SPECIAL SECTION: ELECTRONIC COMMERCE AND LOGISTICS , g A b s t r a c t n

i Business Networking in the k r

o As part of ’’ ETA SA w t supplies movements and spare Group e n n g s parts to all Swatch brands and other i s s e e

n customers such as retailers and watch- d i s e ¨

r RAINER ALT, HUBERT OSTERLE, CHRISTIAN REICHMAYR AND u makers. To improve the quality and the l b e , RUDOLF ZURMU¨ HLEN n t efficiency of the customer relationships n n a e

h ETA started a Business Networking pro- m c e g n ject in cooperation with the University a o i n t

a of St Gallen. This project focused on u b m i

r the complementary application of two n t i s i a Business Networking strategies that are d h c , l

e usually treated separately: supply chain y l d p o

p management and electronic commerce m u s

e (e-commerce). Both concepts allow for , c e n c e

r establishing direct relationships to the r e e f

m customers. Supply chain management e r m o s enables direct deliveries to the custo- c n o c i

i mers at lower costs and improved t n a r o

r reliability. E-commerce provides centra- e t p c o

e lized catalogues and order entry proce- l n e i : a dures with significant advantages in

s ESSENCE AND RELEVANCE OF Networking. Business Networking as- h d c r time and cost. This highlights the im-

o y BUSINESS NETWORKING sumes that production occurs not l w p portance of understanding the interrela- y p within large vertically integrated com- e u K s tions between both strategies in ‘The Swatch Group’ is a globally panies but in networks where different creating mutual benefits between ETA operating producer of such as partners concentrate on their core and their customers. , Omega, Rado, , activities. Higher coordination re- , and the Swatch quirements are met by information watches. The group consists of a age technologies, which enable inter- number of individual companies, facing among various ERP systems, which focus among others on finished efficient and distributed management watches movements and component of large information volumes and the production and research and develop- like. ment. Producing watches for the in- In the case of ETA, Business Net- A u t h o r s dividual brands involves various group working enables increased customer- Dr Rainer Alt ([email protected]) is companies. ETA SA Fabriques orientation, cost-efficiency, reliability Project Manager of the Competence Center

Downloaded By: [German National Licence 2007] At: 14:31 11 March 2010 d’Ebauches in , and global presence. This was

g inter-Business Networking (CC iBN) at the

r supplies the movements for watches – achieved by using two Business Net- o . Institute for Information Management, s

t calibers in the industry’s jargon – to working strategies, which are closely

e University of St Gallen, Switzerland. His k

r all Swatch brands. As the world’s interrelated: supply chain manage- a research focuses on business networking,

m third largest manufacturer of move- ment and e-commerce. Although, c

i electronic commerce, and supply chain s n t

o ments, ETA has over 15 production both strategies are often used inde- e

r management. k t r c

a ¨ sites in Switzerland, Germany, France, pendently from each other, the ex- e Dr Hubert Osterle (Hubert.Oesterle@ l e M . unisg.ch) is Professor for Information Thailand, Malaysia and China. In ample of ETA shows the potential c w i n w Management at the University of St Gallen 1997, ETA produced more than 135 of both strategies to cut costs and o w r t . and concentrates his research on business

c million movements with more than to streamline customer-service pro- 3 e 7 l

1 engineering, business networking and E 10,000 employees. cesses. Together with the Institute – 9 9 business knowledge management.

9 6 In order to ensure a customer- for Information Management, Uni- 1 9 Christian Reichmayr (Christian. 1 :

) oriented and efficient production of versity of St Gallen (IWI-HSG), 3 © ( [email protected]) is the Research

t watches, a coherent management of ETA has conceived and is launching 9

h Assistant responsible for the ETA project g e

i the relationships among the relevant a new solution for the procurement r m

y within ccibn. u p l group companies is one key success of spare parts and sales products o o Dr Rudolf Zurmu¨hlen (Rudolf. C V [email protected]) is Head of Customer factor. We will refer to the manage- (i.e. calibers) which encompasses Service at ETA SA Fabriques d’Ebauches, ment of internal and external relation- supply chain management on the Switzerland and responsible for the ships and the development of one hand and e-commerce on the business networking project. cooperation strategies as Business other. ELEMENTS OF BUSINESS NETWORKING: ELECTRONIC COMMERCE, SUPPLY CHAIN MANAGEMENT

In view of the flurry that has been surrounding e- commerce (EC) and supply chain management (SCM), it appears appropriate to define how these concepts inter- relate and complement each other. Since they both support the management of business relationships, they represent practical strategies for Business Networking. Following Ellram (1991), SCM may be described as the Figure 1. How EC and SCM connect ‘integrated management approach for planning and con- trolling the flow of materials from suppliers through the distribution channel to the end user.’ All major SCM How does EC relate to SCM? In the first place, a initiatives, such as just-in-time (JiT), zero inventory (ZI), product’s entire supply chain consists of a number of efficient consumer response (ECR), vendor managed in- individual supply chains on the way from the supplier of ventory (VMI), and continuous replenishment (CR) aim raw materials to the end consumer. In general the transac- at providing efficient management of the supply chain tions linking the supply chains of individual companies are (Kalakota and Whinston, 1997: 286). As Klaus (1998: used to define EC. For further analysis the transactions are 434–41) shows, this involves three areas that have to deal broken down into various activities. During the informa- with by SCM: tion phase, customers make their choice among a variety of goods and vendors. This is followed by negotiation and · All order processing activities originating at the custo- decision-making on a specific product in the contracting mer: order acceptance, input of orders into internal phase. Finally, in the settlement phase, the selected goods order processing systems, calculation of production and are delivered to the customer who, in turn, pays a material forecasts. consideration for them. For EC to take place, it is · All material activities of the supply chain directed necessary that at least one of these phases rely on electro- towards the customer: materials management, produc- nic means. Apart from this functional criterion, EC- tion, distribution and order fulfillment. systems are classified according to the context in which · All order-related financial activities: invoicing, billing they are used. A distinction is made between inter- and funds transfer. Unfortunately, many SCM defini- organizational (B2B), intra-organizational (EC within a tions and projects are ignoring this area and, conse- company) and business-to-consumer (B2C) EC-systems. quently, the benefits of close coordination of financial There are four essential aspects where SCM differs from flows, e.g. the reduction of the amount of capital EC (Table 1). First, all major SCM solutions, such as JiT committed. in the automotive industry or ECR in the retail industry, Various models from software vendors and industry orga- are based on the cooperation between (internal or exter- nizations exist for the modeling of supply chains. An nal) business units. SCM usually does not involve direct

established model is the Supply Chain Operations Refer- arrangements with end-customers. For instance, a CR- p u o

ence Model (SCOR) from the Supply Chain Council, an scheme operates at the interface to the customer, but r Downloaded By: [German National Licence 2007] At: 14:31 11 March 2010 contractual arrangements are made between the retailer G

American industry association with 73 member companies. h c and the supplier. Second, with SCM designed to stream- t In the first place, SCOR provides a standardized language a w

for the description, analysis and measurement of supply line order processing, material management and financial S e

chains among multiple partners. As shown in Figure 1, in processes, the starting point of an SCM solution is an h t

existing order. Consequently, while settlement processes n the SCOR model supply chains are built using the four i

are at the heart of SCM, EC centres on the design of g generic supply chain functions, viz. plan, source, make and n i

1 k deliver. information and contracting processes. This is also r o w t e N s s

Table 1. Differentiation between EC and SCM e n i s u

Electronic Commerce Supply Chain Management B . Activities Information, Contracting, Settlement Plan, Source, Make, Deliver l a t

Scope Inter-business relationships and customer relations Inter-business relationships only e t Perspective Transaction Business functions l A Focus Design of information and contracting activities Design of planning processes and flow of goods Cooperation intensity Low High Duration Short-term relation Mid to long-term relation 170 reflected in the SCOR model, which does not include ship analysis were conducted at the beginning of the first distinct sales or marketing activities. Third, every supply phase.2 The main problems discovered were: chain focuses on internal processes, i.e. processing of · a lack of availability of technical documentation at the orders, scheduling, production and distribution. When right moment and place; supply chains are linked, forecasts, orders, invoices etc. are · no simultaneous presence of necessary outputs such as exchanged in the settlement phase of a transaction. Finally, specimen movements, spare parts and movements- all SCM-solutions to date have been implemented in mid- specific tools when a new caliber is introduced on the to long-term relations with high cooperation intensity market; whereas in the case of EC the emphasis is inherently on · long cycle times for the repair of movements and the (short-term) spot contracting. delivery of spare parts; An analysis of either concept – EC or SCM – reveals a · poor transparency of ETA-Customer Service (ETA-CS) complementary relationship with some overlaps. EC con- outputs and little communication between ETA-CS and centrates on shaping information and contracting activities its customers. (e.g. design of electronic catalogues and matching func- tions) whereas SCM is primarily concerned with planning Two projects were launched to address these problem processes and the organization of various flows of goods. areas. The first concerned the redesign of the introduction Specifically, SCM has developed techniques and methods process of new calibers (IONC) and the second the for efficiently designing, implementing and operating set- distribution process of spare parts within the Swatch tlement processes. Indeed, both concepts are bound to Group. Both processes require a time- and cost-efficient have an important impact on day-to-day business. Accord- distribution of products. However, existing distribution ing to Kalakota and Whinston (1998: 286): ‘The inte- processes involve a complex network of warehouses. gration of electronic commerce and supply-chain Brands of ‘The Swatch Group’ such as Tissot, Rado and management is changing the way businesses work intern- Omega, order spare parts from ETA-CS and deliver them ally and work with each other.’ to their customers, which are mainly ‘The Swatch Group’- country organizations (CO) and independent agents. These COs receive the parts from ETA-CS and store them SUPPLY CHAIN MANAGEMENT AND ELECTRONIC in their own warehouses. COMMERCE AT ETA In order to simplify the distribution process and reduce costs, the reengineering will consist of the elimination of At the outset of the ETA project in 1996, three main the inventories at the brands and direct delivery to the problems were encountered: brand’s customer. All movements and spare parts, which are standard, i.e. not personalized for a specific brand, will · The individual brands of ‘The Swatch Group’ were more be delivered directly to the brand customer (Figure 2). and more insisting that all outputs associated with the However, the eliminated warehouses represented buffers introduction of a new caliber were actually available in allowing for rapid deliveries. The brands only agreed to time. direct deliveries once ETA guaranteed the same cycle times · The distribution costs of spare parts and movements had as the brands offered to their customers. ETA-CS will to be reduced in order to remain competitive. An establish two distribution channels, Distribution A and B Downloaded By: [German National Licence 2007] At: 14:31 11 March 2010 important component is the reduction of inventories with cycle times of 24 and 120 hours, respectively. that are held on ‘The Swatch Group’-level i.e. at ETA, the brands and the brand’s customers. · The ordering process had to be streamlined, because Phase II: Electronic Commerce (EC) Sales Channel inconsistent product master data, i.e. numbering and naming of parts, among the individual brands were As a second step, ETA conceived an EC solution that will 3 causing time and labor-intensive matching processes.

o go live in April 1999. Using a Web-based electronic N catalogue, customers will be able to get specific 9 ETA addressed these challenges from a Business Network- . l ing perspective. In a first phase, the Business Networking o V

s potentials were analysed for the redesign of the supply t e

k chain. In the next stage, a new electronic distribution r

a channel for B2B sales of spare parts and movements is M

c being established. i n o r t c e l

E Phase I: Reengineering the Supply Chain

To explore the networking potentials and problems, a 171 number of customer workshops and a customer relation- Figure 2. Changes in the flow of spare parts information about (new) products, prices, discounts, etc. BENEFITS OF BUSINESS NETWORKING FOR ETA over the Internet. On the next level, the desired compo- nents will be put into the customer’s shopping basket. For Applying both, SCM and EC to the distribution of sales repeatedly ordered items it will also be possible to create and spare parts has important advantages for ETA. As individual customer shopping. The EC-solution calculates Table 2 shows, the main benefits are time reductions, taxes, discounts, etc. and therefore the customer directly enhanced customer focus, inventory reductions, and im- sees his total order amount. After the completion of the proved accuracy of information. order the customer chooses a payment method (e.g. credit The reengineering of the supply chain is expected to card payment) and the order is sent. As Figure 3 shows, result in a reduction of distribution costs provided that the EC solution concerns information and contracting one warehouse level will be eliminated and that stocks at activities and provides all information via one communica- ETA headquarters will be centralized in a new high-bay tion channel. warehouse. Consequently, there are smaller inventories in Establishing the electronic sales channel meant that the entire distribution system, which also implies that ETA had to deal with incoherent product master data. In there is less bufferage in the system. To meet the the past, the translation of an order into the ETA order guaranteed delivery times the new high-bay warehouse processing system was time consuming. For example, it centralizes in-house stocks and allows for improved inven- took hours to find out the article number of a non- tory management as well as higher availability of parts. specified toothed wheel smaller than 2 mm. This required Concerning EC the main advantages are reduced order- coherent product master data in order to avoid the ing cycle times, new functionalities to the customer, programming of complex matching procedures. The improved forecasting, and more accurate information. In matching problem will be solved within the next few the old days it was only after the interpretation of an order months with the homogenization of the master data. It that the corresponding delivery processes such as picking, will then be possible to trace a validated purchase order packing and transportation could be started. Reducing during the entire order cycle by customers and ETA order processing times adds additional time and bufferage themselves. to the physical delivery activities. In the second place, In the initial phase selected Swiss pilot customers will be forecasting can be improved with better knowledge of the able to order spare parts and certain sales products (i.e. customer’s behaviour. The convergence in the information ‘Flatline’ and ‘Normflatline’ movements) using the EC- flow brings ETA closer to its customers and will allow solution. This avoids the complexities involved in shipping systematic customer profiling by monitoring past order abroad (shipping costs, VAT etc.) and these customers are behaviour (Hagel and Rayport, 1997). This helps ETA to known to be ready for electronic ordering. develop a better understanding of what customers really desire and to derive demand profiles and production forecasts. A decrease of the order cycle time and increased knowledge of customer’s behaviour results in guaranteed delivery times, which may be the greatest benefit for the customers.

Compared to the traditional distribution channel all p u o

operational contacts are now using the same communica- r Downloaded By: [German National Licence 2007] At: 14:31 11 March 2010 Figure 3. Convergence of information flow G

tion medium and benefit from additional functionalities h c t a w

Table 2. Benefits of SCM and EC for ETA SA S e h t n

Benefits of SCM Benefits of EC i g n i

Speed/time advantages · Optimized commissioning and packing processes · Faster order validation process k r in centralized high-bay warehouse · Reduced search times for inventory o w t

Customer focus · Guaranteed delivery times · New functionalities (electronic order e N

confirmation, electronic order tracking, electronic s s e

catalogue, download of technical documents, n i s

credit card payment) u B · Customer profiles and individual customer . shopping baskets l a t

Inventory · Reduced inventory (High-bay-bay warehouse, · Reduced inventory due to improved forecasting e t elimination of several internal and external l A warehouses) Correctness/accuracy – · Unambiguous order information · Improved matching of master data 172 (e.g. download of technical documents, credit card pay- ACKNOWLEDGEMENT ments, open order tracking, individual customer shopping baskets). Especially online credit card payments help in We acknowledge and appreciate the work and the input of dealing with the large number of small retailers, watch- our colleagues Roger Benz, Elgar Fleisch and Karl-Maria makers etc. which ETA has worldwide. Handling orders Gru¨nauer who have been involved in earlier stages of the from dilatory customers was time-consuming and sharing ETA project. these risks with a credit card organization is of significant benefit for ETA. Migrating the order entry process on the EC solution Notes frees capacities that can be used more effectively. The 1. For further information on SCOR see http:// electronic catalogue provides information about the parts www.supply-chain.org list, the interchangeability of parts (i.e. parts may be used 2. For the documentation of phase I see Benz et al. 1999. in more than one movement) and assigns the unique article number to ordered items. This standardized order- ing process also helps to sustain the corporate identity and References to reduce set-up cost for establishing ETA’s presence in a Benz, R., Fleisch, E., Gru¨nauer, K.-M., O¨ sterle, H. and new market. Zurmu¨hlen, R. (1999) ‘Entwurf von Prozessnetzwerken am Beispiel von zwei Business Networking-Projekten der Swatch Group’, in Proceedings Wirtschaftsinformatik ’99, Saarbru¨cken March 1999. CONCLUSION Ellram, L.M. (1991) ‘Supply Chain Management: The Industrial Organization Perspective’, International In the ETA case SCM and EC yielded more direct Journal of Physical Distribution and Logistics Management customer relations. By eliminating inventories and intro- 21(1). ducing direct delivery SCM supported immediate custo- Hagel, J. and Rayport, J. (1997) ‘The Coming Battle for mer contacts regarding the physical goods. The EC Customer Information’, Harvard Business Review solution brought product and financial information to the (January-February): 53–65. customer. Indeed, EC was the trigger for starting SCM Kalakota, R. and Whinston, A. (1997) Electronic Commerce: since it offered new possibilities in distribution and in- A Manager’s Guide, Reading (MA). formation management. Streamlining the supply chain and Kalakota, R. and Whinston, A. (1998) Cited in text. implementing a globally available and standardized electro- Klaus, P. (1998) ‘Supply Chain Management’, in Gabler nic sales channel were complementary concepts in estab- Lexikon Logistik, Wiesbaden, 434–41. lishing closer contact to the customer. For the future, Schmid, B. and Lindemann, M. (1998) ‘Elements of a ETA has high expectations in the implemented solution Reference Model for Electronic Markets’, in R.W. and assumes that 30 to 40 per cent of all customers will be Blanning and D.R. King (eds), Proceedings of the 31st using the electronic channel in the next three years. HICSS, Vol. IV: 193–201. Downloaded By: [German National Licence 2007] At: 14:31 11 March 2010 3 o N 9 . l o V s t e k r a M c i n o r t c e l E

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