E-Commerce of Supply Chain and Logistics - Essay Example

The article Impact of E-commerce of on Supply Chain and Logistics in an Industry or Company starts off with an introduction of e-commerce followed by detailed discussion on impact of e-commerce on supply chain and logistics and finally signing off with barriers in e-business. IMPACT OF E-COMMERCE ON SUPPLY CHAIN AND LOGISTICS IN AN INDUSTRY OR COMPANY Introduction: San Francisco Chronicle staff writer Verne Kopytoff stated that forecasts suggested a strong e-commerce even ten years after its founding by Amazon.com and ebay. Jupiter Research and Forrester Research predicted a rise in shopping online as compared to retail selling through a series of studies. According to Berger, a study conducted by Momentum Research Group found that US organizations involved in internet business solutions realized cumulative cost savings of US $ 155 billion in a three year period starting in 1998. Johnson and Whang stated that the key aspect of supply chain management has been management of information flow, with the transfer of information between companies their suppliers and customers through internet the importance of information management has created an effective supply chain. E-business is defined as a "marriage between the internet and supply chain integration." This marriage has led to transformation of many processes within a supply chain from procurement to product design and customer management. Various forms of e-business applications can be categorized into e-commerce, e-procurement and e-collaboration (2002). According to Berger "e-commerce can be defined as the conduct of business communication and transactions over networks and through computers or as the buying and selling of goods and services, and the transfer of funds, through digital communications. It can include all inter-company and intra-company functions (such as marketing, finance, manufacturing, selling and negotiation) that enable commerce." E-commerce communicates through e-mail, EDI, file transfer, facsimile, videoconferencing, workflow or interaction with remote computer. E- commerce has also associated with portals, e-marketplaces, e-auctions or virtual inventory. E-commerce impacts upon the three major factors of supply chain namely Physical, Financial and Informational flows. Impact of E-Commerce According to Berger e-commerce essentially gives the companies an access to markets and customers without moving the products and inventory physically, thus the physical movements can be avoided and product information made available through internet. With e-commerce solutions and information access being made available '24x7x365', product tracking and tracing information are made simple thus eliminating traditional paper based approach. Hence information flow also gets affected by e-commerce. Similarly financial flows too get affected by faster payments and settlement at every stage of the supply chain by e-commerce solutions. On further analysis it is observed that e-commerce impacts on supply chain for five principle reasons, which are as follows: 1. Major companies cannot afford to sit silent for underperformance, thus "the performance gap can no longer be hidden." 2. The Y2K problem compelled most of the companies to implement newer technologies and software. The e-commerce revolution has lead to the adoption of ERP systems, which manage operations not only internally but also with customers and suppliers. But some companies are in the initial stages of implementation of above steps and thus are unable to enjoy the benefits of these investments. 3. Last few years has seen an unprecedented investment by technology companies leading to "an acceleration of development of new software technology to support supply chain management." 4. Change of supply chain is a tough task and thus most of the companies have been avoiding some areas of supply chain. "The supply chain is one of the last major areas of business benefit." 5. The development of internet technologies have made world smaller and supply chains of companies are becoming "increasingly integrated between customers and suppliers and across geographies." E-commerce is playing a key role in this integration process with the business partners demanding the supply chain partners of their e-commerce capabilities. "E-commerce will have an impact on all major areas of supply chain work in companies from design, through buying to fulfillment and service support." According to Opportunity Wales the supply chain and logistics are two way processes with movement of products one way and information the other way, with this combination it is possible to improve any process performed by a company internally and externally. The inventory levels can be optimized reflecting the actual demand levels and customers can update the quantities and availability. According to Opportunity Wales, adoption of e-commerce methods has exploded the customers demand for remote off-site ordering, thus forcing retailers and other businesses to adopt multichannel approach to market their products such as over-the-counter sales and receiving single-item orders over the telephone, by fax, or through the Internet. But fulfillment of various individually addressed orders by door delivery does not fit in the scheme of existing logistic operations, since the Distribution Centres (DC's) are geared to push bulk stock to stores with little or no smaller packages and thus the need to repackage and identify the addressee. According to Prince, transportation have faced a tough time putting in practice e-commerce solutions to stand up to customer demands by tracking and tracing the exact location of shipments and alert when time definite delivery is threatened. If a shipping company wishes to track individual shipments, then it must look into the webpage of each carrier (in case of multiple carriers) or logistic provider, thus multiple shipments would require frequent movements between webpages leading to three types of problems in such a setup. First, the shipper must match carriers to shipments prior to tracking, which is sometimes complex and difficult for the customer. Second, carriers usually allow tracking from either the equipment ID or their shipment ID. Carriers do not always retain the unique shipment ID that the customer utilizes (i.e., purchase order, lot number, customs file, Renban number, etc.). In some cases, this makes it almost impossible for a customer to locate the shipment for tracking. Third most important, the customer lacks a single point of focus. All of this leads to sub-optimization for customers. E-commerce has not delivered value to them and, as a result, their supply chain suffers. The prevailing old business models have trapped the customers in information chaos. In such a scenario "logistics intermediaries arose to manage the functions of transportation carriers." In the process intermediaries are attempting to manage information flow for customers and e-commerce is transforming the role of intermediary. At this juncture most companies focused on return of assets and recognized the urgent need for logistics awareness by adopting sophisticated financial tools like Activity Based Costing (ABC) and Economic Value Added (EVA). An organization could concentrate on its core competencies and customers and get greater advantage of operational flexibility by outsourcing. Over 60% of Fortune 500 companies utilized some form of Third Party Logistics Services (3PLs). Usage of 3PLs led to reduction in operational and capital expenditure and improvement of financial position. Most successful 3PLs serve across the world in various modes: Surface, Air and Ocean. According to Canada Transportation Act review following are the barriers in e-business: Cost can prevent any firm from adopting Internet technology more extensively, but this is especially true in the marine and trucking sectors. It is easy to identify costs but harder to estimate benefits, making the return on these investments difficult to quantify. The low margins and small size of many marine and truck industry participants make it difficult to commit limited resources on a multi-year basis to risky projects. Resources are also a constraining factor for short lines and regional railroads. Many marine and rail industry participants already have electronic data transfer and other legacy information systems in place, reducing the commercial benefits of adopting more accessible Internet-based systems. Many EDI applications involve the carriers' largest customers, so the benefits must come from new customers not currently linked by EDI. Much of the uncertainty about potential benefits arises from inadequate customer readiness to use Internet-based innovations. This is the dominant barrier for trucking firms but still important for marine and rail. Lack of action by all participants in the supply chain is also an issue in the rail and marine sectors. This is a natural barrier, given that multiple firms are typically involved in transporting goods in each of these modes. Slow adoption by some supply chain members reduces the benefits of quick adoption by others. Interoperability between logistics providers is a problem in the marine and rail sectors. The presence of multiple information platforms and absence of common protocols prevent carriers from sharing information seamlessly. Insufficient interoperability also arises from shipper demands for specific formats and methods of communication. The cost of using different formats effectively limits the response to a few high-volume customers. This is a problem for all modes and trucking in particular. Inadequate technical skills and training are barriers among the smaller firms in the marine and trucking industries. Security and protecting commercially sensitive information is also a concern across modes, especially when the information is shared with potential competitors. Finally organizational culture and traditional practices, in both carrier and partner firms, are key factors to overcome when proposing or implementing new technology. Internally, any form of automation may be resisted; externally, the collaborative approach inherent in e-business may be difficult to achieve. REFERENCES Verne Kopytoff. "Online retail growth forecast 2 studies see sales accelerating as much as 25 percent." San Francisco Chronicle. November 1, 2005. Berger Andrew J. "e-commerce and supply chains - breaking down the boundaries." Retrieved on June 18, 2006. Johnson M.Eric and Whang Seungjin. E-business and Supply Chain Management: An overview and framework .Production and operations management. Vol. 11, No.4, Winter 2002. Opportunity Wales. "Impact on Logistics." Visibility and Agility. Retrieved on June 18, 2006. Opportunity Wales. "Impact on Logistics." From Bulk to Direct Logistics. Retrieved on June 18, 2006. Theodore Prince. "E-Commerce: Its Impact on Transportation, Logistics,and Supply Chain Management" Canada Transportation Act Review. The Impact of E-Business on Transportation. Chapter 16. Read More