameworkThe wide variety of factors potentially important inB2C transactions can be reduced to three principalcategories:– Reduced transaction costs– Improved market efficiencies– Supply chain benefits
  27. 27. © 2004 Prentice-Hall, Inc.Transaction Costs: When E-BusinessWill Have a Positive ImpactTransactions are frequent and small in sizePhone and fax are the current method of transmittingordersA lot of effort is spent reconciling product andfinancial flows
  28. 28. © 2004 Prentice-Hall, Inc.Improved Market Efficiencies: WhenE-Business Will Have a Positive ImpactLimited buyer/seller qualification is requiredA fragmented market exists with many competingplayers either on the buy or sell sideA large number of buyers/sellers can be attracted tothe online site
  29. 29. © 2004 Prentice-Hall, Inc.Supply Chain Benefits: WhenE-Business Will Have a Positive ImpactThe bullwhip effect is quite significant due toinformation distortion in the supply chainThe supply chain as a whole achieves low inventoryturns and poor product availabilityEach stage has little visibility into either the customeror supplier stageThere is little collaboration in the supply chain interms of promotions and new product introductionProduct life cycles are short
  30. 30. © 2004 Prentice-Hall, Inc.Application of the B2BE-Business FrameworkFigure 18.4: The E-Business Value PropositionFigure 18.5: A Decision Tree Representation of theB2B Addition to the E-Business Framework
  31. 31. © 2004 Prentice-Hall, Inc.B2B E-Business Value Proposition(Figure 18.4)Reduced Transaction ChargesMarket EfficienciesSupply Chain BenefitsEaseofImplementationEasyHardValue CreatedLow High
  32. 32. © 2004 Prentice-Hall, Inc.E-Business in PracticeIntegrate the Internet with the existing physicalnetworkDevise shipment pricing strategies that reflect costsOptimize e-business logistics to handle packages, notpalletsDesign the e-business supply chain to handle returnsefficientlyKeep customers informed throughout the orderfulfillment cycle
  33. 33. © 2004 Prentice-Hall, Inc.Summary of Learning ObjectivesWhat is the role of e-business in the supply chain?What are the effects of e-business on supply chainperformance?How can the e-business framework be used toevaluate whether a company is a good candidate fore-business and where the company should target itse-business efforts?