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Transcript of © 2005 Wiley1 Chapter 4 – E-Commerce and Supply Chain Management Operations Management by R. Dan...
© 2005 Wiley 1
Chapter 4 – E-Commerce and Supply Chain Management
Operations Managementby
R. Dan Reid & Nada R. Sanders2nd Edition © Wiley 2005
PowerPoint Presentation by R.B. Clough - UNH
© 2005 Wiley 2
Learning Objectives Describe the different kinds of electronic commerce Describe supply chains and supply chain
management Describe the bullwip effect Describe factors affecting SCM Describe factors affecting global supply chains Describe the role of vertical integration Solve insourcing or outsourcing problems Describe the role of purchasing in SCM Describe the ethics of supply chain management Describe the role of information sharing in SCM
© 2005 Wiley 3
Learning Objectives (continued)
Describe role of warehouses in supply chains Describe the role of warehouses in supply
chains Describe the concept of crossdocking Describe supply chain performance measures Describe trends in SCM
© 2005 Wiley 4
Types of E-Commerce E-commerce is defined as the use of the Internet
and the Web to transact business Business-to-Business (B2B) Evolution:
Automated order entry systems started in 1970’s Electronic Data Interchange (EDI) started in the 1970’s Electronic Storefronts emerged in the 1990’s Net Marketplaces emerged in the late 1990’s
Benefits of B2B E-Commerce Lower procurement Administrative costs, access to global
suppliers Lower inventory investment due to price transparency/ reduced
response time Quality enhanced due to earlier involvement between buyers
and sellers, especially during product design and development
© 2005 Wiley 5
Types of E-Commerce (cont.)
Business-to-Consumer (B2C) Revenue Models Advertising revenue model Subscription revenue model Transaction fee model Sales revenue model Affiliate revenue model
Consumer-to-Consumer (C2C) E-Commerce Peer-to-Peer (P2P) E-Commerce M-Commerce
© 2005 Wiley 6
Supply Chains & SCM A supply chain is the network of activities
that deliver a product/service to the customer Sourcing of: raw materials, assembly,
warehousing, order entry, distribution, delivery Supply Chain Management is the business
function that coordinates all of the network links Coordinates movement of goods through supply
chain from suppliers to manufacturers to distributors
Promotes information sharing along chain like forecasts, sales data, & promotions
© 2005 Wiley 7
A Basic Supply Chain
© 2005 Wiley 8
Components of a Supply Chain External Suppliers
Tier one supplier supplies directly to the processor Tier two supplier supplies directly to tier one Tier three supplier supplies directly to tier two
Internal Functions include: Processing, purchasing, planning, quality, shipping
External Distributors transport finished goods Logics function manages all material movement
including selection and monitoring carriers
© 2005 Wiley 9
SCM in a Dairy Products Supply Chain
© 2005 Wiley 10
The Bullwhip Effect & Information Sharing The Bullwip Effect describes
replenishment orders at different chain levels with no apparent link to final demand. Worst at Tier 3
Causes: poor demand forecasting at each level, waiting to batch orders, price fluctuations & promotions, rationing
Counteracting the Effect: Collaborate forecast at all levels, share real
demand information (POS terminals) Order based on demand rates, not batching Stabilize pricing e.g. Wal-Mart “every day low
prices”
© 2005 Wiley 11
SCM Factors SCM must consider the following trends,
improved capabilities, & realities: Consumer Expectations and Competition –
power has shifted to the consumer Globalization – capitalize on emerging markets Information Technology – e-commerce,
Internet, EDI, scanning data, intranets Government Regulations - like trade barriers Environment Issues – e.g. waste minimization
© 2005 Wiley 12
Global SCM Factors Managing extensive global supply
chains introduces many complications Substantial geographical distances increase
lead times and inventory investment Forecasting accuracy complicated by longer
lead times and different operating practices Exchange rates fluctuate, inflation can be high Infrastructure problems like transportation,
communication, lack of skilled labor, & scarce local material supplies
Product proliferation created by the need to customize products for each market
© 2005 Wiley 13
Insourcing vs. Outsourcing What questions need to be asked
before sourcing decisions are made? Is product/service technology critical to firm’s
success? Is operation a core competency? Do you have the capital to provide capacity &
keep the process current? Will outsourcing extend lead times and limit
flexibility? Can others do it for less cost and better
quality?
© 2005 Wiley 14
Make or Buy Analysis Analysis will look at the expected sales
levels and cost of internal operations vs. cost of purchasing the product or service
QVCFCQVCFC
QVCFCTC
QVCFCTC
MakeMakeBuyBuy
MakeMakeMake
BuyBuyBuy
:PointceIndifferen
:InsourcingofCostTotal
:gOutsourcinofCostTotal
© 2005 Wiley 15
Example: Make-or-Buy analysis- A small snowboard manufacturing company is presently sourcing the major portion of its manufacturing process. The cost for the purchased board is $50 each and they estimate their current fixed manufacturing costs at $25,000. A consultant has presented a plan which would reduce the variable cost to $20 each, but requires a major in-house investment which would increase their fixed cost to $400,000.
The owner wants to know what unit sales must be to justify the new proposal.
FCBuy + (VCBuy x Q) = FCMake + (VCMake x Q) $25,000 + ($50 x Q) = $400,000 + ($20 x Q) Q = 12,500 units
Purchasing has identified a new supplier that can produce a board for $30 each. Now what is the Indifference Point?
$25,000 + ($30 x Q) = $400,000 + ($20 x Q) Q = 37,500 units
© 2005 Wiley 16
Purchasing’s Role in SCM
Purchasing role has attained increased importance since material costs represent 50-60% of cost of goods sold Ethics considerations Developing supplier relationships Determining how many suppliers Developing partnerships
Industry trend is to a much smaller supplier base. Why?
© 2005 Wiley 17
Critical Factors in Successful Partnership Relations
Benefits of Partnering Early supplier involvement (ESI) in the design
process Using supplier expertise to develop and share cost
improvements and eliminate costly processes Shorten time to market
Have a long-term orientation
Share a common vision
Are strategic in nature Share short/long term plans
Share information Driven by end-customer needs
Share risks and opportunities
© 2005 Wiley 18
Integrated SCM Implementing integrated SCM requires:
Analyzing the whole supply chain Starting by integrating internal functions first Integrating external suppliers through
partnerships Possible Supply Chain Objectives
Reduce costs, improve quality Reduce lead time and inventory Reduce time to market Increase sales Improve demand data/forecasting
© 2005 Wiley 19
The Role of Warehouses There are two types–general and
distribution What do warehouses do?
Transportation consolidation from LTL quantities to TL quantities
Product mixing is a value added service which groups a variety of items together for better service and reduced cost
Services like providing a closer location point to the customer. Also customizing services like adding instruction books or proper voltage power cord
Crossdocking to eliminate storage and order picking costs, e.g. Home Depot, Wal-Mart, Costco
© 2005 Wiley 20
Supply Chain Measurements
Dell Computer has achieved excellent results from their SCM implementation. They have made dramatic improvements in competitive priorities:
Cost – prices 10-15% lower than competition
Speed – Dell can take either a phone or Internet order and ship within 36 hours - Dell’s nearby component warehouse has reduced inventories to 13 days of supply compared to Compaq’s 25 Flexibility – suppliers restock warehouse so Dell can build and ship customized make to order PC’s
© 2005 Wiley 21
Current Trends in SCM Supply chains will be more agile, flexible, and integrated
to reflect consumer expectations Technology will facilitate real time demand sharing
throughout entire supply chains Winning firms will have the best supply chains, e.g.
Walmart Greater use of net-marketplaces to bring more suppliers
into contact with more suppliers to reduce price and lower transaction costs
Greater use of E-distributors providing products via e-catalog from thousands of suppliers at one market place
E-purchasing companies connecting online suppliers offering VCM for MRO supplies will charge fees to join the market
© 2005 Wiley 22
Trends in SCM (continued)
More online exchanges for spot requirements of large firms in a single industry, e.g. E-steelcom, E-greenbiz.com
More use of industry owned consortia enabling buyers to purchase direct inputs from a limited set of invited participants, e.g. Covisint.com (automotive), Avendra.com (hospitality), and ForestExpress.com (paper and forest)
More use of value adding third party logistics providers like UPS
More virtual corporations overseeing networks of suppliers SCM performance measurements will focus on quality,
speed, flexibility, and value
© 2005 Wiley 23
Chapter 5 Highlights E-commerce is the use of the Internet to transact
business; B2B, B2C, C2C, P2P, M-commerce SCM involves integration of all process to make a
product, from raw materials to end user sales The bullwhip effect is the distortion of real
demand cause by multi-level batching, bad estimates, price fluctuations, and rationing
Many factors affect SCM; demands for better service, quality, quicker response, and global marketplaces, fierce competition, & information technology
With global SCM, complicating factors include lengthened lead times, exchange rates, & many infrastructure issues in developing countries
© 2005 Wiley 24
Chapter 5 Highlights (continued)
Vertical integration is more appropriate for high volume, standard products
Outsourcing is more appropriate for non-core processes and activities
Purchasing manages supplier selection and supplier relationships, including forming partnerships
The ISM has developed ethics principles & standards Information sharing is critical to effective SCM to
minimize the risk inherent in long supply chains Technology like bar code scanners, POS terminals,
EDI, & the Internet have moved information sharing of actual consumer demand closer to real time
© 2005 Wiley 25
Chapter 5 Highlights (continued)
Warehouses do transportation consolidation, product mixing or blending, and reducing response time
Crossdocking eliminates costs of storage and order picking. Requires close coordination of carriers
Measuring supply chain performance needs to reflect potential improvements in quality costs, service, inventory and capital investment, and productivity
The most significant advance will be the increased use of electronic marketplaces; e-distributors, e-purchasing, online exchanges, and industry consortia
© 2005 Wiley 26
The End Copyright © 2004 John Wiley & Sons, Inc. All rights
reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United State Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.