Reflection Essay on Supply Chain Management
Introduction The recent advancement of information and communication technologies, in particular the Internet, transformed the traditional economy into network-based economy where e-business plays an important role. Globalization of the markets has lead to greater competition. In order to achieve efficient supply chain management in this global competitive environment, many companies nowadays are turning to Internet technologies to virtualize its supply chain processes.
Advanced technologies enabled to consumers to have access to many suppliers and to find the supplier that provides services levels desired by customer. Internet created opportunities for supply chain reconfiguration and it is the driving force for the supply chain virtualization. The impact of Internet on SCM is a focus area of many managers and researchers. E-supply chain improves SCM decisions by providing real-time information and allowing coordination among trading partners. Doing business on the web enabled creation of new B2B marketplaces, which are called e-hubs.
However, there are some critical issues, such as mistrust and competition throughout supply chain which prevent the evolution of supply chain management. This paper aims to enlighten definition of e-SCM and e-hubs, describe virtual e-chain model, as well as, benefits and concerns with e-SCM integration will be discussed. 1. Definition of e – Supply Chain Management (e-SCM) To define e-SCM, it is important to know what the supply chain management is. There are many definitions of supply chain management proposed by the literature.
Hertz (2006) defines supply chain management as a network of firms involved in upstream and downstream flows from sub-supplier to ultimate customer which uses information technology to help support and manage the links in that particular network. According to O? Brian & Marakas (2009) a supply chain consists of relationships between suppliers, customers, distributors, and other businesses. Stock & Boyer (2009) suggest a consensus definition according to qualitative study of 173 definitions of SCM published in multiple journals and books. Supply chain management is “ the management of a network of relationships within a firm nd between interdependent organizations and business units consisting of material suppliers, purchasing, production facilities, logistics, marketing, and related systems that facilitate the forward and reverse flow of materials, services, finances and information from the original producer to final customer with the benefits of adding value, maximizing profitability through efficiencies, and achieving customer satisfaction” (Stock & Boyer, 2009, p. 17). The e-supply chain connects suppliers, trading partners and customers on the base of a virtual network as one collaborating unit (Manthou, Vlachopoulou & Folinas, 2004).
Lancaster, Yen and Ku (2006) emphasize that e-SCM must integrate the internet in order to achieve fluent information flow throughout the supply chain. Technology allows this communication to be automated, so every partner in the supply chain has an access to real-time information. The automated communication limits the amount of paperwork, filing and record keeping. The key factor in SCM is inventory, however in e-SCM the key factors are information and knowledge and the collaboration of all partners is of great importance (Manthou, Vlachopoulou & Folinas, 2004). . From EDI to e-HUB The earliest information systems invented for supply chains supported mainly particular functions of supply chains, such as purchasing department. These systems were often developed individually for each company to match internal departmental processing requirements (Sherer, 2005). Interorganizational coordination was accomplished with electronic data interchange (EDI). EDI allows electronic exchange of business transaction documents, such as purchase orders, invoices and shipping notices over the internet between supply chain trading partners.
These systems are examples of standardization as they convert company? s documents into standardized EDI formats. However, information exchanged using EDI was shared in a linear fashion between organizations which often lead to mis-information (O? Brian & Marakas, 2009). In the past EDI required using a value-added network (VAN) which converted the data from one system to another. However, this was very costly and small and medium sized enterprises could not afford it. Today VAN is replaced by extensible markup language (XML) and by virtual private networks (VPNs), (Lancaster, Yen & Ku, 2006).
XML is a language used to design Web pages. It allows for data to be sent in real-time in different applications across the internet. To assure the security VPNs are used to send data using an authentication and encryption (Lancaster, Yen & Ku, 2006). Later, supply chain management integrated more suppliers, firms started to be interested not only in their own processes but also in the quality of the material or the on-time delivery. Suppliers became partners and firms started to search for reliable, cost-efficient and longer-term relationships (Lancaster, Yen & Ku, 2006).
When coordination between supply chain partners became more significant, information systems were focused on managing execution of fulfillment, such as warehouse and transport management execution systems. They were developed separately from customer focused systems, such as customer relationship management applications (CRM). Only recently, there are the trends to integrate CRM systems with SCM systems in order to include customer input. However it is difficult to integrate CRM systems with SCM because they are not directly linked together.
SCM systems are focused mainly on reducing costs, while CRM systems are focused on attractive revenue. This can lead to surplus in inventory, additional costs and consequently to unsatisfied customer. Other obstacles to supply chain planning and execution systems occur because of trade promotions or personalized needs of customers (Sherer, 2005). Today, web sites of some companies or specific industry web sites began to offer information on products and trading partners, even linkages between supply chain partners. They offer price quotes, product specifications or job bids online.
Many researchers believe that SCM will become entirely virtual market (Lancaster, Yen & Ku, 2006). Electronic hubs were designed to facilitate buying and selling processes and to provide exchange information on transportation, logistics or selling facilities. Despite of this, e-hubs have not yet been strongly adopted (Sherer, 2005). 3. Virtual e-chain model Manthou, Vlachopoulou & Folinas (2004) developed a virtual e-chain model (VeC) in order to facilitate e-business process modeling and to organize relationship interface between the partners in supply chain (Figure 1).
This model is composed of four parts: e-supply chain integration, e-supply chain process modeling, e-supply chain partner relationship management and e-supply chain intelligence. Figure 1; VeC model framework, Manthou, Vlachopoulou & Folinas (2003), page 2 a)E-supply chain integration E-supply chain integration is a process where suppliers, partners and customers collaboratively plan, implement and manage the flow of information, services and products along the supply chain in a way that improves business operations.
It facilitates data information and transaction flow while using combination of business objects, components and interfaces, application adapters, middleware platform, and standards. Virtual platform determines also security mechanisms and prevent unauthorized data access (Manthou, Vlachopoulou & Folinas 2003). b)E-supply chain process modeling E-supply chain process modeling involves defining the main actors, their roles and responsibilities. The key players are suppliers, intermediaries who own the supplier and customers who directly purchase product or service.
Manthou, Vlachopoulou & Folinas (2003) distinct two main types of partners in VeC model: supply chain network partners (individuals in virtual network who act as suppliers, customers or as intermediaries and who make act as strategic or non strategic partners, market mediators, network operations partners or application service providers) and supply chain network master (organization or individuals who play the life cycle management role in the virtual network, including the process of integration, relationship management and knowledge management). c)E-supply chain partners relationship management (e-PRM) Supply chain partners in a virtual network collaborate in the forecasting, purchasing, production and inventory management processes and synchronize delivery and distribution schedules. E-PRM standardizes best practices throughout the extended enterprise, using technology appropriately to reinforce relationship between supply chain partners. ” (Manthou, Vlachopoulou & Folinas, 2003, p. 7) d)E-Supply chain intelligence Supply chain partners in a virtual network need to have a comprehensive view of their business and understand process in order to improve decision-making.
Different kind of software, such as data mining, web-enabled technology, optimization and automation software is used to transform data from partners’ data warehouse into useful knowledge. 4. E-hubs In today? s business world most of the companies still have fragmented supply chains using expensive EDI networks. Internet provides many tools for organizations to optimize their supply chains. In recent years, electronic hubs have been designed providing buyers and suppliers alike with a means of structuring their supply chains in order to create maximum efficiency (Kathawala, Abdou & Franck, 2002).
According to Kathawala, Abdou & Franck (2002) e-hubs are platforms used by several companies which enable them to cooperate in order to achieve a maximum efficiency of supply chain. Zeng & Pathak (2003) define e-hub as neutral Internet – based intermediaries that are focused on specific business processes and mediate transactions among businesses. Zeng & Pathak (2003) cite Berryman and Heck (2001) in their research paper and talk about four forms of models. First one is a hub-and-spoke network, which shares information among various business entities.
Second one is knowledge-based, in which industry participants share their knowledge and standardize products and processes. Third model provides customized solution for each participant and the last model is based on an e-distributor concept. Kaplan & Sawhney (2000) classify e-hubs into four groups according to the type of procurement. MRO hubs enable systematic sourcing of operating inputs. Systematic sourcing involves negotiated contracts with qualified suppliers, which tend to be long term contracts.
Operating inputs are often called maintenance, repair and operating goods and include things, such as office supplies, spare parts or services. The second category of e-hubs are yield managers that enables spot sourcing of operating inputs. Spot sourcing fulfills immediate need of the buyer at the lowest possible cost and usually do not include long-term relationship with supplier. On the other hand, there are exchanges and catalog hubs. Exchanges enable spot sourcing of manufacturing inputs, i. e. raw materials and components that go directly into a product or a process. Systematic sourcing of manufacturing inputs is enabled by catalog hubs.
According to Kaplan & Sawhney (2000) e-hubs use two different mechanisms to create value: aggregation and matching. E-hubs which use aggregation gather large number of buyers and sellers under one virtual roof reducing the transaction costs. Buyer and seller positions are fixed. Adding another seller benefits only buyer and vice versa, adding another buyer benefits only sellers. In this kind of mechanism a metacatalog of products composed by many suppliers is created. On the other side of static aggregation mechanism, is a dynamic matching mechanism which brings buyers and sellers together to negotiate the prices on real time basis.
The matching mechanism is usually used for spot sourcing, where the prices are determined at the moment of purchase, instead of setting the price as a long-term contract. The matching mechanism can take a form of an auction. Adding a seller or a buyer into the mechanism increases its liquidity. E-hubs play an important role in supply chain integration, particularly in information integration. Kathawala, Abdou & Franck (2002) recognize these main advantages of e-hubs: lowered procurement and product costs, economies of scale, improved cycle times, capacity utilization, productivity and volatility. . Benefits of e-SCM There are many benefits concerning e-SCM, such as speed, ability to communicate, decreased cost of communication and carrying inventory or customer service. Internet enables to firm automated data exchange, which safe time and provides firm with real-time information about inventory levels. A company can monitor the inventory levels of its products at distribution centers. Doing so, company can schedule its operations more effectively. Companies usually have safety stocks of finished goods due to variations in the demand.
Using e- SCM company can reduce its stock of finished goods by stocking the raw materials, which has according to Clarke (1998) several benefits: -the shelf life of raw material is generally greater than that of finished goods, -raw materials can be stored with a higher volumetric utilization than finished goods, -raw materials tends to have a lower obsolescence cost than finished goods, -stock cover for raw materials can generally be lower than that for finished goods as they can be secured more quickly. Another benefit of e-SCM according to Lancaster, Yen & Ku (2006) is the long-term relationship built within supply chain.
In a virtual chain firms are sharing sensitive information about the demand for their products, as well as inventory levels, thus, relationships are becoming more confidential and long-term. Long-term relationships stabilize processes and help firms to focus on their core competencies. Decreased costs are another advantage. Reduced level of inventory caused by real-time information in a virtual supply chain calls for lower warehousing and facility costs. Customer relationship is improved by ability to anticipate customer demand and reactions.
Networked flow of information focused on movement and sharing of information in e-supply chain changed linear flow of information provided by EDI. Information systems enabled to link supply and demand in a networked fashion, which allowed companies to link customer demand directly to their networked supply chains. E-SCM also enabled existence of e-hubs, where contract manufacturers and suppliers are able to see demand in real time and react accordingly. 6. Concerns of e-SCM There are several problems considering the implementation of e-SCM.
The commitment of the firm to use a system and to rely on automated supply chain system must exist (Lancaster, Yen & Ku, 2006). Company must make sure that its business processes are in alignment with information system. The most important concern of e-SCM is trust. Firms have a fear to share their actual data with other companies. Firms that have competitive advantage derived from supply chain strategy risk losing this advantage when they are sharing information about supply chain processes. Customers are represented with greater power when they are provided with the information about company’s resources.
It is trust and not technology which is a key factor for companies in order to adopt information systems applications that support value network advocacy (Sherer, 2005). The fact that firm are partnering with other companies means that they have to share they internal information also within the organization. Organizational structure has to be changed in order to facilitate information sharing among different departments, functions and processes. Supply chain strategy is a cross-functional decision-making process (Lancaster, Yen & Ku, 2006).
Another problem is that supply chain management is over relying on speed instead of agility. The speed of information is greater in e-SCM and consequently there is less safety stock to handle emergency situations such as delayed shipment, natural disaster or simple inequality in demand. Speed of information is an important factor, however, the ability to respond to the unexpected situations provides a real advantage in supply chain management strategies, mainly in industries where supply and demand are not stable and change rapidly. Conclusion
Importance of supply chain has become greater with advancement in technology, especially internet which enabled the web-linking of supply chain partners. Because of the globalization of the economy e-SCM became even more important. As a result, organizations are trying to provide their products to customers faster, cheaper and better than competition. The only way to achieve this is through collaboration with other organizations in supply chain. Organizations are connected to a virtual network in order to share real time information. Trust, long-term relationships and knowledge are becoming the key factors within e-SCM.
Companies’ web sites provide information about products, suppliers or even marketing strategies. In order to facilitate the communication and collaboration between partners in supply chain, electronic market places called e-hubs were designed. There are many benefits connected to e-SCM including lower inventory levels, speed of and ability to communicate, higher customer service and consequently customer satisfaction and decreased costs of communication. On the other side there are still many obstacles preventing effective e-SCM integration.
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