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Chapter 6 - Supply Chain and Demand
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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 otra os nig acca ey rs: pore woo oe era proaror cis einer soarfs oa serrsten ca {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 “set hovee aero erence « Connetiy tora sae omen 0 pean huts, emacs {comet oral spy corn ug suns cD, ere emanate Stow shennan sth spp zeae so «Soin, ing er soucea tah arate het Sch srooen o Crt nascent 9 praca. picts ema iver rerguner rare tare 1 Comes ia sys roe ofan sc at veo man sooner rctarce naragena maw eee panne MAP stone |e Femertatune.e9 suchesng cr | 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
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