E-Business & Supply Chain Management HANDOUT 2-Up

8/13/2019 E-Business & Supply Chain Management HANDOUT 2-Up

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Electronic Business

&

Supply Chain

Hans Lehmann1

Management

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More understanding of EB & SCM

• Definition

• a s e pro em

• Demonstration of a simple case

• Example of the power of IT in

Hans Lehmann2

• …and what about E-tailing?



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The horizontal part is the

Supply Chain

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What’s the problem?• In traditional supply chains, inventories build up

at the interface between functions

• within an organization:

• and between organizations:

Purchasing Production Sales

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Suppliers Firm Customers



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What are the $$$?

• Obvious Carrying Costs

• - -

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Costs

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Supply Chain Strategies• Traditionally, firms manage internal

supply chain and focus on immediatesupp iers an customers.

• Now increasing focus further downstreamand upstream in the supply chain.

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Why?



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Demand distortions

• Empirical fact: demand variations amplifyu stream in the su l chain.

Manf. Distributor Retailer Wholesaler

Product flow Information flow

(through orders)

• Demand information is distorted: hence,

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every entity in the supply chain stockpiles too

much product.

…enter:

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The Bullwhip EffectDemand swings/ variations amplify upstream in the supply chain.

Demand at the Distribution Centre level

Demand at the Factory Warehouse

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Demand at the Retail level



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The Need for Supply Chain

Management stems from the

Businesses do not

compete; their

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Supply Chains do.

MMBA507 T1/11INFO101

Let’s look at an actualexam le of an

extraordinarily

effective and successful

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upp y a nStrategy:



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a - art tores, nc. s t e wor s argest reta er, w t

(USbn)$419 in sales in 2011. The company employs 2.25

million associates worldwide through nearly 9000 stores in

the United States and in Argentina, Brazil, Canada, China,

Costa Rica, El Salvador, Germany, Guatemala, Honduras,

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, , , , ,

United Kingdom and Continental and Eastern

Europe. More than 200 million customers per week visitWal-Mart stores worldwide.

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Lets look at the $$$...

Hans Lehmann12Source: Walmart 2011Annual Report



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Source: Walmart 2011Annual Report;

Thanassoulis, UK Supermarket profitability, 2009

Consistently

1% better than

UK SM’s

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Stock Turn

11.5 p.a.

Hans Lehmann14Source: Walmart 2011Annual Report

Store Turnover

46.7$m



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WALMART‘s Core Competence:

•

• Negative Working Capital

• Shop Operations

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Good Discount Retailing;

...what else??

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WALMART‘s CoreCapabilities

• Network of Distribution Centers &“Cross Dockin ”

• Dedicated Truck Fleet

• Decentralised, “Pull-type”merchandising management

• Em lo ee Motivation

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‘Enabled Processes’



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...how do youena e

processes???

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Mapping Capabilities: Inventory replenishmentat WALMARTStalk et al. HBR 3-4, 1992

Crossdocking


WALMART before major EB‘process enabling’ initiatives:

Demand flow

Supplier Distributor Retail store Consumer

household

WALMART Value Chain

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38 days 40 days 26 days

Product flow




WALMART’s ‘enabling’ results:

Timely, accurate, paperless information flow

Supplier Distributor Retail store Consumer

household

38 days 40 days 26 days Before

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Smooth, continual, largely automated

product flow matched to consumption

11 days 28 days 4 daysSavings

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So what’s that inventoryreduction worth?• The Walmart Su l Chain would

save because they would have to buyless stock.

• Let’s assume that they buy their stuffwith a bank loan

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• Let’s further assume they manage toget an overdraft interest of 10%:

• How much would they save?



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Using 2011 figures:

• Gross profit margin: 24.7%

ergo: cost of sales: $315,471m

• Inventories: $36,318mSales/day: $419bn/365=$1.15bn

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ergo: . ays wort o

inventorySource: Walmart 2011Annual Report

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So what’s that worth in $$$s?Cost ofSales $315,471m

Cost ofSales p.d. $864m

Interest p.d.@ 10% $86.4m

Suppliers saved 11 days $951m

Distr.Centre

saved28 days $2,420m

Stores saved 4 days $346m

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WalMartsaved $2,766bn



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So what’s that worth in $$$s?

Cost ofSales $307,024m

Cost ofSales p.d. $841.16m

Interest p.d.@ 10% $84.1m

Suppliers saved 11 days $925m

Distr.Centre

saved28 days $2,355m

Stores saved 4 days $336m

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WalMart

saved $2,691bn

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Role of Information Technology?• Obvious glue for the ‘enabled’ processes

•

• Enabling closer co-operation

• Transform collaboration

• In manufacturing and logistics

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And what about the SC

for E-tailers?



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Hans Lehmann25

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So: how haseen

doing since its IPO

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http://finance.yahoo.com/q?s=AMZN

http://www.wikinvest.com/stock/Amazon.com_%28AMZN%29/Data/Market_Capitalization/2012/Q1

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How Amazon Fulfills OrdersThe Problem

• When Amazon.com was launched in 1995, the

business model was virtual retailing—no

warehouse, no inventory, no shipments

• The idea was to take orders and receivepayments electronically and then let others fill

the orders

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• However, it soon became clear, that while thismodel may be appropriate for a smallcompany, it does not work for “The earth’s

Largest E-tailer”



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How Amazon Fulfills Orders

The Solution• Amazon.com decided to change its business model and

an e s own nven ory; u

• Maintaining inventory and shipping costs money andtakes time:

• The company spent $3.5 billion to build world-class

warehouses around the US and the world to become a

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ea er n ware ouse management, ware ouse

automation, packaging, and inventory management

• The actual shipment of products to customers is

outsourced to UPS and/or the local Postal Service

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Materials Handling - Generation 1

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…still unchanged!

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•http://www.buzzfeed.com/mjs538/what-it-looks-like-inside-amazoncom

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The stuff to remember:• B2B-EB technology is the glue in the

Supply Chain; and

• It’s Supply Chains that compete – notsingle companies; also:

• Web-enabled organisation and processes, connected with IT, are fast

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ecom ng s an ar opera ng prac cefor businesses; but

• Learning curve is still steep

E-Business & Supply Chain Management HANDOUT 2-Up

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