Business-To-Business: Processes of Supply Chain - Case Study Example

Business-To-Business: Case Study Faculty I. Introduction II. Supply Chain i. Definition ii. Processes of Supply Chain III. Business-to-Business i. Need of B2B Marketplace ii. Market Places in B2B Business iii. Developments in B2B iv. Case 1: Organic Coffee v. Case 2: Noble Jewellery Limited, Hong Kong vi. Case 3: Auto Industry vii. Case 4: E-Bay viii. Risk involve in Supply Chain Management IV. Conclusion V. Reference i. Introduction Technological advancements in the area of technology and management is enabling the suppliers and companies to sell the products and services in a cost effective manner without compromising on quality. In today’s scenario almost all business has its intranet or Internet network. Thorough which it is able to communicate efficiently, process orders and keep its partners and members updated. Internet offers a cost effective medium for exchange of information. This information can be very crucial for the supply chain management and consumer service. Within a supply chain a company interacts with its suppliers, dealers and distributors, various franchise and other members of the supply chain to make the order available on time for the customer. This platform is used for the business transactions. The business-to-business transactions have been largely influenced by it. This paper discusses the influence of Internet on B2B environment. The paper starts with the introduction to supply chain management. Here we discuss the various aspects of supply chain management. The next section deals with the business-to-business environment analysis. This segment includes examples of some major business players in the market. ii. Supply Chain Information Communication Technology and explosion of the Internet definitely have broken the barriers of traditional and trans-national communication. Information about products and services can easily be linked which facilitates the supply chain management. iii. Definition Chalasani & Sounderpandian (2004) describe supply chain, “As a network of collaborating partners who collectively engage in activities such as procurement and transformation of materials into products, and distribution of products to customers”. Figure 1: Collaboration Between Various Partners of Supply Chain Management System In another definition by Kaufman, he describes supply chain management as to … “remove communication barriers and eliminate redundancies through coordinating, monitoring and controlling processes”. According to Handfield and Nichols, “three major forces drive towards an integrated approach to the effective supply chain management” - the information technology has given a revolutionary mould to the process of globalisation. Increased levels of global competition has created more demanding customer. Various forces like suppliers and distributors bargaining powers, socio-technological contexts and political-legal frameworks of different nations and others drive the market. There is immense pressure on the organizations to keep their cost low, make the product available on right time at right places and integrate with various suppliers of the manufacturing and distribution network. iv. Processes of Supply Chain The three main supply chain processes are – information systems, inventory management, and the customer relationships. Metz defines supply chain management as a process-oriented, integrated approach to procuring, producing, and delivering products and services to customers and has a broad scope that includes sub-suppliers, suppliers, internal operations, trade customers, retail customers, and end users. Considering all the various definitions of supply chain management, it can be said that SCM includes mutual faith, co-operation, collaboration, partnerships, sharing information and technology. Effective supply chain management should be able to serve customers in the market satisfactorily. Information technology and logistics are the basis on which the supply chain can improve. Handfield and Nichols state “…without a foundation of effective supply chain organizational relationships, any efforts to manage the flow of information or materials across the supply chain are likely to be unsuccessful”. Figure 2: Dimensions of Supply Chain Integration As cited by Lee the supply chain integration constitutes the following three dimensions: information integration, coordination, and organizational linkage. v. Business-to-Business The term “B2B marketplace” can be defined as “A World Wide Web site where goods and services can be bought from a wide range of suppliers” (Ramsdell, 2000 cited by Lu & Antony, 2003). Graham & Hardaker (2000) emphasize that supply chain B2B e-commerce helps minimize complexity and increase flexibility while contributing to high degrees of collaboration and operational efficiency (cited by Iyer et al.,). Claro & Claro (2004) believe it is necessary to invest in B2B relationships and to manage this investment to ensure their repeat business. vi. Need of B2B Marketplace Any product or service is a combination of various materials and inputs. For any business firms it would be very complicated if it has to manufacture each and every thing it sells. For instance if a company is selling cars, than there are various parts which goes in the manufacturing of the car. The firm may not manufacture all these parts. It would outsource some of them like small nut and bolts, leather seats, lights and bulbs, mats and various other small and big components. The communication requirement in this case would be high. The focus on concepts like “Just in Time” “Quality Control” and Kaizan etc has pressurized the companies to get the manufacturing products delivered on time just few hours before its use. This puts lots of stress on communication need, specifically related to transportation. Companies use B2B in a variety of ways. Inventory management, production planning and order fulfilments are some of the supply chain processes, which have benefited through business-to-business exchanges as they provide one-to-one communication. vii. Market Places in B2B Business Hoffman et al., (2002), describe three types of market place, namely the Public e-markets, the consortia, and the private exchanges. In the public e-markets, many buyers and sellers converge at one point and it is open to public. Only equity holders and select trading partners have access to the consortia while the private exchanges like Wal-Mart and Dell computers are privately owned and can be accessed only through invitation. Here the focus is on the process rather than the price and is based on information exchange. viii. Developments in B2B Various technological developments and innovation like the electronic data interchange (EDI) help improve speed and efficiency and reduce transaction costs (Hsieh & Lin, 2004). Businesses around the world do global procuring and sourcing. EDI shortens the cycle and order fulfilment times. B2B receives an impetus through the EDI because manufacturers, suppliers, and customers can be in direct contact with each other. Hoffman et al., cite the example of Dow Chemical who used a flexible EDI network to ascertain the inventory levels and forecast demand. Dow Chemical started its private exchange with 200 customers in 1999 and by the end of 2001; they had 8000 customers spread across 35 countries. The customers benefit through this exchange as they can view their purchase histories, plan their future orders and check availability of products. The suppliers, on their part, get a clear picture of the buying habits of the customers and this helps them to forecast demand, control inventory, schedule manufacturing. The exchange can track all interactions with the customers and the company’s cost per transaction reportedly came down to $1 from about $50. ix. Case 1: Organic Coffee Claro & Claro have studied the impact of B2B co-ordination in the organic coffee industry. Worldwide people are looking for healthy, social, and environmentally sound products. According to FIBL and Naturland (2002), the global retail value of organic coffee was approximately US$ 223 million (cited by Claro & Claro). Besides, there was a 20% steady and annual growth in this industry. Organic food is very popular in Europe where it accounts for 0.5 per cent of total coffee sales. Particularly in Netherlands Organic coffee is readily available in supermarkets and other outlets. Claro & Claro identified five issues, which needed collaborative efforts and co-ordination. Consumers were willing to pay premium for quality organic food. Traders and roasting companies did not have access to the market and require certification for it. Companies producing organic coffee had to invest in fixed assets. This investment was also essential to produce the right quality and need separate lines for roasting and packing of organic coffee from normal coffee. Companies supplying and buying organic coffee were looking for direct and stable relationships (Gresser & Tickell, 2002 cited by Claro & Claro). This is marked by uncertainties and risks. If all the units collaborate, they could find a mutually beneficial solution. Based on previous research, Doney & Cannon (1997) point out that trust, long-term orientation and joint actions are developed through the sharing of information, the frequency with which companies interact, the investment in assets to better integrate activities and through time in which the counterpart has proven to be reliable in fulfilling transactions (cited by Claro & Claro). They have demonstrated the bottlenecks in the organic industry in the table below: Figure 3: Dimension of Coordination and Bottlenecks in the Organic Coffee Industry Figure 4: Calro & Claro’s model for the Brazilian Producers for their Operations in the International Markets. This model encourages trust, long-term investments, and planning. Customers are willing to pay premium, which can be done only when any industry has long-term orientation. This premium price thus collected can be reinvested for expansion and better coordination of the company. Their model ensures better coordination between the overseas producers and roasting companies. The entire supply chain can benefit from this. This model has a certification body to ensure organic and fair trade practices. The focus is to maintain a healthy Cross border relationship. Personal contact between the integrator and buyers allow for proper exchange of information. Integrator helps in long-term orientation. Processing service provider (PSP) processes the coffee. It takes care of the quality control before the coffee is shipped out. Joint planning eliminates any chances of miscommunication and assists in future production planning. This model functions on mutual trust, long-term orientation. It promotes joint problem solving attitude. The entire supply chain can be very efficiently managed. x. Case 2: Noble Jewellery Limited, Hong Kong According to Yau (2002), Noble Jewellery Limited, Hong Kong had adopted the B2B private exchange from which both Noble and its customers benefited. The study reveals the benefits that any manufacturing company can derive in the entire supply chain by adopting the B2B e-commerce. Cost savings, faster communication and information exchange, shorter order fulfilment cycle, accuracy, greater customer satisfaction, lower inventories, demand forecast, production planning, better customer relationship, covering new market segments are some of the benefits that Noble attained. In 1998, the company started with its website as an information platform and a catalogue. Gradually they added a product showroom, auto-quotation, and facility to order online. Figure 5: Website of Noble Jewellery Limited, 1998 Figure 6: Noble Jewellery Limited Website in 2001 Authorized customers were allotted their own username and password by means of which they could gain access to their own panel. The status of order in progress, the delivery status was all displayed on their panel. A customer could keep track of all the steps from order placement till dispatch. It was meant to make the customers feel comfortable when accessing the website. The database was integrated in a manner that consumer and employee can exercise their right to fulfil their information needs. The design process too was enhanced by the participation of the customers. The customers could give their ideas and designs while it also allowed the company designers to get approval from the customer by sending them the design images. This facilitated customized products and customer-oriented service. The suppliers are asked on the basis of customer requirements and preferences to deliver the size, quality and type of stones. This one platform has influenced the overall look of the business. Noble used computerized system for process control. The operation process showed who carried out which process at what time, the wastage details and the usage of metals and stones. The B2B further allowed integration with other business partners and effective resource planning. This also helped in keeping low inventory. Investigations revealed that they had blocked capital in stocks up to HK$35 million. The headquarters could now keep total control over the inventory and material flow. They were aware when the production in China was completed; they knew when the material had reached Hong Kong. In the early stages of B2B the relationship with suppliers was not benefited as it was expected. It was due to lack of communication between the suppliers and Noble. Noble had almost 80 suppliers of which 20 were used every month. The situation urged to improve the supplier relationships and lessen dependency on one supplier. After discussing the suppliers’ requirements to ease situation on both sides, Noble designed a new schedule format that provided more accurate information about past demands and forecast future requirements. This improved communication, information and strengthened relationships. They now implement this strategy with 15 suppliers, which covered 60 to 70% of Noble’s material supplies. This has resulted in low inventory, reduced capital block and the risk of running out of materials is least. Noble achieved a fair amount of success and savings with this adoption. They had to train and educate their staff to derive the maximum benefit. What is essential is the ability to adapt to the rapid changes that take place as the popularity of Internet increases, customer demands increase and swift technological changes. xi. Case 3: Auto Industry Covisint – a B2B exchange set up a majority of the largest automakers in February 2000, managed transactions worth more than $33 billion dollars in the first half of 2001. Through this B2B exchange, Ford announced that it had saved $70 million in reduced paperwork and lower supplier prices. This was much more than its cost on investment in the Covisint. A study of the automotive industry by the Wharton Group revealed that savings from the automotive B2B is more than $2000 per vehicle. The authors find this too high a figure because it is not known how many use B2B to auction vehicles. Since the 1930s, the US auto industry is characterized by ‘exit’ relationships and the Japanese industry by ‘voice’ relationships. In the exit mode, the automakers can replace the suppliers whereas in the voice mode keep working with the suppliers and try to resolve the problems. B2B in such an industry would help to choose any supplier or switch supplier at a short notice. It also helps develop close relations with the suppliers. The information exchange is also facilitated. The authors are convinced that B2B would not urge the Japanese auto industry to switch to the exit mode. It would facilitate is better relations and prompt service. Inventory levels and delivery schedules could be available through the B2B plans. xii. Case 4: E-Bay E-Bay is another exchange where many buyers and sellers converge. The buyers and sellers can check each other’s track records, the popularity of the products, availability, payment terms, and promptness in payments by the buyers. It also allows the exchange owner to keep track of the communications between the buyer and the seller. They award points/recognition for prompt service, which ensures everyone benefits. xiii. Risk involve in Supply Chain Management Although supply chain technology is effective in certain categories, it also carries a great deal of risk (Bendor-Samuel, 2006). Businesses that are so challenged must proceed at a pace that permits thoughtful navigation of the hazards (Bates et al., 2001). Enron, moved at a very high speed to develop a market place for trading broadband bandwidth. It did not realize that the market for broadband was not yet mature. Bates et al cite the example of another US discount retailer who started e-tailing in 1996. It failed to attract customers and went in for revamp in 1999. They were in a hurry to capture the market and decided to outsource order filling for their website. This was a short-term vision, which cost them a fortune. Companies need to adopt a strategic approach to business even when they adopt B2B to enhance supply chain. All does not seem to be as is envisaged by economists and the management gurus. Public exchanges have run into trouble, large industry wide exchanges are continuing to crop up and smaller, while private exchanges are flourishing (Knowledge Wharton, 2006). Researchers argue that B2B will be "evolutionary" rather than "revolutionary.” They feel that it cannot replace, just enhance the company’s business strategies. MacDuffie and Helper (K W) predict that nations and companies will develop e-business tools that reinforce old paradigms for purchasing and supplier relations. MacDuffie feels that social interaction are deeply embedded in the procurement process and it is not easy to replace this overnight. There are various forms of B2B exchanges available and companies would choose depending upon their individual strategies. xiv. Conclusion In this paper various issues of supply chain management and business to business operations has been discussed. Various case studies revealed the issues addressed in the Supply chain management process in B2B environment. The supply chain management has improved with the integration to the Information communication technology. xv. 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