E-business and Supply Chain

COSC 648

Sungchul Hong

E-business and Supply Chain

• E-business is the execution of business transactions over the Internet. Supply chain transactions that involve e-business include the flow of information, product, and funds.

E-business Supply Chain Transactions over the

Internet • Providing information across the supply chain.• Negotiating prices and contracts with customers

and suppliers• Allowing customers to place orders• Allowing customers to track orders• Filling and delivering orders to customers• Receiving payment from customers• c.f.) mail order, catalog, EDI with

dedicated line

How to use the Internet

• Companies are using the Internet to conduct a wide variety of supply chain transactions.

Case 1

1. Dell displays all its product information over the Internet. Customers are able to identify all options available for a personal computer they want to purchase. Dell also shares demand and inventory information on-line with its suppliers.

Case 2

• Solectron, a contract manufacturer, collaborates with PC companies on product design.

Case 3

• eBay allows people to auction products over the Internet.

Case 4

• Exchanges like Freemarkets.com allow companies to auction their products and services over the Internet and seek bids from potential suppliers.

B2C

• A business-to-consumer (B2C) e-business involves transactions between a company and a consumer.

• eBay, various Internet shopping malls

B2B

• A business-to-business (B2B) e-business involves transactions between two companies.

• W. W. Grainger and McMaster-Carr selling maintenance, repair, and operations (MRO) supplies to other companies over the Internet.

• i2, Ariba, Commerce One, and Greemarket.com; these companies set up Internet exchanges and auction sites for manufacturers dealing with suppliers.

On-line Retailing

• The Boston Consulting Group estimated that on-line retailer transactions exceeded $36 billion in 1999. (2% of total retail sales across all channels)

B2B Supply Chain

• E-business also grew significantly in 1999 in B2B supply chains. B2B supply chain have used the Internet in a variety of ways to improve performance.

B2B Example

• Companies like W. W. Grainger, Cisco Systems Inc., and Intel Corporation were the first to move many supply chain processes on-line. 

• Companies like General Motors are setting up e-business to handle procurement of everything from staples to steering wheels.

B2B Example

• At General Electric, employees order office supplies from pre-qualified vendors over the Internet.

• Ford Motor Co. is using the Internet to bring together engineers from its operations all over the world to collaborate on projects with a goal of designing basic components that can be used everywhere.

B2B Business

• E-business is expected to provide significant payoff in most B2B supply chains. Speculation abounds that e-business will lead to reduced prices, higher productivity, and lower labor costs.

Setting Up an E-business

• If a firm is to exploit the advantages of setting up an e-business fully, it must understand the key differences between using the Internet and other channels for the flow of information, products, and funds.

Revenue Impact of E-business

• Offering direct sales to customers• Providing 24-hour access from any location• Aggregating information from various sources• Providing personalization and customization of

information• Speeding up time to market• Implementing flexible pricing• allowing price and service discrimination• facilitating efficient funds transfer

Offering Direct Sales to Customers

• An e-business allows manufacturers and other members of the supply chain that do not have direct contact with customers in traditional channels to enhance revenues by bypassing intermediaries and selling directly to customers.

Providing 24-Hour Access from Any Location

• Unlike most retail stores, an e-business can attract customers who may not be able to place orders during regular business hours because it is always open for placing orders.

Aggregating Information from Various Sources

• An e-business allows a firm to increase sales by offering information regarding a very large selection of products.

Providing Personalization and Customization of

Information• The Internet offers an e-business the

ability to use personal information to intelligently guide each customer’s buying experience and increase sales. (Amazon.com)

• In a B2B environment, firms can set up customer-specific sites to display information on products that the customer buys most frequently. e.g. Lands’ End (clothing)

Speeding Up Time to Market

• A firm with an e-business can increase revenue by introducing new products much faster than a firm that uses physical channels. There is no leg to fill the physical channel.

Implementing Flexible Pricing

• An e-business can easily alter prices over time by changing one entry in the database linked to its Web site. This ability allows an e-business to maximize revenues by setting prices based on current inventories and demand.

Allowing Price and service Discrimination

• Potentially, an e-business can price-discriminate and alter prices based on the buying power of individual customers to enhance revenues.

• e.g. Amazon.com– 1 book v.s. many books

Facilitating Efficient Funds Transfer

• e.g. senator McCain’s campaign: collect $1 miilion dollars over his web site within 48 hours.

Potential Revenue Disadvantages of E-

Business • Immediate physical retailing is not

possible.

Cost Impact of E-Business

• Reducing product handling with a shorter supply chain• Postponing product differentiation until after an order is

placed• Decreasing delivery cost and time with downloadable

product• Reducing facility and processing costs• Decreasing inventory costs through centralization• Improving supply chain coordination through

information sharing

Reducing Product Handling with a Shorter

Supply Chain • A manufacturer using e-business

to sell directly to customers is able to reduce handling costs because fewer supply chain stages touch the product as it makes its way to a customer.

Postponing Product Differentiation Until after

an Order Is Placed• An e-business can significantly

lower its inventories if it can postpone the introduction of variety until after the customer order is received.

Decreasing Delivery Cost and Time With

Downloadable Products • MP3, CD, Software…

Reducing Facility and Processing Costs

• An e-business can reduce facility costs by centralizing all inventories and decreasing the number of facilities required.

Decreasing Inventory Costs through Aggregation• An e-business can aggregate

inventories because it does not have to carry inventory close to the customer.

Improving Supply Chain Coordination through

Information • An e-business can easily share

demand information throughout the supply chain to improve coordination.

Potential Cost Disadvantages of E-

business • Increase transportation costs due to

inventory aggregation

• Increased handling costs if customer participation is reduced (grocery)

• Large initial investment in information infrastructure