The impact of E-Commerce on Supply Chain Management

Table of Contents

I. Changing Daily Live: The development of the “Web”

II. Operations Management and its Competitive Importance
1. Definitions
2. Competitive importance of SCM
3. What is the “right” supply chain ?

III. How E-Commerce Influences SCM
1. Overview
2. E-supply chain management as success factor
3. Implemention of eSCM
4. Examples for practise

IV. Bibliography

V. Appendix: Tables and Pictures
1. Number of Web-user in Europe
2. Sales and turnover in online-business in Germany
3. Types of supply chains according to the firms function as producer of goods

I. Changing Daily Live: The development of the “Web”

No innovation or invention in the last decades had a stronger impact on our daily live than the development of the World Wide Web (www, also called “Internet”). Personal computers appeared in offices at the beginning of the 1980es in greater quantities. However, each workstation could used only for its own or within limited networks (for instance within one division of a company). On the other hand, like so often, U.S. military researcher, the U.S. Defense Advanced Research Projects Agency (DARPA) initiated in 1973 a research program to investigate techniques and technologies for interlinking packet networks of various kinds. The objective of this research programme was to develop communication protocols that are essential for the communication between computers and that should allow transparent communication across multiple, linked packet networks. In 1986, the U.S. National Science Foundation (NSF) initiated the development of the NSFNET which, today, provides a major backbone communication service for the internet. Later, the networks began becoming public and emerged. By the end of 1991, the Internet has grown to include about 5’000 networks in over three dozen countries, serving over 700’000 host computers used by over 4’000’000 people.^[1]

But this was only starting the incredible growth of the web community. Growth rates in Internet access and use of more than 150 per cent per year are still possible ( i.e.: in 2003 the growth in using Internet was 123.8% in Hungary and 166.7% in Malta). So it is not a surprise, that in developed Western European countries about 50% of the whole population in surveys mention the use of the web. As the table in the appendix shows, the share of Internet user is going to align nearly the number of landline telephone extensions.

As the technical development still is enhanced nearly continual new and more sophisticated applications raise. This makes using the web more and more attractive for people. Internet offers primarily three general functions that are used:

- Information exchange (in example railway schedules, city information provided)
- Communication (in example: Chatrooms, e-mail exchange)
- Business (in example: online-banking, auctions, ordering products)

As studies show, companies ascribe online-sales more and more importance. “84,4 % of pure online-purchaser and 69,4 % of trader that have online sales as additional distribution channel mentioned in December 2004 for the Postbank-Study they are planning to invest more in sales via web.”^[2] These study results does not surprise: Sales and turnover in e-commerce business are increasing rapidly: In 1999 the turnover in business with final consumers (products and services) was 1.3 Billion Euro, until 2002 the turnover raised about 615%. The turnover was about 8 Billion Euro and rose until 2005 up to 14.5 Billion Euro. (For the chart with the exact figures, please see appendix.) This business model is called B2C, Business (professional seller) to Consumer (final consumer, mostly households in the meaning of private person). The two other usual business models are:

- B2B: Business to Business (professional seller in relation with another professional consumer)
- C2C: Consumer to Consumer (private offerer sells to another private household)

This incredible development in online business (covered with the term “E-Commerce”) has strong impact not only to demand side of market. It also has an amazing impact on companies and their Operations Management (OM). As production itself mostly is not hardly affected change in doing business first adverts logistics. Especially B2B offers rich opportunities that have strong impact on Supply Chain Management (SCM). Exactly these effects are topic of the present essay.

II. Operations Management and its Competitive Importance

1. Definitions

For the understanding of the whole essay it seems helpful to me first to define the relevant terms. These are especially Operations Management, Supply Chain and Supply Chain Management (SCM).

- Operations Management

“Management of the conversion process which transforms inputs such as raw material and labor into outputs in the form of finished goods and services.”^[3]

This definition shows that the part of logistics is one of the crucial parts of OM as it must be made sure that input goods are available in the quantity, quality, time and place required. This special field is called Supply Chain Management. Although nearly each firm is involved more or less intensive in any kind of a supply chain, as a supplier or as a customer, the awareness of the importance of SCM is a relatively new development. First, the term appeared in 1982, and was coined by Keith Oliver.^[4]

- Supply Chain:

“The network of services, material, and information flows that a firm’s customer relationship, order fulfilment, and supplier relationship processes to those of its suppliers and customers.”^[5] That means the supply chain is a wider term than logistics that focuses on goods, what Taylor mentions in the explanation: Thus, logistics is “the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials (…) and related information from point-of-origin to point of final consumption (…)”.^[6]

- Supply Chain Management

“Supply Chain Management is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as effectively as possible. Supply Chain Management spans all movement and storage raw materials, work-in-process inventory, and finished goods from point-of origin to point-of consumption.”^[7] SCM also includes as an essential aspect the development of a supply chain strategy. The aim of developing a supply chain strategy should enhance the company to meet the competitive priorities of the company’s operations strategy.^[8]

2. Competitive importance of SCM

SCM could have a strong impact on a company’s operations and success. Supply chains must be managed to coordinate the inputs with the outputs in a company to achieve the appropriate competitive priorities of the firm’s enterprise process.^[9] To reach this strategic goal, SCM controls and optimises the key processes that are involved in the value-adding process. Parts of the process are all activities, that are involved in material or information flow.^[10]

[...]

^[1] Compare www.isoc.org/internet/history/cerf.shtml

^[2] www.reutlingen.ihk.de/start.oscms/0/3369/9186/E-Commerce.html

^[3] See Davis (1999), page 5 on www.uwc.ac.za/EMS/man/MAN111/OPERATIONS%20MANAGEMENT%20-%20INTRODUCTION_1.ppt

^[4] Compare http://en.wikipedia.org/wiki/Supply_Chain_Management

^[5] See Krajewski/Ritzman/Malhotra (2007), page 372

^[6] See Taylor (1997), page 2

^[7] See http://en.wikipedia.org/wiki/Supply_Chain_Management

^[8] Compare Krajewski/Ritzman/Malhotra (2007), page 372

^[9] Compare Krajewski/Ritzman/Malhotra (2007), page 372f.

^[10] Compare Thaler (2001), page 48f.