Supply Chain Strategy in an Emerging and Integrated Global Economy

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A potential valuable way of securing competitive advantage and improving organizational performance is through effective supply chain management (SCM). The emergence of the Internet has changed the field of SCM. E-business may be defined as the marriage between the Internet and supply chain integration. The various forms of e-business applications are divided into three categories: e-commerce, e-procurement, and e-collaboration.

E-Commerce helps a network of supply chain partners identify and respond quickly to changing customer demand captured over the Internet. e-Procurement allows companies to use the Internet for procuring direct or indirect materials, as well as handling value-added services like transportation, warehousing, customs clearing, payment, quality validation, and documentation. e-Collaboration facilitates coordination of various decisions and activities beyond transactions among the supply chain partners, both suppliers and customers, over the Internet.

B2B e-marketplaces represent a recent innovative development, which has been hypothesized to optimize procurement processes and to add significant value in organisations’ supply chain. A B2B e-Marketplace is facilitated by IT, where numerous buyers and suppliers in special markets get together to seek information and to buy and sell goods and services at a fixed or dynamic price which is determined in accordance with the rules of the exchange with the e-Marketplace charging commissions for the products they help to move. B2B e-Marketplace functionalities are based on the internet and thus have an advantage over traditional ERP systems in terms of the ease of communication links across geographical boundaries and with external enterprises.

Some of the barriers to e-business adoption are related to human factors (e.g. insufficient leadership, unwillingness to cooperate, resistance to change, inertia, lack of trust, personal insecurity etc.) relate to structures, processes and systems. Many organisations have focused on a few key e-business services to date, but are not considering potential benefits across the range of services available and across the supply chain. Currently available e-business solutions are still behind from covering the entire spectrum of business requirements and relatively few options are readily available to support or automate complex activities. They have the potential to evolve from matchmaking or transaction support focus to knowledge and trust networks, where common workflows can enable SCM on a more wide spread basis in future.

To conclude, we are still in the first stages of recognizing the potential of e-business. Many organisations still lack an effective ICT infrastructure, which may organize, support and facilitate the highly complex and often rapidly changing interfaces among the organisational entities and disciplines involved in business process.

The profound impact of eCommerce has impacted humanity in an unprecedented way and has changed the facet of business transactions and processes for ever. Traditional marketing and selling processes are now being challenged by new business models and innovative selling and buying approaches. Researchers are still struggling to unveil the different perspectives which surround the e-commerce phenomenon.Email,websites,publishing, selling and buying new business models,edutainment,telecommuting,business and systems integration,cultural and social impacts and assimilating gaps across different disciplines are just some of the implications pertaining to this new paradigm.

The e-business strategy is typically driven by top–down vision. We found that the CEO plays an important role in providing the overarching motivation fore-business adoption, but that the process of developing and implementing specific e-business initiatives is devolved to cross- functional teams. In addition,we also found that in large organisations there are many independent e-business initiatives, but with little clear evidence of any overall coordination.One of the main paradoxes from our analysis was to find that whilst a large number of organisations are involved with the adoption of e-procurement, less than half of those believed that procurement had a strategic function. The cost benefits of e-procurement were widely accepted, but there seemed to be limited evidence that there is a clear understanding of the nature of the mechanisms required to achieve such cost improvement. Without a clear strategic approach to procurement, limited benefits will be achieved. These benefits will be restricted to process cost reductions.

 Integration and Supplier Capability – A Major Barrier:

The difficulties of integrating both internal and supplier legacy systems were seen as a major barrier to increased supply chain integration. In particular,supplier readiness and capability was felt by many to be the main constraint,particularly where the supply base consisted of a high proportion of SMEs.

 E-procurement offers major cost savings, yet less than 40% of those adopting it regard procurement as a strategic process.Only 20% of small-medium (less than £50m pa) organisations have an e-strategy, whilst 79% of large (greater than £50m pa) organisations have an e-strategy.The dominant approach to e-strategy is that the CEO sets out the broad criteria, and detailed implemented is by a cross function task force.

This research found that e-business developments in the supply chain followed a five-stage evolution.

The evolution of supply chain development and e-business is one which initially addresses customer-facing processes, followed by operations process, co-ordination and then supplier-facing controls. The fifth stage of our model is one of total supply chain transparency.The most significant barrier to supply chain integration was deemed to be supplier ability. Due to the diverse nature of the supply base for most organisations, the ability to employ common, integrated solutions is severely constrained. Initiatives to establish industry portals reflect the concern for supplier integration.A common barrier to supply chain improvement is the cost of developing system solutions and implementing business systems.System integration is a second key barrier to supply chain integration

70% of respondents employed consultants to support their supply chain and e-business initiatives.Cultural changes as a consequence of e-business and supply chain integration were centred on two themes. Firstly the opportunities for technological skills enhancement. Secondly, the threat felt in terms of increased monitoring andaccountability, especially as a result of the introduction of systems suchas CRM (customer relationship management).There was no clear consensus that e-business would reduce the number ofpeople employed, but it was widely accepted that it would have a profound effect on administrative and finance functions.

Process of change:- Content updates, dormant sites, Incremental changes,Major Redesignn,Click off,under construction

Drivers of change:- User oriented drivers, Maintenance Drivers, Internet strategy changes, Business requirement changes, New technology possibilities, Fit with peers, Developers influence

Content of change:- Navigability,Design,Accessibility,Content for identification and promotion,Relational interactivity,Transnational interactivity,Security and confidentiality,Site maintenance and management.

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 The Approaches

Factor approach:

e-business progression will take place when appropriate combination factors takes place.It focuses on adoption of a particular technology or innovation.These factors are grouped into 3 groups:-

The nature of technology innovation,characteristic of the organisation and the external environment.

Rational approach:

It implies the idea which the firms should consider which mode of e-business is right for their business through realistic strategic objectives in line with specific business context.Organizations behave purposefully to achieve planned objectives as they see the necessary change.

 Small businesses should be encouraged to do whatever they can to overcome the inhibitors to successful use of ICT’s and use of websites through business investigation which considers firms strategy, capital, product details, customer expectations and competitor activities.

Those involved in evaluating the effectiveness of a website can also benefit from the findings, although no attempt was made in our research to examine the website and effectiveness relations.

As the objectives of website are not a one dimensional concept, it implies that the activities that achieve one set of objectives may not lead them to achieving others. Therefore, how effective a website is depends on the objectives desired. For example, it may not be appropriate to use financial performance criteria to evaluate a website designed mainly for customer service.

Stages of ecommerce development:-

Promotion stage: – Involves website dealing business contact details and provides information of products/services on web.

Provision stage: -It adds functionality to website and adds features such as catalogues or price lists,support for customers in the form of FAQs and internal site links that add value.

Processing stage: -This is transaction phase of website evolution and will involve order processing and payment activities.

Next are existing supply chain issues that have become important as a result of e-business. For example, leveraging risk-pooling concepts can greatly benefit Internet channels because products may be stored at fewer locations as compared to a traditional distribution channel. Amazon.com can store all inventory for the entire U.S. market in five warehouses as opposed to several hundred retail outlets (hence,stocking points) that would be needed for similar coverage in the traditional channel. Similarly, mass customization has gained a lot of momentum with the Internet because firms can allow customers too interactively specify customizations of their offerings. It has become more important for firms to understand howto cope with customization in an effective manner. Finally, in the last few years, a third category of issues new to supply chain management has emerged.

One example is linking the dynamic pricing of products to the inventory and capacity decisions. Another is coordinating Internet and traditional distribution channels in terms of prices as well as information and product flows. Additionally, the advent of electronic marketplaces and auctions has opened a whole new set of issues related to procurement and supplier relationships.A related phenomenon in the supplier management area is the formation of industry-wide supply chain consortia such as e2open (high tech) and Covisint(automobile). The motivation behind the formation of these consortia (also sometimes called marketplaces)is their ability to provide liquidity to inventory and capacity present in the extended supply chain and make it possible for the supply chain partners to get involved in long-term collaborative planning and design efforts. For example, a manufacturer with excess inventory could salvage it in the marketplace.

Similarly, buyers may have the ability to conduct auctions for industrial parts and procure capacity options from the supply base. There are a number of new research issues that have evolved as a result of the above changes. For example, how could one quantify the benefits of joining such a consortium for a firm; how many firms of the same type are likely to stay in a consortium; how could the different firms use the liquidity and options in the marketplace to improve their operational performance.

Physical retail stores have traditionally been the most common mode of distribution. Catalogue firms have traditionally been considered a rather niche market for only certain typesof products. E-business has opened up a completely new dimension to distribution by enabling firms to use alternative distribution channels in addition to brick-and-mortar stores. Also, the ability to share information across the supply chain has made it easier for firms to try to coordinate the flow of materials across multiple channels. In a rush to exploit this opportunity, several firms during the last few years have set up Internet stores and created new businesses (such as online grocery).

Prices:-The ability to dynamically change prices in the marketplace is yet another aspect of distribution that e-business has greatly impacted. In traditional supply chain operations, price changes were allowed but would occur only at regular or planned intervals.However, the Internet enables firms to more dynamically adjust prices with little additional effort.

This poses interesting issues related to how often prices should be changed and how one can effectively couple dynamic pricing with production or capacity decisions. The primary objective for supply chain strategy is greater integration with suppliers and customers, focusing almost exclusively on ‘squeezing’ costs out of the chain. This objective was common to all sizes of organisation, and across all of the sectors surveyed. We also found that large customers were placing considerable competitive pressure on their suppliers to achieve supply chain cost reduction.

As more and more firms begin to integrate their online and traditional operations and share more information over the Internet, real-time supply chain management models on product life-cycle management, dynamic pricing and production coordination, integrated models for supply consortia, and the coordination of Internet and traditional channels, are going to become all the more significant.

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Mufaddal Dahodwala

The author is ex-employee of Accenture and he is currently pursuing MMS finance from JBIMS,mumbai. He has won several prizes from top MNCs for his contribution towards articles as well as idea generation and business plans having a social impact to the society.

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