STREAMLINING THE SUPPLY CHAIN WITH ELECTRONIC COMMERCE: A KEY TO SUCCESS IN THE DIGITAL ECONOMY Nitya L. Karmakar PhD School of Management College of Law and Business University of Western Sydney, Australia ABSTRACT The central aim of supply chain management, 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 organization 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 Corporation 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 service 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 customers 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 Customer 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 working capital, · 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 419 IADIS International Conference WWW/Internet 2002 3. WHAT IS LOGISTICS? Logistics may be defined as: ‘Logistics is a component of strategic management. 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 421 IADIS International Conference WWW/Internet 2002 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