E-business, the conducting of Internet-enabled business activity, is bringing significant benefits to those organisations that have adopted the new technologies. The benefits, particularly for early adopters of Internet-based technologies (as shown in diagram 1), occur in a number of commercial and functional areas, including increased sales, lower inventories, better capacity utilisation and reduced order processing times and costs. Increased sales arise from being able to offer reduced lead times and improved levels of customer service.
Lower inventories and better capacity utilisation are achieved through responding to real demand information, volume increases and visibility of the total demand situation. Reductions in order processing times and costs, by as much as 50 in many cases, are gained through automation of traditionally labour-intensive activities (see diagram 1).
Diagram 1. Early adopters demonstrate significant benefits
While these new technologies and techniques enable this revolution in the performance of the various supply chain components to take place, e-Business is also now challenging the traditional ways in which supply and value chains are designed and managed.
Seamless flow
The underlying principle is the need for a seamless flow of information
and products between suppliers, manufacturers and customers. Traditionally, information regarding orders, stocks and purchases or planned production was passed from one level in the supply chain to the next. This made it difficult to obtain an holistic and comprehensive view of the demand for, and supply of product across the total supply chain. Similarly, product reached the end-users via a series of links in the value chain. Each of these links tended to hold stock and incurred associated costs such as interest charges and facilities costs.
In the e-Business environment, the ability to create an integrated supply chain is significantly enhanced. Not only is information made available on the entire supply chain at all levels, it also facilitates the movement of product, minimising the need for stock between the point of production and the end user.
This streamlined chain is illustrated in diagram 2:
Diagram 2. The need is for a seamless flow of information and products between manufacturers and end users.
In many cases, the level of direct delivery will increase, thereby potentially eliminating stockholding points and even some of the traditional supply chain players such as wholesalers and distributors. The ability of an organisation to increase its level of direct deliveries will be driven by the weight and volume characteristics of the products, the required level of customer service and the economics of the trade-offs between the various distribution modes available to the organisation. In many cases, the physical nature of the supply network will remain unchanged. However, the network will be more customer responsive and will be able to perform to customer satisfaction with smaller inventories due to the availability of information provided at the right time.
In order to achieve this seamless flow and capitalise on these e-Business benefits, organisations must adopt new ways of working, including new network processes in a number of areas such as invoicing, purchasing and order fulfilment.
Global suppliers
Invoicing processes, regardless of the extent of electronic trading, will need to change, particularly when international transactions are required. Consider the dot.com company with its financial operations based in France and a European customer-base, which offers products sourced from a range of global suppliers. Their invoicing processes must be able to be completed in such a way
as to match the speed of the movement of goods across the international boundaries. While this process will be undertaken electronically, processes must be put in place to ensure that the organisation is advised of the order quantities despatched from the supplier, and that invoices are raised and presented to the appropriate parties, so as not to hinder the flow of goods to end-users. Despite the speed at which this must be done, the organisation must additionally ensure that all relevant European or international legal and fiscal requirements are met.
Similarly, purchasing processes must also be streamlined, if they are not to inhibit the flow of goods and cause stock to build up at various supply chain points. The essential requirement is for sales orders (demand) to automatically create purchase or production orders (supply) for the necessary materials, components and bought-in items to satisfy that particular demand. Organisations have to be able to integrate the various elements of their ERP systems with their e-Business platforms to ensure the availability of goods to meet the ever-increasing expectations of customers.
As a number of press stories have recently indicated, order fulfilment is one aspect of the e-supply chain that has not always received the attention it requires to make a successful transaction. Once an order has been received, it cannot be converted into cash for the organisation until it has been delivered. New network processes are necessary in order to communicate instructions to the logistics service providers, either in-house or third party, to enable all parties in the supply chain to track the progress of deliveries and to transmit documents required for international movements. This is of particular importance in the case of a dot.com whose suppliers/manufacturers may be undertaking the order fulfilment on their behalf via a third party logistics service provider.
The new network processes must answer such questions as: how do I charge legally?; how can I be sure that my customers are getting the level of service that they expect?; and how do I place my purchase orders more quickly?
New economy
Given the interconnected nature of this new economy environment, establishing new network processes needs to be done within an e-Business trading community. This particular community is defined by the following parameters: everybody speaks the same information language, only qualified and capable parties are admitted, costs and benefits are distributed equitably and roles and responsibilities of community partners are defined and understood.
By and large, despite the debate surrounding common standards, Internet users are speaking the same information language, as the technology is readily available to all potential users at a relatively low cost. In the business-to-business context, entry to the trading community can and should be carefully and pragmatically controlled. Pre-qualification is essential both for reasons of security, particularly where sensitive products are concerned, and also to ensure that all parties are fully capable of consistently operating at the prescribed levels of performance. This criteria means that those organisations intent on taking part in the e-Business revolution must ensure that their own internal supply chain processes are significantly robust and appropriate to enable them to gain admission to an e-Business trading community. Regrettably, many organisations fail to have this acceptable level of competence.
The costs and benefits of participating in this new structure will not necessarily be shared equally by all of the community’s trading partners; however, they must be shared equitably. Perhaps more importantly, all of the partners must agree that the costs and benefits are being shared with due regard for the investments being made and with recognition of the risks being taken.
Honed skills
Within the e-Business trading community two clear roles exist; that of the leader and that of the members. The leaders remit is to manage the overall supply network and own (and manage) the end-customer contact; this requires honed skills in end-to-end supply chain collaboration and demand management. Members of this supply network, on the other hand, will demonstrate core competencies in production scheduling, execution, conformance to schedules and capacity management. Members often service multiple supply networks, so they need to manage the issues of capacity and commercial conflicts. Typically, they will be skilled in supplier relationship management, and in a complex engineering or manufacturing environment they will be found among the first and second tier suppliers of OEMs. The leaders will, in those circumstances, be the OEMs themselves. In food retailing, the major multiples will be the leaders and the food manufacturers will be the members of the individual supply networks.
Clearly, getting connected to the Internet is not enough. The e-Business technologies specifically enable companies to increase the performance of their supply chains and channels to market. Gaining the benefits requires radically different supply chain designs, thinking and management processes which cannot be done in isolation. Becoming fully integrated in trading communities will form the basis for participating in this new kind of supply network, and whether involvement is as a leader or a member, an organisation needs to ensure that its internal supply chain processes are functioning smoothly and competently.
The early adopters of e-Business technology will achieve and maximise the biggest operational and financial benefits. Those that don’t will become increasingly isolated and risk being bypassed altogether.
