Strategic management of E-Business

1. Strategic managementof E-Business Chapter 6 Transforming external relationships with suppliers ICT326

2. Supply chain defined • Complex interconnections and relationships between all organisations involved in the progression from raw materials to the delivery of goods and services to customers ICT326

3. Industry supply chains ICT326

4. SC management • Gaining access to quality suppliers • Seeking efficiencies in distribution • Improving information flows along supply chain • Seeking ways to add value form customers; perspective ‘management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole’ (Christopher 1998, p.18) ICT326

5. Logistics • ‘process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such a way that current and future profitability are maximised through the cost-effective fulfilment of orders’ (Christopher 1998, p. 4) ICT326

6. Benefits of effective SC and logistics capabilities • Opportunity to add value from customer perspective • Participating organisation have opportunity to differentiate themselves from competition • Information about customer preferences essential • Opportunity for SC to operate more efficiently than others • Lower prices to customers, or additional profitability • Opportunity to exploit IT and Internet to transform SCs ICT326

7. Traditional supply chains ICT326

8. Supplier Manufacturer Distributor Retailer Forecast demand Check inventory Place order Forecast demand Check inventory Place order Forecast demand Check inventory Order components/raw materials Make batch Distribute orders Old approaches ICT326

9. Problems with traditional supply chains • Batch ordering, resulting in upstream spikes in ordering, with variability in demand • Forward buying, which causes variability in demand and increased costs throughout supply chain • Human behaviour (which results in batch ordering and forward buying) results in inefficiencies, inventories grouping in wrong places ICT326

10. Right supply chain for your product? ICT326

11. Right supply chain for your product? ICT326

12. Interorganisational Systems (IOS) ICT326

13. IOS defined ‘an IOS automates the flow of information between organisations to support the planning, design, development, production and delivery of products and services’ (Haag et al. 1998) ‘networked computers that enable companies to share information and information processing across organisational boundaries’ (Applegate et al. 1996) ICT326

14. Electronic data interchange • involves electronic transmission of common business transactions between business partners • Exchange of data electronically • computer-to-computer transfer of transaction information contained in standard business documents • Often high volume, routine • must use agreed communication standards and electronic documents ICT326

15. Interorganisational information flows in a basic transaction ICT326

16. Aims of electronic data interchange (EDI) • Increase speed of information provision, exchange and processing via ‘paperless’ office • Cost and time efficiencies • Improved levels of customer service ICT326

17. Issues with EDI • Standards • must be directly usable by recipient’s computer system without re-keying • must agree format of forms in advance of development of systems • historically conducted within industry groups • ODETTE (Org.for Data TeleTransmission in Europe) • SWIFT (Soc. For World-wide Interbank Financial Telecommunications) • X.12 data interchange protocol • EDIFACT (EDI for Admin, Commerce & Transport) ICT326

18. Issues with EDI • relatively expensive • requires leased/private lines of communication • special software (complex) • training • relatively secure • very fast • challenge of integration with existing systems • support JIT operations • Only extends to ~15-20% of trading network ICT326

19. EDI on Internet • Web browser becomes interface • use of public network ICT326

20. Advantages of EDI on Internet • lower costs • Internet technologies pervasive and cheaper • lower training costs (leverage browser familiarity) • ISP replaces VAN (value added network) • worldwide connectivity • standards accepted over Internet • quicker to implement ICT326

21. Disadvantages of EDI on Internet • Slower • speed somewhat dependent on traffic • speed outside control of trading partners • Reduced security • public network • no one player has control • risk of attack / fraud / destruction of data • No agreed standards for B2B payments • ‘local’ arrangement arising between banks, etc. • SWIFT (+ Identrus) now offer B2B payment for existing customers • Commercial imperatives are driving great activity ICT326

22. Re-engineering supply chains • Aim to use modern IT to support flows of goods, services and information along the supply chain • Integrated supply chain • Must be • responsive to customer demands • dynamic and robust • end-to-end process thinking about ways value is delivered to customers ICT326

23. Supplier Manufacturer Distributor Retailer Place order Checks made along supply chain via computer systems for * raw materials / component availability * production / shipping dates * costing Order confirmed with * delivery date * cost Re-engineered approaches ICT326

24. Benefits of re-engineered supply chains (IOS) • reduces paperwork • reduction in manual activities • sorting, filing, reconciling, mailing documents • reduces ‘hand-offs’ • reduction in data entry errors • improve quality and consistency • decrease time auditing and tracing errors • reduction in inventory levels • smaller orders placed more often ICT326

25. Benefits of re-engineered IOS • reduced costs • paper, postage, storage and labour costs • (from ~ $70 to < $1 per transaction) • fivefold reduction in time per transaction • tenfold reduction in clerical staff in purchasing • improved customer service • access to information • decreased lead times • accurate shipping schedules ICT326

26. Benefits of re-engineered IOS • reduction in payment processing time • reduction in payment delays • greater certainty regarding payment date • improved relationship with trading partners • less time on data entry = more time on customer service ICT326

27. Benefits of re-engineered IOS • time and place constraints reduced • audit trail of business transactions ICT326

28. IT-enabled supply chains • Supplier management • Sourcing, selecting, managing relationship with suppliers • Who are best/worst performing suppliers? • How to manage risk associated with suppliers? • How/what information should we share with suppliers? ICT326

29. IT-enabled supply chains • Supply chain planning • Links external information to internal ERP systems ICT326

30. WalMart P & G • checks inventory • organises restocking • analyses sales data for trends, early indicators • adjusts own manufacturing and distribution scheduling Supply chain planning: WalMart example ICT326

31. S B * track stock levels at retailer * shipping supplies * adjusting retailer’s inventory level * invoicing * understanding end customer behaviour & preferences * production scheduling * Monitor activities of supplier _ no deliberate overstocking _ no stock outs _ electronic payments * understand end customer behaviour & preferences * monitor production scheduling & quality control systems Supply chain planning ICT326

32. To implement these systems… • need a culture of openness • accept element of risk • need genuine sense of trust Result: nearly all control of inventory is handed back to suppliers:Vendor Managed Inventory (VMI) ICT326

33. IT-enabled supply chains • Order management and fulfilment • Ability to make accurate and reliable orders • Promises to customers in terms of - • Cost • Quality • Time • Self-serve systems or planned (system control reordering) ICT326

34. ‘Old’ supply chain • potential problems • erratic customer service • inventory too high / too low • no vision of future demand and impact on production • poor forecasting / lack of trust • too many changeovers in production • little agreement on what/when/where products are required • too many stockouts • inventory not in correct place Evidence suggests that superior integration along the supply chain is a source of competitive advantage. ICT326

35. Benefits of re-engineered supply chains • profitable to promise • ‘Should I take this order now?’ • available to promise • ‘Is inventory available to fulfil the order?’ • capable to promise • ‘Does manufacturing capacity allow order commitment?’ ICT326

36. Examples of order management and fulfilment ICT326

37. IT-enabled supply chains • Decision support systems • Gather and analyse vast amounts of data • Support decisions regarding quality, price, availability, product characteristics • Demand forecasting • Combines macroeconomic data, product lifecycle data, current and estimated future sales, inputs from trading partners ICT326

38. IT-enabled supply chains • Logistics • Planning inventory movements • Tracking inventory • Optimising mix of transport options ICT326

39. IT-enabled supply chains • Collaborative product development • (60% components for OEMs come from outside) • Innovation / design processes • Virtual work space tools • Project management • CAD/CAM ICT326

40. Benefits of re-engineered supply chains • customer satisfaction • throughput • inventory • operating costs • order lead times • time from receipt of order to receipt of cash ICT326

41. Effective supply chain re-engineering • What sort of supply chain will add value for my customers and enhance my profitability? • business strategy affects supply chain strategy • (Remember: aim for revenue growth instead of cost cutting) • Can you differentiate yourself via your supply chain structure? ICT326

42. Effective supply chain re-engineering • Does the supply chain facilitate order fulfilment? • opportunities to improve service (and reduce costs) • order forecasting vs receipt of orders • Do you have necessary infrastructure(s) in alignment? ICT326

43. Effective supply chain re-engineering ICT326

44. Issues in supply chain re-engineering • ownership & cooperation • who “owns” the supply chain? • how to get agreement on required transformation? • compatible IT infrastructures • how easy is it to integrate into existing systems? • legal issues ICT326

45. Issues with supply chain re-engineering • Full efficiency / effectiveness gains not achieved until entire supply chain participates • ? IS/IT maturity / legacy / infrastructure of all players • BPR required across entire supply chain • Emergence of value nets / supply nets ICT326

46. Problems • Lack of integration between SCM systems and existing internal systems • Change management issues • Unclear objectives • Lack of executive sponsorship & buy-in • Viewed as IT rather than business initiative • Supplier relationship and readiness • Ability of SMEs to afford / have ability to participate • Involvement of strategic partners ICT326