1. Chapter 18 E-Business and the Supply Chain
Supply Chain Management (2nd Edition)
Chapter 18 E-Business and the Supply Chain

2. Outline The Role of E-Business in a Supply Chain
The E-Business Framework
The B2B Addition to the E-Business Framework
E-Business in Practice

3. Role of E-Business in a Supply Chain
E-business: Execution of business transactions over the Internet
B2C: Business to consumer
B2B: Business to business

4. E-Business Transactions
Providing information across the supply chain
Negotiating prices and contracts
Allowing customers to place orders
Allowing customers to track orders
Filling and delivering orders to customers
Receiving payment from customers
Placing orders with suppliers
Paying suppliers
These transactions were previously done through other channels

5. The Impact of E-Business on Supply Chain Performance
Impact of E-Business on Responsiveness (which primarily affects a company’s ability to grow and protect revenue)
Impact of E-Business on Efficiency (which primarily affects a company’s costs)

6. Impact of E-Business on Responsiveness
Offering direct sales to consumers
24-hour access from any location
Wider product portfolio and information aggregation
Personalization/customization
Faster time to market
Flexible pricing, product portfolio, and promotions
Price and service discrimination
Efficient funds transfer
Lower stockout levels
Convenience/automated processes
Potential revenue disadvantage of e-business (for customers who require a short response time)

7. Impact of E-Business on Cost
Inventory
Facilities
Transportation
Information

8. The B2C E-Business Scorecard (Table 18.1)
Information
Price discrimination
Transportation
Flexible pricing
Facilities
Time to market
Inventory
Personalization
Convenience
Product portfolio
Lower stockouts
24-hour access
Efficient funds transfer
Direct sales
Impact
Area
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative

9. Applying the E-Business Framework
PC Industry
Book Industry
Grocery Industry
MRO Supplies Industry

10. Revenue Impact of E-Business on the PC Industry (Dell)
Sells PCs directly to customers and starts assembly after receiving a customer order
Revenue disadvantage for customers who do not want to wait or who need a lot of help setting up a computer
Revenue advantages:
Offer virtually unlimited different PC configurations
Bring new products to market faster
Fast at providing customized PCs
Price flexibility
Direct selling eliminates distributor and retailer margins
Negative working capital

11. Cost Impact of E-Business on the PC Industry
Inventory costs – geographic aggregation, postponement, dampening of bullwhip effect
Facility costs – no physical distribution or retail outlets; customer participation
Transportation costs – higher outbound transportation costs (PCs are shipped individually)
E-Business impact for Dell (Table 18.2)
Significantly improved performance
Exploited every advantage provided by the Internet

12. The Impact of E-Business on Dell Performance (Table 18.2)
Area
Impact
Area
Impact =
Information
Price discrimination -
Transportation ++
Flexible pricing
Facilities
Time to market
Inventory
Personalization
Convenience
Product portfolio +
Lower stockouts
24-hour access
Efficient funds transfer
Direct sales
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative

13. Value of E-Business for a Traditional PC Manufacturer
Potential value for traditional PC firm
Use e-business to sell customized PCs that are hard to forecast
Sell standard configurations through traditional channels
Introduce new models on the Internet
Allows lower inventory

14. Revenue Impact of E-Business on the Book Industry (Amazon)
Negative:
An additional stage in the supply chain – the distributor (this is more of a cost impact)
Downward price pressure
Does not attract customer who has a short response time requirement or prefers to examine a book before purchase
Positive:
Offers millions of books
Uses Internet to recommend books
Provides reviews and comments from other customers
Quickly introduces new titles
Allows shopping 24 hours, 7 days/week

15. Cost Impact of E-Business on the Book Industry
Inventory costs – geographic aggregation of high-volume books; purchases low-volume books from distributor after customer order
Facility costs – no retail outlets, but higher order-processing costs
Transportation costs – very high
E-business impact at Amazon (Table 18.3)
Mixed, few profits as yet
There are not as many advantages to selling books on the Internet compared to selling PCs

16. Impact of E-Business on Amazon.com (Table 18.3)
Area
Impact
Area
Impact -
Information =
Price discrimination --
Transportation +
Flexible pricing
Facilities
Time to market
Inventory
Personalization
Convenience ++
Product portfolio
Lower stockouts
24-hour access
Efficient funds transfer
Direct sales
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative

17. Value of E-Business for a Traditional Bookstore Chain
Can benefit from setting up complementary e-business
Carry high-volume books in stores, sell low-volume books online to take advantage of aggregation
Provide access to online business in stores
Can possibly use technology to print a book on demand
Can deliver books sold online to stores and allow customers to pick them up there

18. Revenue Impact of E-Business on the Grocery Industry (Peapod)
Online grocer
Selling convenience, especially in urban areas
Specialty food stores also sell convenience
Peapod provides a customized shopping experience based on customer preferences, which a supermarket cannot do
Provides opportunities for targeted advertising; selling information about customers

19. Cost Impact of E-Business on the Grocery Industry
Inventory costs: lower inventories, but aggregation is limited because of the need for local fulfillment centers and the fact that most groceries are staples with steady demand
Facility costs: no retail outlets, but higher order processing costs
Transportation costs: higher transportation costs
inbound and outbound transportation costs
groceries have a relatively low value-to-weight ratio
E-business impact at Peapod (Table 18.4)
some revenue advantages but higher costs
less cost advantage for groceries than for books or PCs

20. Impact of E-Business on Peapod (Table 18.4)
Information =
Price discrimination --
Transportation +
Flexible pricing
Facilities
Time to market
Inventory
Personalization ++
Convenience
Product portfolio
Lower stockouts
24-hour access
Efficient funds transfer
Direct sales
Impact
Area
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative

21. Value of E-Business for a Traditional Grocery Chain
E-business could be a beneficial complement to a traditional grocer
E-business used to offer convenience to customers who are willing to pay for it
Can offer a wide range of services at differing prices based on the amount of work done by the customer
Albertson’s is an example of this approach

22. Using E-Business to Sell MRO Supplies: Grainger.com
Grainger is a distributor of maintenance, repair, and operating supplies
Traditional part of the business is through catalog or in-person orders
Also sells online:
Grainger.com
FindMRO.com
OrderZone.com

23. Revenue Impact of E-Business for Grainger
Prices for MRO supplies will drop because of the Internet
But revenue enhancement for Grainger
Customer can access all 220,000 items (limited to 80,000 in catalog)
Searching for items is simpler on the Internet
FindMRO and OrderZone allow the offering of a larger variety of products
A new product can be offered for sale as soon as it is introduced
Customers can place and check on orders anytime

24. Cost Impact of E-Business on Grainger (MRO supplies)
Inventory costs – slightly lower through aggregation and lower lead times
Facility costs – lower order processing costs, some branches may be closed
Transportation costs – no change likely
E-business impact at Grainger (Table 18.5)
Marginal improvement in revenue
Decrease in order processing cost
Benefits to customers

25. Impact of E-Business on Grainger (Table 18.5)
Area
Impact
Area
Impact
Direct sales =
Efficient funds transfer =
24-hour access +
Lower stockouts =
Product portfolio ++
Convenience +
Personalization +
Inventory =
Time to market +
Facilities +
Flexible pricing +
Transportation =
Price discrimination =
Information -
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative

26. The B2B Addition to the E-Business Framework
The wide variety of factors potentially important in B2C transactions can be reduced to three principal categories:
Reduced transaction costs
Improved market efficiencies
Supply chain benefits

27. Transaction Costs: When E-Business Will Have a Positive Impact
Transactions are frequent and small in size
Phone and fax are the current method of transmitting orders
A lot of effort is spent reconciling product and financial flows

28. Improved Market Efficiencies: When E-Business Will Have a Positive Impact
Limited buyer/seller qualification is required
A fragmented market exists with many competing players either on the buy or sell side
A large number of buyers/sellers can be attracted to the online site

29. Supply Chain Benefits: When E-Business Will Have a Positive Impact
The bullwhip effect is quite significant due to information distortion in the supply chain
The supply chain as a whole achieves low inventory turns and poor product availability
Each stage has little visibility into either the customer or supplier stage
There is little collaboration in the supply chain in terms of promotions and new product introduction
Product life cycles are short

30. Application of the B2B E-Business Framework
Figure 18.4: The E-Business Value Proposition
Figure 18.5: A Decision Tree Representation of the B2B Addition to the E-Business Framework

31. B2B E-Business Value Proposition (Figure 18.4)
Supply Chain Benefits
Hard
Market Efficiencies
Ease of Implementation
Easy
Reduced Transaction Charges
Low
High
Value Created

32. E-Business in Practice
Integrate the Internet with the existing physical network
Devise shipment pricing strategies that reflect costs
Optimize e-business logistics to handle packages, not pallets
Design the e-business supply chain to handle returns efficiently
Keep customers informed throughout the order fulfillment cycle

33. Summary of Learning Objectives
What is the role of e-business in the supply chain?
What are the effects of e-business on supply chain performance?
How can the e-business framework be used to evaluate whether a company is a good candidate for e-business and where the company should target its e-business efforts?