Content Opening Case: Boeing’s Global Supply Chain for the Dreamliner 787 A.1 E-Supply Chains A.2 Supply Chain Problems and Solutions A.3 RFID as a Key Enabler in Supply Chain Management A.4 Collaboration Along the Supply Chain A.5 Collaborative Planning, Forecasting, and Replenishment (CPFR) Managerial Issues Closing Case: How Walmart Uses EC in Its Supply Chain
1. Describe the major concepts of supply chains and their management. 2. Understand the major problems along the supply chains. 3. Explain how supply chain management (SCM) works and how it solves supply chain problems. 4. Describe CPFR and its benefits.
BOEING’S GLOBAL SUPPLY CHAIN FOR THE DREAMLINER 787 The Problem Designing and manufacturing an aircraft is an immensely complex undertaking; undertaking; the 787 Dreamliner project is said to be one of the largest, most complex, and challenging engineering projects being undertaken in the world. The supply chain involved in the design and production of this aircraft involves millions of different parts and materials, and thousands of different suppliers, partners, contractors, and outsourcing vendors scattered across 24 countries working from 135 different sites. Absolute precisio precision n and meticulo meticulous us
The Solution Boeing Boein g had bee been n in incr creas easin ingly gly re relyi lying ng on sop sophis histic ticate ated d inform inf ormati ation on tec techno hnolog logyy (IT (IT)) an and d EC sol soluti ution onss to sup suppor portt its oper op erat atio ions ns.. Fo Forr ex exam ampl plee, it ha had d be been en a us user er of CA CAD/ D/CA CAM M techno tec hnolog logie iess sin since ce the ear early ly 198 1980s 0s.. The Dreamliner, however, was to be a “paperless airliner,” with EC being employed to support many critical activities. activities. Boeing teamed with Dassault Systèmes to create a Global Collaboration Environment (GCE), a product management lifecycle solution, in order to support the virtual rollout of the new aircraft. The GCE enabled Boeing to digitally monitor the design, production, and testing of every aspect of the aircraft before the actual production started. In addition, Boeing decided to integrate all databases associated with the Dreamliner, teaming up with IBM to employ a DB2 Universal Database for this purpose and ensuring partners access to Dassault’s suite of systems. Boeing is the final assembler and integrator, rather than the builder, of the components that are manufactured by many vendors across the globe. Excellent supply chain management
The Results The goal of the Dreamliner project was to produce a fuelefficient (and less polluting, hence environmentally responsible), cost-effective, quiet, and comfortable midsize aircraft that could travel long distances without stopping. It is a critical innovation for Boeing, which has in recent years struggled in the face of rising competition from Airbus. EC has played a critical role in supporting collaboration throughout this massive project, reducin reducing g the need for physical prototyping and testing, and making substantial impacts on the supply chain. EC has enabled faster decision making, better management of critical information and knowledge assets, increased sharing and exchange of product-related information and
attention to detail is required required,, and safety and quality are paramount. In addition to designing and producing new aircraft, the new production processes had to be designed, tested, and implemented. Close collaboration and communication among thousands of employees, information and knowledge management, and sound management of this complex global supply chain were essential to the project’s success. In addition, competitive pressures, rising oil prices, and enhanced security requirements forced Boeing to significantly improve old methods.
was required to carefully coordinate the movement of components and systems across multiple-tier partners. Boeing teamed with Exostar to provide software to support its supply chain coordination challenges. The Exostar supply chain management solution enables all suppliers access to real-time demand, supply, and logistics information so that crucial components and systems arrive at Boeing’s production facilities just in time time for asse assembl mblyy. The The Exosta Exostarr soluti solution on incl includ udes es the the folfollowing functionalities: planning and scheduling; order placement and tracking purchase order changes; exchanging shipping information; managing inventory consumption across suppliers; managing returns; and providing a consolidated view of all activities in the manufacturing process. Business process exceptions can also be monitored across partners, allowing for informed evaluation of the impacts of these exceptions to take place across affected parties. Finally, radio frequency identification (RFID) technologies were deployed in the aircraft to support finding parts and materials and for the maintenance activities (see Online File W1.4). By tagging component parts, Boeing significantly reduced costs.
processes, reduced time-to-market, less rework, and reduced costs of manufacturing by reducing the final assembly time for the aircraft from 13 to 17 days to just 3 days. Boeing had received nearly 840 orders for the plane by the end of 2009 and commitments in excess of $120 billion. The Dreamliner was not completed on schedule, mainly due to communication problems between different countries and the use of several languages. The new collaboration methods were just too new new.. By Nove November mber 2009 2009,, Boeing’ Boeing’ss first first delive delivery ry of of the the Dreamliner was set for the fourth quarter of 2010. Sources: Compiled from Kumar and Gupta (2006), ( 2006), Supply and Demand Chain Executive (2006), RFID Gazette (2006), MoneyNews.com (2009), and boeing.com (accessed November 2009).
Appendix A: E-Commerce and Supply Chains
Many people equate e-commerc e-commercee with selling and buying on the Internet. However However,, although a company’s success is clearly dependent on finding and retaining customers, its success may be far more dependent on what is behind the Web page rather than on what is on the Web page. In other words, the company’s internal operations (the back end ) and the company’s relationships with suppliers and other business partners are as critical, and frequently much more more complex, complex, than customer-facing customer-facing applications applications such as taking an order online. online. many cases, these noncustomer-facing noncustomer-facing applications are are related to the company’s supplyInchain. It has been well-known for generations that the success of many organizations— private, public, and military—depends on their ability to manage the flow of materials, informati infor mation, on, and money into, into, withi within, n, and out of the organizatio organization. n. Such a flow is referred referred to as a supply chain. Croza (2008) regards regards the supply chain as the competitive competitive differentiator. Because supply chains may be long and complex and may involve many different business partners, we frequently see problems problems in supply chain operation. operation. These problems may result in delays, products not being being where they are required required at the right time, customer dissatisfaction, dissatisfaction, lost sales, and high expenses expenses that result result from fixing the problems problems once they occur occur.. World-class compani companies es such as Walmart, Walmart, Dell, and Toyota and successful e-tailers such as Amazon.com and Zappos.com attribute much of their success to effective supply chain management management (SCM), which is largely supported by IT and e-commerce technologies.
DEFINITIONS AND CONCEPTS To understand e-supply chains, one must first understand nonelectronic supply chains. To A supply chain is the flow of of materials, materials, inform information, ation, money money,, and services services from from raw material suppliers through factories and warehouses to the end customers. A supply chain also includes the organizations and processes that create and deliver products, information inform ation,, and services services to the end customers. customers. The term supply chain comes from the concept of how the partnering organizations are linked together together.. As shown in Exhibi Exhibitt A.1, a simple linear suppl supplyy chain links a company that manufac uf actu ture ress or as asse semb mble less a pr prod oduc uctt (m (mid iddl dlee of th thee ch chai ain) n) wi with th it itss su supp ppli lier erss (o (on n th thee le left ft)) and di dist stri ribu buto tors rs an and d cu cust stom omer erss (o (on n th thee ri righ ght) t).. Th Thee up uppe perr pa part rt of th thee ex exhi hibi bitt sh shoows a gene ge neri ricc su supp pply ly ch chai ain.The n.The bo bott ttom om pa part rt of th thee ex exhi hibi bitt sh show owss a sp spec ecif ific ic ex exam ampl plee of a to toy y manu ma nufa fact ctur urer er’’s pr proc oces ess. s. Th Thee so soli lid d li link nkss in th thee ex exhi hibi bitt sh shoow th thee fl floow of ma mate teri rial alss amon am ongg th thee va vari riou ouss pa part rtne ners rs.. No Nott sh shoown is th thee fl floow of re retu turn rned ed go good odss (e (e.g .g., ., de defe fect ctiv ivee prod pr oduc ucts ts)) an and d mo mone neyy, wh whic ich h ar aree fl flow owin ingg in th thee re reve vers rsee di dire rect ctio ion. n. Th Thee br brok oken en li link nks, s, which are shown only in the upper (gener (generic) ic) part of Exhibi Exhibitt A.1, indic indicate ate the bidirectional tio nal flo flow w of inf inform ormati ation. on. A supply chain involves activities that that take place during the entire entire product life cycle, “from “fro m dirt to dust,” dust,” as some describ describee it. Howev However er,, a supply chain chain is more more than than that, because it also includes the movement of information and money and the procedures that support the movement movement of a product product or a service. service. Finally Finally,, the organizations and indi viduals involved inv olved are considered part of the supply suppl y chain as well. When looked at very broadly,, the supply chain actually ends when the product reaches its after-use disposal— broadly to recycling or back to Mother Earth somewhere. The supp supply ly chai chain n shown in Exhi Exhibit bit A.1 is fair fairly ly simp simple. le. Sup Supply ply chai chains ns can be much more more complex, complex, and there are are different different types of supply chains. chains. When a supply chain is managed electronically electronically,, usually with Web-based Web-based technologies, technologies, it is referred to chain. As will be shown throu as an e-supply chain. As throughou ghoutt this chap chapter, ter, improv improvemen ements ts in
supply chain The flow of materials, information, money, and services from raw material suppliers through factories and warehouses to the end customers.
e-supply chain A supply chain that is managed electronically, usually with Web technologies.
Appendix A: E-Commerce and Supply Chains
A Simple Supply Chain The Generic Process Upstream
3rd Tier Suppliers
Internal Flow of information
2nd Tier Suppliers 1st Tier Suppliers
3rd Tier Suppliers
2nd Tier Suppliers
Assembly/ Manufacturing and Packaging
1st Tier Suppliers 3rd Tier Suppliers
Physical flow of material
2nd Tier Suppliers
Toy Manufacturer’s Manufacture r’s Process Plastic
Box Makers, Printers
Toy Assembler/ Manufacturer
Source: Drawn by E. Turban.
supply chains are a major major target for EC applications. applications. However However,, before examining examining how e-supply chains are managed, managed, it is necessary to better understand the basic basic composition of supply chains.
SUPPLY CHAIN PARTS procurement The process made up of a range of activities by which an organization obtains or gains access to the resources (materials, skills, capabilities, facilities) it capabilities, requires to undertake its core business activities.
A supply chain can be broken into three major parts: upstream, internal internal,, and downstream, as was shown shown in Exhibit A.1: ◗
Upstream supply chain. The chain. The upstream part of the supply supply chain includes the activities of a company company with with its suppliers suppliers (which can be manufacturers, manufacturers, assembler assemblers, s, or both, or service providers) and their connections with their suppliers (second-tier suppliers).The suppliers). The supplier relationship can be extended to the left in several tiers (third tier,, fourt tier fourth h tier, tier, etc etc.), .), all the way way to the origin origin of the material material (e.g., (e.g., mini mining ng ores, ores, growing gro wing crops). crops). In the upstream upstream supply chain, chain, the major major activity is procure procurement ment . Procurement is the process made up of a range of activities by which an organizaProcurement is tion obtains obtains or gains access access to the resources resources (materials, skills, capabilities, facilities) it needs to accomplish its core business activities.
Appendix A: E-Commerce and Supply Chains
Internal supply chain and value chain. The internal part of the supply chain includes all in-house processes used in transforming transf orming the inputs received from the suppliers into the organization’ organization’s outputs. It extends from the time the inputs enter enter an organization to the time that the products go to distribution outside the organization. In this part of the supply chain, the major concerns concerns are production production management, management, manufacturing, and inventory control. control. The activities activities along the internal supply chain are referred to as the company’s company ’s value chain (see en.wikipedia.org/wiki/Value_chain en.wikipedia.org/wiki/Value_chain).The ).The value chain is compos composed ed of of a seque sequential ntial set of of primary primary activitie activitiess (operati (operations, ons, outboun outbound d logistics, logis tics, after-sa after-sales les support and service, etc.) and support activities activities (administra (administration, tion, HR, finance, etc.) that an organization undertakes in order order to deliver a good or service of value to its customers. The value chain can thus be seen as an integrator between customers (B2C) and suppliers (B2B) in that it transforms goods and services obtained from suppliers into goods goods and services of value to customers. The primary objective of the value chain is to add value along the internal supply chain. chain. The downstream part of the supply chain includes all ◗ Downstream supply chain. The the activities activities involved in delivering the products products to the final customers. In the downstre down stream am supply chain, atten attention tion is directed directed at distri distributio bution, n, ware warehousi housing, ng, trans trans-portation, and after-sale service.
A company’s supply supply chain and its accompanying value chain encompass an array of business processes that create value by delivering goods or services to customers.
MANAGING SUPPLY CHAINS Supply chain management (SCM) is a complex process that requires the coordination of many activities so that the shipment of goods and services from suppliers right through to customers is done efficiently and effectively for all parties concerned. SCM aims to minimize inventory levels, optimize production and increase increase throughput, decrea decrease se manufacturi manufacturing ng time, time, optimize logisti logistics cs and distribution, distribution, streaml streamline ine order fulfillment, fulfillment, and overall reduce reduce the costs costs associated with with these activities activities (SupplyChainManagement101 2009). Managing supply chains chains can be difficult due to the need to coordinate coordinate several business partners, often in different countries and different fere nt time zones; zones; sever several al internal internal corpora corporate te departmen departments; ts; nume numerous rous busine business ss processes; proce sses; and possibly possibly many many customer customers. s. In addition, addition, compl complexity exity is added in in industries where huge numbers of goods flow rapidly along the supply chain (think of supermarkets andManaging the number and rate of items thatchains flow manually on and offismodern supermarket shelves). medium to large supply almost imposalmost sible. Informa Information tion technology technology provides provides two types of software software solutions: solutions: (1) SCM (including e-procurement) and (2) enterprise resource planning systems (ERP) (including (includi ng e-business e-business infrastructure, infrastructure, data warehouses, warehouses, and the like) and its predecessors, material requirements requirements planning planning (MRP) and manufacturing resource resource planning (MRP II). (These types of software software are defined and described at Wikipe at Wikipedia.or dia.orgg.) A major requirement for any medium- to large-scale company that is moving to EC is integration among all activities conducted on the Web and the ERP/MRP/SCM solutions—in other words, creating an e-supply chain and managing it.
supply chain management (SCM) A complex process that requires the coordination of many activities so that the shipment of goods and services from supplier right through to customer is done efficiently and effectively for all parties concerned.. SCM aims to concerned minimize inventory levels, optimize production and increase throughput, decrease manufacturing time, optimize logistics and distribution, streamline order fulfillment, and overall reduce the costs associated with these activities.
Internet capabilities are having a profound profound impact on organizations’ supply chains.
e-supply chain management (e-SCM) The collaborative use of technology to improve the operations of supply
Increasingly, companies are recognizing Increasingly, recognizing that the efficient and effective flow of information and materials along their supply chains is a source of competitive advantage and differentiation. E-supply chain management (e-SCM) is the collaborative use
chain activities as well as the management of supply chains.
E-Supply Chains and Their Management
Appendix A: E-Commerce and Supply Chains
of technology to enhance B2B processes and improve speed, speed, agility agility,, real-time control, control, and customer satisfaction. It involves the use of information technologies technologies to improve the operations of of supply chain activities (e.g., e-procurement), as well as the management of of the supply supply chains chains (e.g., (e.g., planni planning, ng, coor coordinatio dination, n, and control) control).. E-SCM is not about technology technology change alone; it also involves changes in management management policies, organizational organizat ional culture culture,, performanc performancee metrics, business proces processes, ses, and organizat organizational ional structure across the supply chain. The success of an e-supply chain depends on the following: The ability of all supply suppl y chain c hain partners to view vie w partner collaboration as a strategic asset. Tight asset. Tight integration and trust among among the trading partners generate speed, speed, agil agility ity,, and lower lower cost. c hain strategy strateg y. This inclu ◗ A well-defined supply chain includes des a clear unders understandi tanding ng of existing strengths and weaknesses, weaknesses, articulating well-defined plans for improvement, improvem ent, and establishing cross-organizatio cross-organizational nal objectives for supply chain performance performance.. Senior executives’ executives’ commit commitment ment is also essential essential and and must be reflected through appropriate allocation of resources and priority setting. entire supply chain. Information visibility ◗ Information visibility along the entire refers to the information about inventories at various segments of the chain, demand for products, products, capacity planning and activation, activation, synchronization of material flows, flows, delivery times, and any other relevant information information that must be visible to all members members of the supply chain at any given given time. To enable visibility,, informat ity information ion must be managed managed properly—with properly—with strict policies, policies, discipli discipline, ne, and daily monitoring. It must also be shared properly. properly. Speed, d, cost cost,, quali quality ty,, and customer customer service. These service. These are the ◗ Spee th e metrics by which supply chains chains are measured. measured. Conseq Consequently uently,, compa companies nies must clearly define the measurements for each of these these four metrics, together with the target levels to be achieved. The target levels should be attractive attractive to the business partners. tightly. An e-supply chain will benefit ◗ Integrating the supply chain more tightly. An from tighter integration, integration, both within a company company and across an extended enter prise made up of suppliers, suppliers, tradi trading ng partners, partners, logi logistics stics providers providers,, and the distribution channel. ◗
information visibility The process of sharing critical data required to manage the flow of products, services, and information in real time between suppliers and customers along the supply chain.
e-procurement The use of Web-based technology to support the key procurement processes, including requisitioning, sourcing, contracting, ordering, and payment. E-procurement supports the purchase of both direct and indirect materials and employs several Web-based functions such as online catalogs, contracts, purchase orders, and shipping notices.
Activities and Infrastructure of E-SCM E-supply chain management processes and activities include the following: Supply Chain Replenishment. Supply chain replenishment encompasses the integrated integrate d production and distribution processes. Companie Companiess can use replenishment replenishment information inform ation to reduce reduce inventori inventories, es, elimi eliminate nate stocking stocking points, points, and increase increase the velocity veloc ity of replen replenishme ishment nt by sync synchroni hronizing zing supp supply ly and deman demand d info informat rmation ion acros acrosss the extended enterprise. Real-tim Real-timee supply and demand information information facilitates maketo-order and assemble-to-order manufacturing strategies across the extended enterprise. Supply chain replenishment replenishment is a natural companion to Web-enabled Web-enabled customer orders. E-Procurement. E-procurement E-procurement is is the use of Web-based Web-based technology to support the key proc procurem urement ent proc processes esses,, includi including ng req requisit uisitionin ioning, g, sour sourcing cing,, contr contracti acting, ng, order ordering, ing, and
Appendix A: E-Commerce and Supply Chains
payment. E-procurement supports supports the purchase of both direct and indirect materials materials and employs emplo ys several several Web-based functions, such as online online catalogs, contracts contracts,, purchase orders, order s, and shipping notices. notices. E-pro E-procurem curement ent can improve the operation operation of the supply chain in various ways: ◗
◗ ◗ ◗
Online catalogs can be used to eliminate redesign of components in product development. Visibility of available parts and their attributes enables quick decision making. Online purchase orders expedite the ordering process. Advanced-shipping notifications notifications and acknowledgments acknowledgments streamline streamline delivery. delivery.
From the purchaser’s perspective, e-procurement can help better manage supplier relationships and accounts and allows for more effective tracking of orders. orders. From the supplier’ss perspective, e-procure supplier’ e-procurement ment enables them to respond respond more rapidly and effectively to the requirements requirements of purchasers. Both purchasers purchasers and suppliers report that e-procurement can assist them in better managing their business process and cash flows. Supply Chain Monitoring and Control Using RFID. This is one of the most promispromising applications of RFID. We will return to this topic later in Section A.3. Inventory Management Using Wireless Devices. Many organizations are now achieving improvements in inventory management by using combinations of bar-coding technologies (or RFID) and wireless devices. Collaborative Planning. Collaborative planning is a business practice that combines the business knowledge and forecasts of multiple players along a supply chain to improve improve the planning and fulfillment of customer customer demand. Collaborati Collaborative ve planning requires buyers and sellers to develop shared demand forecasts and supply plans for how to support demand. These forecasts and supply supply plans should be updated regularly regularly,, based on information information shared over the Internet. Internet. Such collaborative collaborative planning requires B2B workflow across multiple enterprises over the Internet, with data exchanged among partners dynamically. dynamically. This topic is discussed further in Section A.4. Collaborative Design and Product Development. Collaborative product development involves the use of product design and development techniques across multiple companies to improve product launch success and reduce time to market (as demonstrate strated in the Boeing open ing case). Duringnetwork productamong product developm development, engineering engine ering and designd drawings can beopening share shared d over a secure the ent, contract firm firm, , testing facility faci lity,, mark marketing eting firm, firm, and downstream downstream manufacturi manufacturing ng and service companie companies. s. Other techniques techn iques include include sharing specificati specifications, ons, test results, results, and design changes changes and using online prototyping to obtain obtain customer feedback. Development costs can be reduced reduced by tightly integrating integrating and streamlining streamlining communication communication channels. Lately Lately,, social networking networking has been used to solicit feedback from customers. E-Logistics. E-logistics is the use of Web-based technologies to support the material acquisitio acqui sition, n, ware warehousi housing, ng, and trans transportat portation ion processes. processes. E-log E-logistic isticss enabl enables es distri distributio bution n to couple routing optimization optimization with inventory-tracking information. information. Fo Forr example, Internet-based freight auctions enable spot spot buying of trucking capacity. capacity. Third-party logistics providers offer virtual logistics services by integrating and optimizing distribution resources. A company may even consider collaboration with its competitors to improve its supply chain.
collaborative planning A business practice that combines the business knowledge and forecasts of multiple players along a supply chain to improve the planning and fulfillment of customer demand.
Appendix A: E-Commerce and Supply Chains
Infrastructure for E-SCM The key activities just described use a variety of infrastructure and tools. The following are the major infrastructure elements and tools of e-supply chains: Electronic data interchange (EDI). EDI (see Online File W5.5) is the major tool used by large corporations to facilitate facilitate supply chain relationships. relationships. Many companies are shifting from traditional EDI to Internet-based EDI. Extranets. These These are described in Online File W5.4. Their major purpose is ◗ Extranets. to support interorganizational communication communication and collaboration. collaboration. Fo Forr details on success factors factors for using extranets in e-SCM, e-SCM, see en/Wikipedia.org/wiki/ Extranet.. Extranet Intranets. These These are the corporate internal networks for communication communication and ◗ Intranets. collaboration. portals. These provide ◗ Corporate portals. These provide a gateway for external and internal collabocollaboration, rati on, comm communicat unication, ion, and inform informatio ation n sear search. ch. systems ms and tools. These are syste ◗ Workflow syste systems ms that manage the flow of information in organizations. ◗ Groupware and other collaborative tools. Many tools facilitate collaboration and communication between two parties and among members of small as well as large large groups. groups. Various tools, tools, some of of which are are collectively collectively known as groupware , enable such collaboration. collaboration. Blogs and wikis wikis are beginning beginning to play play an important role (see the Eastern Mountain Sports opening case in Chapter 2). A major purpose of these tools is to provide visibility to all, all, name namely ly,, let people people know where items are and when they arrive at certain locations. tools. These tools are designed to identify items ◗ Identification and tracking tools. These and their location along the supply chain. From a traditional traditional bar code system, we are moving to RFID, as we will describe in Section A.3. Wireless and GPS technologies (Chapter 8) are also increasing in popularity. ◗
Section A.1 ◗ REVIEW QUESTIONS 1. Define the e-supply chain and list its three major parts. 2. Describe success factors of e-supply chain management. 3. List the eight processes or activities of e-supply chains. 4. List the major e-supply chain management infrastructures and enabling tools. 5. Describe a digital supply chain. 6. Describe visibility and tracking along the supply chain.
SUPPLY SUPPL Y CHAIN PROBLEMS AND SOLUTIONS
Supply chains have been been plagued with problems, problems, both in military and business business operations, for generations. generations. These problems problems have sometimes caused armies to lose wars and companies to go out of of business. The problems are most most apparent in complex or long supply chains (e.g., global ones) and in cases where many business partners are involved. Complex and long supply chains involving multiple business partners are becoming more common in the contemporary business world as globalization and offshoring of manufacturing operations continue continue to intensify. intensify. Thus, the problems faced faced by those managing supply chains are becoming both more complex and more critical to company
Appendix A: E-Commerce and Supply Chains
competitiveness competitiv eness and survival. As this section will show, show, some remedies remedies are available available through the use of EC and IT.
TYPICAL PROBLEMS ALONG THE SUPPLY CHAIN With increased globalization globalization and offshoring, supply chains can be very long and involve many internal and external partners located located in different places. Both materials and information must must flow among several several entities, and these transfers, especially when when manually handled, can be slow and error prone. In the offline world, there are many examples of companies that were unable to meet demand for certain products while having oversized and expensive inventories of other products. Similar situations exist online.T online. Typical of the sorts of problems in EC that gain adverse publicity are when there there is a supply–demand mismatch of goods, goods, especially during a period period of high demand, demand, such as the holiday holiday period. period. Anothe Anotherr problem problem is often related to shipping. A lack of logistics infrastructure might might prevent the right goods from reaching their their destinations on time. Various uncertainties exist in delivery delivery times, which depend on many factors ranging from vehicle failure to road conditions. Pure EC companies may be likely to have more supply chain problems because they may not have a logistics infrastructure and may be forced to use external logistics ser vices. This can be expensive, plus it requires requires more coordination coordination and dependence on outsiders. sider s. For this reason, reason, some large large virtual retailers, retailers, such as Amazon.com, Amazon.com, have developed developed physical warehouses and logistics systems. Other virtual retailers are are creating strategic strategic alliances with logistics companies or with brick-and-mortar companies that have their own logistics systems. Other problems along the EC supply chain mainly stem from the difficulty in coordinating several activities, activities, internal units, and business partners. For further information information on the problems, problems, issues, and challenges challenges of contemporary contemporary supply chain chain management, management, see Coyle Coyle et et al. (2008). A major major problem problem along along large large supply chains is the bullwhip effect .
The Bullwhip Effect The bullwhip effect refers to erratic shifts in orders up and down supply chains (see en.wikipedia.org/wiki/Bullwhip_effect). en.wikipedia.org/wiki/Bullwhip_effect ). This effect was initially observed observed by Procter & Gamble (P&G) with their disposable disposable diapers in offline retail stores. Althoug Although h actual sales in stores were were fairly stable and predictable, orders from distributors distributors had wild swings,, creat swings creating ing production production and inventory inventory problems for P&G P&G and their suppliers. suppliers. An investigation revealed that distributors’ orders were fluctuating because of poor demand forecasts, foreca sts, price fluctuat fluctuations, ions, order batching batching,, and rationing rationing within within the supply supply chain. chain. All of this resulted in unnecessary inventories in various places along the supply chain, fluctuations in P&G orders to its suppliers, suppliers, and the flow of of inaccurate information. information. Distorted or late information can lead to tremendous inefficiencies, excessive inventories, poor customer customer service, lost revenues, revenues, ineffect ineffective ive shipments, shipments, and missed missed production production schedules. The bul bullwh lwhip ip eff effect ect is not uni unique que to P&G P&G.. Fi Firms rms fro from m HP in the com comput puter er industry to Bristol-Myers Squibb in the pharmaceuti pharmaceutical cal field have experienced a similar phenomenon. phenomenon. Basically Basically,, even slight demand demand uncertainty uncertainty and variability variability become magnified when viewed through the eyes of managers at each link in the supply chain. If each distinct entity makes ordering and inventory decisions with an eye to its own interest above those of of the chain, stockpiling may be occurring occurring simultaneously at as many as seven or eight different places along the supply chain as assurance against shortages. Such stockpiling can lead lead to as many as 100 days of inventory waiting “just
bullwhip effect Erratic shifts in order up and down supply chains.
Appendix A: E-Commerce and Supply Chains
in case.” Companies may may avoid the “sting of of the bullwhip” bullwhip” if they take steps to share share information informati on along the supply chain. Such information information sharing is implemented implemented and facilitated by EDI, EDI, extranets, and collaborative collaborative technologies—topics technologies—topics discussed discussed later in this chapter.
The Need for Information Sharing Along the Supply Chain Information systems are the links that enable communication and collaboration along the supply chain. They represent one of the fundamental fundamental elements that link the organiorganizations of the supply chain into a unified and coordinated coordinated system. In today’s competitive competitive business climate, climate, EC and information technology are keys to the success, success, and perhaps even the survival, of any SCM initiative. initiative. Case studies studies of some world-class world-class companies companies,, such as Walmart, Dell, and FedEx, FedEx, indicate that these companies have created very sophisticated information systems, exploiting the latest technological developments and creating innovative solutions. However, Howeve r, even world-class world-class companies, companies, such as Nike, Nike, may suffer suffer from inappro inappropriate priate information sharing resulting in poor forecasting and then severely underestimating the complexity of automating aspects of the supply chain.
EC SOLUTIONS ALONG THE SUPPLY CHAIN The connection connection between EC and supply chains chains has become become more more evident in recent years years according tomanaging a survey conducted conducte d by Holsapple and Jin (2007). ECThe (2007). presents environment for the dynamics of supply chain relationships. relationships.The surveya new identified two main factors that differentiate the EC environment from the traditional business settings of supply chains: the greater scope scope of connectivity of organizations with their their suppliers and customers, customers, and the faster speed at which business activities occur occur.. These two factors provide more visibility across the supply chain and engender new market structure and greater greater sense of uncertainty uncertainty.. According to Holsapple and Jin, this connection is facilitated by collaborative decision making in supply chains and by the support EC provides to collaborative decision making. The followi following ng is a represen representativ tativee list of the major soluti solutions ons provide provided d by an EC approach and technologies for supply chain problems. ◗
visibility The knowledge about where materials and parts are at any given time, which helps solve problems such as delay, combining shipments, and more.
Visibility increases along the the supply chain. It is critical to know where matematerials and parts are at at any given time. time. This is referred referred to as visibility. as visibility. Such knowledge can help in solving problems problems such as delay, delay, combining shipments, ment s, and more. more. Visibi Visibility lity is provid provided ed by several several tools, tools, such as bar bar codes, codes, RFID,, colla RFID collaborat borative ive devices, devices, and portals. portals. Visibil Visibility ity implies implies creating creating information transparency through effective integration of information flows across the multiple multiple e-marketplaces e-marketplaces that comprise comprise the chain. Such visibility allows organizations to coordinate supply chain interactions efficiently in dynamic market conditions. Order Or der tak taking ing ca can n be do done ne ove verr th thee In Inte tern rnet et,, by EDI DI,, by EDI DI/I /Int nter erne net, t, or ov over er an ex extr tran anet et,, an and d ma mayy be fu full llyy au auto toma mate ted. d. For ex exam ampl ple, e, in B2 B2B B, or orde ders rs ar aree ge gennerat er ated ed an and d tr tran ansm smit itte ted d au auto toma mati tica call llyy to su supp ppli lier erss wh when en in inve vent ntory ory fa fall llss be belo low w cer erta tain in le leve vels ls.. Th Thee re resu sult lt is a fa fast st,, in inex expe pens nsiv ive, e, an and d mo morre ac accu cura rate te (n (noo ne need ed to reke re keyy da data ta)) or orde derr-ta taki king ng pr proc oces ess. s. In B2 B2C, C, Web eb-b -bas ased ed or orde deri ring ng us usin ingg el elec ec-tron tr onic ic fo form rmss ex expe pedi dite tess th thee pr proc oces ess, s, ma make kess it mo more re ac accu cura rate te (i (int ntel elli lige gent nt ag agen ents ts can ca n ch chec eckk th thee in inpu putt da data ta an and d pr prov ovid idee in inst stan antt fe feed edba back ck), ), an and d re redu duce cess pr proc oces esssing co costs sts..
Appendix A: E-Commerce and Supply Chains
Order fulfillment can become instant if the products can be digitized (e.g., software). In other cases, EC order taking interfaces with the company’ company’ss backoffice systems, including logistic logistics. s. Such an interface, or even integrati integration, on, shortens cycle time and eliminates errors. ◗ Electronic payments can expedite both the order fulfillment cycle and the payment delivery period. Payment processing processing can be significantly significantly less expensive, and fraud can can be better better controlled. controlled. (See Chapter Chapter 10 for more more on electronic electronic payments.) ◗
Managing risk to avoid supply chain breakdown can be done in several ways. Carrying additional inventories is effective against the risk of stock-outs, and hence poor poor custome customerr service, service, but can be expensive expensive.. Also Also,, in certain certain cases the the risk increases because products may become obsolete. ◗ Inventories can be minimized by introducing a build-to-order manufacturing process as well as as by providing fast and accurate accurate information to suppliers. By allowing business partners to electronically track and monitor orders and production activities, inventory management can be improved and and inventory levels and the expense of of inventory management can be minimized. minimized. Inventories can be better managed if we know exactly where parts and materials are at any given time (e.g., (e.g., by using RFID). Inventories of retailers retailers can be managed managed electronically by their suppliers. ◗ Collaborative commerce among members of the supply chain can be done in many areas ranging from product design to demand demand forecasting. The results are shorter cycle times, minimal delays and work interruptions, interruptions, lower inventoinventories, and lower administrative costs. costs. A variety of tools exist ranging from collaborative hubs and networks to collaborative planning. ◗
The Role of Mobility Synchronizing supply chains with mobility is gaining in popularity. popularity. With increasing competition and globalization, companies are searching searching for solutions to have learner learner supply chains. Mobility eliminates wasted time hidden hidden in business processes. Through Throu gh mobi mobilit lityy, compu computing ting power is moved from a stat stationa ionary ry desk desktop top computer to mobile devices—the tools workers need to automate business processes and capture data in real time—right at the point of work. Manual processes are replaced replaced with wi th rea reall-ti time me com compu puti ting ng.. In Inst stea ead d of is issu suin ingg pa pape perr wo work rk or orde ders rs to em empl ploye oyees es,, an electronic work order can be issued instantly and automatically by mobilesupported supporte d business systems. Fo Forr a comprehensive comprehensive review and list of dozens of activities activiti es along the supply chain that support mobility, mobility, see Motorola (2007) (2007) and motorola.com/Busine motorola .com/Business/US-EN/ ss/US-EN/Enterprise+Mobili Enterprise+Mobilityl. tyl. One major tool of mobility is RFID.
Section A.2 ◗ REVIEW QUESTIONS 1. Describe some typical problems along the supply chain. 2. Describe the reasons for supply chain–related problems. 3. Describe the bullwhip effect. 4. Describe the benefits of information sharing along the supply chain. 5. List some EC solutions to supply chain problems.
Appendix A: E-Commerce and Supply Chains
RFID AS A KEY ENABLER IN SUPPLY SUPPLY CHAIN MANAGEMENT
RFID has the potential to revolutionize supply chain management.
THE RFID REVOLUTION One of the newest and most revolutionary solutions to supply chain problems is RFID (see Online File W1.7). W1.7). Given these these developments, developments, what effect will will RFID have on supply chains? Let’s look at Exhibit Exhibit A.2, which shows shows the relationship relationship between a retailer (Walmart),aa manufacturer (Walmart), manufacturer (such as P&G),and P&G), and P&G’s suppliers.Note suppliers. Note that the tags tags are read as merchandise travels from the supplier supplier to the retailer (steps 1 and 2). Note that the RFID transmits real-time real-time information on the location of the merchandis merchandise. e. Steps 3–6 show the use of the RFID at the retailer, retailer, mainly to confirm arrivals (step 3) and to locate merchandise merchandise inside the company company,, contr control ol inventory, inventory, preven preventt theft, and expedite expedite processing processing of relevant relevant information (steps (steps 4–6). It is no longer necessary to count inventories, inventories, and all business partners are able to view inventory information in real time. This transparency can go several tiers down down the supply supply chain. Additional applicatio applications, ns, such as rapid rapid checkout, checkout, which elimieliminates the need to scan each item, will be provided by RFID in the future. future. RFID technology is presented at en.wikipedia.org/wiki/Radio-frequency_ identification.. The major applications are identification are in the supply chain.
RFID at Walmart and Its Suppliers: The Seven-Step Process 1
Walmart’s Suppliers’ (e.g., P&G) products are ready to be shipped and are packed in cases (pallets). The RFID’s tags are attached to each case (pallet) by hand or automatically. Cases are then loaded on trucks.
2 Trucks leave for Walmart’s warehouses (or stores). RFID readers record the time of departure and the destination of each truck.
3 4 Cases/pallets are moved to storage; RFID readers clock their exact storage location at Walmart.
6 Empty cases (pallets) are moved to storage. RFID records location and arrival time.
Trucks arrive at Walmart’s destinations. RFID reader records the time of arrival of each case (pallet).
RFID information is delivered to Walmart destinations.
4A Suppliers can track arrival data using Walmart Retail Link System.
5 Cases (pallets) are moved to stores (sales floor). RFID readers clock arrival.
7 Walmart’s CPFR and other planning.
Source: Drawn by E. Turban.
5A Data enter VMI system.
Appendix A: E-Commerce and Supply Chains
RFID APPLICATIONS IN THE SUPPLY CHAIN Many potential potential and actual applications applications exist in enterprises using RFID RFID (e.g., see Niederman et al. 2007). The following are examples examples of how RFID can be used in the supply chain.
RFID at METRO MET ETR RO, a hu hugge ret etai aile lerr fr froom Ger erm man anyy, is us usin ingg RFID tag agss in an att ttem emp pt to spe peeed th thee fRo low odam f gm ooto ds di frstri om mtion aon nufce acnter tuers resrsininGe Crman hinany a yt.oPas thsive eive r ata rrgs iva(s l ee in On Eurline one pe Fi atlethW1 e p.7) or)tar oef Rott tter erda dist ribu buti cent Germ assi tags (see Onli File W1.7 are bein ingg ap appl plie ied d to ca cart rton onss and ca case sess of goods ds;; ac acti tive ve tag agss are als lsoo be bein ingg ap appl plie ied d to th thee containers in which tho hose se goods are packed fo forr sh shiipping ng.. At vari rioous point ntss en route to Germ Ge rman anyy, th thee ac acti tive ve ta tags gs ar aree re read ad an and d re reco cord rd th thee ar arri riva vall of th thee ca carg rgo, o, en enab abli ling ng a re reco cord rd to be kep eptt of wh wher eree go good odss ar aree lo loca cate ted d at an anyy po poin intt in ti time me.. Th This is gi give vess ME METR TRO O gr grea eate terr in insi sigh ghts ts into in to th thee fl flow ow of go good odss al alon ongg it itss su supp pply ly ch chai ain, n, wi with th bo bott ttle lene neck ckss or po poin ints ts th that at sl slow ow th thee de deli livveryy of go er good odss be beco comi ming ng qu quic ickl klyy ev evid iden ent. t. Th This is al allo lows ws fo forr a re revi view ew of bu busi sine ness ss pr proc oces esse sess an and d workk prac wor practice ticess to ensu ensure re spee speedier dier handli handling ng and deliv delivery ery.. In addit addition, ion, thes thesee RFID tags are equi eq uipp pped ed wi with th in intr trus usio ion n se sens nsor ors, s, wh whic ich h gi give ve an in indi dica cati tion on of wh whet ethe herr an anyy at atte temp mptt ha hass be been en made ma de to op open en th thee se seal aled ed co cont ntai aine ners rs du duri ring ng th thee jo jour urne neyy. If th thee co cont ntai aine nerr is ta tamp mper ered ed wi with th,, thee ta th tags gs ca can n tr trig igge gerr fl flas ashi hing ng li ligh ghts ts or a si sire ren n to al aler ertt st staf aff.Thu f.Thus, s, ME METR TRO O is ab able le to de dete tect ct anyy at an atte temp mpts ts to ta tamp mper er wi with th or pi pilf lfer er st stoc ockk (s (see ee He Hein inri rich ch 20 2005 05). ). The benefits ofday the from RFID METRO areMETRO substantial. It is calculated that eliminating a single thesystem supplytochain will save hundreds of thousands of dollars annually by reducing the amount of stock held in inventory. Estimates are that for large retailers (in excess of $1 billion in sales annually) each one-day reduction in inventory can free up to $1 million in working working capital. capital. Fo Forr details, see future-store.org future-store.org..
RFID at Deutsche Post Deutsche Post owns 6 million shipping containers that it uses to hold and transport about 70 million letters and other items that pass through its distribution centers daily. In order to process these crates, Deutsche Post Post prints in excess of 500 million thick paper labels, all of which are thrown thrown away after a single use. It was environmental environmental concerns, rather than purely economic ones, that drove Deutsche Post’s Post’s RFID initiative. Deutsche Post Post uses passive RFID tags with a bi-stable display, display, meaning that the text displayed remains on-screen after power is removed and does not change until power is restored and the text is rewritt rewritten en by an RFID interrogator. Tags on the crates must be readable from all angles and in all types of weather, weather, requiring a robust tag. Furthermore, Furtherm ore, the tags need to last about five years in order for the application to be financially viable. Deut De utsc sche he Pos ostt de deve velo lope ped d a cu cust stom om ta tagg an and d RF RFID ID re read ader er,, an and d us uses es sp spec ecia iali lize zed d so soft ft- ware in this innovative application. Several other post offices around the world use RFID (e.g (e .g., ., Ca Cana nada da). ). For ot othe herr ap appl plic icat atio ions ns an and d mo more re de deta tail ils, s, re refe ferr to Loe Loebb bbec ecke ke (2 (200 006) 6)..
RFID at Atlantic Beef Products (Ontario, Canada) Cow’s ears are tagged tagged with RFID tags. tags. After a cow is killed, its ear tags are are scanned for food traceability traceability.. The carcass goes goes onto two leg hooks, hooks, each equipped equipped with an RFID chip. They to each each animal’ animal’s database reco rd. The RFIDs replac bar scodes, which couldare getsynced contamina contaminated ted with E.scoli on therecord. slaughter floor floor. . The replace RFIDe helps help track the movement of each cow and the meat produced produced at any time. The system won a gold medal from the Canadian IT organization.
Appendix A: E-Commerce and Supply Chains
RFID in Pharmaceuticals MIT an MIT and d SA SAP P ar aree ex exam amin inin ingg th thee us usee of RF RFID ID in va vari riou ouss in indu dust stri ries es,, in incl clud udin ingg ph phar arma ma-ceut ce utic ical alss an and d he heal alth th ca care re de deli live very ry,, as we well ll as th thee ne nece cess ssary ary IT ar arch chit itec ectu ture re to su supp ppor ortt su such ch use.Th us e.Thee go goal al is to be ab able le to kn know ow wh wher eree ev ever eryt ythi hing ng or an anyt ythi hing ng is at an anyy gi give ven n ti time me.The .The chal ch alle leng ngee, ho howe weve verr, is in de dete term rmin inin ingg ho how w su such ch a sc scen enar ario io wo woul uld d pl play ay ou out— t—wh what at th thee actu ac tual al ne netw twor orkk wo woul uld d lo look ok li like ke on once ce co comp mpan anie iess up an and d do down wn th thee su supp pply ly ch chai ain n co coll llab abor oraatively tiv ely sta start rt exc exchan hangin gingg inf inform ormati ation on amo among ng tra tradin dingg par partne tners rs and the their ir par partne tners’ rs’ par partne tners. rs. The Food and Drug Admi Administr nistratio ation n (FD (FDA), A), for exam example ple,, is inte interest rested ed in usin usingg RFID to fi find nd coun unte terf rfeeit dr druugs in the su supp pply ly cha hain in.. An RFID chip wi witth pat atie ient nt inf nfoorm rmaati tioon (called SurgiChip , ap appr prov oved ed by th thee FD FDA) A) go goes es wi with th th thee pa pati tien entt in into to su surg rger eryy to he help lp pr prev even entt erro er rors rs.. RF RFID ID ta tags gs ar aree al also so us used ed fo forr pa pati tien entt id iden enti tifi fica cati tion on th thro roug ugho hout ut ho hosp spit ital als. s. Fi Fina nall llyy, many ma ny ho hosp spit ital alss us usee RF RFID ID ta tags gs to fi find nd th thee wh wher erea eabo bout utss of pi piec eces es of po porta rtabl blee eq equi uipm pmen ent. t. Theoretically, RFID can be used in many places along the supply chain, as illustrated in Exhibit A.3. Forr a successful implementation Fo implementation at Airbus, see Case A.1.
Digital Supply Chain Shipping RFID RFID
Retail Distribution Center
Visibility Data Network
ONS Retailer Headquarters
Raw Materials Headquarters
Raw Materials Warehouse
Collaborative Business Network
RFID CPG Warehouse
Global Data Synch
RFID Finished Goods Factory
Source: “Building the Digital Supply Chain: An Intel Perspective,” Intel Solutions White White Paper , January 2005, p. 9. Reprinted with permission from Intel Corporation.
Appendix A: E-Commerce and Supply Chains
AIRBUS IMPROVES PRODUCTIVITY WITH RFID Because it is in constant competition with Boeing, the European aircraft manufacturer Airbus is looking for every opportunity to increase productivity, reduce costs, and
Airbus is assessing a few pilot projects with suppliers tagging parts before shipping them, and the new software makes it possible to extend parts tracking from the sup-
make its production process more efficient. One of its latest efforts is the use of RFID technology, both in manufacturing and in maintenance of its airplanes. The initial deployment focused on automating the sourcing, logistics, manufacturing, and maintenance of the Airbus A380, the world’s largest commercial aircraft, with IBM’s RFID infrastructure software. The basic idea is to use RFID to track parts and tools, which are scattered over a large area; such information informati on can eliminate delays. (Airbus had major delays in completing its A380, the double-decker, double-decker, 525-seat airplane in 2008.) Airbus hopes that RFID will become “as everyday as bar coding.” The company experimented with the technology for three years before signing a multimillion-dollar deal with vendors to implement the technology. It also created a value chain visibility and RFID unit to implement the biggest private sector RFID deal ever. Airbus Air bus has imp implem lement ented ed pr proce ocessss-imp impro rovem vement ent pr proo jects involving RFID to track parts inside warehouses as they th ey mov ovee from one reg egiion to an anot oth her er,, an and d as th they ey ar aree bui uillt in into to ai airrcraf afts ts,, as we welll as to tr trac ackk how an and d wh wher eree tool to olss ar aree us used ed fo forr ma manu nufa fact ctur urin ing g an and d ma main inte tena nanc ncee. Th Thee new ne w RFI RFID D so softw ftwar aree inf infra rastr struc uctur turee let letss Air Airbus bus emp employ loyees ees and an d sy syst stem emss ex exch chan ange ge in info form rmat atio ion n co coll llec ecte ted d by RF RFID ID re read ad-ers. er s. Th Thee in infr fras astr truc uctu ture re al also so in inte tegr grat ates es RF RFID ID da data ta wi with th busi bu sine ness ss sy syst stem emss su such ch as Ai Airb rbus us’’ co corre ER ERP P sy syst stem em.. The software also manages data collected by bar codes, which remains an important part of Airbus’ supply chain. RFID tags can hold more information and they do
plier side to Airbus. To close its RFID deal, Airbus had to navigate a still highly fragmented RFID industry. There are hundreds of vendors; each tells a different story, with different architectures and different payoffs. To sort it out, Airbus assigned a 25-person team of IT, business, and process analysts for about two years to develop a company-side RFID strategy and plans. Airbus is employing RFID across two main categories: nonflyable and flyable.
not require a line-of-sight reader, but they typically cost more than $1 per tag. So Airbus uses them only on rolling cages, pallets, cases, and high-cost parts. Airbus expects RFID to augment ongoing supply chain process improvements, saving money by reducing time spent searching for parts, reducing inventory, and improving employees’ productivity.
consists of ground-based processes, such as supply chain, transportati transportation, on, logistics logistics,, manufac manufacturing, turing, and assembly-related applications. applications. refer ferss to all inin-ser servi vice ce pr proce ocesse sses, s, inc inclu ludin ding g ope operr◗ Flyable re ◗ Nonflyable
ational, ation al, main maintena tenance nce,, and payl payload-tr oad-tracki acking ng appli applicati cations ons.. Sources: Compiled from Hayes-Weier (2008a), RFID Journal (2007), and Manufacturing Executive (2009).
Questions 1. What are the drivers of the RFID project? 2. What information technologies technologies were used in this project? 3. What categories of people are supported by RFID? 4. How can RFID provide visibility to Boeing’s supply chain? 5. Go to the links provided in the case sources and search for the Webcast that provides you with a virtual tour of Airbus’ supply chain. Report on how RFID provides real-time visibility in the key processes.
LIMITATIONS AND CONCERNS OF RFID RFID does have a number of limitations. limitations. For small companies, the cost of the system may be too high least tags for the The systems to 500 kHz) required for (at passive are near muchfuture). cheaper butlower-frequency offer a decreased range.(300 Radio frequency interference and the limited range of passive RFID tags also may be problematic, problematic, especially because passive tags are the most economically viable option for some businesses. These
Appendix A: E-Commerce and Supply Chains
limitations should be minimized in the future as the cost of both passive and active RFID decreases and functionality increases. However However,, to date, date, many organizations organizations have struggled to demonstrate the ROI of their RFID initiatives, raising the question of how long organizations will continue to invest in such technologies without gaining adequate returns. Another major limitation of RFID RFI D currently is the restriction restrictio n of the environments in which RFID tags are easily read. RFID tags do not work well well in “harsh” “harsh” environments, where reads reads are required required in or around around liquids and metals metals or around corners, corners, for example. This means that that RFID may not, in some cases, cases, readily be used used underwater or near items thatnor aredolargely liquid (such liquid as warehouses human beings and livestock, ares mostly water), they function well in or areas are as where largewhich amount amounts of metals are present present (e.g., metal-lined deep freezers freezers or metal shelving). shelving). Another issue has arisen in real-world implementations of RFID—the accuracy accuracy of the readers. Some (but not all) organizations have reported achieving only 70 to 90 percent accuracy in their read rates rates and, of additional concern, concern, achieving different different levels of accuracy at different points along the supply chain. chain. Using active tags with a relatively relatively large read read range on individual items can prove problematic where there are many other items stocked near near the reader reader but not not part of the the shopping shopping cart. Howeve Howeverr, accurac accuracyy is improving with time. Concern over customer privacy is another issue that remains a significant point of contention in arguments about the appropriateness of wide-scale implementation of RFID. First and foremost are security concerns concerns related to the potential of of RFID tags to be tracked long after their SCM purpose has been served. Follo Following wing are some concerns regarding customer privacy and RFID tags: The customer buying an item with an RFID RFID tag may not be able to remove remove the tag or may be unaware that an RFID tag is attached to the item. ◗ The presence of a tag might mean that it would still be capable of being read from some distance away without the knowledge of the purchaser or user of that item. ◗ If a purchase is made using a credit card, then the potential exists for the tag details to be linked directly to the personal details of the credit cardholder. cardholder. ◗
Such concerns have led to comments such as a California state senator’s remarking that “one day you you realized your underwear was reporting your whereabouts!” whereabouts!” (reported at en.wikipedia.org/wiki/Radio-fre en.wikipedia.org /wiki/Radio-frequency_identification quency_identification). ). Publ Pu blic ic co conc ncer ern n ha hass no nott be been en al alla laye yed d in th this is re rega gard rd,, wi with th va vari riou ouss in inci cide dent ntss re repo port rted ed by th thee me medi diaa in invo volv lvin ingg li link nkin ingg RF RFID ID on pr prod oduc ucts ts wi with th sm smar artt sh shel elve vess eq equi uipp pped ed wi with th came ca mera ras, s, th thus us di dire rect ctly ly id iden enti tify fyin ingg th thee pe pers rson on bu buyi ying ng an it item em (u (usi sing ng a ph phot otog ogra raph phic ic record). As with most immature technologies, agreeing on universal standards standards,, as well as connecting the RFIDs with existing existing IT systems, is yet another issue. issue. In 2008, however however,, the Gen 2 standard (a protocol for the exchange of information between the RFID tag and the reader) appears appears to be the major RFID standard. standard. However However,, some feel that Gen 2 is inadequate technically with with the increased adoption of RFID technologies, and they thus argue that Gen 3 will require a huge volume of item-level tagging and the alleviation of consumers’ security concerns. concerns. In addition to technical standards, the players players along the supply chain need to agree on how particular items are to be labeled and categorized. Take, T ake, for example, a common product such as aspirin aspirin.. Aspirin is manufac manufactured tured by a pharmaceutical pharmace utical company company but distributed to major supermarkets supermarkets and retailers, such as W Walmart, almart, other convenience conv stores. supermarketwould may categorize cconsider ategorizeit aspirin as apharmacies, fast-movingand consumer goodenience good (FMCG), andThe the pharmacist a pharmacy item, thus posing problems for the manufacturer manufacturer as to how to categorize categorize and
Appendix A: E-Commerce and Supply Chains
hence identify the item. item. The manufacturer may may prefer to use HF HF RFID tags, the supermarket UHF RFID tags. tags. Unless agreement on these sorts sorts of issues can be reached by all key players along a supply chain, significant problems may occur. occur. For more more RFID implementation issues, issues, see Niederman Niederman et al. (2007). Fo Forr an assessment assessment on RFID progress and prospect along the supply chain see Hayes-Weier (2009).
Section A.3 ◗ REVIEW QUESTIONS 1. Describe how RFID can be used to improve supply chains. 2. Explain how RFID works in a supplier–retai supplier–retailer ler system. 3. Briefly explain the differences differences between active and passive RFID tags. (Note: See Online File W 1.7 and en.wikipedia.org en.wikipedia.org/wiki/Radio-fre /wiki/Radio-frequency_identification quency_identification.) .) 4. In what circumstances would it be better to use passive RFID tags? And in what circumstances might it be better to use active RFID tags? 5. What are some of the major major limitations of RFID technology?
COLLABORATION ALONG THE SUPPLY CHAIN
A major strategy strategy to improve supply chain operation operation is to have the involved partners colcollaborating on various managerial issues. Such collaboration is illustrated in Exhibit A.4. The rectangles designate the primary partners along the supply chain and the oval the support services and some of the methods described here and in the next section.
The Collaborative Supply Chain Contract Manufacturing
Logistic Services CPFR
Demand Aggregators Financial Services
Collaboration agents and efforts are shown as ovals.
Source: Drawn by E. Turban.
Appendix A: E-Commerce and Supply Chains
REPRESENTATIVE EXAMPLES OF E-COLLABORATION ALONG THE SUPPLY CHAIN There are many examples of e-collaboration along the supply chain. Here, we present some major ones.
Vendor-Managed Inventory vendor-managed
With vendor-manag With vendor-managed ed inventory inventory (VMI) ( VMI),, retail retailers ers make their suppliers fully responsible responsible
inventory (VMI) The practice of retailers’ making suppliers responsible for determining when to order and how much to order.
for determining whe n to order and howg much to order. order. as A needed. third-party logistic (3PL) can also bewhen involved by organizin organizing the shipments Thelogistics retailers provider provides provides the supplier supplier with real-tim real-timee information information (e.g., (e.g., point-of point-of-sale -sale data), data), inventory levels, levels, and a threshold below which orders are replenished. The reorder quantities also are predetermined and usually recomme recommended nded by the supplier supplier.. With this approach, approach, the retailer retailer is no longerr burdened with inventory management, longe management, demand forecastin forecastingg becomes easier, easier, the supplier can see the potential need for an item before the item is ordered, ordered, there are no purchasee orders, inventorie purchas inventoriess are kept low, low, and stock-outs become become infrequent. infrequent. Today oday,, it can be supported by CPFR (see the description in the next section) and special software. VMI software solutions are provided by Sockeye Solutions (sockeyesolutions.com (sockeyesolutions.com)) and JDA Software ( jda.com). jda.com). Fo Forr details, see Haines (2008). (2008). This method was initiated initiated by Walmart Walmart in the 1980s and has become popular. popular. Let’s look at an example. Example: VMI and Information Sharing Between a Retailer (Walmart) and a Supplier Walmart W almart provides provide s P&G access acc to sales salesbyinformatio infor mation every P &G makes for(P&G). Walmart. Walmart. The sales information is ess collected P&G on na on daily basisitem (or P&G made
visible to P&G) from every Walmart store, and P&G uses the information to manage inventory replenishment replenishment for Walmart. Walmart. By monitoring the inventory level of each P&G item in every Walmart Walmart store, P&G knows when the inventories fall below the threshold threshold that triggers triggers an automatic order order and a shipment. Everything is done electronical electronically ly.. The benefit for P&G is accurate demand information; the benefit for Walmart Walmart is adequate inventory.. P&G has similar agreements inventory agreements with other major retailers; retailers; Walmart has similar agreements with other major suppliers. For a more detailed study of Walmart’s Walmart’s use of VMI and other supply chain enablers, see the closing case at the end of this appendix.
Retailer–Supplier Collaboration: Target Corporation Target Corpor C orporation ation (targetcorp.com targetcorp.com)) is a large retail conglomera conglomerate. te. It conducts EC activities with more activities more than 20,000 20,000 trading partners. partners. In 1998, then operating operating under the name Dayton-Hudson Corporation, the company established established an extranet-based extranet-based system system for those partners that were not connected to its value-added network (VAN)–based EDI. The extranet enabled the company not only to reach many many more partners but also to use many applications applications not available on the traditional EDI. EDI. The system (based on GXS’s InterBusiness Partner Extranet platform; gxs.com gxs.com)) enabled the company to streamline its communications communications and collaboration with suppliers. It also allowed the company’s business customers to create personalized Web pages that were accessible via either the Internet or GXS’s EDI, as shown in Exhibit A.5. Target now has a Web Web site called Partners Online (partnersonline.com (partnersonline.com), ), which it uses to to communicate communicate with and provide an enormous amount of information to its partners.
Lower Transportation and Inventory Costs and Reduced Stock-Outs: Unilever
Unilever is a large global manufacturer manufacturer of leading brands in food, home care, care, and personal care (unilever.com ( unilever.com). ). Its 30 contract contract carriers deliver deliver 250,000 truckloads truckloads of shipments every day. day. Unilever’s Web-based database, the Transportation Business
Appendix A: E-Commerce and Supply Chains
Targe arget’s t’s Extranet Extrane t Connection Via Public Internet VPN, encryption, global reach added
GE Private VAN Private line secure
Web Applications Customer service Portal services Inventory management Quality assurance Supply chain Process design New products Budget control E-procurement
GXS InterBusiness Partner Extranet
Access control Registration Authentication Digital signature Certification
Legacy Systems EDI ERP
Source: Drawn by E. Turban.
Center (TBC), provides the carriers with site-specification requirements requirements when they pick up a shipment at a manufacturing or distribution center or when they deliver goods to retailers retailers.. TBC gives carriers carriers all the vital information information they need: need: contac contactt names and phone numbers, numbers, opera operating ting hours, hours, the number of dock doors at a location, location, the height of the dock doors, how to make an appointment to deliver or pick up shipments, ment s, pall pallet et configurati configuration, on, and other special special require requirements ments.. All mission-c mission-critic ritical al information that Unilever carriers need to make pickups, pickups, shipments, and deliveries is now available electronically electronically 24/7. TBC also helps Unilever organize and automate automate its carrier selection processes processes based on on contract provisions provisions and commitments. commitments. When a primary carrier is unable to accept a shipment, TBC automatically recommends recommends alternative carriers.
Reduction of Product Development Time: Caterpillar, Inc. Caterpillar Caterpi llar (caterpillar.com caterpillar.com)) is a mu mult ltin inat atio iona nal, l, he heavy avy-m -mac achi hine nery ry ma manuf nufac actur turer er.. In th thee tr traaditio dit iona nall mo mode de of op oper erat atio ion, n, cy cycle cle ti time me al alon ongg th thee sup supply ply ch chai ain n wa wass lo long ng be beca cause use th thee pr proc oces esss invo in volv lved ed th thee tr tran ansf sfer er of pa pape perr do docu cume ment ntss am amon ongg ma mana nage gers rs,, sa sale lesp speo eopl ple, e, an and d te tech chni nica call staff sta ff.. To so solve lve th thee pr prob oble lem, m, Ca Cate terpi rpill llar ar co conne nnect cted ed it itss en engi gine neeri ering ng an and d ma manuf nufac actu turi ring ng di divi vi-sionss wi sion with th it itss su supp ppli lier ers, s, de deal aler ers, s, di distr strib ibut utor ors, s, ov over erse seas as fa fact ctor orie ies, s, an and d cu cust stom omer erss th thro roug ugh h an extr ex trane anett-ba base sed d gl glob obal al ee-co colla llabo bora rati tion on sy syste stem. m. By me mean anss of th thee co colla llabo bora rati tion on sy syste stem, m, a requ re ques estt fo forr a cu cust stom omiz ized ed tr trac acto torr co comp mpon onen ent, t, fo forr ex exam ampl ple, e, ca can n be tr tran ansm smit itte ted d fr from om a cu cusstom to mer to a Caterp rpiillar dealer and on to designers and suppliers, all in a very short time.
Appendix A: E-Commerce and Supply Chains
Custom Cust omer erss al also so ca can n us usee th thee ex extr tran anet et (a (acc cces essi sibl blee wi with th wi wire rele less ss dev devic ices es)) to re retr triev ievee an and d mo moddifyy de if deta tail iled ed or orde derr in info form rmat atio ion n wh whil ilee th thee ve vehi hicl clee is st stil illl on th thee as asse semb mbly ly li line ne.. Remote collaboration capabilities between the customer and product developers have also decreased decreased cycle time delays caused by rework rework time. In addition, suppliers also are connected to the system so that they can deliver materials or parts directly to Caterpillar’ss shops or directly to the customer, Caterpillar’ customer, if appropriate. The system also is used for expediting maintenance and repairs. Other companies are also using EC technologies to reduce the time needed for product development.
Section A.4 ◗ REVIEW QUESTIONS 1. Define VMI and list its benefits. 2. How can EC facilitate retailer-supplier collaboration? collaboration? 3. How can EC reduce inventory cost? 4. How can EC reduce product development time?
COLLABORATIVE PLANNING, FORECASTING, AND REPLENISHMENT (CPFR)
In collaborative collaborative planning, planning, busine business ss partners—manufac partners—manufacturer turers, s, suppli suppliers, ers, distrib distribution ution partners, and other partners—create partners—create initial demand (or sales) forecasts, provide changes as necessary,, and share essary share information information,, such as actual actual sales, sales, and their their own forecasts. forecasts.Thus, Thus, all parties parties work according to a unified schedule aligned to a common view, and all have access to order and forecast performance that is globally visible through electronic links. Schedule, order, or product changes trigger immediate adjustments to all parties’ schedules. Collaborative planning is designed to synchronize production and distribution plans and product flows, optimize resource resource utilization utilization over an expanded capacity base, incre increase ase customer customer respon responsivene siveness, ss, and reduce reduce inventories inventories.. It can be a complex complex process (see Exhibit Exhibit A.6). Collaborative planning planning is a necessity in e-SCM (see vics.org/committ vics.or g/committees/cpf ees/cpfrr). The planning process is difficult because it involves multiple parties and activities. This section examines several aspects of collaborative planning and collaborative design.
COLLABORATIVE PLANNING, FORECASTING, COLLABORATIVE AND REPLENISHMENT collaborative planning, forecasting, and replenishment (CPFR) Project in which suppliers and retailers collaborate in their planning and demand forecasting forecasti ng to optimize flow of materials along the supply chain.
Collaborative Collabora tive plan planning ning,, fore forecasti casting, ng, and repl replenis enishmen hmentt (CPFR (CPFR)) is a bu busi sine ness ss pr prac ac-tice ti ce in wh whic ich h su supp ppli lier erss an and d re reta tail iler erss co coll llab abor orat atee in pl plan anni ning ng an and d de dema mand nd fo fore reca cast stin ingg in orde derr to ensure that members of the supply chain will have the ri rigght amount of raw mate ma teri rial alss an and d fi fini nish shed ed go good odss wh when en th they ey ne need ed th them em.. Th Thee go goal al of CP CPFR FR is to st stre ream amli line ne prod pr oduc uctt fl flow ow fr from om ma manu nufa fact cturi uring ng pl plan ants ts al alll th thee wa wayy to cu cust stom omer ers’ s’ ho home mes. s. La Larg rgee ma manu nu-fact fa ctur urer erss of co cons nsum umer er go good ods, s, su such ch as P& P&G, G, ha have ve su supe perb rb su supp pply ly ch chai ains ns re resu sult ltin ingg fr from om thei th eirr us usee of CP CPFR FR.. The essen essentials tials of CPFR are shown in Exhib Exhibit it A.6. Note that this is a cycl cyclical ical process proc ess in which which sellers, sellers, buyer buyers, s, and end customers customers are are considered considered.. The process process starts with strategy and planning, planning, followed by demand demand and supply management, which resul results ts in execu execution. tion. The result r esultss are anal analyze yzed, d, lead leading ing to t o reexamina reex amination tion of the t he strategy.
Appendix A: E-Commerce and Supply Chains
CPFR Model S t
i s s
l y a n
t e g
l a n n i n
y l p p t u n S e
t i o n
n g a m a n a e D
Source: “Collaborative Planning, Forecasting, and Replenishment (CPFR): An Overview,” May 18, 2004, p. 6. Reprinted with permission from VICS.
An interesting application application of CPFR is that of West West Marine, presented in Case A.2. CPFR can be used with a company-centric B2B and with sell-side or buy-side marketplaces. plac es. For more more on the benefits benefits of CPFR, CPFR, see see vics vics.org/c .org/commit ommittees/ tees/cpfr cpfr.. Also so,, see en.wikipedia.org/wiki/Planning.. en.wikipedia.org/wiki/Planning
WEST MARINE: A CPFR SUCCESS STORY STORY West Marine is the largest boating-supply company in the United States. It has 400 stores and annual sales of $690 million. The company sells more than 50,000 different products, ranging from stainless-steel propellers and anchors to lifejackets and wetsuits, through its stores, Web site, catalog, and commercial sales arm. Wes estt Mar arin inee ha hass a dram amat atiic st stor oryy wh when en it co com mes to itss ef it effe fect ctiv ivee su supp pply ly ch chai ain, n, wh whic ich h wa wass gu guid ided ed an and d dire di rect cted ed th thro roug ugh h it itss de deep ep,, in inten tensi sive ve,, an and d ef effe fect ctiv ivee impl im plem emen enta tati tion on of CP CPFR FR.. We West st Ma Mari rine ne is no now w re rega gard rded ed as havi ha ving ng a sh show owca case se CP CPFR FR im impl plem emen enta tati tion on;; ho howe weve verr, it
In 1997, West Marine acquired its East Coast competitor E&B Marine. As a result of the challenges of integrating the two companies, sales fell by almost 8 percent, and during the peak season stock-outs rose by more than 12 percent over the previous year. Income dropped from $15 million in 1997 to little more than $1 million in 1998. The situation was quite different when in 2003 West Marine purchased its largest competitor, BoatUS. West Marine successfully integrated BoatUS’s distribution center in just 30 days. BoatUS’s in-store systems were integrated into West Marine in just under 60 days. Further, supply
wasn wa sn’t ’t al alwa ways ys th that at wa wayy.
chain performance and the bottom line were not affected. (continued )
Appendix A: E-Commerce and Supply Chains
CASE A.2 (continued ) So why was this second acquisition so much smoother? The difference difference was that by 2003 the company had an effective IT-enabled supply chain management system driven by CPFR. In re revi view ewin ing g th thee CP CPFR FR im impl plem emen enta tati tion on in We West st Ma Mari rine ne,, it is cl clea earr th that at a key su succ cces esss fac acto torr wa wass Wes estt Mar arin ine’ e’ss co comm-
West Marine’s CPFR program now involves 200 suppliers and more than 20,000 stock items, representing more than 90 percent of West Marine’s procurement spending. Further, more than 70 of West Marine’s top suppliers load West Marine’s order forecasts directly into their production production planning systems. In-stock rates at
mitment mitme nt to tec techn hnolo ology gy ena enable bleme ment. nt. Thr Throug ough h the CPF CPFR R inform inf ormati ation on sys system tems, s, dat dataa su such ch as sea season sonal al fo fore recas casts ts,, prom pr omoti otion onal al sto stock ck lev levels els,, and fut futur uree ass assort ortme ment nt cha chang nges es aree cal ar calcul culate ated d aut autom omati atical cally ly.. Jo Joint int fo fore recas castin ting g and or orde derr fulf fu lfil illm lmen entt ar aree en enab able led d by in info form rmat atio ion n sy syst stem emss th that at ar aree suitab sui tably ly in integ tegra rated ted bet betwee ween n sup supply ply cha chain in par partne tners rs.. As many ma ny sim simila ilarr cas casee stu studi dies es att attest est,, su such ch inf inform ormati ation on sha sharin ring g thro th roug ugh h in inte tegr grat ated ed su supp pply ly ch chai ain n sy syst stem emss is on onee fa fact ctor or in successf suc cessful ul supp supply ly chain man managem agement. ent. However, West Marine’s successful CPFR implementation was not simply about the technology. Significant energy and resources were devoted to collaboration among the key supply chain personnel in West Marine and its supply chain partners. Joint skills and knowledge were developed along with the key elements of trust and joint understanding. These elements were built through joint education and training sessions as well as through the standard CPFR joint planning and forecasting sessions.
West Marine stores are well over 90 percent, forecast accuracy stands at 85 percent, and on-time shipments are now consistently better than 80 percent. Summing up West Marine’s collaborative supply chain journey using CPFR, Larry Smith, senior vice president of planning and replenishment states, “The results, we believe, speak for themselves.” Sources: Compiled from Ayers and Odegaard (2007) and Smith (2006).
Questions 1. What What we werre th thee maj ajor or el elem emen ents ts of Wes estt Mar arin ine’ e’ss CPFR CPF R su succe ccess? ss? 2. What were the benefits of the CPFR implementation for West Marine?
Section A.5 ◗ REVIEW QUESTIONS 1. Define collaborative planning. 2. Define CPFR and describe its advantages. 3. Describe how CPFR can help a manufacturing organization.
MANAGERIAL ISSUES Some managerial issues related to this appendix are as follows. 1. Who benefits benefits from vendor vendor-managed -managed invento inventory? ry? The vendo vendor-man r-managed aged inven inventory tory (VMI) (VMI) system system combined with collabora collaborative tive planning, planning, for forecasti ecasting, ng, and replenishment (CPFR) requires the supplier side to take the high level of responsibility responsibility.. Howe However ver,, small suppliers may not have the ability to systematically manage inventories well. In this case, the large large buyer buyer will need need to support support the inventory inventory managem management ent system on behalf of the suppliers. suppliers. Sensitive issues must must be agreed upon when initiating VMI. One such issue
is who takes responsibility for unsold items due to the wrongg jointly wron jointly done dema demand nd foreca forecast. st. 2. What are the costs costs and benef benefits its of of RFID? RFID? RFID in supply chain management has big potential, but the benefits and costs should be be well designed. The cost of tagging and managing individual items ratherr than containers rathe containers or pallets pallets can be costly; so, at present, the combination of RFID and bar code is the most cost-effective.
Appendix A: E-Commerce and Supply Chains
SUMMARY In th this is ap appe pend ndix ix,, yo youu le lear arne ned d ab abou outt th thee fo follo llowi wing ng EC is issu sues es as th they ey re rela late te to th thee ap appe pendi ndix’ x’s le lear arni ning ng ob obje ject ctiv ives es.. 1. The e-sup e-supply ply chain chain,, its char charact acteri eristi stics cs,, and its its components. Digitizing and automating the flow of information throughout the supply chain and managing it via the Web results in an entity called the e-supply chain. The major parts of the e-supply chain are the upstream (to suppliers), internal (inhouse processes), processes), and downstream downstream (to distributors and customers) components. E-supply chain activities include include replenishm replenishment, ent, proc procureme urement, nt, collab collaboorative planning, collaborative design/development, e-logistics,, and the use of exchange e-logistics exchangess or supply supply webs—all of which can be Internet based. 2. Supply chain chain probl problems ems and and their their causes. causes. The The major supply supply chain problems problems are: too large or too small inventori inventories, es, lack of supplies supplies or products products when needed, the need for rush orders, deliveries of wrong materials materials or to wrong locations, and poor customer custo mer service. service. These problem problemss result from from uncertainties in various segments of the chain (e.g., in transportation), transportation), from mistrust of of partners, partners, from a lack of collaboration and information sharing, and from difficulties difficulties in forecasting forecasting demand (e.g., the bullwhip bullwhip effect). effect). Also, lack of of appropriate appropriate logistics infrastructure can result in inefficiencies. 3. Soluti Solutions ons to supply supply chain chain problems problems provide provided d by EC. EC technologies automate and expedite
order taking taking,, speed order order fulfillme fulfillment, nt, prov provide ide for e-payment e-pay ments, s, prop properly erly control inventorie inventories, s, pro provide vide for correct forecasting and thus better scheduling, and improve collaboration among supply chain partners. Of special special interest are the emerging RFID technologies that could revolutionize supply chain management. 4. RF RFID ID ta tags gs.. Replacing bar codes with wireless technologies can greatly improve locating items along the supply chain quickly. quickly. These technologies have many benefits and few few limitations. They will revolutionize supply chain management. 5. Co Colla llabo bora rativ tivee pl plan anni ning ng an and d CP CPFR. FR. Collaborative planni pla nning ng con concen centra trates tes on dem demand and for foreca ecasti sting ng and on re reso sour urce ce an and d ac activ tivity ity pl plan anni ning ng al alon ongg th thee su supp pply ly chain. cha in. Col Collab labora orativ tivee pla planni nning ng trie triess to syn synchr chroni onize ze part pa rtne ners rs’’ ac acti tivi viti ties es.. CP CPFR FR is a bu busi sine ness ss st stra rate tegy gy th that atcedure atte at temp mpts ts to deve de velo lop p st stan dard rd lpr prot olss rove and an d proced pro ures s for collab col labora oratio tion. n.anda Its goal goa isotoc toocol impro imp ve dema de mand nd fo fore reca cast stin ingg by co coll llab abor orat ativ ivee pl plan anni ning ng in o r de r t o e ns ur e d e l i ve r y of m a t e r i a l s w h e n needed nee ded.. In add additi ition on to fo fore recas castin ting, g, co colla llabo borat ratio ion n in des design ign is fac facilit ilitate ated d by IT IT,, incl includi uding ng gro groupw upware are.. Produ Pr oduct ct lif lifee-cyc cycle le man manag agem ement ent (PL (PLM) M) ena enable bless manufa man ufactu cturer rerss to pla plan n and con contro troll pro produc duct-r t-rela elated ted information.
KEY TERMS Bullwhip effect Collaborative pl planning Collaborative planning, forecastin fore casting, g, and rep eple leni nish shme men nt (CP CPFR FR)) E-procurement
QUESTIONS FOR DISCUSSION BY INDIVIDUAL STUDENTS 1. Define Define e-supply chain, chain, and discuss its importance importance in supporting organizational performance. 2. Does a company’s supply chain include the movement of money money,, materi materials, als, and informatio information n within the company? How are they interrelated?
3. Discuss the major considerations that must be taken into account when implementing VMI. 4. Discuss the contribution of Web-enabled ERP systems to effective supply chain management.
Appendix A: E-Commerce and Supply Chains
5. Discuss the need for workflow systems as a companion to e-commerce. 6. It is said that c-commerce signifies a move from a transaction focus to a relationship focus among supply chain members. members. Discu Discuss. ss. 7. Discuss the need for virtual meetings.
8. Discuss how CPFR can lead to more accurate forecasting and how it can resolve the bullwhip effect. 9. Describe the advantages of RFID over a regular bar code in light of supply chain management.
TOPICS FOR CLASS DISCUSSION 1. Describe how the advent of the Internet has affected supply chain chain management. Include in your answer the contribution of the Internet to the following aspects and challenges: a. Globalization b. Outsourcing, Outsourcing, including business business process process outsourcing c. Increasingly demanding customers d. Diminishing product life cycles
2. Discuss the proposition that competition in contemporary business is best described and conceptualized as competition between industry supply chains rather than between that of individual corporations. 3. Discuss the importance of taking a holistic view of supply chain management rather than simply approaching supply chain management from a business-process and EC viewpoint. 4. What is the t he strategic value of mobile collaboration in managing supply chains?
INTERNET EXERCISES 1. Enter doublediamondsoftware.com/product_ overview.htm.. Identif overview.htm Identifyy all potential potential B2B applicaapplications and prepare a report about them. 2. Investi Investigate gate the status status of CPFR. CPFR. Start at vics.org/ at vics.org/ committees/cpfr , google.com google.com,, an bing.com m. Al and d bing.co Also so supply-chain.org and enter supply-chain.org and find information about
5. Enter supplyworks.com and clickcommerce.com.. Ex clickcommerce.com Exam amin inee the fun functi ction onali alitie tiess pro provid vided ed fo forr supply sup ply cha chain in im impro prove vemen ments ts (th (thee inventory inve ntory mana managem gement ent aspe aspects) cts).. 6. Enter electronicssupplychain.org , then click
CPFR. Write a report report on the status of CPFR. CPFR. 3. Enter i2.com and review its products. Explain how some of the products facilitate collaboration. 4. Enter Enter lotus.com lotus.com and find the colla collaborati boration-su on-support pport produc pro ducts. ts. Ho How w do the these se pro produc ducts ts sup suppor portt gro groups ups??
“Resou “Resources.” rces.” Find new information information on supply chain automation. 7. Enter future-store.org and find the progress on the use of RFID and other tools in supply chain improvements in retailing.
TEAM ASSIGNMENTS AND PROJECTS 1. Each team is assigned to an organization.The organization. The team
2. Each team is assigned to a company company.. Members will
members will attempt to identify several supply chains, their components, components, and the partners partners involved. involved. Draw the chains and show which parts can be treated as e-supply chain parts.
interview key employees in order to find existing problems in the supply chains. Then the teams will propose solutions using EC technologies.
Appendix A: E-Commerce and Supply Chains
HOW WALMART USES EC IN ITS SUPPLYY CHAIN SUPPL CHAIN Walmart Stores, Inc., is the world’s largest public cor-
link collaboration system. About 20,000 suppliers use
poration by revenue and the largest private employer in the world (about 2.1 million employees in 2008). In 2008, the company operated about 4,000 stores in the United States (discount, supercenters, neighborhood neighborhood markets,, and Sam’s Clubs) as well as more than 2,200 markets stores in other countries, mostly in Mexico, Canada, Brazil, and the United Kingdom. Its revenue exceeded $400 billion, with net income of about $15 billion. For further details, see en.wikipedia.org/wiki/Wal-Mart and walmartfacts.com. A major determinant of the success of Walmart is its IT and EC-driven supply chain.
the retail link system to monitor the sales of their goods at individual stores and accordingly replenish inventory. The system has been upgraded several times with Web-enabled technologies. technologies. Walmar Walmartt also uses advanced EC-based communication and processing systems, and it has extensive disaster recovery plans, enabling the company to track goods and inventory levels when disaster strikes. This ensures uninterrupted service to Walmart Walmart customers, suppliers, and partners. With its major suppliers, Walmart Walmart has VMI agreements. agreements.
Walmart’ss Supply Chain Walmart’ Walmart pioneered the world’s most efficient technologydriven supply chain. Let’s look at some of its components and innovations. Walmart invited its major suppliers to codevelop profitablee supply chain partnerships. These partnerprofitabl ships are intended to amplify product flow efficiency and, in turn, Walmart’s profitability. A case in point is Walmart’s supplier supplier relationship with P&G, a major supplier of consumer products. This relationship enables interoperation interoper ation between the companies’ systems at transactional, operational, and strategic levels. Since 1988, the relationship has evolved to yield tremendous value to both companies, and their mutual business has grown manifold. Examples of intercompany innovations are vendor-managed inventory (VMI), CPFR, and RFID. Let’s look closer at Walmar Walmartt and some of its supply chain–related initiatives.
Inventory Management Inventory management is done at the corporate and individual store levels. In both cases, computerized systems facilitate proper inventory levels and reordering of goods. Stores manage their inventories and order goods as needed instead of the company using a centralized control. By networking with suppliers, a quick replenishment order could be placed via Walmart’s own satellite communication system. This way, suppliers can quickly deliver the goods directly to the store concerned or to the nearest distribution center. The suppliers are able to reduce costs and prices due to better coordination. coordi nation. Walm Walmart art invested $4 billion in a retail
Managing Distribution Centers and Forklift Management Walmartt uses hundreds of distribution centers worldWalmar wide. Goods are transported to these centers from suppliers and then stored. When needed, goods are reorganized in trucks and delivered to the stores. Walmar Wal martt uses a computerized warehouse management system (WMS) to track and manage the flow of goods through its distribution centers. This system manages not only the forklifts within the distribution center, center, but also Walmart’s fleet of trucks.
Wireless Industrial Vehicle Management System Forklifts and other industrial vehicles are the workhorses of material handling within the distribution centers and thus are critical factors in facility productivity.. In each center, tivity center, Walmart Walmart installs a comprehensive wireless Vehicle Management System (VMS). The major capabilities of this system (from I.D. Systems, Inc., id-systems.com) are listed here and organized by productivity and safety features: Productivity Features ◗
A two-way text messaging system that enables management managem ent to divert material-handling resources effectively and quickly to the point of activity where they are needed the most. Software that displays a graphical facility map, which enables not only near real-time visibility of vehicle/operator vehicle/operator location and status, but also the ability to play back the trail of a vehicle movement over any slice of time. The system also helps to locate vehicles in real time.
Appendix A: E-Commerce and Supply Chains ◗
Unique data on peak vehicle utilization that enables optimal computerized fleet “right sizing.” It also helps work assignments and communication, especially in response to unexpected changes and needs.
Safety Features ◗ ◗
Fleet and Transportation Management Several thousands of company-owned trucks move goods from the distribution centers to stores. Walmart uses several EC and IT tools for managing the trucks. These include a decision support system (DSS) for optimal scheduling, dispatching, and matching of drivers with vehicles; a computerized system for efficient purchasing and use of gasoline; a computerized pre-
Electronic safety checklist system for identifying and responding to vehicles’ problems. Access authorization to drive certain vehicles by trained drivers only. Impact sensing that provides a broad choice of automated management responses, from alerting a supervisor with visual or audible alarms, to generating a warning icon on a graphical software display of the facility, to sending an e-mail or text message to management. Automatic reporting and prioritization of emergency repair issues that are identified on electronic safety checklists, where operator responses are flagged by severity of the vehicle condition.
ventive maintenance management system for efficient maintenance and repairs procedures; and a system that helps maximize the size of truck necessary for any given shipment. The company is experimenting with the use of a wireless GPS/GIS system for finding the trucks’ locations at any given time. Decisions about cross-docking are computerized. Cross-docking Cross-doc king involves the elimination of the distribution center and instead uses a direct delivery to the customer after picking and sorting the goods from the suppliers. This is possible only if the suppliers ensure delivery within a specified time frame.
Wireless, remote lock-out of vehicles that are unsafe or in need of repair.
fuel ef fuel effi fici cien ency cy in Wa Walm lmar art’ t’ss tr truc uckk fl flee eett by 25 pe perc rcen entt over ov er th thee ne next xt 3 ye year arss an and d pl plan an to dou oubl blee it wi with thin in 10 yea years rs..
For further details, see the Walmart case at id-systems.com.
Going Green Walm Wa lmar artt is sp spen endi ding ng $5 $500 00 mi mill llio ion n a ye year ar to in incr crea ease se
Walmart and RFID Adoption
A warehouse management system (WMS) is a key part of the supply chain that primarily aims to control the movement and storage of material within a warehouse and process the associated transactions including includin g receiving, shipping, and in-warehouse picking. The system also optimizes stock levels based on real-time information about the usage of parts and materials materials.. Warehouse management systems often utilize information technologies, such as bar code scanners, mobile computers, Wi-Fi, and RFID to efficiently monitor the flow of products. Once data has been collected, there is either a batch synchronization with, or realtime wireless transmission to, a central database. database. The database can then provide useful reports about the status of goods in the warehouse. Warehouse management systems can be standalone systems, or modules modules in an ERP system (e.g., at SAP and Oracle) or in a supply chain management suite. The role and capabilities of WMS are ever-
One of Walmart’s major initiatives in the supply chain area is pioneering the use of RFID. In the first week of April 2004, Walmart launched its first live test of RFID tracking technology. Using one distribution center and seven stores, 21 products from participating vendors were used in the pilot test. Walmart set a January 2005 target for its top 100 suppliers to place RFID tags on cases and pallets destined for Walmart stores. The system expanded to all major suppliers during 2006 through 2009, especially in the B2B Sam’s Club stores. It improves flow along the supply chain, reduces theft, increases sales, reduces reduc es inventory costs (by eliminating overstocking), overstocking), and provides visibility and accuracy throughout Walmart’s supply chain. To encourage more suppliers to cooperate, in January 2008 Walmart started to charge $2 per case or pallet not tagged (see Hayes-Wei Hayes-Weier er 2008b). In addition to requiring RFID tags from its suppliers, Walmart is installing the technology internally. According to Scherago (2006), more than 2,000 Walmart stores were RFID-enabled with gate readers and handhelds at loading docks, facility entrances, stock rooms, and
expanding. Many vendors provide WMS software (e.g., see qssi-wms.com). For a comprehen comprehensive sive coverage of WMS, see Piasecki (2006).
sales floors by the end of 2006. According to Songini (2007), the emphasis now is on the use of RFID in stores rather than in distribution hubs.
Warehouse War ehouse Management System
Appendix A: E-Commerce and Supply Chains The RF The RFID ID in init itiiat ativ ivee is an in inte tegr gral al pa part rt of im impr prov ov-ing in g th thee co comp mpan any’ y’ss su supp pply ly ch chai ain n (S (Sch cher erag ago o 20 2006 06). ). RF RFID ID alon al ong g wi with th a ne new w ED EDII im impr prov oves es co coll llab abor orat atio ion n wi with th th thee suppli sup pliers ers an and d hel helps ps re redu duce ce inv invent entori ories. es. Com Compan panie iess that th at co conf nfor orme med d ea earl rlyy to Wa Walm lmar art’ t’ss RF RFID ID ma mand ndate ate enjo en joyy be bene nefi fits ts,, to too. o. Fo Forr ex exam ampl plee, Da Dais isyy Br Bran and, d, th thee manu ma nufa fact ctur urer er of so sour ur cr crea eam m an and d co cott ttag agee ch chee eese se,, star st arte ted d sh ship ippi ping ng RF RFID ID-t -tag agge ged d ca case sess an and d pa pall llet etss to Wal alm mar artt in fa fall ll 20 2004 04.. Da Dais isyy sa says ys it itss in inve vest stm men entt in RFIID ha RF hass be beeen a boo oon, n, hel elp pin ing g it bet ette terr man anag agee th thee flow fl ow of it itss pe peri rish shab able le pr prod oduc ucts ts th thro roug ugh h Wa Walm lmar artt st stor ores es and an d en ensu suri ring ng th that at ma mark rket etin ing g pr prom omot otio ions ns pr proc ocee eed d as planned plann ed (Hay (Hayes-W es-Weier eier 2008 2008b). b). Thee ne Th next xt st step ep in Wal alm mar art’ t’ss pi pilo lott is to mar arkk ea each ch indi in divi vidu dual al it item em of la larg rgee go good odss wi with th a ta tag. g. Th This is pl plan an rai aise sess a po poss ssib ible le pr priv ivac acyy is issu sue: e: Wh What at if th thee ta tags gs ar aree no nott remo re move ved d fr from om th thee pr prod oduc ucts ts?? Peo eopl plee fe fear ar tha thatt th they ey wil will l be tr trac acke ked d af after ter le leav avin ing g th thee st stor ore. e. Wa Walm lmar artt ca can n al also so us usee RFID RF ID fo forr ma many ny ot othe herr ap appl plic icat atio ions ns.. Fo Forr ex exam ampl ple, e, it co coul uld d atta at tach ch ta tags gs to sh shop oppe pers rs’’ ch chil ild dre ren, n, so wh when en th they ey ar aree lo lost st in th thee me mega gasto store re,, th they ey co coul uld d be tr trac acke ked d in se seco cond nds. s.
Conclusion Walmart’s competitivenes Walmart’s competitivenesss and its future success depend on EC and IT ability to deliver applications applications and systems that are agile and easy to adopt to changing market conditions, especially along the supply chain. Special attention needs to be paid to global operation and transportation. transportation. It is still difficult to find items in stores due to the lack of Walma Walmart rt associates, as well as to check prices due to poor labeling in some cases. The future use of RFID can help the company overcome many of these problems.
Walmart is using EC in many other applications. applications. For example, the company has more than 30 million shoppers each day, which generates 800 million transactions transactio ns (each item you buy adds one transaction regarding inventory levels and sale volume). Walmart operates a huge data warehouse and uses business intelligence (BI) for reporting and analysis purposes. Finally,, Walmart Finally Walmart introd introduces uces more and more innovations. To increase the efficiency of money flow and customer service, service, Walmart Walmart has introduced a smart smart network (Birchall 2008). Sources: Birchall (2008), Hayes-Weier (2008b), Piasecki (2006), Scherago (2006), and Songini (2007).
Questions 1. Why is Wal Walmar martt conc concentr entratin ating g on supply supply chain projects? 2. Walmar Walmartt man mandate datess RFID tags from from all its its large large suppliers. Why are some suppliers not in compliance? 3. Investiga Investigate te the options options for for internatio international nal customers on the Walmar Walmartt Web site. 4. Com Compa parre walmart.com with target.com, costco.com, kmart.com, and other direct competitors. Write a report. 5. Envision Envision how transac transaction tion proces processing sing systems systems (TPSs) are used in Walma Walmart rt stores. Go to Walmart Walm art and pay with a check. check. How has EC improved the old way of paying with checks?
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Appendix A: E-Commerce and Supply Chains
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