e-business and supply chain management

Decision Sciences, Fall 2002 by Vakharia, Asoo J

ABSTRACT

In recent years, the area of Supply Chain Management has generated a substantial amount of interest both by managers and researchers. This interest has also been fueled by the growth in the development and application of e-business technologies. These technologies enable the supply chain manager to make coordinated decisions by integrating the diverse and sometimes conflicting objectives of the various trading partners in a chain. The purpose of this paper is to: (a) highlight strategic and tactical issues for analyzing supply chains in an e-business setting based on papers published in this special issue; and (b) describe future research opportunities in this emerging interdisciplinary area.

Subject Areas: Strategic Information Systems and Supply Chain Management.

INTRODUCTION AND MOTIVATION

Although supply chain management (SCM) has been defined in a variety of ways, common threads integrating the multitude of these definitions lead to the following perspective:

SCM is the art and science of creating and accentuating synergistic relationships among the trading partners in supply and distribution channels with the common shared objective of delivering products and services to the "right customer," in the "right quantity," and at the "right time."

More recently, it has been proposed that demand chain management (DCM) is more of the "in vogue" term than SCM (Selen and Soliman, 2002). The general contention is that although DCM is based on supply chain models, the shift in power from the supplier to the customer should lead to analyzing supply chains from a demand perspective. However, if we examine this historically, then we can relate this to the tactical/operational distinctions between materials requirements planning (MRP) and just-in-time (JIT) systems. In very simple terms, it was argued that MRP was a "push" system based on forecasted demand while JIT was a "pull" system based on actual demand. We can also use this pull/push concept to also distinguish between SCM and DCM by viewing the former as a "push" system (i.e., downstream plans and activities are based on forecasted upstream demand) while the latter is a "pull" system (i.e., downstream plans and activities are initiated based on actual upstream demand).

This distinction is quite superfluous since both push and pull concepts apply in different settings. For example, to plan chain activities for mature products with longer life cycles (e.g., commodity products such as chemicals, sugar, etc.), we may still prefer to operate push systems since accurate demand forecasts are easier to generate. On the other hand, for shorter life cycle products (e.g., electronics, retail products, etc.) managers would probably prefer to operate pull systems due to the difficulties associated with generating accurate demand forecasts. Based on this, the distinction between SCM and DCM can perhaps be put into more perspective by focusing on the underlying objectives of managers operating in the current environment. In general, most SCM managers attempt to negotiate and/or achieve some type of balance between the typically conflicting objectives of customer satisfaction and cost efficiency (Fisher, 1997). Obviously a primary focus on customer satisfaction could imply a chain with a pull focus while a similar focus on cost savings could imply a push focus. Since neither of these extreme foci are generally observed in practice, the distinction between SCM and DCM is not used in this paper.

From an "aggregate" perspective, the integral value proposition of SCM is (Burke and Vakharia, 2002):

Total performance of the entire chain is enhanced when we simultaneously optimize all links in the chain as compared to the resulting total performance when each individual link is separately optimized.

In order to achieve this objective, simultaneous integration/coordination of all the links in the supply chain is critical. Recent technological developments in information systems have the potential to facilitate such a coordination and this, in turn, should enhance the possibility of virtually integrating the entire supply chain. The focus of these developments in the context of Internet-enabled activities is generally referred to as e-business.

The precursor of e-business is generally referred to as e-commerce. The latter is typically associated with the ability of a business to perform transactions automatically while the former is associated with business models and practices (primarily motivated by Internet technologies) enabling continuous improvements in supply chains. Using this distinction, it is obvious that e-business subsumes the area of e-commerce. e-Business can enhance SCM decision making by making it possible to collect real-time information, and access and analyze this data in order to facilitate collaboration between trading partners in a supply chain.

Since SCM is a key area of concern for contemporary managers, the explosion in the development and implementation of e-business technologies has generated substantial interest in the merging of these two fields. In fact, over the last few years, all organizations have adopted or are in the process of adopting one or more of these technologies to streamline SCM activities. For example, electronic procurement (e-procurement) technologies automating corporate purchasing processes are delivering rapid and quantifiable results (Aberdeen Group, 2001); vendor-managed inventory (VMI) using automated point of sale systems is a key reason for the success of customer relationship management for manufacturers (Reed Business Information, 2002); and the use of business-to-business (B2B) exchanges to accelerate SCM integration is reaping significant benefits for European manufacturers (Business Wire, 2002).