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173 viewsChapter 6 - Supply Chain and Demand
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© © All Rights Reserved
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/ 55
Supply chain and demand
Main topics
ei ‘After completing this chapter the reader shouldbe abot:
* Wt soy chan marapmart ‘dently the main elements of supply ein management anc
‘procurement
+ Options er resting the
sippy enan 269, ‘+ Assess the potential of information systems to support supply
+ Using ta business wo rests ‘chain management and e-procurement
| 7° tetnesueciy chan 27 ‘+ Analyse procurement methods o evaluate cos savings
+ Sup eran mangament
| + cterseting and pertrance
| rsnagorent for 050M 278 Ces
+ Wat eprocurement? 285,
| ber fe procurment 206 cane meee a
| 9 Barer ands of
‘The issues raised inthis chapter for managers to corlder ae:
|, eoturerentspton 208 ‘+ Which technologies should we deploy fer supply chain
2 parang ecerrent 291 management e-procurement and how shuld they be prorties?
a + Which elements of te supply han shouldbe managed wie
| oe and beyond the orgaisation aed how can technology be used
eens fecitate tis?
* Eating proccss
Seer acca es ‘Which methods) of e-procurement shoud we adopt?
an ‘what are the practical faves with anne supply chain
cameras ‘management and e-procurement?
‘esa chanto seve mo
‘mete average 219 (Cte
(25Sal Chica roto
sear’ supply eae 258 ae
a “The man lated chapters ae
necererto impor * Chapter 1 introduces the supply chain asa kay element of aga
{4 FRI haeping tack stars its comers
‘ove toafeterck 262
ES Honea improve fency to
‘uf SOM and procure 288
‘Web support
‘ne flovng aeons caso studs
rota
‘worn pearsoned coukichatty
9 SME adoption af satsise
+ eat ofthe dotcom team ‘Sean code
* Encouraging Sit adoption ot tw fnd the
‘evade ecommerce fovnet updates
Thesioaoocotanearegectstty | for topics in
rate etn ohp iro Your tla shaptar‘chapters Sup cin an cen
Supply chain managements essentially the optimisation of material lows and associated
information lows involved with an organisation's operations. To manage these flows,
Aigal business applications are today essential. Supply chain management is presented a6
‘the premier application of digital businessin Pare ofthis text, since it isa unifyingconespe
that incorporates both e-procurement and sell side ecommerce. By applying information
systems, companies can enhance or radically improve many aspects ofthe supply chin. In
the context of Figure 14, which was used tointroduce the concepe of digital business, supply
chain management can be enhanced through Buyside e-commerce, internal communication,
‘relationships with parents and sllside e-commerce. Digtl busines technologies enable
information lows tobe redefined to facile the sharing of information beoween partner,
‘fen alow coms than were previously possible
‘Supply chain management capabilites ate best known for thie importance in deliver:
ing profitable. For example, AMR (2008) reported that Nike, a company best knovn
for its marketing, used improvements to is supply chain to increase operating margins of
heewcen 10 and 15% in each ofthe preeding fou years. But for Nike and other companies
that conseantly innovate to renew prot, selecting the right technology is important to
‘orchestate the constant collaboration bercen supply, demand and product management
aroups that brings profitable new products to market. Managing dstibution and rewens
from e-commerce sites is a further challenge. Clear Returns estimated that returns cost UK
reuilers £60 billion a yea, of which £20ba is generated by items bouaht over the later
‘et. A cecent report inthe Financial Times (Ram, 2016 said tha culture ofretuening is
‘becoming more established in che UK and Germany, and online fashion retailer ASOS has
ound that around 70% of ems ordered in Geemaay are returned, compared with 25% in
the UK for women's fashion. This i costly for reales aecording to Iain Prine, soppy
chain director at KPMG, ican cost double the amount for a product to be retutned nto
the supply chain asi does to dliverie For example, if customer purchases a coat onlin,
to pick and deliver the onder costs between £3 and £10 but i could cost double or ercle
that to be procesed on the way back (Ram, 2016)
“The importance of supply chain management capabilites vo customer stsfction and
‘therefore repeat business fo a dgial busines is highlighted by Case seu 6.
‘Amancia Ortega funded Zarain Spain in 187S and since
‘thon the fast-fashion chain has grown to 1,770 stores in
6 counties around the word. I 2012 Zara reported &
sates income of $13.8. ts widely reported that the
retailers success down tots supply cman.
‘The company produces around 450 millon tems &
yes and regular, smal-batch cavers happen twice @
\woek to al ofits stores around the word, The company
‘adapts couture designs, manufaczes, dstroutes and
retals. clothes within ust wo weeks a the orginal design
frst appearing on the catwalk. owns is supply chain
fans competes ont apsed to mart.
‘The company operates ust In ime’ production
process - it keeps a signfcant amu of its proguc-
tion in-house and makes sure its own factces reserve
£859 ofthoir capacity for in-season adjustments. Zara
usually rales on fabrie sourcing, cutting and sewing
facies near to ts design headquarters Spain —
in ‘proximity markets’ such as Spain, Portugal, Turkey
fand Morocco. Although the wage costs ar higher than
sig the facie of developing world counterparts tho
tumround time is much faster,
Interestingly, Zara only commits 18 to 25% of a
‘season's ine six months In advance, It looks in 50-60%
Of tse bythe stato he season, which means that
Upto 80% ofits clothes ae signed and manufactured
inthe mide ofthe season,
“Therefor, ia catin sya or dasign bscomes a new
‘musth’ designer can produce new styles that ar tst-
tracked to stores while the trend es going son, Inter
nal, sore maragers provide customer fedback on what
‘shoppers ike, dsike and what they are looking for. This CF250 Part 2 Sraiegy sn apstone
Figure 6.1
Information s then funnels beck to Zara's designers
‘who instanty begin sketching
“Te company also has entra capacty to respond to
demand: I typically operates 4.5 days a week at ful
‘cana, leaving some flexi fr extra ets and tem
porary labour when needed.
‘This means that the company provides frequent ship
ments anda ighar number af customer sales, allowing the
business to ell more tems a fl pce. Zara els around
859% of ts clothes at ul pice, compared to the industry
average of 60-70%, Unsold Roms account for ess than
1056 of ts tock, when the industry average is 17-20%.
When it comes to supply chain management, the
company operates a ory ean systr; there fs ery ite
‘excess inentory/dead stockin Zara's warehouse. Iver
tory optimisation models are used to determine how
‘much shouldbe delivered to wvery one ots tal stores
twles @ week. Rapid movement of new merchandise
‘trough the stores and knowedge that some ofthe tems
may not be replenished is anather incentive fr custom
‘80 buy onthe spot. This eoproach also ensures there
isno bulk-up of unpopuar stock
Zara's approach of quick in-season tumareund, om
production facies cogs fo ts streion heedawarars
InSpain, meses taf chases the latest tena and does
not sell wel, the company loses vr tee.’ a faled
experiment and hare have tata ty adore se) This
‘gle approach is very smi to the marketing concep of
‘grown hacking’ (hich we cover Chace 10,
Like the Boots example (see Mini case study 6.1,
'p. 255), the certraleaton of Zara's logis lps creat
fan envionment whereby decisions are made Ina very
‘coordinated manne. The etal aso sticks toa precct-
{ble and fast order-Raflment rythm ~f sande out wo
orders a weak on specific days and times. Clothes are
also prelabeled and priced, based on thr destination.
‘Thi precctabaty also exends to Zara customers, who
know whan to viet stores fx rash new garments.
Zara's strong dtbtionnetork moans tat he com-
pay can deliver goods tots Euopean sores within 24
hours and to American ae Asian outs in ls than 40
hours. According to Professor Nelsen Friman, Zara can
(g2tapreduct cut fom concept to store in just 15 days ~
to putin conten, the incusty standards six months
‘Questions.
1 Explain pow Zara uses supply chain management
to gan competitive advantage,
2 Zarais obviously large cl business ~ what
sey success factors from ts SCM approach can
‘ross overto smaler operations?
ou mmmindagiancomnicg
Scaauprchartsvcoorearaucaes
‘rw teapnca itinaesiewanyatatandon.
Serta ee yh
‘re zapcan oom conocumentlatelatzo
Soyctrone
frocurement
=a
cron procure
‘ment oyster PS)
‘etemertestor
Chapter 6 Supty chin snd deans 254
Procuring epanestion
“This chapter also covers procurement, which has become a strateye issue for digital
businesses because it ca help achieve significant saving, and other benefits, tha directly
impac onthe customer.
Teis worth nosing tht the terms “purchasing” and “procurement are smeties titer
changealy, but as Kalakota and Robinson (2000) poine ou, ‘procurement generally has a
broader meaning ‘Procurement refers to all activites involved with cbuining items fram a
spl thisinlads purchasing, ble inbound logics suchastranspreton, odin and
warehousing before the tem sused, These of procurements sometimes considered aspartof
“sate sourcing wher itis edo deliver commercially sigpiticant benefits tothe company.
The key proctiement actives and associated information flows within an organisation
are show in Figure 62 In this chaper we fous on these activites, which include searching
for and specification of product bythe end-user, purchasing by dhe buyer, payment by 2
account and receipe and distribution of goods within a warchous,
Eprocureiment should be directed at improving performance foreach ofthe ive tights
of purchasing’ (Baily ea, 1994), which means sourcing items:
4 atthe sight price
2 elvered atthe righe ime
3 of the right quality
4 ofthe right quantity
5 from the right source.
Box 6.1 gives an additional perspective on e-purchasng
E-procurement is nor new there have been many attempts to automate the process
of procurement for the buyer using electronic procurement systems (EPS), workflow
systems and links with suppliers through EDI (Chapter 3). These involved onlin entry,
‘uthorisation and placing of orders sing a combination of data enery forms, seanmed doc
laments and emal-based workflow. I is convenient refer to these a first-generation
procurement252 Pent 2 Srey are applctons
What is e-purchasing?
“Tis s Now the Chartred nstute of Procurement and Supply (CIPS, wow cps.o)
explain e purchasing tits members:
The combined use of information and communications technology through eloc-
tronle means ta enhance extemal and intomal purchasing and supply management
processes. These tools and salts deliver a range of options that wil faite
Improved purchasing ae supply management
“The range of potent options for improving purchaslng processes ae incested by
these benetis, described bythe CIPS:
1 Eutontendo antag ji, 0. eaten an peabiere-angeeing
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{tuo crt ough conpunyapecte catalog; nw tao auch
Onis bag nests ed eecussaaor CN
2 Une snr iran chap cacy te uh 0 eae nd
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| Stalumeda neon epocurmnt dos ot ncaa conan mutinea
| ent
+0 Improvements in ocalised supply chain mechanisms and concotla, eto, leading to
stl Benefit.
Save: cS ean.
Much ofthe excitement generated by the diptal business concept concerns the benef
‘hat companies can achieve through increasing the efficiency ofthe whole supply chain
(Companies suchas Argos (Case study 6.3), which have enchusiastically embraced techaology
‘ro manage the supply chain, have been reaping the benefits for many years.
Problems of supply chain management
“The challenge of managing inventory across the supply chain s shown by US Department
‘of Commerce 2017} data, which regularly catalogue the ratio between inventory held in
lffereat pars of che supply cain
“Theis analysis shows that in July 2017 $1,873,868 milion was held in inventory avons
all types of busines, broken down int:
‘© Manufacturers: $551,560 milion
1 Retire: $619.86 milion
1 Merchane wholesaler: $402,392 milioneran frcastng
Fale to deter proc on tne contort ck ot
ram on han este
Fale to deer or ship comet product
Hig iments costs
“Tina fer new product devlepent
Increasing supply chain efficiency involves reducing the holding within inventory while
‘maximising sales. This report shows chac the total business inventorysales ratio at the time
‘wae 1.38, Surprisingly, berween 2004 and 2017 the inventorysaleseti has remained tla-
Ciely sable, suggesting chat across business there i ited penta ro reduce inventory
in systems that ae already opimised and hat companies must avoid lst potential sales
Chapter 6 Supp cranes ant
ow cgtaltechnology can reduce problema n SCM
dustin in paperwork rough soso ansmsion
ere, ies md deer note Pesaed met
helcng nada trough bates understanding of Soran
Fede me fortran ard corpanet sup)
Sree he spp chan Lower SCM astm putas ae
management costs trough use cre ances (55)
Shang of mandy customers wth supers pat of
‘fit conan reponse ECR)
Suppter becomes response fo tm aka wou
venermanagedinventon
Huan ar ecuce, ‘Check a balnces can be ult
tn eater
Inert reed trougout th sup chn hough
ter dered erecating an mare ap elena
‘timer,
Improved aiaity of narnation abot potenti
[eps ad components fr evare tough snipe
mts
‘rough out-of stock ems instore.
tales are mise.
‘Using digital business rechnology co support SCM can help co avoid some problems
thar an occur in a supply chain (Table 6.1). This introduces many of the key concepts of
In individual companies, inventory tunover i used asa measur of the number ofimes
inventory i sold or used ina time period such a a eat Is calculated asthe cost of goods
sold divided by the average inventory. A low tarmover rate may indicate overstocking ot
Aifficaley in sling products ac an acceprable rate. high turnover rate may suggest iad
‘wate inventory level, which may lead 1 losin business a the inventory is too low and
technology-enabled siply chin management.
‘Supt cain
‘management (SCM)
Seaver
Stier
‘Supply chain management (SCM) involves the coordination ofall supply activites of
an organisation from its supplier and delivery of procs to its curtomers Figure 6.3,
imroduces the main playets inthe supply chain. In Figure 6.33) the main members
‘of the supply chain ate the organisations that manufacture x product andlor deliver =
289254 Part Sratgy snd applestone
‘tie enor
Members ofthe sup chai: simpli view: nung
Intraciros
For most commercial and not-for profit orgaisations we can distinguish berween
‘upstream supply chain activities, which are equivalent to buy-side ecommerce and
‘downstream supply chain activites, which correspond to sell-side e-commerce In tis
‘chapter we focus mainly on improving the efficiency of upstream supply chain activites,
‘while in Chapters 7 and the emphasis is onthe marketing aspects of improving down
stream supply chain activites.
‘Remember that supply chain management includes not only supplies and bayer, but
so the intermediaries such asthe supplie’s suppliers and the customer's customers
(Figure 6.300) Indeed, some companies may have fester, second-tier and even tied
suppliers or fre, second: and higherter customers, Because each company effectively has
‘many individual supply chine For diferent products, the use of the rerm ‘chan’ is limiting
And supply chain network sa more accurate reflection af the inks between an organisation
And its partners
"According co IGD (2017), the pase of change in supply chain management, mainly doe
1 the utilisation of echnology, has noticably increased over the lst few years. This has
‘meant that digital businesses constandly ned ro ask themselves “How will we continueto
respond othe changing market and increasing competion?
GD has published the ‘Four Pillars of Supply Chin Sueces. The key cements of supply
hain success (GD, 2017) ace:
41 Customer centre. The supply chan exists to serve its customers and the best ones bald
their upstream processes to support providing an oustanding Service for their exd
2 Powered by people. The best supply chains utlise people to add value; however, there cre
skis shortages in some areas, This means that attracting, retaining and retrain
important elements of supply chain management.
8 “Transformed by technology. Technological innovation and adoption have helped eansform
the supply chain, Key ares include automaton, synchronisation and transition to adua-
Adven environment. Thilo brings new challenges to dgtal busines and online retails.‘cnaptar6 Suny onan and deans 288
4 Reiliont and responsive. The macro-ensitonment see Chapter 4), such as the adopion
of technology the impact ofa politcal or exoaomic landscape, et means that dsr.
tion and interuption are on the increase, Therefor, recognising where risks and their
impacts are requis plan ands one of the fist steps to building a resilient and respon
sive supply chain
“Technology i vital to supply chain management since managing relationships with custom
rs, supplies and intermediaries is base onthe flow of information andthe transactions
between these paris. The main strategic thrust of enhancing the supply chain is 0 pro
cient consumer vide a superior vale proposition zo the customer, of which efficient consumer response
response EN" (EOR he Box 62), ssmporan within he etal and packaged consume ods markt,
Sirigardete Improving customer val involves improving produce quality, customer service quality
Siege” andlor edacng pie and ullent ine (asexlained in Chapter 9 Increasing effin)
‘Senet srames, iy obainingcesources from a supplier organisation or disritng pats co customers
Eotiimcicot reduces operational ests and so increases proiaiiy.
A.simple model of a supply chain
An organisation's supply chain can be viewed from a systems perspective as the acquis
tion of resources (inputs) and thee transformation (proces) inco products and services
(outputs). Such a perspective indicates that as par of moving to dial business ongani-
sations can review the transformation process and optimise in order to deliver products
tocustomers with greater elfciency and lower cost. Note that the postion of the systems
boundary for SCM extends beyond the organisation ~ it involves improving not only
inetnal processes, but also processes performed ia conjunction with suppliers, distri
ttors and customers. However, this process perspective misses the strategic imporance
‘of supply chain management ~ ic also provides great opportunites to impeove product
performance and deliver superior value tothe customer, as suggested by Figure 63. As
2 sul, supply chain management can dramatically have an impact on the profitability
of acompany.
Figure 65 shows che supply chain fora sample busines-o-business company. Com:
plete Activity 6.11 consider the ses involved in modifying the supply chain in response
SS
Healt ana beauty retailer lance Boots won 22010 European Supply Chain Excallonce Awarfrthe way
it eveloped a £70 milion automated cistrbuton centre at Notingham inthe UK. The company reorganised
its entre supply chain network by combining four national stutin centres and 17 regional warehouses
Int ust one central stbuton centre. One ofthe kay cvs of this malorivestmont was he etal’ rapd
‘growth nits onins operations, which meant tha the company's outsourced, and argely manual, operation I
imngham was no longer tor purpose’. Te caneodaion ado crease inbot ficiency and evalabity
(of goods inthe store by a vaue of moe than 98%.
"Tne company’s ‘Stores Service Gente’ (SSC) supplies 2.500 stores and more than 30,000 dierent
‘preduts, The new system handles up to 75,000 order lines a day, wth small orders beng batch picked and
‘Tanualy packed - the changes that inreased time efciency by 65% compared tothe previous manual
‘operation Ithas alo helped improve order raeabily
“Technology played a key prt Inthe tansfrmaton of Boots supply chain system, which Included auto-
rated shuttle storage systems that proces the majority of the company’s inventory.
_Soue mogetetaningsomoies010112-tnng-mdeaans ts
\mandogote sonewstape scope regourenrfetots anne286 ant2 Svstegy ard aeletors
Bo»
Efficient consumer response (ECR)
‘The ECR concept was develonedfrthe food retain business inthe USA but since then thas been applied
to other products and in other countries. was orginally developed by David Jenkin, then chalman of
‘Shaw's supermarkets, to compete with athe players such as Walmart, Supply chain management had
‘radtionaly focused on aficient product replenishment, whereas the focus of ECR is on demand man-
ferent aimed al creating and satitying customer demand by optimising product assortment strategies,
promotions and new product introductions (Legner and Scher, 2008), Figure 6.4 shows the complexity
find lead times ofa process where a new consumer procuct is introduced and then stocked. ECR focuses
‘on improving this process,
| Fle ae ate
' =}
i Saka
=}
‘| ee
fi isto process fw fr inracuston ofa new product
‘Slarccorture goes by er ata Zik and paras fom orton
‘arvsomatan Sta. fea Qe UTI Tac manny. Ages ass
Cte)Chapter 6 Sippy chan and donard 257
“Table 2 shows thet some of the aims and sirateglc approaches generated by ECR can also apply to
business customers.
DSS
Objective ‘Strategy
“ira. ecurt, paperias loro tow ‘Revo of oganion prosates supported by forme
‘ion ests
‘Smooth, contin product fow matched afters. See sates blow
Inconsumption ves
| Optimise producti f tal pace an inetary fie store aseortrats
Optimise frie and cosine odeng process let replacement
Masimiseeieny of romotons Promotions ae init arte spp chain aming
Masmisoeoctvoness crew predut devezprent _ NPD proass improve and bet oma pling wth
eo) cine pares
supp
EERE | orice supty chain ora 828 company258 Pat2 Svatny od apptetors
endormanaged to digital business. Note that although eis example is based on a business atthe rgne one.
i a
Outbound oasis
This definition of logistics is broad, reflecting its provenance. More rypcaly, logistic i used
to refer not o al supply chain activites, bur specifiy co the management of logistics oF
inbound and outbound logistics (Figure 6.3). Logistics is essential ro the efficient manage
ment ofthe supply chan,
‘Over the last few yeas, more online and multi-channel retailers have been pilosing
and operating new models of same-day and next-day delivery, offering customers more202, Part 2 Stategy and sppestons
Push spot cain
‘egy ena
trgrateee ton
Siapeant opens
Put upp chain
esunnyeron
omen
immediate product acess and helping to provide competitive advantage. These operating
‘models have needed innovative and affordable logistics solutions andthe ast mile (ue. che
Final delivery te to the customer has become more important because ofthe rising share
of ooline real. Other growth ates include alternative pickup and delivery opions ch
ts Amazon lockers a tain sation, universities, pos offices, new-build aparement blocks,
‘tc. and parcel collections from local convenience storex/petrol stations
‘Same-day delivery options are mainly offered in -commerce-savvy cities, and develop-
iment om the suply side is driven by chee key plaess pace logistics providers, couter
brokers and the retailers themselves, According t0 a MeKinsey & Company article ky
Hausoann et al. 2014)
‘Same-cy delve Is @ big apportunty oral tales to Improve thelr service level, but
‘requires a high degree of soptistiction, Major challenges, such as real-time product vis-
nity across warehouses, vay short fume Isad-times and fib laste dave,
‘havo obo overcome while bringing cost down toa ove that consumers are wiling f py
{or Large retalrs ganeraing mos of th B2C shipments coud thn instttonalzesame-
‘ay deivery asa fet, capillary dltnbution made in densely populated areas with a cries
‘mass of online shoppers but would than also need o ave an exten, accesso, as
Slandarzed cistron network that operas at an accaplabie cost.
tales are expected o reap adaonal benef rom ofeng same-day delay. Expe-
‘ence at Amazon shows thatthe option of same-day delivery alone actualy increases
purchase conversion during the checkout process by 2010 30 percent, hough only a fv
‘customers actualy op or same-day delve. The survey results support dis cll: moe
than half of respondents would éuy online more haquertif they were offered a same-dey
delvry option.
Hausmann eral (2014) believe that only eechnologically advanced retailers and logistics
providers ae able to offer same-day delivery. Generally, there are four supply chain aad
Togs prerequisites to ge 0 thie stage
1 Products need tobe locally available, In most cass, multichannel retailers already have
this because of a network of stress online retailers wil intally have invest in bldg
up a neework of local urban warehouses (or utilise an existing network, such a ‘Ful
‘mene by Amazon’
2 Retailers ned to havea realtime overview of their inventories. This is needed to dete:
smine whether the goods are available fo same-day delivery duing the check-ou proces.
“The logins provider alo needs tobe informed of where and when t pick up the sip
sent, vin a rece interface. Many retailers sill uggle with this challenge, which
equizes more iavestment in thie TT infrastructures.
8 Picking and packing processes need to he fas. Case sties from Amazon show that
significate investment in the logistics infrastructures needed 0 reduce lead time.
4 Flexible enough o pick up and deliver orders adhoc or during suliple times throughoxt
the dag. Ths is when technologies suchas geofencing can aid dynamic rerouting ard
‘enable logistics providers o instantly respond to new shipments
Push and pull supply chain models
A change in supply chain thinking, and als in marketing communications thinking, the
rove fcom push models of selling to pull models, orto combined push-pull approaches
“The push model is illsteated by a manufacturer who pethaps develops an innovative prod
uc, denifiesa suitable target market and creates a distribution chanel to pus the prot
tothe market Figuse66(a), The typical motivation fora push approach sto optiise the
production proces fr cost and efiiency
“The alternative approach consistent with ECR isthe pullmodl, which s Focused onthe
‘customers needs and starts with analysis oftheir quirements chrough market researc ard
lose cooperation with customers and supplies aew product development (Figure 6.6)mn
Sas
Eames.
Canter 6 Sippy chan enscorend 265
Push to customer
‘ype am ‘optimise te proccton proce fr cost andy.
Tiplslchancterites: Marutactreried new product orlopnent
foot ia rtgaton trough oa te of actogy,
[Engi andarponc rs and igh vet ve
se ots ‘ndependent ta maragerent by supply chan meres
‘Woe ae shange product and cavie gual
“lcalcharacetos: Marist esau den, echrcogy vod to acheve
‘estrada tegration she eel art
‘eapanse mes, ow vero eves
Use ots lett iterates, nlenaton shang between
‘opr chan manure, Extensive yo of CD ans eon
~ ‘Son tough B25 exchanges ond nmecres,
CE nets
ere the supply chain is onstrated to deliver value tothe customer by reducing costs and
increasing service quality. Figure (6) shows how ehere are much closer links between
the clement ofthe supply chain through we of technology such as EDI o minimise document
transfer and rekeyng. The ypical motivation for pull approach sto opeimise the production
process for customer response, cost and eficieney. Such an approach is also consistent
‘wih management sinking about the similar concep of the value chain as illustrated in the
“Focus on The value chain’ section.
Michael Pore’ value chain (VC) isa wellestablished concep for considering key activites
‘that an organisation can perform or manage with the intention of ading value forthe eu
tomer 3s products and services move from conception to delivery othe customer (Porter,
1980) The value chain is model that describes diferent value-adding activities tha con-
rect «company’s supply sie with is demand side, We can identity an inzemal value chain
‘within the boundaries of an organisation and an external value chain where activites arePart 2 Saag and epesons
performed by partners. By analysing the diferent part of the value chain, managers can
[edesign internal and external processes to improve their efficiency and effectiveness. Ben
fis Fr the customer ar ereated by reducing cost and adding vale:
‘+ within each element ofthe value chai, suchas procurement, manufaccure, sles ard
distributions
«atthe interface beaven ements ofthe vale chain suchas berween sales and distibusio,
In equation form his is
aie = (Benefit of each VC actnty — ts cost + Baneft ofeach interface between
VC sctnies~ ts cost
Digital communications can be used to enhance the value chain by making activities such a
procurement more efficient and alo enabling data incegation between activities. According
To IBF (2008), BT's implementation of e-procurement enabled 95% online purchasing of:
it office related supplies inthe secondary value chain This reduced the average purhas
ing transaction cou fom £56 to £40, which is significant across hundreds of thousands of
purchase, nthe primary vale chain, benefits ca he even greater, for example, if retail
Shares information electronically with «supplier abour demand for is products, this ean
nance the vale chain of both partes since the cycle time for ordering canbe reduce,
‘esting in lower inventory holding and hence lower costs for both. Case study 62ilustrans
this point.
“Traditional value chain analysis (Figure 67() distinguishes between primary activities
that contebute directly to geting goods and services tothe customer and support activites,
‘which provide ce ips and infastctue tha allow the primary activities co ake place. It
an be argued that, with she advent of igtal business, the support activities offer fa more
than ust suppor indeed, having effective information systems and management of human
resources contributes erally tthe primary activites, Michael Porer now acknowledges
that this isthe ease
Digital technologies can reduce production times and costs by increasing the flow of
information asa way to integrate diferent value chan activities. Raypor and Seok (1986)
mend that the Internet enables value o be crested by gathering, organising, seer
“Two aternaive models of he value chal (ational vo chain
‘nodal evisad valve chain mods
Soe aia batt pe 6404Cchaper 6 Supp cnsnnd demans) 268
synthesising and distributing information. They refer toa separate par-
- lll veal vale chin mierring the physical value chain. The tual
| New vain chain mode | Salento commerce elo mediate wads
‘Te ecto be cin ocelot | value chain activites such as market reseatch, procurement, logistics,
Monee Perle Pave. 68a) 870, | manufactures marketing and distribution. The processing is machine
based or virtual” rather chan paper-based. Huma intervention is till
1808.80) 2 mo appoorte equized in may acs, but the 'vieuality” of the value chain wil
Soe roe
inrease as software agent incresingly perform these activites
Restructuring the internal value chain
“Traditional models ofthe value chai (such as Figure 67(a) have been te-evaluaed with
theadveat of lohal electronic communication. Kean be sugested that there are some key
‘weakness in the eadiional value chain model
* cis most applicable to manufacturing of physical products as opposed to providing
«eis one-way chain involved with pushing products co the customer i dos no high:
light the importance of understanding customer needs.
* ‘Theinternal value chain does not emphasise the importance of value networks (although
Porter (1980) did produce a diagram that indicated neework elationships.
A revised form ofthe value chain has been suggested by Desc al (2000); an adaptation
ofthis modes presented in Figure 6b). This value chain tacts wih the marker research
process, emphasising che imporeance of real-time environmental seaming made posable
through digtal communications inks with dsrbutors and customers, For example, leading
‘ecommerce companies nov monitor, on an hotly bass, bow customers are responding
to promotional offers on thie website and review competitors offers and chen revise chem
accordingly. Similaly, manufacturers such as Cisco have feedback forms and forums on
‘thir ites that enable chem o collet information from customers and channel partners tht,
«an ed trough to new product development ce "growth hacking” Chapter 10) As new
product development occurs, the marketing strategy will be refined snd at she same time
seeps canbe taken to obeain the resources and production processes necessary to create, fre
And distribute the new product. Through analysis ofthe value chain and looking at how
{liga communications canbe used to speed up the process manufactures have been ableto
significantly reduce time vo market fom conception ofa new product idea through launch
fon the market. At the same time, the use of technology increases value chain efficiency.
‘The value stream
“The value stroam isa concept closely related tothe value chai. The difference is sat it
considers differen eyes of tasks that are involved with adding vale and looks st how
the efficiency of thes asks ean be improved. Womack and Jones (1998) define che valve
the sot ofa the specie actions required fo bing @ specif product trcugh the Owes
crtcal management tasks of any business:
1 the problem-solving task [dhe processes of new product development and production
launch),
2 theinformation management task the processes of oder taking, scheduling to delivery}
8 theplysical wansformaton ak [the processes of wansforming raw materials co finshed
produce delivered to entomer)Part 2 Sratgy od pscons
“Tasks 2 and 3 ae taditional vale chai activities (Figure 68()), but esk Lis not
Returning to the definition of customer vale from ese eta. (2000) shown inthe equ
tion Below, we can see thatthe ean thinking approach proposed by Womack and Jonss
isalmed at adding value by cutting ot waste in each ofthese thee management ask. by
redcing new product evelopment and prediction times aad costs, organisations ean then
tithe inerease customer value by decreasing fulfilment time or price, andor increasing
product and service quality. Clearly, ecommerce plays a key role in decreasing time 0
market and production times and cot
Product quality Service X quality
Cattomer ee brand perception) = Pm
Value chain analysis
“This is an analytical framework for decomposing an organisation into its individual
activites and determining value added ateach stage. In chis way the organisation ean chen
assess how effectively resources are being used. It may be possible eo use information sy
tems to increase the efficiency of resource usage for each clement inthe value chain and
‘even between ativities
How can an organisation positively impact on is value chain by investing in new >
upgraded information systems? Porter and Mil (1985) propose the following five-sep
proces
4. Step 1 Asses the information intensity ofthe vale chain (.. the level and usage of infor
‘mation within each valuechain activity and between each eel of activity). The higher te
level of intensity andor the higher the degre of reliance on good-quality information,
the greater the potential impact of new information systems.
2 Step 2 Determine the role of IS in the industry structure. Ie is also important here 0
lndersand te information linkages between buyers and suppliers within che indusey
tnd how they and compestote might be afected by and react to new information
technology:
{9 Step 3 Identify and rank the ways in which I might create competitive advantage. High-
‘costo exticlaceiiy areas present good targets
4 Step Investigate how IS might spawn new businesses
'5 Seep 5 Develop plan for taking advantage of 15, which is busines-deiven eather dn
technology-driven. The plan should assign priorities to the IS investments (hich of
‘course should be subjected to an appropriate cost-benefit analysis)
“This process canal be applied to an organisation's external vale chain. Womack and
ones (1998) refer to value stream analysis, which considers how the whole production
and delivery process can he made more ficient. They suagest shat companies should map
very activity that occurs i erating new products and delivering products or services
‘sstomers and then categorise them a8
1 those that create value as perceived by the customer;
2 those chat create no valve, but are required by product development or production s-
tems and so cannoeimmodiaey be eliminated:
8 those that don’ add value, so an be immediately eliminated.
Having performed this analysis, plans can be made for removing the eategory 3 activites
And then eliminating category 2 activities and enhancing category I activites. Womack
nd Jones give the example ofthe wale steam fora cola can Even a superficially simple
product such as canned cola can have many atvites involve in is prodiction. Therese
Several valu streams: that in producing the ea self, thor ro produce the contents fom
beet eld to sugar and coen field to caramel and those to produce the packaging. TakingExternal valve chan
Steg unr
ove crate
Chapter 6 Sucpy chan and cand 267
the example ofthe can itself, value steam analysis can be performed to identify the stages
in production a follows:
‘Mine bauxite
Reduction mil
Smelter
Hor rolling mil
‘Cold tlling ail
Can maker
Border
Regional distibution entre (RDC).
Retail uni storage
Home orsge
ln value stream analysis eficiency foreach ofthe stages above will be caleulated. For
‘example, at sage 7, the hotler (adding the dink othe can), Womack and Jones (1998)
ie dimes of incoming storage four days, processing time one minute, finshed storage five
‘weeks. The need for such analysis s shown by the delays ia the whole process chat give
incoming storage of five months, finished storage of sx months, but processing time of
‘only three hours. This gives arta eee ime of neaely a year from mine ro home. Clearly,
if information management can be used to redce these storage times, i can create large
savings in terms of reduced storage capacities. The benefits are evident fora retailer sack
4s Testo that has already undertaken vale stream analyse and deployed ecommerce in
‘the Tesco Information Exchange to reduce its storage inthe RDC and in-store to only to
and thre days respectively. thas also been able to mover a system of contnnos replen
ishment in 24 hours. Orders made bya Tesco store oa & Monday aight ae delivered from
‘suppliet ia the RDCs ro ative before the store opens Weinetday morning?
"Aca peactcal eel, improvements in the value chain are implemented chrough iterative
improvements planning implemented through Sales and OpecationsPlanaing (S&COP)
systems. Kjllsdotter and Jonsson (2010 have identified these benefits of digital business
throughout ehe stapes of an trative planning cycles
1 Crsating a consensus forecast, Using statistical forecast methods, demand planningols
ave able to integrate diffrent departtents and companis for improved decision suppor.
2 Creating «preliminary delivery plan. Redacing planning effor through applying the
Insights from the forecast.
‘3 Greating a preliminary production plan. Possibility ro integrate several entities, coor
dination of differen functions, possible co use optimisation models to find the most
feasible solution,
4 Adjusing delivery and production plan. Visibility of information, scenaio analysis for
‘example whatif analyses of che impact in resource availabilty and customer demands.
5 Seule delivery and production plan. Overall benefits of tangible cost savings and the
‘neangibe benefit of improved confidence in planning and scheduling
Value networks
‘Reduced time to market and inereased customer esponsiveness are not simply the result of
reviewing the efficiency of internal processes and how information systems are deployed,
but also result through consideration of how partners canbe involved to omsoure some
processes. Porters original work considered nor only ee internal vale chain, but also the
‘extemal val chain or vakie network. companies oroutce more and more activities,
‘management of the links berween the company and is partners becomes more important.
ise al. (2000) desrbe vale network management
the process of etectvaly deciding what fo outsource in a constat-based, ream
‘envenment based on fuctution.“inde 8 partners for exp:
‘Stategeoutsourcer
Systm ntegrator
{ISP power
Part 2 Svan} an appears
Digital communications have enabled the transfer of information necesary to create,
manage and monitor outiourcing partnerships. These links aze also mediated chrougs
inermediaries known as"value chain integrators’ or dzetly berween partners As ares,
the concept of managing valve network of partners has become commonplace.
Fig 68, which i aaped from the model of Dese etal. (2000), shows some ofthe
panes ofa vale network that charaeteriespareners as
4 Supply-side partners (upstream supply chain) such as suppliers, business-co-busnes:
exchanges, wholesalers and diseibutors.
22 Partners that fulfil primary of core value chain activities. In some companies the
‘management of inbound logistics may be outsourced in others different aspects ofthe
‘manufacturing process Inthe virtual organisational core activities may be ouroureee
29 Selhside partners (downstream supply chain) such as businessto-business exchange,
‘wholesalers, distributors and customers (not shown, since conceived a distinct from
other partes}
4 Value chain integrators oe partners who supply services chat mediate the internal and
‘external vale chain. These companies typically provide the electronic infrastructure fer
2 compan.
“The similarity between elements of the value network of Figure 8 andthe supry chain
ofa ypical BOB company of Figure 66 wil be apparent. But che value nework offers
Aiferene perspective tht is intended ro emphasise:
‘The digtal interconnections between partners and the organisation and directly between
partners that potentially enables real-time information exchange beeween partners
Downstream
Ve partnors
Sebaise
oermecanes| termed
‘Ve enaniegrtos*Chapter 6 Supy chan ancimend 269,
+ The dynamic nature ofthe network. The network can be seaiy mould according
‘to market conditions or in response to customer demands. New partners can teal be
introduced into the network and others emoved.
‘Different eyes of links canbe formed between diferent types of partners.
‘Wholesale outsourcing to thied partes isnot the only option, The diferent types of
partnership that canbe forme are described in more detain the ater section on “Managing
partnerships’. Remember also that outsourcing does imply cost redaction. Michael Dell
relates hae Dell dos not se outsourcing a getting id of «process that doesnot add al
ther sees it asa way of “coordinating their activity to create the mos vale for custome?
(Magretta, 1998), Dell has improved eustomer service hy changing the way ie works with
bot its suppliers and disebutors to build a computer tothe customers specific onder and
ship i within just 24 hours, under the company’s Smart Selection’ programme (hiss when
Dell pre-bulds wha they believe to be sheir more poplar conigurtions)
As part of strategy defisition for digital business, managers will conse how the struc.
ture of che supply chain can be modified. These ate mainly choices that have existed For
‘many years, but Internet cechnology provides a more efficient enabler and lower-
above have decided to bay iato the downstream part ofthe supply network (downstream
‘vertical integration). This is sometimes referred to as an offensive strategic more since ¢
‘enables the company oinceae its power with espectto customers, Alternatively if the
‘pharmaceaticals company purchase othe research labs this would be upsteam-directed
tertcal integration, which i steategialy defensive
2 ‘The extent of vertical integration. How far should the company take downstream ct
upstream verti integration? Originally car manufacturers hada high degree of vertical
inepeation, but more recently they have moved from a wide process span to a naerow
proces pan
{9 "Thebalance among the vertically integrated stages. To what extent does each stage of the
supply chai focus on supporting the immeste supply chain? For example i supplier
toa motor manufacturer alo produced components for other industries this would Fe
an unbalanced situation
‘Activity
1 Review the approaches ofthe two companies ilustrated below. Which tends to
‘oral Intogration and which tends to vital integration?
2 Produce a table summarising the benafs and disadvantages ofeach epereach
‘wich do you think is the better approach?
9 How can infomation systems aciltate each approach?
‘Approach 1 IBM during the 1980s and early 19905
Manufacture of many components by !BM plants in etferant locations including IBM
processors IM hard csks, IBM cases and IGM monitors and even IBM mice. Dist-
bution o companies by IBM logistics,
‘Approach 2 Dell during the 1990s and 2000s,
Manufacture ofall components by thir parties in diferent locations including Ito
proceseor, Seagate hard disks, Sony monitors and Microsoft mie. Assemaly cf some
Components inal product by tia partes 0.9, adding appropriate monitor to system
Uunitor each order.‘Ohaptor6 Surly chan snd demas at
‘Combining these concepts, we can refer o a typical B2B company
(Figure 66). IF i owned the majority ofthe ypsueam and dowsstream
ements ofthe supply chain and each clement was focused on supporting
the activites of a B2B company its rategy would bet follow upsteam
and downstream directions of vertical integration with a wide process
Span and a high degree of balance. Alteenativly, if the strategy were
change to focus on core competencies it could be sa eo havea maton
process span.
"How, then, can electronic communications support thete strategies?
‘Through increasing the flow of information between members ofthe
supply chai, a strategy of narrower proces span can he supported by
ecommerce, However this relies onal members ofthe stpply chain being e enabled, Co
nies undertaking offensive or defensive strategie wil ben aheter position to stipulate
‘Mlopion of e-commerce and so increase the overall ficiency ofthe supply chain. As we saw
in Case study 62, company suchas Shell helps enable the supply chun by sharing infor
‘mation in ts own databases with customers to increase the efficiency af the supply chain,
‘Our next example inthe manufaceute of personal computers also illusteates the concept
of che two diferent supply chain produces, Complete Activity 6.20 review the benefits of
each approach
sre eheh ete
‘remedy ane
‘Siren oncra
Using digital communications co improve supply chain efficiency is dependent on
effective exchange and sharing of information. The challenges of achieving standardised
data formats and data exchange have given rise to the study of optimisation of the
Information supply chain (ISC) as suggested by Marinos (205) and Sun and Yen (2005)
March eal (2007) describe the ISC as
{a information-cent view of physical and virtual supply chains whare each entity ads
value to the chain by proving the right infomation fo the right entity atthe right time In
secur manner. [SCs create valve forte colsborting ettes by gathering, orang,
‘selecting, synthesizing, and cltrbuting information. The challonges fo culating an ISC
_anse rom both eyganzatonal an technological perspectives. Agiy and exibilyn both
intemal and inter organizational business processes ar requed fo bene om technotogy
investments in [SCs
‘This definition shows the scope and challenges of managing the ISC. Research by Legner|
and Schemn (2008) suggests to diferent eyes of information sharing and coordination
problems in che retail and consumer goods industzies (1) the tansactonal information
flow thac allows for coordinating the physical demand and supply chain (demand signals,
forecasts, orders, shipping, notifications, or invoice) and (2) the contextual information
flow that ensures that trailers and manufacturers interpret data inthe same wy. They
explain chara well-established peablem is che "bullwhip effec or information asymmetry,
‘which esultsin amplification ofthe demand signal and fluctuation af inventory level along,
{supply chain, The ECR concep intodaced earlier inthis chapter isan attempt rece
information asymmetry. Although information asymmetry can be reduced through the
tse of chnology, technical barriers such as she ack of standards, expertise or the cost of
implementation will prevene i: Organisational issues suchas the level of trust of supply
chain partners and the competitive advantage that may result from keeping information
are equally significant.272 en 2 Setegy ae aetcans
In this section we review efors to optimise the ISC and describe the benefits of impl-
renting ISC suppor technologies. We then consider how companies can use cechnologes
tosuppor the management of the upstream and dowasteam supply chai,
‘Technology options and standards for supply chain
management
Some ofthe dats transfer options and standard chat enable SCM were introduced
Chapter 3. These include
‘+ EDI, whichis an established and elaively simple method ofexchanging orders, delivey
notes and invoices,
‘+ XML-or XML-EDI-hased data tanser, which enables more sophisticated onezo-many
ata transfers such as a resest for orders being transmitted to potential suppliers
‘+ middleware or software, used eo integrate or translate requests fom external systems
in realtime so they ae understood by internal systems and follow-up events will be
triggered
‘+ manual email ondetsor online purchase through a traditional web-based e-commerce
store for B2B
“These mechanisms enable data to be transferred co suppliers from clients using encerpeie
resource planning (ERP) systems, which include material requirements planning moles
that are used to model fuure demand for products, ceatea bil of materials ofthe reevaat
components needed to manufactute the products and then order them.
“Typical benefits of-supply chain management, with respect to. B2B company, include
1 Increased efcency of individual processes. Mf the B2B company adopts e-procuremest
this wil sulin a faster eye ime and lower cost per onde,
Benefit: reduced cjele time and cos per ordet.
2 Reduced complexity ofthe supply chin. This isthe proces of disintrmedation referred
toin Chapter 2 Hete th B2B company wilffer che faciy to sell direct rom its econ
‘mete site rather than through distributors or retailers.
Benefit reduced cost of channel dstribtion and sale
‘Improved daa integration beeweenclementsof the supply chain, The B2B company
sz information with ts suppies onthe demand fort products to optimise the supply
proces. Case study 63 on the Argos mulichannel retail strategy shows the oaline sales
vow thar ean be achieved cough good integration of systems and data
Benefi reduced cost of paper processing,
4 Reduced cost chrough outsourcing. The company can outsource or use viual inepetion
co tansfer assets and cost such a inventory holding cost to thin-party companies.
Benefits: lower costs through price competition and reduced spend on manufacturing
capacity and holding capaci.
5 Innovatio, eSCM should make i possible to be more Besible in deliveringa more diverse
range of products and to reduce time ro mate.
‘enefit better customer esponsivenes,Retailer Argos is leading proponent of using supply
chain management to improve multichannel sales. The
‘transactional Argos website was launched in 2000 when
the company was a ploneer in implamenting a reserva:
tion service. Sales have grown significant since the
launch over 17 years ago.
‘Acoording to “Econsuitancy’ (2010), mitchanna
‘sales for Argos reached £1. billon in 2008. is "Chack &
Fesere’ feature, which enables vistors to check store
svalabilty and then order from aspect tore foe ater
Pickup, was responsibe for 2% of the retale's total
Sales in 2009, growing by 38%. tema sales account fo
52% of all sales. Some features ofthe eyter that ly
‘on integration ofthe webs with itferant logistic ye
{ems are superior o competitors For example, real-time
‘stock aval information is shown and, while some
fetalae make customers walt sveral dys fr in-store
‘olecton, ems reserved onthe Argos website can be
colectod straightaway.
David Tarbuck is head of mutichannel retail at
‘Argos. He explains the approach argos has used forts
‘umn
Tho way Argos is buts unique inthe UK markt, and
tis hes made It esir for us fo implement Chock &
FRacera. Sina customers are inthe fon ofthe st,
And the stock Is hel in the back, we havea clear
‘lcture of stock eves incur stores. This means we can
be confidant that, if we ask our systems about stock
leva at any stor, tis formation wil be accurate
(Check & Reser gained immediate aceon with cs
‘omer, and is has accleated over tho ast v0.0” tree
{875 ith ths chanel growing by 959% fora secon
arn are. People have caught on to, and appreciate
the camerience of bing she o check befor they ave
tha roves and save themsales a act uy. We
‘ur model has been improved over the last tan years,
‘other retaiarshave a mor ticut and cost process
or implementing ts Kins of sre.
Since then, the multichannel retaler has also opene
"smal format” concessions in Homebase, Sainsbury's
and same Loncon tub stations. Accorcng to Mark Stel,
‘atl operations rector et gos, ‘Sore are a relly
Important part of ox muttchannel ofr. Customer really
‘due raving that physical cuchpoint. Some customers
stl peter to come nto ek something un’ Spar, 2018)
Mobis commerce oer more oder choie for Argos
customers. In 2010, Argos launched is tst Phone app,
In response to «600% Increase in trate to Argos co.uk
Chapter 6 Spy chan and demans 273
from moble devices, n December 2014 sales va mobile
Increased by 28% and, In 2015, 4896 of Argos’ salas
came trough dgtal crams.
‘Te company's Phone app italy asks youto set your
home store to make subsequent reservations smoatner
“The app can ls fn the local stor via GPS, or by enter
Ing te town rare or postcode Recut focal stcres are
shown va Goede Maps, ard deals re provided on open:
Ing hous, a wel as crv drecions, andthe option to
st this s your sore. You can then use the search conto
‘search for stock ld at hat store, The stock checker wor
Just ike the machines inthe Azgos stores. Each product
page comes wih sme detailed eviw infomation, which
‘makes the app vary use fr people wishing to do some
tra product esearch while in th store. Oncea products
Selected the reservation process saightorwa,
‘egos has also developed a kd! wish et app, aimed
at five to soven year olds, which was one ofthe ideas
(generated rom a 2014 hackathon. The iea behind the
app was toe-veste some the experiences that chcran
storia loved bout Amos = 9. crelng thei Crstmas
cstlogus to lt mum and dad know what presents they
ward fr Chriss. Engagement metic forthe app have
boon good the average dveltime was 18 mites N20.
‘Argos is wall known for catalogues, which ve also
par of retal mutichannel sateny since products fe
‘ued can encourage purchase beth in-store and on the
web, Argos releases two catalogues every yea, each
witha print un of 18 milion, David Tarbuck expaine
how the estalogue feito the multichannel stetegy
We have large numbers of people who have cur
Catalogue inter ounges, on rir coffee tables, and
this gives us @ presence in people's homes.
‘Catalogues ar often tho staring point fr customers
“shopping with Argos, they wil fek through the cata-
gue, or browse the wabstat the same time.
We have over 17,000 products onine that aront
| the catalogue, so people wl come onl to check
this and for latest offers, 80 catalogues are used in
‘conlunction with other channls. With catalogues or
‘any other channel, al abou aking fo customers
‘and working with them in whichovor way they want
Interact with us
‘Tarbuck belloves that the sructire and focus ofthe team
has also been important to success. He says:
We have a multichannel team, and { head up the
‘development team and the operation of the website,
‘overseeing one strategy.
a214 Part 2 Sratay od apsestons
Wi have e-commerce, marketing and commercial 7
team wo respond othe trading sie of he bushess, Questions:
‘and make sure the various promotional campaigns are 1. Explain how Argos uses supply chain manags-
Jolned up, and there is consistency across channels. _mantto improve the proposton forts customers,
We've hd a sl-contained intemet focused tom in 2. What you think are the factors hat havermage
‘lace for the lat tan years, and this dedicated team Aagos successful within is multichannel reall
has bean very closely related marketing and other | strategy?
‘7035 ofthe business. .
Seg wae cashew
1S-supported upstream supply chain management
“The key activites of upstceam supply chain management are procurement and upstream
logistics. The way in which information systems can be used co support procuremen:
in the digital business is of great importance and is covered in further detail later ia
this chapter.
‘Many grocery retailers have been atthe frefzont of using technology to manage the.
Hackathon upstream supply chain. For example, Tesco created the Tesco Information Exchange and
Tisisasrrsape other UK retailers have developed services suchas “Sainsbury Information Direct’. The
EeECmnEtecise Tesco Information Exchange (TIE) was developed in conjunction with GE Information
‘enone Services (GEIS), and isan exteanet soluion that allows Tesco and its suppliers to cllabo-
CaS atively exchange trading information. TE sinked to Tesco'skey sysemsco ive supplies
feluontstemate tem gccersorlevant and up-to-date information such as elecuonic point of sale (EPOS) data
{o tack sales and aces the internal teepone/mal directory so that supplies ean quick
facisrequoney find the right person elk co.
‘Serie AD)
Mecciptses, || RFID and the Intomet of Things
‘Brmeiirg 692 RD rags have become a evolutionary element i supply chain managemencand ate wide!
SeSEttee” used for logistics purposes. They can be attached eo individual product items ina ware
fae house o ina reallocation, With appropriate RFID reader technology they can then bs
‘used ro asses stock levels, With the posubility ofthe RFID reader being connected £0
Inieret of hinge sytem eouplad item location ad stacus to helene, this approach referred asthe
Teo ee ungny _Intoret of Things. Resenty, more companies are integrating RFID technology ino their
Sowsecerdiapes strategic planning, since it provides significant advantages to supply chain performance.
INown wenaboes | There are far more benefits gained by RFID implementation into supply chain and logistics
See alge operations chan jst mproving denifiation of products, shipments and asses,
IS-supported downstream supply chain management
The key activities of downstream supply chain managemene are ourbound logistics and
fulfilment. n a B2B contex he benefits for dovenstream customers ar, of cours, smilse
tothebenclits tha the organisation receives chrough automating its upstream supply chal.
‘These ieses are considered from a marketing perspective in Chapter 7, but inthis chapeer
ve review the importance of ulflment in achieving e-commerce sce.
‘We also use the grocery retail marker o illistate the implications of e-commerce
for management of the dovenstream supply chain. Tesco is one ofthe leaders in using
‘e-commerce for downstream supply chain management. Tesco's downstream supply chain
‘nvelves selling direct to customers, in ocher words itis operating a strategy of disiner-
‘mediation (Chapter 2, p 0} by reducing te role ofits branches. Through being an early
‘dopter, Tesco.com has develops athe world's largest online grocery stxenon
omy
SE
‘chaptoré Suri chan end demas 278
Outbound logistics management
‘The importance of ourbound logistics relates to the expectations of offering direct sales,
‘through a website. In a nutshell, logis is crcial to delivering the service promise extab-
lished on che website
{A diferent angle on the importance of logistics and how it relates tothe bottom line is
illustrated by the fortunes of Amazon. Phillips (2060) reported hae the fulfilment mecha
ism was adding to Amazon's costs because of split shipments, where multiple deliveries
cofitems are necessary from single order. This particular problem inthe USA, which
Isthe source of 86% of Amazon's revenue. Here the distance etween popiaion centres
‘equites a network of seven distribution centres for shipment. Philips (2000} explains chat
the need ful a single order by sipping items from multiple loeations increases costs
for postage and the labour t assemble and dispatch goods. The altemative situation of
stocking all distribution centres with every producti fnancialy prohibitive Some analysts
sugges that Amazon should changeit logisis strategy by separating ov its dsteibution
operation asa separate revene source an outsourcing fliment ro reduce costs,
IS infrastructure for supply chain management
Information systems need to deliver supply chal vill o diferent paris who need to
access the supply chain information of an organisation, whether they be employees, sup
pliers logistics service providers or customers. Users need t beable to personalise tit
‘View af the information according to their needs customers want to sete seas oftheir
supply chan Supply chan
planing syste exaction systome
oe Procurement
option
TManufacarng
jatar Manutacning
|
‘Supely Warehouse
paring manage
amend ee
lernng ocestng
Sittin
| Forecasting, monitoring and rts
‘dlvored by nana and extranet
BPD | yoica i irastuctr or vent chain management276 Pen? Seuegy and vepletone
onder, suppliers wane to access che organisation's database ro know when their cussomet is
nexe likely 0 place a major order. Security is also imporeant—ifa company has iferental
Pricing, it wll not want customers tose price diferencs,
‘These requiements for delivering supply chain information imply the need for an ine
raced supply chain database with ditferenepersonalieed views foe dllerent paris. A typical
integrated information systems infrastructure for delivering supply chain management i
ilustrated in igute 6.10. Ie can be seen that applications can be divided into those for
planning the suply chain andl those ro execute the supply chain processes. Case say 63s
good example of how new technologies ae sed to collet demand data and transfer daa
between different databases and applications. A key feature ofa modern supply chain nf
seructurei the use of a ental operational database tha enables information to be sated
between supply chain processes and applications. This operational database is usualy pre
of an enterprise resource planning system such a SAP, Baan or Prism and is usally pu
chased withthe applications for supply chain planning and execution, Some of the planing,
applications such as network simulation and opimisaton are more likely to be supplid
by separate software suppliers. Information needed by managers intervene inthe sup)
«hain process when problems occur is delivered a alerts or through continous monitoring
acros secure private intranets or extranes used eo lnk to partners.
“The supply chains becoming increasingly complicated because of he connected consumer,
According to a KPMG report (2017)
|n essence, the mission for any supply chain leader remains what aways was: to gt the
‘ight producti font afte nght consumer atthe right tm and forthe ng pce Is jt
that ina world where shoppers can buy in-store, ona website, va their smeriohons a7,
with the advent of te connected consumer, by pressing a button at am, ensuring that
‘hey won't runout of thar favorite bans, tat task has become exponentaly more compl-
‘ala. Even the delivery option are les straighttowara the consumer may want to cal:t
3 wark or have it sant fo alocker fhe pretred option in Garman).
or
Satay ment ‘SCM approach of Hughes et a (600)
Sruston nai ‘Gator dat
‘otra asoserent of curet approaches tthe spp chln
* Extra anal of maretplcs eras and cuter opporunies
Objective cating Seti otjocties
* Detito fecuted get eum ae eee of shareholder ae
‘Statony Framoho stator:
* Development osu an sales tacos those goal tn)
Tastes Potion of operational improvement state and uk vine
Aton lngeert he change and chaenge the ning
+ Foraton oa supp} chan gy forum o ssses the nonde
+ Anis of vale aed, cost ana neo uel can aces
+ Cascade fected pret groups te erage Key procemne
+ Aloatin of busines aevopment seal fo sponee exeoves
cont esau We otcore
+ egratn of upp) chan measurement corpraton- wide eves
+ Being to maetin pease or partomance dryCChapter6 Supy eran ar cerand 277
Data standardisation and exchange
‘Thedifculties of exchanging information berwcen incompatile systems has been a bartice
limiting the adopsion of SCM. Successful online marketplaces suchas Elemien within the
chemical industry have been based on collaboration between a limited number of partners
within a vertical sector Bu for markers with amore divers ange of peoducts, standardisation
iemoredifcule
Some of dhe henefits of this approach for retailers identified by Scherm etal (2007)
include
‘order and item administration improved by 80%;
‘coupon rejection a the checkout reduced by 40%
1 daca management efforts reduced by 30%:
‘ impeovement of om-shelf avalabiliey, with out-of stock isms redaced from 8% c03%,
However, new technologies ate stating to transform the supply chain (a discussed in
“Mini ease study 61) ~ particularly robots in warehouses and artificial ineligence (AI).
AA network of Al systems can design the supply chain and automaticaly select the most
fective chai,
‘The supply chain management strategy process
A strategic approach for supply chain management an alo be defined using the SOSTAC
approach referred to in Chapters Sand 7). Table 63 summarises a SOSTAC™ approach
to supply chain management srategy development based on the pidance of Hughes a.
(0998). Table 63 implies linear approach to stearic thinking, but, as was pointed out in
i Continous ese
g ere ‘com
change speed
5 Proce poets
5 Improvement
