Supply Chain Management
(2nd Edition)
Chapter 18
E-Business and the Supply Chain
© 2004 Prentice-Hall, Inc.
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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
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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
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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
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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)
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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)
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Impact of E-Business on Cost
Inventory
 Facilities
 Transportation
 Information

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The B2C E-Business Scorecard
(Table 18.1)
Area
Impact
Area
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
Impact
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
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Applying the E-Business Framework
 PC
Industry
 Book Industry
 Grocery Industry
 MRO Supplies Industry
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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
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Cost Impact of E-Business
on the PC Industry
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)
 Inventory
– Significantly improved performance
– Exploited every advantage provided by the Internet
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The Impact of E-Business on Dell
Performance (Table 18.2)
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
-
Information
=
Price discrimination =
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
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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
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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
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Cost Impact of E-Business
on the Book Industry
costs – geographic aggregation of highvolume books; purchases low-volume books from
distributor after customer order
 Facility costs – no retail outlets, but higher orderprocessing costs
 Transportation costs – very high
 E-business impact at Amazon (Table 18.3)
 Inventory
– Mixed, few profits as yet
– There are not as many advantages to selling books on the
Internet compared to selling PCs
© 2004 Prentice-Hall, Inc.
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Impact of E-Business on
Amazon.com (Table 18.3)
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
--
Information
-
Price discrimination =
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
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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
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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
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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
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Impact of E-Business
on Peapod (Table 18.4)
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
--
Information
-
Price discrimination =
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
© 2004 Prentice-Hall, Inc.
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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
© 2004 Prentice-Hall, Inc.
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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
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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
© 2004 Prentice-Hall, Inc.
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Cost Impact of E-Business
on Grainger (MRO supplies)
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)
 Inventory
– Marginal improvement in revenue
– Decrease in order processing cost
– Benefits to customers
© 2004 Prentice-Hall, Inc.
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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
=
Information
-
Price discrimination =
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
© 2004 Prentice-Hall, Inc.
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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
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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
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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
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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
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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
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Hard
Supply Chain Benefits
Market Efficiencies
Easy
Ease of Implementation
B2B E-Business Value Proposition
(Figure 18.4)
Reduced Transaction Charges
Low
High
Value Created
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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
© 2004 Prentice-Hall, Inc.
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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?
© 2004 Prentice-Hall, Inc.
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