3. IMPACT OF THE INTERNET ON THE SUPPLY CHAIN
An analysis of the management literature of the past 10 years reveals three distinctive phases of business development, each typically linked to an underlying enabling technology. These phases are (with the technology shown in brackets) business process reengineering (ERP), supply chain optimization (APS), collaboration in e-communities (Internet hubs or exchanges).
Traditionally when we have thought about supply chains we have tended to use a somewhat linear model where we have concentrated on physical product flows and focused on the interfaces with our immediate neighbors in the chain. (See Figure 1.)
The Internet is rapidly changing this linear, product-oriented view because it is accelerating our transition from the Industrial Age to the Knowledge Age. In this new world, the value of information can become more significant than the price of a product, and the ability to gather, structure, and share that information provides opportunities to create new forms of value. Below we look at some of the changes the Internet brings to a supply chain.
3.1 Customers Become Co-creators
In the past we treated customers as passive groups. We tried through our marketing endeavors to understand how these groups behaved and we then "pushed" standardized products at these groups. Supply chain management tried to make this push process as efficient as possible. Today customers are getting used to the idea that in the digital age they have greater choice and are in a position to demand customized (note how close that word is to "customer") products. Power is shifting downstream to customers and consumers. No longer are they simply product and price takers, but product and price makers. Concepts such as online configurators and auctions mean that we are going to have to get used to the idea of making what the customers wants when he wants it—not when it best suits our capacity plan! The much vaunted, but elusive, idea of mass customization is on the threshold of becoming a commonplace reality. Philosophically
we are moving from the idea of a supply chain to that of a demand network. This means that we are going to have to learn to collaborate more effectively among supply chain partners in order to achieve the flexibility and speed necessary to stay competitive.
3.2 Collaboration Throughout the Supply Chain Is Vital
What the previous point tells us is that we are moving from a world of supply chain management to one of collaborative commerce where all parties to the process of creating and delivering value will be very closely linked in networks. Any enterprise creates only a portion of the value-add generated in a supply chain. The better these portions can be integrated, the faster and more profitably a customer can be satisfied. Thus, a paradigm shift is taking place as companies realize that the next great leap in supply chain management depends on streamlining and collaborating on interenterprise business processes with partners.
There are many ways in which business partners can collaborate, and exchanging information to improve the planning process is nothing new. Normally, the exchange takes place by phone, fax, mail, or e-mail. However, the unstructured nature of the process limits the collaboration activities possible. In some cases, EDI is being used to transfer data, but the high cost and rigidity of EDI technologies has tended to limit both the number of partners one can deal with and the types of collaborative activities one can do.
The pervasiveness of the Internet and associated technologies such as extensible markup language (XML) promise to revolutionize interenterprise business processes by enabling seamless information exchange between business partners. High volumes of data can be transferred at low cost, and even minor business partners can exchange information in an economical manner. Interactive online access to each other's systems can be achieved easily via a conventional Internet browser. However, in order to take supply chain management to the next level of efficiency, we have to move away from the linear "point-to-point" view of life.
Enterprises need to be able to collaboratively plan all logistics activities ranging from forecasting to shipment planning with their business partners. The goal of supply chain management has always been to increase customer service and simultaneously reduce costs. Supply chain costs are driven by inventory along the chain (finished goods, work-in-process, etc.) and the capital investment required to meet expected demand. Factors like functional silos within companies and weak hand-offs among supply chain partners that until now have been the main reason for supply chain inefficiency will start to disappear. One of the primary drivers behind these improvements is the concept of the supply chain hub.
To Be Continued