E-Commerce and Supply Chain Management

(SCM)

Chapter 4

MGMT 326

Foundations

of Operatio

ns

Foundations

of Operatio

nsIntroduction

Introduction

StrategyStrategy

ManagingProjects

ManagingProjects

QualityAssuran

ce

QualityAssuran

ce

Capacityand

Facilities

Capacityand

Facilities

Planning& ControlPlanning& Control

Products &

Processes

Products &

Processes

Product

Design

Product

Design

ProcessDesignProcessDesign

ManagingQuality

ManagingQuality

Statistical

ProcessControl

Statistical

ProcessControl

Just-in-Time & Lean Systems

Just-in-Time & Lean Systems

Supply Chain ManagementSupply Chain Management

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

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

What is SCM?What is SCM? E-commerceE-commerce

Business-to-business:•Information technologies•Benefits to companies

Business-to-business:•Information technologies•Benefits to companies

Business-to-consumer:•Competition • Inventory management•Delivery options•Managing returns

Business-to-consumer:•Competition • Inventory management•Delivery options•Managing returns

Global Supply Chains:•Inventory•Infrastructure •Product proliferation• Patents• Health & safety

Global Supply Chains:•Inventory•Infrastructure •Product proliferation• Patents• Health & safety

Vertical Integration:•Backward integration •Forward integration •Make-buy decisions

Vertical Integration:•Backward integration •Forward integration •Make-buy decisions

Managing Suppliers:•Selecting suppliers•Single suppliers vs. multiple suppliers

Managing Suppliers:•Selecting suppliers•Single suppliers vs. multiple suppliers

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 ChainFigure 4-2, page 100

A company has more control overTier 1 suppliersthan over Tier 2 & Tier 3 suppliers

Lessons from theDairy 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 FurnitureFigure 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 forB2B 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 inBusiness-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

© 2007 Wiley 23

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 24

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.

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?