Manufacture of all components by third parties in different locations including Intel processors, Seagate hard disks, Sony monitors and Microsoft mice. Assembly of some components in final product by third parties, e.g. adding appropriate monitor to system unit for each order. For more information on Dell see Magretta (1998).
Answers to activities can be found atwww.pearsoned.co.uk/chaffey
Information supply chain
An information-centric view of the supply chain which addresses the organizational and technological challenges of achieving technology enabled supply chain management efficiency and effectiveness.
Technology options and standards for supply chain management
Some of the data transfer options and standards which enable e-SCM were introduced in Chapter 3. These include:
EDI which is an established method that has often been used to create a relatively simple method of exchanging orders, delivery notes and invoices between two organizations within a supply chain;
XML- or XML-EDI-based data transfer perhaps through a marketplace hub enables more sophisticated one-to-many data transfers such as a request for orders being transmitted to potential suppliers. These data can be uploaded on a batch basis or in a more sophisticated real-time mode;
Middleware or software used to integrate or translate requests from external systems such as a sales order in real time so they are understood by internal systems (relevant fields are updated in the database) and then it will trigger follow-up events to fulfil the order;
Manual e-mail orders or online purchase through a traditional web-based e-commerce store for B2B (e.g.www.rswww.com).
These mechanisms enable data to be transferred to suppliers from clients using enterprise resource planning (ERP) systems which include material requirements planning modules which are used to model future demand for products, create a bill of materials of the rele- vant components needed to manufacture the products and then order them.
A rise in popularity of Software as a Service (SaaS, seeChapter 3) web applications has supported the growth of e-SCM systems as shown byMini Case Study 6.2. InChapter 3we discuss some of the advantages and disadvantages of SaaS and in particular the single- or multi-tenancy decision.
Many SaaS solutions have been created for specific applications of logistics including:
Deltion (www.deltion.co.uk) which provides an online transport management system, CarrierNetOnline (CNO), where payment is by transaction.
OmPrompt(www.omprompt.com) offers a web-based service for providing connectivity of different transaction formats throughout the supply chain.
DPS International(www.dps-int.com) which has traditionally provided PC-based vehicle planning software but recently introduced a SaaS version, logixcentral, where payment is on a user basis.
Mini Case Study 6.2
E2open (Figure 6.11) is a leading provider of multi-enterprise value chain solutions delivered on demand as a working business process in a pay-as-you-go model. Benefits of E2open according to the company include ‘end-to-end visibility, collaboration and responsiveness over global value networks with faster time- to-value, lower total cost of ownership, a continuous value roadmap, and easier integration between internal enterprise applications and trading partners, including suppliers, customers, distributors and logistics providers’. Over 45,000 companies worldwide currently use E2open which offers the choice of single tenancy or multi-tenancy.
Companies that use E2open to support supply chain management include The Boeing Company, Celestica, Cisco Systems, Flextronics, Hitachi, IBM, LG Electronics, LSI, Matsushita Electric Industrial (Panasonic), Motorola, Seagate Technology, Spansion, Vodafone, Wistron and YRC Worldwide.
E2open prospers through ESCM as SaaS
Adoption rates of e-business applications
How popular are the e-business technologies for supply chain management we have described in this chapter? The European Commission Information Society report (European Commission, 2008, seeFigure 1.10) showed that the majority of businesses surveyed have Internet access; the proportion actively buying, selling or sharing information with partners online is much lower.
In 2006, the UK launched the Supplier Route to Government Portal(www.supply2.gov.uk) as part of its e-government initiative; this is an online marketplace for public-sector procure- ment valued at less than £100,000. Registered users can receive daily e-mail alerts about contracts appropriate to them, search for contracts online and post details of their offerings.
A European Union report (European Commission, 2008) also shows surprisingly low rates of adoption of different types of e-business applications.Figure 6.12shows the popu- larity of different e-business applications. Despite the benefits of these applications discussed in this and other chapters, adoption is surprisingly low, particularly amongst smaller companies that use manual systems or systems based on desktop spreadsheet, data- base or accounting systems.
Figure 6.11 E2open (www.e2open.com)
Benefits of e-supply chain management
Given, the relative lack of adoption of e-SCM, particularly in SMEs, which opportunities are being missed that are available to adopters? E-business can be used to improve supply chain management in a number of ways. These are illustrated well by research by IDC (2004) into the challenges facing manufacturers in one sector (electronic component manufacture).
This research showed that their main challenges (scored out of 5) were:
Reduce order-to-delivery time (4.3)
Reduce costs of manufacturing (4.1)
Manage inventory more effectively (4.0)
Improve demand forecasting (3.9)
Reduce time to introduce new products (3.7)
Improve after-market/post-sales operations (3.2).
Additional research on the benefits and challenges are presented inFigure 6.1.
We will now consider typical benefits in a little more depth with respect to a typical B2B company; they include:
1 Increased efficiency of individual processes. Here the cycle time to complete a process and the resources needed to execute it are reduced. If the B2B company adopts e-procurement this will result in a faster cycle time and lower cost per order as described inChapter 7.
Benefit: reduced cycle time and cost per order as described inChapter 7.
2 Reduced complexity of the supply chain. This is the process of disintermediation referred to inChapter 2. Here the B2B company will offer the facility to sell direct from its e-commerce site rather than through distributors or retailers.
Benefit: reduced cost of channel distribution and sale.
3 Improved data integration between elements of the supply chain. The B2B company can share information with its suppliers on the demand for its products to optimize the supply process in a similar way to that described for Tesco inCase Study 6.1.
Benefit: reduced cost of paper processing.
Figure 6.12 Popularity of different e-business applications in Europe according to company size Source: European Commission (2008)
Secure protocols for internet orders 0%
Sending e-invoices Open-source operating systems Receiving e-invoices Digital signature ERP systems Analytical CRM
5% 10% 15% 20% 25% 30% 35% 40% 45%
% of enterprises enterprise comprising % of the work force
4 Reduced cost through outsourcing. The company can outsource or use virtual integration to transfer assets and costs such as inventory holding costs to third-party companies.
Technology is also an enabler in forming value networks, and in making it faster to change suppliers on the basis of cost and quality.
Benefits: lower costs through price competition and reduced spend on manufacturing capacity and holding capacity. Better service quality through contractual arrangements?
5 Innovation. E-SCM should make it possible to be more flexible in delivering a more diverse range of products and to reduce time to market. For example, the B2B company may use e-commerce to enable its customers to specify the mixture of chemical compounds and additives used to formulate their plastics and refer to a history of previous formulations.
Benefit: better customer responsiveness.
Flexibility in adapting to new business requirements is a key capability of e-SCM systems.
For example, in 2006, e-business system supplier and integrator SAP (www.sap.com) explained the three key capabilities of its SCM solution as:
Synchronize supply to demand – Balance push and pull network planning processes.
Replenish inventory and execute production based on actual demand.
Sense and respond with an adaptive supply chain network– Drive distribution, transpor- tation, and logistics processes that are integrated with real-time planning processes.
Provide networkwide visibility, collaboration, and analytics – Monitor and analyze your extended supply chain.
Source:www.sap.com/solutions/business-suite/scm.
An alternative perspective on the benefits is to look at the benefits that technology can deliver to customers at the end of the supply chain. For the B2B company these could include:
Increased convenience through 24 hours a day, 7 days a week, 365 days a year ordering.
Increased choice of supplier leading to lower costs.
Faster lead times and lower costs through reduced inventory holding.
The facility to tailor products more readily.
Increased information about products and transactions such as technical data sheets and order histories.
There are two alternative, contradictory implications of supply chains becoming electronically mediated networks. Maloneet al. (1987) and Steinfieldet al. (1996) suggest that networks may foster electronic marketplaces that are characterized by moreephemeralrelationships. In other words, since it is easier to form an electronically mediated relationship, it is also easier for the customer to break it and choose another supplier. Counter to this is the suggestion that elec- tronic networks maylock incustomers to a particular supplier because of the overhead or risk in changing to another supplier. Here networks are used to strengthen partnerships. An example of this is when the use of an EDI solution is stipulated by a dominant customer.
The popular conception of the introduction of the Internet into a channel is that it will tend to lead to more ephemeral relationships. This may yet prove to be the case as more intermediaries evolve and this becomes an accepted way of buying. However, the review by Steinfieldet al. (1996) seems to suggest that EDI and the Internet tend to cement existing relationships. Furthermore, research indicates that the use of networks for buying may actu- ally reduce outcomes such as quality, efficiency and satisfaction with suppliers. If the findings of Steinfieldet al. (1996) are confirmed in practice, then this calls into doubt the future of many B2B marketplaces (Chapter 7, p. 400). Personal relationships between the members of the buying unit and the supplier still seem to be important. It will be interesting to see which type of arrangement predominates in the future, or it may well be that there is a role for both according to the nature of the product purchased.
Radio-frequency identification (RFID) Microchip-based electronic tags are used for monitoring anything they are attached to, whether inanimate prod- ucts or animate (people).
IS-supported upstream supply chain management
The key activities of upstream supply chain management are procurement and upstream logistics. The way in which information systems can be used to support procurement in the e-business is of such importance that a whole chapter is devoted to this (Chapter 7). How- ever, in the current chapter we look at some examples of how technologies are used to improve upstream supply chain management.
Many grocery retailers have been at the forefront of using technology to manage their upstream supply chain. The major example we will review here is the system created by Tesco, but other UK retailers have developed such systems as ‘Sainsbury Information Direct’
and ‘Safeway Supplier Information Service’.Case Study 6.2illustrates the use of technology to manage the upstream supply chain from the retailer’s perspective, but also highlights the benefits for their suppliers. The Tesco Information Exchange (TIE) was developed in con- junction with GE Information Services (GEIS), and is an extranet solution that allows Tesco and its suppliers to collaboratively exchange trading information. TIE is linked to Tesco’s key systems to give suppliers access to relevant and up-to-date information such as electronic point of sale (EPOS) data, to track sales and the internal telephone/mail directory, so that suppliers can quickly find the right person to talk to.
RFID (radio-frequency identification microchip)
RFIDtags are a relatively recent innovation in e-SCM that are already widely used for logis- tics purposes. They can be attached to individual product items in a warehouse or in a retail location. With appropriate scanning technology they can then be used to assess stock levels – they can be read at a distance of 1 to 6 metres. However, there are number of issues involved with the implementation of RFID which give a dilemma to managers. These are explored in Case Study 6.2.
RFID is still in a relatively early phase of its adoption with PMP (2008) reporting that only 3% of UK companies are using RFID extensively while 19% are deploying it in some areas. A further 3% only use it if mandated by their customers, while 16% are planning to use it in a few areas. The main disadvantage of RFID technology is still seen as its cost, cited by 42% of respondents to PMP (2008), while a lack of technology standards is mentioned by 32% and a lack of consumer understanding or distrust by 23%.
The case summarizes the history of Tesco supermarkets’
efforts to encourage electronic trading with their suppliers from EDI to Internet-based purchasing. The benefits and problems of implementing such electronic partnerships are explored.
Retailers have long sought greater collaboration in their supply chains, but few have managed to achieve it. One that has is Tesco, the UK’s largest grocery retailer, which has built a reputation as one of Europe’s most innova- tive retailers in its use of information technology.
As with many retailers, Tesco has long used electronic data interchange (EDI) to order goods from suppliers and the network links Tesco’s and the 5000 suppliers it has in 2008 according to its supplier information web site.
Tesco’s suppliers range from very small companies offering one product delivered direct to a few stores, to
multinationals supplying large volumes of goods to their stores around the world via our international sourcing hubs in Hong Kong and elsewhere.
The remainder of this case provides a historical perspective on the adoption of E-commerce at Tesco which originated with electronic orders from Tesco, but with limited sharing of information about Tesco inven- tory. But in 2006, according to its supplier information web site, a new system, TescoLink was introduced to allow suppliers direct access to store level sales data on their products as well as information on wastage, margin and stock availability. This will assist suppliers to achieve ECR and reduce their own inventories.
The EDI system started operating in the 1980s and its use was initially limited to streamlining store replenish- ment. In 1989, Tesco took its first steps on the road to
Case Study 6.2 Tesco develops a buy-side e-commerce system for supply chain management
The Tesco case study illustrates the benefits and difficulties of implementing EDI for supply chain optimization from a retailer’s perspective. We will now consider it from the perspec- tive of the manufacturer. Fisher (1997) makes the distinction between two strategies that manufacturers can follow according to the type of product and the nature of its demand.
For functional products, particularly those with easily predictable demand, such as con- sumer goods like toothpaste or shampoo, the product does not need to be modified frequently in response to consumer demand. Here the implication is that the supply chain collaboration and began using its EDI network to help its
suppliers better forecast demand.
About 350 suppliers receive EDI messages with details of actual store demand, depot stockholdings and Tesco’s weekly sales forecasts.
According to Barry Knichel, Tesco’s supply chain director, this forecasting project has been successful as average lead times have fallen from seven to three days.
‘Nevertheless, the information flow is strictly one way’, he says. ‘We still do not know the true value of this sales data because we never get any feedback.’
In 1997, Tesco thus started its Tesco Information Exchange (Tie) project in an attempt to achieve much more sophisticated two-way collaboration in its supply chain.
‘This really was a big development for us’, he says.
‘The guiding principle was to combine our retailing knowledge with the product knowledge of our suppliers.’
A large Tesco store may carry 50,000 products while a supplier will have at most 200. An important aim of the Tie project was thus to shift responsibility for managing products down to the relevant supplier.
‘Suppliers clearly have a better understanding of their specific product lines, so if you can engage the supplier to manage the supply chain you are going to get much better product availability and reduce your inventory’, says Jorge Castillo, head of retail business for GE Information Services, which developed the extranet technology behind Tie.
Suppliers pay from £100 to £100,000 to join Tie, depending on their size. This then allows them to access the Tie web site and view daily electronic point- of-sale (Pos) data from Tesco stores.
According to Mr Castillo, Tie lets suppliers monitor changes in demand almost in real time and so gives them more time to react. ‘Before, Tesco’s suppliers would not have seen a problem until Tesco got on the phone to them’, he says. ‘Now, it is the suppliers who get on the phone to Tesco and they can see much earlier on if a product is not selling well.’
The data can be analysed in a number of ways to allow suppliers to see how sales perform by distribution centre, by individual store or even by TV region – impor- tant for promotions.
The management of promotions is a complex process requiring close cooperation between supplier and retailer. However, it has traditionally been difficult to do well because of the lack of shared data to support collaborative decisions.
‘Promotions can be a nightmare’, says Mr Knichel.
Tesco and GEIS added a promotions management module to the service in 1999. It allows retailers and suppliers to collaborate in all stages of the promotion:
initial commercial planning, supply chain planning, execution and final evaluation.
According to St Ivel, one of Tesco’s bigger food suppliers, Tie has saved 30 per cent of its annual promotional costs.
More than 600 suppliers, representing 70 per cent of Tesco’s business, are using Tie today and Tesco aims to have all its suppliers onboard by the end of 2000.
Around 40 suppliers are participating in the most recent addition to the Tie system, a collaborative data module.
This aims to allow ‘seamless’ planning in which the planning data on the screen is jointly filled in by both retailer and supplier. Mr Knichel sees this as radical change for the retail industry as suppliers and retailers have traditionally worked to separate agendas.
He feels Tie has much potential to streamline Tesco’s supply chain and to help suppliers improve their service levels and promotions. But retailing is a traditional industry and many suppliers are set in their ways.
‘Only two suppliers have fundamentally changed the way they work as a result of Tie. Nevertheless, they can bring products to market much faster than any of their competitors’, he says.
Source: Geoffrey Nairn, Retailers website allows suppliers to closely monitor product demand, Financial Times, 3 May 2000
Questions
1 What benefits does Tesco’s information exchange offer to the retailer and its suppliers?
2 What differences have the use of TIE added over the original EDI system?
3 Discuss reasons why only two of Tesco’s sup- pliers have fundamentally altered the way they work as a result of TIE.