E-Business And The Supply Chain
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E-Business and the Supply Chain
Competition, global and domestic, shortened product life cycles, and todays economic conditions provide ongoing challenges for distributors of goods and services. Organizations that remain tied to the conventional supply chain processes find the increasing demands made by major consumers to be a trial because of the inaccuracies associated with forecasting the purchasing habits of those same customers. While distributors endeavor to enter into value-added supply-chain services such as collaborative planning and vendor-managed inventories some vendors oppose the efforts which in turn forces distributors to struggle with inadequately controlled inventory levels. The outdated practices used by distributors and vendors hinder every phase of supply chain management. Without resolution, organizations face issues such as high discounts, a reduction in orders, an increase in inventory costs, and a loss of customers. It is essential for companies to create and manage a value added supply chain to remain competitive in the marketplace. In todays world the use of information technology (IT) is mandatory for any ongoing entity.
E-Business Strategies and the Creation of a Value Added Supply Chain
The Supply Chain Defined
Wikipedia (2006) states, “A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information, and resources involved in moving a product or service in physical or virtual manner from supplier to customer.” In short, the supply chain is each individual and process that is instrumental in the amalgamation of events which brings a product or service to a consumer.
Creating the Supply Chain
“As global competition and advancing technology render borders irrelevant and link companies more closely, supply chains are growing increasingly complex. No longer simply the domain of the warehouse manager or logistics director, supply chain management is viewed by most companies as a mission-critical element” (Wharton, n.d.).
Current business trends such as low-cost country sourcing, outsourcing, customization, and globalization have increased the complexity of creating an effective supply chain for some organizations. Increased consumer demands, global competition and shareholders expectations, and complex distribution models augment the difficulties faced by companies attempting to manage these complex systems.
Wharton (n.d.) states, “The first hurdle to coordination and collaboration is within the four walls of your company.” Poor communication and use of antiquated systems is a major stumbling block in the development of an efficient supply chain. Modifications necessitated by a need to comply with the evolving world of business and technology often results in culture shock for employees of organizations undergoing rapid operational and cultural changes. Without resolving the internal issues the organization will find attempts to align the entitys performance with consumer demands problematic at best and impossible at worst. The second hurdle faced by a company is working with entities outside of the organization. Communication channels and trust between the entities are critical. Per Wharton (2006):
“Information is one thing; trust is another. Information has facets
— data, understanding of intent, communication around that, and many sub-
dimensions. But trust is fundamentally different. It is based on an expectation that
you need to fulfill your obligations to me as my partner in this work.”
Priorities must include the nurturing of internal and external relationships if the organization hopes to develop appropriate, and effective, supply chains for the product.
Products are classified by Wharton (2006) as functional or innovative products. Function goods satisfy basic needs, have a low product variety, predictable demand, easily matched supply and demand patterns, low profit margins and can be sold in a wide range of retail outlets with virtually no forced end-of-season markdown. Innovative goods are characterized by unpredictable demand, an increased risk of shortages or excess supplies, a potential for higher profit margins, and high product variety with forced end-of season markdowns.
When developing a supply chain for functional products “the supply chain must deliver a physically efficient process; one designed to supply predictable demand efficiently at the lowest possible cost (Wharton, 2006).” The supply chain for innovative products should be one “designed to respond quickly to unpredictable demand (Wharton, 2006).” Sound strategy and timely information ensure the supply chain, internally and externally, is capable of making quick decisions.
Managing the Supply Chain
“The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory, and labor (Wikipedia, 2006).” Increased profitability for organizations is obtained via utilization of integrated supply contracts containing comprehensive service-level commitments combined with healthy IT environments supporting supply-chain management systems (Microsoft Dynamics, n.d.). The profitability is a result of “increased speed of delivery and shorten lead times with improved inventory turnovers and accuracy of order-fill rates (Wharton, 2006).”
Organizations operating globally are more prone to interruptions within the supply chain than those operating domestically (within the United States), provided all resources are found inside the home country. Events such as natural disasters, power outages, terrorist attacks, and inadequate logistics arenas pose challenges more frequently with global operations than domestic. Risks must be identified, vulnerabilities unearthed, and contingency plans formulated. There is an element of redundancy in these efforts; however, an organization may find that without developing a level of flexibility and formulating the contingency plans the losses incurred during an event such as those listed above to be enough to adversely affect the financial stability of the company.
Knowing What to Measure
Organizations have metrics operational on a daily basis. Inventory ratios, asset turnover, financial leverage ratios, and profitability ratios, among others, are regularly reviewed as they indicate the financial well-being of the entity. More complicated benchmarks such as customer satisfaction are often overlooked. However, with the