Improvements in the Supply Chain Offered by E-commerce Developments - Essay Example

Supply Chain management The Managing Director Manager, Supply Chain E-commerce and Supply Chain management. Executive Summary: With increasing use of technology by businesses today and the emergence of the Internet, e-commerce is becoming increasingly common. According to Vulkan (2003) electronic commerce is the conduct of business activities electronically through the digital media and it has now become a part of everyday business. This Report assesses the impact of the e-commerce model upon Supply Chain Management and the potential advantages that can be brought into the supply chain. The impact of technology on the traditional push supply chain system is examined and the revised focus of the supply chain upon the consumer is highlighted. Significant advantages offered through the implementation of e-commerce are the streamlining of the supply operations through the elimination of redundant paperwork, order batching and stockpiling. There is a higher degree of interaction and timeliness that may be brought into the supply chain management through e-commerce. A large database of valid, current information can be maintained which can also be used for data analysis. The cons of the e-commerce system however are also induced by technology – the dangers of confidential information being accessed by unauthorized parties and consequent losses that could result. * Vulkan, Nir, 2003. “The Economics of e-commerce: A strategic Guide to understanding and designing the online marketplace.” Princeton University Press In carrying out this analysis, I have chosen to reply upon a library based approach, seeking out the views of experts on the benefits of the e-commerce system and its implications for supply chain management. The findings in this report are that e-commerce is likely to be of enormous benefit in supply chain management. While there are also potential disadvantages, the pros outweigh the cons and therefore, introducing e-commerce offers excellent possibilities for improvements in current supply chain management. Introduction: The traditional supply chain model is based upon the push model, wherein the process of placing orders and marketing the product involves customers, retailers, wholesalers, distributors and manufacturers, and at every stage there is paperwork involved. Much of such paperwork may also be duplicated, which results in the Supply Chain essentially becoming a system serving the suppliers almost as much as it serves the customers, who should be its primary focus. However, with the onset of e-commerce, online business auctions, web procurement systems and electronic business negotiations are becoming increasingly common, with availability of additional software such as shopping bots, etc enabling consumers to carry our price comparisons online (Vulkan, 2003). * Vulkan, Nir, 2003. “The Economics of e-commerce: A strategic Guide to understanding and designing the online marketplace.” Princeton University Press As a result, the supply chain becomes a pull model rather than a push model, or one where the customers have the power rather than the power being concentrated with the manufacturers, suppliers and distributors (www.efuture.ca). Thus, the supply chain model for e-commerce focuses upon the customer rather than upon the product. Moreover, e-commerce removes the traditional isolation of the suppliers from the end users, since there is scope for enhanced connectivity in the supply chain when customers are able to connect directly with suppliers and they are also able to research on their own and provide feedback on products. There is also facility afforded for networking among businesses, which could offer valuable opportunities in the supply chain, by providing the facility for establishing cooperative distribution networks to supply customers at lower costs (Vulkan, 2003) “Supply chain basics.” Alberta efuture centre [online] available at: www.e-future.ca/alberta/pdf/efc_supply_chain_basics.pdf * Vulkan, Nir, 2003. “The Economics of e-commerce: A strategic Guide to understanding and designing the online marketplace.” Princeton University Press Body: E-commerce offers tremendous scope for improvements in the supply chain management system. E-commerce is of vital importance to manufacturing and distribution, since it enables inexpensive and speedy communication with customers and suppliers. Moreover, it also eliminates the time lost in processing of redundant paperwork and provides facilities for creation of revenues without incurring considerable expense.(www.jobfunctions.bnet.com). One of the notable potential advantages that could result from effective supply chain management in e-commerce is the availability of large volumes of data and the facility to analyze such data to reveal customer and supplier trends, which could be advantageous to a business (Simchi-Levi, 2003:Chapter 11). The introduction of technology through e-commerce introduces the element of timely and accurate information availability at every stage of the supply chain, also providing scope for collaboration among different elements of the supply chain through effective sharing of that information. (Simchi-Levi 2003). * Simchi-Levi et al, 2003. Designing and Managing the Supply Chain: Concepts, strategies and case studies.” Boston: McGraw Hill * “The e-supply chain is coming and fast.” [online] available at: http://jobfunctions.bnet.com/whitepaper.aspx?docid=58829 The objective of supply chain management is to provide an uninterrupted and steady flow of timely information that will enable suppliers to provide the goods to the customers in a timely and organized manner (Donovan, no date). However, traditional supply chain supply management systems suffer from the bullwhip phenomenon. As a result of the demand variability increasing as one moves further away up the supply chain, there is a strong possibility that even small variations in demand could produce large variations in orders. Donovan (no date) terms this a lump of demand which can reverberate back through the supply chain, resulting in costly scrambles to acquire raw materials and rescheduling of production. This not only introduces higher costs but also produces delays, production of unnecessary stocks and customer alienation through the inability to supply goods on time. Hau et al(1997) have suggested four major causes for the bull whip phenomenon: (a) demand forecast updating (b) order batching (c) price fluctuation and (d) rationing and shortage gaming. * Hau, L and Lee, V, Padmanabhan and Seungjin, Whang,1997. “The Bull whip effect in supply chains.” Sloan management Review. * Donovan, Michael, R, No Date. “Supply chain management: cracking the bullwhip effect.” Performance Improvement. [online] available at: http://rmdonovan.com/pdf/SCM_PartIII.pdf With the introduction of e-commerce, the supply inventory chain may be reorganized in a way that the bullwhip effect is avoided by doing what is best for the overall supply chain, rather than continuing to focus on local strategies of cost minimization.(Hosada and Disney, 2006). With the introduction of e-commerce, a global perspective rather than a local one will be helpful in supply chain strategy. Hua et al (1997) have however recommended measures whereby technology can be an aid in countermanding the bullwhip effect. For example, e-commerce involves selling directly to the consumer, which can bypass the downstream sites and prevent order batching. Secondly, the exchange of electronic data helps to generate more frequent orders, while reducing the cost of such orders. Moreover, the extent and frequency of wholesale price discounting can be reduced with e-commerce, since it involves direct sales to the customer, as a result customer stockpiling can be avoided. Inventory systems can be updated on a real time basis, thereby bringing in savings in cost and time. * Hau, L and Lee, V, Padmanabhan and Seungjin, Whang,1997. “The Bull whip effect in supply chains.” Sloan management Review. * Hosada, Takamichi and Disney, Stephen, M, 2006. “The governing dynamics of supply chains: the impact of altruistic behavior.” Automatica, 42(8): 1301-1309 E-commerce impacts positively upon the supply chain in the following ways (www.efuture.ca): (a) reduced cost: Since all cargo can be exchanged electronically over the Net where e-commerce is concerned, this results in a reduction in the time and paperwork involved in generation, processing and storage of the documents, while also reducing the scope for error. Since the traditional supply chain involves an enormous amount of paperwork, most of which is also duplicated, therefore the introduction of e-commerce allows for the elimination of a significant amount of redundancy and waste of time. (b) removal of the distribution centers: Consumers can directly connect with suppliers and there is increased facility for inexpensive and fast exchange of information about products over the Net. This would help in streamlining the distribution system of the traditional supply chain management system – distribution and wholesale centers can in fact be removed altogether, to be replaced direct shipping from warehouses. (c) Customer-focused: The supply chain system becomes customer focused rather than supplier focused, since there is greater connectivity with customer and better service provided to them. The customer can connect to the supply chain at any point and the elements of the supply system can also network easily with each other, to ensure that an accurate timely supply of information is available on supply of goods. (d) Shipment tracking: e-commerce helps the customer to track order and shipments, submit freight claims and bills of lading, and carry out many functions which were previously out of the scope of their activity. Customers can also enquire online about the status of their order and its delivery, all of which helps to transform the supply chain system into one that is more customer oriented. (e) Competitive advantage: The use of IT tools such as the introduction of e-commerce also helps to provide a business with a competitive advantage, when it is able to reduce lead time in supply of goods and simultaneously improve the service levels. As a result, the electronization of the supply chain helps a business to supply value added services to its customers and develop strong long term relationships with them.(Simchi Levi, 2003) (f) E-commerce not only provides the facility of networking among the various elements of the supply chain, it also provides for a central locus of contact, such a centralized database which can be accessed by suppliers and manufacturers as well as sales and distribution agents on the field, thus providing for an information trail that follows a product’s actual physical trail and enables forecasts and predictions to be made, based upon real time data. (Simchi Levi, 2003) “Supply chain basics.” Alberta efuture centre [online] available at: www.e-future.ca/alberta/pdf/efc_supply_chain_basics.pdf * Simchi-Levi et al, 2003. Designing and Managing the Supply Chain: Concepts, strategies and case studies.” Boston: McGraw Hill It must be noted however, that the advantages that exist in e-commerce do not mean that there are no dangers associated with its use. There are elements of risk introduced through the electronic system and one issue that needs to be considered is the question of risk assessment in supply demand coordination and supply chain contracting.(Lee, 2002; Martinez-de-Albeniz and Simchi Levi, 2005). Managing risks is a vital part of the e-commerce chain, and traditional supply chain systems provide for such risks by maintaining safety stock levels, or by insuring goods and supplies. Where multiple supply chain actors are concerned, there is often the question of coordinating demand and supply, to maintain ongoing volumes in order to minimize risks. * Lee, H. L. 2002. “Aligning supply chain strategies with products uncertainties”. California Management Review, 44(3): 105-119. * Martinez-de-Albeniz, V., D. Simchi-Levi. 2005. “A portfolio approach to procurement contracts.” Production and Operations Management, 14(1): 90-114. Where e-commerce is concerned, one of the important disadvantages is the specter of sudden and unexplained data loss that could result from an unexpected crisis. Disruptions to the supply chain can occur abruptly and suddenly and impact upon e-commerce – for example, the attack on the World Trade Center by terrorists on 9/11 sent shock waves through the business community and sent many of them into liquidation. Another example that may be cited is the Taiwan earthquake that occurred in September 1999, as a result of which the semiconductor market was disrupted worldwide.(Papadakis and Ziemba, 2001). Damages can also be caused by viruses, since they can clog up systems, duplicate orders and cause all other kinds of havoc, such as that created by the virus mydoom (Germain, 2004). * Germain, Jack, M, 2004. “MyDoom: A wrap up on the world’s most vicious worm.” Tech News World [online] available at: http://www.ecommercetimes.com/story/33068.html * Papadakis, I. S., W. T. Ziemba. 2001. “Derivative effects of the 1999 earthquake in Taiwan to U.S. personal computer manufacturers.” IN “Mitigation and Financing of Seismic Risks”. P. R. Kleindorfer, M. R. Sertel (eds.), Boston: Kluwer Academic Publishers. In order to manage risks in the supply chain effectively, four main premises are identified by Haimes (1998). These four steps are as follows: (a) specify any underlying hazards that may give rise to risk (b) quantification of risk through risk assessment process, including a determination of the various paths through which such risks may be generated (c) identify a risk assessment management plan that will be in accord with the needs of the environment (d) the development of appropriate management policies, which may be integrated with risk assessment. Therefore, if e-commerce is to be implemented, the underlying risks may need to be identified and provisions included into the IT systems to cope with such risks. * Haimes, Y. Y. 1998. “Risk Modeling, Assessment, and Management.” New York: Wiley and Interscience. Conclusions: From the foregoing, it may be noted that e-commerce is a phenomenon that is here to say and is being adopted by more and more businesses. In today’s global, competitive environment, it appears that the use of IT tools and the utilization of the global medium of the Internet for cyber sales is vital to introduce economy in operations and increased sales. As shown in the report above, the advantages of e-commerce are significant, the most notable of them all being the facility of maintaining a single information trail about a product and enabling fast and efficient tracking of orders and inventory needs based upon instant availability of information on order status. Moreover, it eliminates duplication and cumbersome paperwork and also provides the potential for data analysis to generate trends in sales and supplies, which could be even more useful for a business. Some disadvantages must also be pointed out however, such as the possibility of losing data through risks that may not be anticipated, such as those that occur through viruses or through hacking activity, which could compromise confidential information. Recommendations: On an overall basis, it is recommended that e-commerce be introduced into the supply chain management process. The facilities it provides for streamlined management of data, speed and efficiency in delivery and enhanced networking itself make it a valuable tool for any business. Many of the traditional difficulties associated with supply chain management, such as order batching, duplication of paperwork and the waste of resources in maintaining effective communication can be eliminated through the introduction of a single, centralized database that tracks the status of the product at every stage, with instant real time information being available. It will also enable the Company to gain a competitive advantage through the efficiency it brings into its operations. The information available through a centralized database could be valuable in analyzing trends and streamlining supply chain operations to a greater degree in the future. However, the system cannot be introduced with some kind of risk assessment plan being made first. The attendant risks such as potential loss of data through biruses, etc must be accounted for and provision must be made to tackle such emergencies, perhaps by maintaining data offline in other kinds of storage systems such as microfiche, which can store large volumes of data within a tiny physical space. While the question of large scale data losses is not an everyday threat, nevertheless, it is a risk that must be provided for, if the system is to be implemented. Bibliography * Donovan, Michael, R, No Date. “Supply chain management: cracking the bullwhip effect.” Performance Improvement. [online] available at: http://rmdonovan.com/pdf/SCM_PartIII.pdf * Germain, Jack, M, 2004. “MyDoom: A wrap up on the world’s most vicious worm.” Tech News World [online] available at: http://www.ecommercetimes.com/story/33068.html * Haimes, Y. Y. 1998. “Risk Modeling, Assessment, and Management.” New York: Wiley and Interscience. * Hau, L and Lee, V, Padmanabhan and Seungjin, Whang,1997. “The Bull whip effect in supply chains.” Sloan management Review. * Hosada, Takamichi and Disney, Stephen, M, 2006. “The governing dynamics of supply chains: the impact of altruistic behavior.” Automatica, 42(8): 1301-1309 * Lee, H. L. 2002. “Aligning supply chain strategies with products uncertainties”. California Management Review, 44(3): 105-119. * Martinez-de-Albeniz, V., D. Simchi-Levi. 2005. “A portfolio approach to procurement contracts.” Production and Operations Management, 14(1): 90-114. * Papadakis, I. S., W. T. Ziemba. 2001. “Derivative effects of the 1999 earthquake in Taiwan to U.S. personal computer manufacturers.” IN “Mitigation and Financing of Seismic Risks”. P. R. Kleindorfer, M. R. Sertel (eds.), Boston: Kluwer Academic Publishers. * Simchi-Levi et al, 2003. Designing and Managing the Supply Chain: Concepts, strategies and case studies.” Boston: McGraw Hill. * “Supply chain basics.” Alberta efuture centre [online] available at: www.e-future.ca/alberta/pdf/efc_supply_chain_basics.pdf * “The e-supply chain is coming and fast.” [online] available at: http://jobfunctions.bnet.com/whitepaper.aspx?docid=58829 * Vulkan, Nir, 2003. “The Economics of e-commerce: A strategic Guide to understanding and designing the online marketplace.” Princeton University Press Read More