STREAMLINING THE WITH ELECTRONIC : A KEY TO SUCCESS IN THE DIGITAL ECONOMY

Nitya L. Karmakar PhD School of College of Law and University of Western Sydney, Australia

ABSTRACT The central aim of , to have the right product in the right quantities (at the right place) at the right moment at minimal cost. Advancements in information technologies have enabled major innovations in the re- engineering of industry's supply chains, redefining the ways companies operate their supply chains. New ventures have emerged to create values for business partners and the consumers in supply chain integration. Information technologies have advanced supply chain integration and coordination at a cost-effective way. In addition, technological developments in this century have transformed the majority of wealth-creating work from physically based to "knowledge-based." The Electronic commerce is the new paradigm shift in business. Obviously, information technology is an essential component of electronic commerce. The proper integration of supply chain with electronic commerce should bring an enormous value to a digital firm. The paper examines the effect of information technology (IT) on the Supply Chain Process and explains how EDI and Electronic Commerce have potential to revolutionize the integrated supply chain management. The author suggests that the must be adaptive to change with the advent of new technology to remain competitive in this era of digital economy.

KEYWORDS Electronic Commerce, Supply Chain Management, Digital Economy, Information Technology, Electronic Data Interchange, Competitive Advantage

Mastery of logis tics is as vital to success in the digital economy as it was to the extraordinary success of the Roman Empire. Frederick W. Smith Chairman, President and CEO, FDX

1. INTRODUCTION

The aim of this report is to provide guidelines for improving competitiveness in the entire supply chain to meet challenges in the 21st century by utilizing electronic commerce (e-commerce). Logistics (transportation, warehousing, and distribution) was not always considered to be of significant strategic importance. But in today's global economy, the game has changed. In many industries, particularly in consumer goods, electronics, and automobiles, the logistics function is at the heart of a new strategic focus called Supply Chain Management (SCM). The shift from a manufacturer push strategy to a consumer pull strategy dramatically alters the way in which manufacturers distribute and market their products. It is all about cost, flexibility, speed, quality and agility.1

1 http://www.industry.net/discussions/supplychain.htm

418 STREAMLINING THE SUPPLY CHAIN WITH ELECTRONIC COMMERCE: A KEY TO SUCCESS IN THE DIGITAL ECONOMY

Through the past decades we have seen an increasing rate of globalization of economy and thereby also of supply chains. Products are no longer produced and consumed within the same geographical area. Even the different parts of a product may, and often do, come from all over the world. This creates longer and more complex supply chains, and therefore it also changes the requirements within supply chain management. This again affects the effectiveness of computer systems employed in the supply chain.2 The advantages of e- commerce in supply-chain management include access to a wide range of suppliers and effective use of organizational resources that are essential for implementing Just-In-Time (JIT) manufacturing system (Curtis, 1997).

2. DEFINITION OF SUPPLY CHAIN & SUPPLY CHAIN MANAGEMENT

A Supply Chain is a sequence of suppliers, warehouses, operations, and retail outlets. Material and information flow both up and down the supply chain. Different companies may not have identical supply chains due to the nature of their operations, and whether they are primarily a manufacturing operation or a operation (Stevenson, 1999). 'A supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products, and deliver the products to through a distribution system' (Lee & Billington, 1995). Supply Chain Management is the integration of all activities associated with the flow and transfer of goods from the raw materials stage (extraction) through to the end user, as well as the associated information flows by improved supply chain relationship, to achieve a sustainable competitive advantage (Handfield &.Nichols, 1999) Figure 1a illustrates a typical supply chain for a manufacturer, and Figure 1b illustrates a typical supply chain for a service organisation. Note that both typically require some storage of shipments from suppliers.

Supplier

Supplier Storage Mfg. Storage Distributor Retailer

Supplier

(a)

Supplier Storage Service Customer

Supplier

(b) Figure 1. Overview of Supply Chain Supply chains are essentially a series of linked suppliers and customers; every customer is in turn a supplier to the next downstream organization until a finished product reaches the ultimate end user. The benefits of supply chain management can be summarized as follows: · Reduction of costs across the supply chain and more efficient management of , · More efficient management of raw materials, work-in-process, and finished goods inventory, · Increased efficiency in the transactions between supply chain partners · Enhanced customer value, often in the form of lower process.3

2 http://www.ie.utoronto.ca/EIL/profiles/rune/node5.html 3 http://www.i-trade.com/catalog/tpusa/00000089/impex18.htm

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3. WHAT IS LOGISTICS?

Logistics may be defined as: ‘Logistics is a component of . It is responsible for managing the acquisition, movement and storage of materials, part and finished goods inventory (together with the related information flows) through an organization and its marketing channels to meet customer expectations – thereby meeting the company’s profit objectives’ (Gattorna & Walters, 1996).Logistics requirements must be initially planned, and subsequently integrated into the system design process. Systems must be developed and produced (or constructed) such that they can be operated and maintained in an effective and efficient manner, with complete customer (user) satisfaction as a major objective (Blanchard, 1998). The complete logistics processes at both strategic and operational levels are given in figure 2(Gattorna & Walters, 1996). Current thinking considers the logistics activity to be an integrated management activity of a supply chain, which extends from the extraction and processing of raw materials through a manufacturing process to the end user. Information technology is the key resource to achieve integration (Bowersox & Closs, 1996).

4. THE INFORMATION REVOLUTION

The impact of new communication technology upon logistical performance paralleled development of the microprocessor. Information must now traverse both the organizational boundaries and great distances that separate and span the entire enterprise. At the same time, expanded information flows provide an unprecedented opportunity to build new logistical systems and knowledge-based tools (Greis & Kasarda, 1997). In this digital economic era, competitive price and high quality are necessary but not sufficient determinants of commercial success. Speed to market and quick flexible customer response are pivotal (Kasarda, 1996). The rapid succession of cost, quality, delivery speed, and agility as strategic imperatives reflects the continuous search for differentiating capabilities that provide firms with competitive advantage in the marketplace (Gries and Kasarda, 1997). This is depicted in figure 3.

Agility 2000s

Delivery1990s Speed

Quality 1980s

Cost 1970s Figure 3. Shifting Competitive Priorities

420 STREAMLINING THE SUPPLY CHAIN WITH ELECTRONIC COMMERCE: A KEY TO SUCCESS IN THE DIGITAL ECONOMY

5. EVOLUTION OF THE LOGISTICS SUPPLY CHAIN

The traditional supply chain as depicted in figure 4, suggests a sequence of information flow and material movement that is well-ordered and sequential. Today, information and materials no longer flow in simple fashion from supplier to customer. In contrast to figure 4, the model shown in figure 5 is a more appropriate model for thinking about the movement of information and materials in the information-based extended enterprise. This model is a distinct departure from the sequential production-driven

Raw Material

Primary

Manufacturing

Material Order

Flow Flow Secondary

Manufacturing

Warehouse

Retail Outlet Information

Product and Materials

Customer

Figure 4. Traditional Logistics Supply

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Model of figure 4. Seamless material flows are achieved by replacing the notion of a sequential and linear chain of information exchange with a set of simultaneous information exchanges that span the members of the extended enterprise. As depicted in the figure, information flows electronically around the collective enterprise in what can be called a transaction web. By providing this cloud of interconnectivity, material flows from multiple sites can be coordinated spatially and temporarily. For example, shipments of customized components produced by suppliers at several locations can be arranged for concurrent delivery as required by the customer. Or, information about the status of orders can be monitored continuously by multiple parties, including the customer (Greis & Kasarda, 1997).

Marketing & Sales Raw Materials Primary Manufacturing

Assembly Customer

Retail Outlet Distribution

Logistics

Material Flow ______Information Flow

Figure.5. Rethinking the Logistics Supply Chain

422 STREAMLINING THE SUPPLY CHAIN WITH ELECTRONIC COMMERCE: A KEY TO SUCCESS IN THE DIGITAL ECONOMY

6. THE ROLE OF INFORMATION TECHNOLOGY IN SUPPLY CHAIN MANAGEMENT

As discussed before, Supply Chain Management is a management concept, which integrates the management of supply chain processes. The goal of SCM is to cut costs, increase profits, improve performance in relationships with customers and suppliers, and develop value-added services that give a company a competitive edge. As outlined in Figure 6, supply chain management relies on information technology and management practices to optimize information and product flows among the processes and business partners within the supply chain (Kalakota & Whinston, 1996). In sum, the supply chain management process increasingly depends on electronic markets because of global sourcing of products and services to reduce costs, short product life cycles, and increasingly flexible manufacturing systems in a variety of customizable products.

7. ELECTRONIC COMMERCE & SUPPLY CHAIN MANAGEMENT

Electronic commerce is a big-picture phenomenon destined to change business habits in more than one way. Driven by the Internet, electronic commerce is rapidly emerging as an entirely new method to conduct business and interact with suppliers, partners, and clients. E-commerce systems like electronic data interchange (EDI), and business management processes like supply chain management, seek to reengineer and streamline traditional supply chain processes (O’Brien, 1998). Wholesale electronic commerce and supply chain management rely on many different information technologies, most of which can be implemented on the Internet, the World Wide Web, and corporate Intranets and extranets. These include E-mail, electronic business forms, and bulletin board systems, electronic data interchange, electronic funds transfers, web sites with multimedia marketing information and product catalogs, interactive order processing systems, and so on. In addition, many tie their Internet, Intranet, and extranet commerce systems to their traditional or legacy computer-based and business information systems. This ensures that up-to- date corporate inventory and other databases, which in turn are automatically updated by web sales activities, support all electronic commerce activities on a web site. In electronic commerce, supply chain management has the following characteristics: ¨ An ability to source raw materials or finished goods from anywhere in the world, ¨ A centralised, global business and management strategy with flawless local execution, ¨ On-line, real-time distributed information processing to the desktop, providing total supply chain information visibility, ¨ The ability to manage information not only within a company but across industries and enterprises, ¨ The seamless integration of all supply chain processes and measurements, including third-party suppliers, information systems, cost accounting standards, and measurement systems, ¨ The development and implementation of accounting models such as activity-based costing that link cost to performance are used as tools for cost reduction, ¨ A reconfiguration of the supply chain organisation into high-performance teams going from the shop floor to senior management.

8. BUSINESS-TO- BUSINESS E-COMMERCE APPLICATIONS

Business-to-Business (B2B) composes the majority of e-commerce volume. It covers a broad spectrum of applications that enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners. This covers all activities along the supply chain, including all internal operations. B2B applications offer enterprises access to the following information (Turban, Rainer & Potter, 2001):

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Ø Product – specifications, prices, sales history Ø Customer – sales history and forecasts Ø Supplier –product line and lead times, sales terms and conditions Ø Product process – capacities, commitments, product plans Ø Transportation – carriers, lead times, costs Ø Inventory –inventory levels, carrying costs, locations Ø Supply chain alliance –key contacts, partners’ roles and responsibilities, schedules Ø Competitor –benchmarking, competitive product offerings, market Ø Sales and marketing – point-of-sale POS), promotions Ø Supply chain process and performance – process descriptions, performance measures, quality, delivery time, customer satisfaction By using Business-to-Business e-commerce, can reengineer their supply chain and . These automated systems provide new types of information for businesses that implement them. Among the enhanced capabilities for managers are improved sales forecast, more accurate balance sheets, and closer relationships with customers using new interface. In the past, high costs of these systems have restricted use of the e-commerce in the supply-chain only to very large companies. New EDI technologies, intranets, and extranets should increase the ubiquity of these applications and advantages (Adam et al., 1999). Direct communications between suppliers and customers streamlines the supply-chain and delivers new relevant information to manufacturers in real-time (Kalakota & Whinston, 1997).

9. FUTURE CHALLENGES

A major challenge facing companies with integrated supply chain information systems is how to process and utilize the information available to users. Three major developments in global markets and technologies have brought supply chain management to the forefront of management attention: 1. The information revolution, 2. Customer demands in areas of product and service cost, quality, delivery, technology, and cycle time brought about by increased global competition, 3. The emergence of new forms of interorganisational relationship (Handfield & Nichols, 1999).

Other major challenges ahead are: ¨ Rapid changes in our business environment, including increased local/international competition, channel blurring and new distribution process, all place increased pressures on organizations to not only embrace change, but also to perform effectively in a dynamic world. Information technology is also constantly changing ¨ Companies need to increasingly adopt more efficient business processes across the supply chain to meet the needs of sophisticated customers, ¨ Supply chain information will need to provide a single point of contact for customer service, order fulfillment, shipment, and invoicing. ¨ Supply chain managers must ensure that required technologies are getting the proper visibility and funding commitment as part of the information systems plan and process of the strategic planning process.

10. KEY SUCCESS FACTORS

As supply chain management moves from the realm of concept to reality, new ways of doing business will continue to evolve. To enjoy competitive advantage companies must develop: ü Better Planning and decision making via intelligent decision support tools, ü Network systems with intelligent communications support, ü Enterprise systems that offer intelligent operations response,

424 STREAMLINING THE SUPPLY CHAIN WITH ELECTRONIC COMMERCE: A KEY TO SUCCESS IN THE DIGITAL ECONOMY

ü Improved business transactions through an electronic information flow that will enable manufacturers and logistics providers to exchange business documents easily and effectively through IT applications, ü A product information service network that allows for a one stop service access to information needed for a complete supply chain management process, ü A continuous learning environment that will educate and prepare workforce for the21st century.

One of the major weaknesses of traditional supply chains is the lack of collaborative planning between supply chain partners. The application of IT is a critical element in the quest to compete effectively in a global digital or knowledge-based economy which places a premium on timely and efficient operation and communication. Clear communications, and quick responses to those communications, are a key element of successful supply chain management. Technologies, and especially the technologies of the Internet and the Web, can be very effective communication enhancers (Schneider & Perry, 2000). Today’s business environment requires that even industrial companies need to offer the right product or service to the right customer for the right price via the right channel at the right time(Kalakota & Robinson, 2001). E-commerce is emerging as a superb approach for providing solutions to problems along the supply chain (Turban et al. 2002).

11. SUMMARY & CONCLUDING REMARKS

Streamlining the supply chain is a definitive source of competitive advantage. It seemed that the Internet is a natural for facilitating the hidden powers of supply chain efficiencies. A good supply chain means direct cost savings, an agile capacity for business expansion, and close relationships with partners, customers, and suppliers (Mougayar, 1998). Integrated with information and communications, logistics has become the foundation of the successful commercial enterprise today. Technology has made it possible to “shrink” the world, and information and money have been digitized. Many of today’s products and services exist in digital form and are consumed in the digital domain, for example, music, software, and financial services. But our physical goods must still be manufactured, assembled, mobilized, and moved. Beaming up physical matter remains a Star Trek fantasy, but the new logistics moves closer to that vision by making it possible to have products materialize intact in shorter and shorter time frames, anywhere and everywhere in the world (Tapscott et al., 1998). More importantly, advances in telecommunications and computer technology have enabled the integration of various logistical functions from managing the entire supply chain through to distribution and beyond. This can include customer services, transportation, warehousing, inventory management, order processing, information systems, production planning, and purchasing ( Gustin et al., 1995). Since Internet and Web technologies are tools that improve communications at a very low cost, they are ideal aids to enhancing the creation of a highly coordinated and effective supply chain. Using the Web to coordinate the supply chain can streamline or eliminate manual processes. Nonetheless, while electronic commerce eliminates barriers to entry and poses difficult challenges, it also opens up new challenges. Organizational boundaries are blurred. Any entity can communicate with another, creating virtual teams and supply chains.

REFERENCES

Adam, N. R., Dogramaci, O., Gangopadhyay, A., Yesha, Y. 1999. Electronic Commerce: Technical, Business, and Legal Issues. Prentice Hall PTR. Blanchard, B. S., 1998. Logistics Engineering and Management (5th ed.). Prentice-Hall International, Inc.. Bowersox, D. J. & Closs, D. J., 1996. Logistical Management. McGraw-Hill International Edition. Curtis, C., 1997. Getting On to the E-Commerce Supply Chain ‘Just In Time’. Internet Week, September. Available: http://techweb.cmp.com/internetwk/columns/map0901.htm, September 15. Gattorna, J. L. & Walters, D. W., 1996. Managing the Supply Chain: A Strategic Perspective. Macmillan, Business. Greis, N. P. & Kasarda, 1997. Enterprise Logistics in the Information Era. California Management Review, Vol 39, No 3, Spring, pp. 55-78.

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Gustin, C. M., Daugherty, P. J. & Stank, T. P., 1995. The Effects of Information Availability on Logistics Integration. Journal of Business Logistics, vol. 16, no. 1, pp. 34-37. Handfield, R. B & Nichols, Jr. E., 1999.Introduction to Supply Chain Management. New Jersey: Prentice-Hall. Kalakota, R. & Whinston, A. B., 1996. Frontiers of Electronic Commerce, Reading. MA: Addison-Wesley Kalakota, R. & Whinston, A. B., 1997. Electronic Commerce: A Manager’s Guide. Addison-Wesley Kalakota, R. & Robinson, M., 2001. e-Business 2.0: Roadmap for Success. Addison-Wesley Kasarda, J. D., 1996. Transformation Infrastructure for Competitive Success. Transportation Quarterly, 50/1, Winter, 35- 50. Lee, H. L. and Billington, C., 1995. The Evolution of Supply Chain-Management Models and Practice at Hewlett- Packard. Interfaces 25, 5 September-October, pp. 42-63. Mougayar, W.,1998. Opening Digital Markets: Battle Plans and Business Strategies for Internet Commerce (2nd ed.). Mc-Graw- Hill. O’Brien, J. A., 1998. Introduction to Information Systems: An Internetworked Enterprise Perspective (2nd alternate edition). Irwin/McGraw-Hill Schneider, G. P. & Perry, J., 2000. Electronic Commerce. Course Technologies – ITP. Stevenson, W. J., 1999. Production (6th ed.). Irwin/McGraw-Hill Tapscott, D., Lowy, A. and Ticoll, D (Editors), 1998. Blueprint to the Digital Economy: Creating Wealth in the Era of E- Business. McGraw-Hill Turban, E, Rainer, Jr. R. K. & Potter, E., 2001. Introduction to Information Technology. John Wiley & Sons, INC. Turban, E, McLean E. & Wetherbe, J., 2002. Information Technology for Management: Transforming Business in the Digital Economy, . John Wiley & Sons, INC.

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