E-Commerce and Supply Chain Management (SCM) Chapter 4

Design MGMT 326 Capacity and Facilities Foundations of Operations Products & Processes Quality Assurance Planning & Control Managing Projects Managing Quality Introduction Strategy Product Design Statistical Process Control Process Design Just-in-Time & Lean Systems Supply Chain Management

Supply Chain Management (SCM) and E-commerce Chapter 4 What is SCM? E-commerce Global Supply Chains: Inventory Infrastructure Product proliferation Patents Health & safety Vertical Integration: Backward integration Forward integration Make-buy decisions Business-to-business: Information technologies Benefits to companies Managing Suppliers: Selecting suppliers Single suppliers vs. multiple suppliers Business-to-consumer: Competition Inventory management Delivery options Managing returns

Supply Chains A supply chain is the network of activities that deliver a product/service to the customer Sourcing (purchasing) of raw materials, parts, goods for sale, or service inventories Order entry Operations planning Transformation process (manufacturing or services) Quality management Logistics: Transportation (traffic) Distribution (delivering the product to customers)

Dairy Products Supply Chain Figure 4-2, page 100 A company has more control over Tier 1 suppliers than over Tier 2 & Tier 3 suppliers

Lessons from the Dairy Products Supply Chain Figure 4-2, page 103 Companies often have several tiers of suppliers. Your company's Tier 1 suppliers are the firms that your company buys from. A company has more control over Tier 1 suppliers than over Tier 2 & Tier 3 suppliers

Supply Chain Management (SCM) Supply Chain Management is the business function that coordinates the movement of materials and information through the supply chain

Objectives of Supply Chain Management Minimize the cost of materials and material movement Minimize inventory investment Ensure timely delivery of materials at every level of the supply chain and to customers (to ensure product availability and delivery speed) Ensure quality of materials used in manufacturing or services If needed, get product design help or other services from suppliers.

Supply Chain for Furniture Figure 4.1, page 99

Information Sharing in the Supply Chain The objective of information sharing is to match demand and supply. (What will be available when, and from whom?) Demand: actual sales, sales forecasts, booked orders, custom orders Product availability: current inventory, production plans, shipping schedules, shipments Quality: suppliers' data on quality

E-commerce The use of the Internet and World Wide Web to conduct business Business-to-business (B2B) Business-to-consumer (B2C) Also called e-business

Technologies for B2B E-commerce Electronic data interchange (EDI): electronic exchange of business-related information between companies, using data files in standard formats Originally, the data files were designed to be processed by computer systems In Web-based EDI, the supplier or business customer can access the information through the Web

Types of Web Sites for B2B E-commerce Electronic storefronts: Allow buyers to consult an online catalog, place an order, pay or make payment arrangements, and track shipments Similar to B2C electronic storefronts Net marketplaces: Allow buyers and sellers in the same industry to negotiate contracts, place orders, track shipments, pay or make payment arrangements, and work together on product design

Benefits of B2B E-commerce Lower administrative costs for purchasing Low-cost access to global suppliers Lower inventory investment due to intense price competition and faster shipping Better product quality because of increased cooperation between buyers and sellers, especially during the product design and development

Operations Issues in Business-to-consumer E-commerce More competitive markets Inventory management: information sharing in the supply chain helps to reduce inventory costs. Packing orders for shipment Delivery Customer returns

Operations Issues in Online Sales Packing Orders for Shipment Items are identified by bar codes or radio frequency ID (RFID) Warehouse workers put ordered items in crates Sorter sends each item to the correct, bar-coded box for the customer who ordered it Packing slip is printed Boxes are packed, taped, weighed Boxes are put on trucks for shipment to customers

Operations Issues in Online Sales Delivery Objective: Deliver when promised, while minimizing delivery costs Brick-and-mortar stores (like Sears) can ship items to stores for customer pickup. Other online merchants ship via a package delivery service (like UPS) or U.S. postal service Online merchants use package delivery services for most shipments to other countries. Customers usually pay a standard shipping cost – different for U. S. and other countries

Operations Issues in Online Sales Customer Returns Objective: minimize the cost of customer returns and reduce "hassles" for customers 25% of Internet orders result in a customer return Problems in returning goods are the 2nd biggest reason that consumers don't buy online Customer usually pays for return shipping Variety of approaches used to return goods: postal service, contract package delivery service, brick-and-mortar store

Operations Issues in Online Sales Customer Returns (2) Online retailer must ship a replacement item or issue credit to customer Online retailer must process returned items Return defective items to supplier for a credit Good items can often be repackaged, priced, and resold. This process can be out-sourced.

Operations Issues in Global Supply Chains Inventory levels tend to be higher. Safety stock: inventory kept to protect a customer against late deliveries from a supplier Pipeline inventory: inventory that has left a supplier plant but has not yet reached the customer Both safety stock and pipeline inventory tend to be higher in global supply chains.

Operations Issues in Global Supply Chains (2) Shipping times are usually longer. Transportation in developing countries is less efficient than in developed countries. Port congestion causes delays. Customs and security inspections cause delays. In ocean shipping, goods arrive in large quantities. The shipment must be broken into smaller quantities (break bulk operations) for shipment to retailers and distributors.

Operations Issues in Global Supply Chains (3) Health and safety of consumers Infringement of patents and copyrights Both GM and BMW have accused Chinese firms of patent infringement Product proliferation: the need to develop different product variations for different countries

Sourcing Decisions Sourcing: deciding which goods or services to make in-house, and which ones to buy Vertical integration – a measure of how much of the supply chain is owned by the manufacturer Backward integration – owning or controlling sources of raw material and component parts Forward integration – owning or controlling the channels of distribution © 2007 Wiley

Make or Buy Decisions Is product/service technology critical to firm’s success? Is product/service a core competency? Is it something your company must do to survive? If any of the above are true, it is usually wise to make, rather than buy. © 2007 Wiley

Make or Buy Decisions (2) Who can do a better job: you or a supplier? Costs – breakeven analysis is used to compare costs. ` Quality On-time delivery Product or part designs Is there a supplier who can meet your firm's requirements in the above areas?