June 2008

Momtchil Krastev m.krastev@clusterstar.com

Profit Center Sofia London School of Economics

White Paper



Table of Contents
EXECUTIVE SUMMARY ............................................................................................................... 1 INTRODUCTION .......................................................................................................................... 2 I. How knowledge of e-business models might help an organisation seeking to transform its Supply Chain Management ........................................................................................................ 2 II. The most important key success factors in any SCM transformation exercise ..................... 6 III. How the “six shifts in business focus driven by SCM” can affect the nature of competition and competitive advantage........................................................................................................ 9 Shift 1. From Cross-Functional Integration to Cross-Enterprise .......................................... 10 Shift 2. From Physical Efficiency to Market Mediation ........................................................ 10 Shift 3. From Supply Focus to Demand Focus ...................................................................... 11 Shift 4. From Single-Company Product Design to Collaborative, Concurrent Product, Process and Supply-Chain Design ........................................................................................ 11 Shift 5. From Cost Reduction to Breakthrough Business Models ........................................ 12 Shift 6. From Mass-Market Supply to Tailored Offerings .................................................... 13 IV. How the IT architecture of an organisation affects its ability to transform its Supply Chain Management ............................................................................................................................ 14 CONCLUSIONS .......................................................................................................................... 16 BIBLIOGRAPHY .......................................................................................................................... 17

Executive Summary
This paper serves several main purposes. First, it aims at approaching the topic of supply chain management as one of central importance for the successful implementation of business today. Since many companies employing SCM have continuously faced problems with its realization, numerous solutions to these problems have been offered. These include the sharing of information with parties along the supply chain as well as the utilization of advances in information technology. In fact, the importance of in-depth knowledge of different e-business models and the Internet as tools of transforming SCM has been suggested. Second, the importance of recognizing the major key success factors in any SCM transformation exercise has been thoroughly analyzed. These KSFs are numerous and have been identified by many authors as the determining forces behind the success of many businesses. Their integration and alignment within companies’ overall strategies have been emphasized as well. In addition, the six shifts in business focus driven by SCM have been evaluated in order to provide yet another crucial insight into the significance of the topic of SCM. Each of these shifts has been examined in order to allow for a clearer understanding of the implications for businesses. It has been suggested that the influence of SCM has been so great that, with the enabling role of IT, it has fundamentally changed the ways of perceiving competition, marketing, and competitive advantage. Furthermore, the importance of organisations’ IT architecture has been explained to reveal the stemming opportunities for transforming SCM. Special emphasis has been placed upon the need for partnering among organisations. The paper finishes with some important conclusions that can be inferred from the examination of these key topics. These include the fact that companies must gain extensive knowledge of the processes of SCM as well as of the different types of e-business models and their implications. In addition, businesses must learn to identify the critical factors that contribute to a sound e-business model and make use of them accordingly. Companies should be aware of the major shifts in business focus influenced by SCM and pay particular attention to the emphasis upon collaboration, customer focus, and customization of products/services. Moreover, successful organisations must know their IT architectures well and the opportunities that these provide for carrying out business activity. In addition, businesses should explore the opportunities provided by BPR for gradual improvement of individual or groups of processes. Finally, some companies can even go a step further by understanding digital business design or DBD, which some authors consider as the next dimension in the development of business. By any means, however, companies must always rely upon strong business models and strategies for doing business, while maximizing upon the capabilities of IT-enabled solutions of SCM and e-business.


Due to the many challenges and complexities that organisations face in today’s rapidly changing business environment, establishing an effective supply chain is becoming a core competency for many organisations. The importance of smoothly operating supply chains addresses how the work within and between organisations should be performed based on high performance, business processes and knowledge, focusing on innovative ways and new opportunities that would allow for enhanced competitiveness, effectiveness, efficiency, quality, customer satisfaction, lower costs, and increased revenues (Hugos, 2002). Companies must increasingly recognize the need to explore supply chain management in order to maximize the value being added along the supply chain. The need for implementing SCM is more apparent and pressing than it has ever been. And while some business ventures do recognize and approach this need, they should certainly be aware of some of the problems associated with the implementation of SCM. In order to deal with the accompanying challenges, organisations must embrace IT, e-business, and the Internet that allow increasingly better opportunities for assisting with SCM and improving business performance (Turban et al., 2004). The following four sections focus on the issues of greatest importance for the understanding of SCM and provide some of the solutions that enterprises may utilize to transform their organisations and achieve long-term success in the form of increased competitiveness, customer satisfaction, and financial gains.

I. How knowledge of e-business models might help an organisation seeking to transform its Supply Chain Management. It must be recognized that companies seeking improvement should set as an important goal the acquisition of knowledge of e-business models. In order to adequately support the argument that understanding of e-business models, e-commerce, the Internet, and IT in general can help organisations transform their SCM and recognize new opportunities for doing business, it is imperative to briefly discuss some key concepts that lie in the core of this topic. First of all, the supply chain of a business refers to the flow of materials, information, payments, and services from raw material suppliers, via factories and warehouses, to the end customers. According to Turban et al. (2004), a supply chain also includes the organisations and processes that create and deliver products, information, and services to the end customers. To manage the supply chain activities, organisations utilize SCM in order to plan, organize, and coordinate. Today the concept of SCM refers to a total systems approach to managing the entire supply chain. (Turban et al., 2004) As argued by Kumar (2001) and Vakharia (2002), SCM is usually supported by IT. According to studies conducted by Morgan


Stanley, the topic of supply chain management was recently found to be the number one priority of chief information officers (Morgan Stanley, 2001). In fact, when IT is employed and a supply chain is managed electronically, often with Wedbased software, it is referred to as an e-supply chain (Turban et al, 2004). Indeed, automating the information flow in a supply chain may lead to considerable improvements (Poirier and Bauer, 2000). It should be noted that there are three flows that occur in supply chains: materials flows; information flows; and financial flows. However, in service organisations there is usually no flow of materials, but rather a flow of documents. Regardless of the type of organisation, it is necessary to coordinate all the above flows among all parties involved in the supply chain (Hugos, 2002). The goals of modern SCM are to reduce uncertainty and risks in the supply chain, thereby positively affecting all processes within the organisation. The aim of this is to contribute to increased profitability and competitiveness (Vakharia, 2002). Actually, the efficiency and effectiveness of supply chains in most organisations today are heavily dependent on supporting information systems. Even though supply chains and SCM have been around for a while, some problems exist that call for effective solutions. Many well-known companies have been seriously affected by such troubles. For instance, Toys ‘R’ Us and Amazon.com have both experienced supply chain problems manifested by difficulty in fulfilling electronic orders (Turban et al., 2004). These companies learned the hard way that uncertain demand combined with the need to coordinate many activities, business units, and partnering organisations may lead to disaster. Subsequently, these and other corporations realized that a need for innovative IT solutions was essential. Others, such as Procter & Gamble, discovered what has been recognized as the ‘bullwhip effect’ (erratic shifts in orders up and down the supply chain) (Donovan, 2002). In essence, P&G realized that while sales of Pampers and other baby products in retail stores were fairly stable and predictable, orders from distributors to P&G had major swings, creating production and inventory problems. After an investigation, the company discovered that poor demand forecasting and order batching, among others, were causing the problems along the supply chain. Many other firms, such as Hewlett-Packard and Bristol-Myers Squibb, have experienced similar ordeals (Turban et al., 2004). Several alternative ways are generally available to solve the major supply chain problems that businesses face today. One solution is the sharing of information along the supply chain (Turban et al., 2004). Such sharing can be facilitated by EDI (electronic data interchange), extranets, and groupware technologies. In fact, information sharing among supply chain partners is part of inter-organisational c-commerce, and is sometimes referred to as collaboration supply chain. Many companies do indeed share information along their supply chains, the prime example being the partnership between Wal-Mart and Procter & Gamble (Rayport


and Jaworski, 2001). And while information sharing can certainly help some organisations in certain situations, many SCM problems can be most effectively and efficiently solved via the use of IT. For instance, through the use of wireless technology, certain tasks in the supply chain can be expedited. Furthermore, it is possible to configure optimal shipping plans within any organisation by using quantitative analysis, DSS, and intelligent systems for configuration. DSS can also help in creating strategic partnerships with suppliers by determining which the most appropriate ones to use are. In order to improve supplier-buyer relationships, CRM and PRM software can be utilized (Turban et al., 2004). In addition, following the example of Dell Computer, companies can manufacture only after orders are in by employing sophisticated computers and servers. Indeed the list of possible IT-assisted and IT-enabled solutions to SCM problems is quite long. It should be noted that IT can support SCM by providing support for all parts of the supply chain, including the internal, upstream, and downstream supply chain. Information technology provides two major types of software solutions for managing supply chain activities. The first one is enterprise resource planning (ERP) software, which helps in managing both the internal and external relationships with the business partners. The second one is supply chain management (SCM) software, which helps in decision making related both to internal segments and to their relationships with external ones (Turban et al., 2004). It is important to note that both types of systems can work within an organisation in order to produce better results. Indeed, ERP systems have been found to be one of the most successful tools in managing supply chains. ERP’s major advantage is that it aims at integrating all departments and functions across a company onto a single computer system that can serve all of the enterprise’s needs (Vakharia, 2002). The leading ERP software is SAP R/3, but companies such as Oracle, J.D. Edwards, Computer Associates and others develop highly successful systems as well. In contrast, SCM software is specifically designed to improve decision-making along the supply chain. The data collected with the use of ERP software can be used as input data for analysis done with SCM software, hence their complementary nature. In addition to IT systems, knowledge of e-business models, e-commerce, and the opportunities made available by the Internet can help organisations to transform and improve their SCM. In fact, e-commerce is emerging as an excellent tool for providing solutions to problems along the supply chain (Rayport and Jaworski, 2001). Today, many activities along the chain can be conducted as part of an EC initiative. E-commerce describes the process of buying, selling, transferring, or exchanging products, services and/or information via computer networks, including the Internet. Electronic commerce can indeed make numerous contributions to SCM and thus help organisations improve (Gillmor et al., 1999). EC can digitize some products, such as software, which expedites the flow of materials in the chain. EC can also replace all paper documents that move physically with electronic documents. This change


improves speed and accuracy, and the cost of document transmission is much cheaper. In addition, EC can replace faxes, telephone calls, and telegrams with an electronic messaging system that will provide better service at a lower cost. EC can also change the nature and structure of the supply chain from linear to a hub (Libresco, 2000). Such restructuring enables faster, cheaper and better communication, collaboration, and discovery of information. EC typically shortens the supply chain and minimizes inventories. Production changes from mass production to build-to-order as a result of the ‘pull’ nature of e-commerce. Lastly, EC facilitates customer service and results in reduced staffing needs due to innovations such as some self-services. It should be noted that numerous e-commerce transactions can be done between various parties and include all of the following: business-to-business (B2B); collaborative commerce (c-commerce); business-to consumer (B2C); consumer-to-business (C2B); consumer-toconsumer (C2C); intrabusiness commerce; etc. (Turban et al., 2004) Furthermore, in addition to e-commerce, another popular term used today, often interchangeably, is ‘e-business.’ Ebusiness usually refers to a broader definition of EC, not just the buying and selling of goods and services, but also servicing customers, collaborating with business partners, conducting electronic transactions within an organisation, etc. In fact, different types of e-commerce or e-business are executed in one or more business models (Doig, 2000). These e-business models are numerous and vary in nature. However, what all of them have in common is the fact that they empower organisations to make a difference and completely revolutionize the way of conducting business. Some of these e-business models include online direct marketing, online auctions, product customization, value chain integrators, supply chain improvers, and others. Finally, the Internet can also offer new strategic opportunities to organisations seeking to transform their SCM. The global networked environment actually allows for the realization of the potential of IT, since it enables companies to realize the major capabilities of information systems. The Internet makes it possible for IT solutions, such as ERP and SCM software packages, to give the most to the businesses that choose to employ them. In addition, the Net also allows for e-commerce between millions of businesses and individual customers from all over the globe. Lastly, the Internet enables companies to select among alternative ebusiness models, because these ventures do have the medium through which to realize their innovative and daring ideas and concepts. Certainly, some limitations of IT, e-commerce, ebusiness, and the Internet still exist, and companies need to recognize those in order to avoid disillusionment (Huff, 2001). However, the benefits of these ‘enablers’ and ‘drivers’ for organisations, customers, and the general public far outweigh their disadvantages. Therefore, the accumulation of knowledge and the development of know-how regarding IT, ecommerce/e-business, and the Internet can make all the difference in the world for compa-


nies that need or want to successfully transform their supply chain management in order to be competitive in today’s cutthroat business environment.

II. The most important key success factors in any SCM transformation exercise. After having discussed the importance of acquiring knowledge of IT and e-business models for companies, it is useful to identify the most important key success factors (KSFs) in any SCM transformation exercise. Once the goals have been identified, organisations must set to find ways of realizing them. By focusing on certain crucial areas, businesses can use the KSFs to their advantage. In fact, authors such as Afuah and Tucci (2003) have developed complete models that aim to show the correct approach to finding a sound e-business model by recognizing the most essential factors of success. These numerous KSFs are widely recognized by many authors and they are worth examining in detail. Porter (2001) defines KSFs as the areas or functions where things must go right to ensure successful competitive performance for an organisation. In addition, Liang et al. (2004) suggest that KSFs are the differentiating factors between the organisations that succeed and the ones that fail. Therefore, business leaders must identify the existing performance gaps in their organisations and discover ways of improving. Collaboration, successful relationships, and networking present the first group of KSFs for organisations seeking to transform their SCM. Collaboration emphasizes clear partnership, which, as Kalakota and Robinson (2001) argue, should include appropriate use of resources needed for Internet business implementation. Furthermore, inter-organisational relationships are critical for the success of any e-business. On the other hand, alliances present yet another type of today’s successful relationship between companies that employ the Web to manage their e-business effectively. In fact, according to Kalakota and Robinson (2001), being an e-business means collaboration and networking with like-minded, Internet-enabled trading partners. An example is the relationship between Amazon.com and Toys ‘R’ Us, which created a co-branded site whereby Amazon.com developed the web pages, housed the entire inventory in its warehouses, filled orders, and handled customer service and returns. In doing so, Amazon acquired options to expand its business scale in the toy segment (Turban et al, 2004). In addition, networking is also very important, especially for the sustainability of an e-business model (Afuah and Tucci, 2003). Since, in order to survive, ebusinesses must create networks with other firms in ways allowing both sides to benefit as much as possible. As the digital era is constantly witnessing massive changes, e-business, especially over the Internet, should be considered increasingly difficult to sustain. Top management support and commitment, as Dickson and DeSanctis (2001) argue, is another key success factor for successful implementation of SCM transformation processes


for any organisation. The effectiveness of an e-business model depends upon the amount of support by upper management. In fact, most experts agree that a lack of commitment on the part of management is a sure sign of failure. Indeed, many argue that the top management involvement and commitment is one of the most critical factors for the success of ebusiness (Turban et al., 2004). Considering the Afuah & Tucci model, this particular KSF relates to the implementation component of the e-business model, defining what people need and what the Internet strategy is giving them. Setting strategic goals is another KSF that, as Lee (2002) points out, makes the e-business model consistent with business objectives in order to achieve success. A good example is that of the Millipore flooring company, which decided on two strategic goals for its Web-site in order to increase international business opportunities. First, to enable the existing and potential customers to interact directly with the company’s information on various technical, application, product, news and ordering aspects. Second, to enable its marketers to deal with strategic partners, regulatory agencies and external databases. Another example is the lesson learned by 3M’s eBiz team to always keep the focus on achieving the business goals, without separating the business from its ebusiness strategy (Porter, 2001). On the other hand, keeping in mind the Afuah & Tucci model, those firms who rush to enter the Internet’s highly competitive environment without a carefully planned strategy and business model face a high probability of failure. Integrating the e-business strategy with the marketing strategy, another KSF, provides ebusinesses with the opportunity to differentiate from competitors. Porter (2001) argues that integrating Internet with a business marketing strategy is an important component for successful e-business. Turban et al. (2004) show that successful Internet marketers are those that build systems that can be integrated with existing applications and serve the needs of trading partners at either end of the value chain (e.g. Toyota, Dell, 3M, Nabisco and Sun Microsystems). Taking into consideration the Afuah & Tucci model, this KSF pertains to the connected activities component of the model. It has to do with the question of how the Internet changes the direction of strategy and how the marketing strategy helps for the very success of the e-business model. In addition, the e-business environment, culture, and regulations represent another KSF for e-business. Brynolfsson and Kahin (2001) suggest that cultures of different countries as well as the internal cultures of organisations must be taken into account when doing e-business. In fact, providing information that will be desired by a variety of people with different needs and tastes would result in a mix of nationalities and cultures. Companies like Dell, through its built-to-order system, consider very seriously the cultural dimension. Bearing in mind the Afuah & Tucci model, this KSF is connected to the scope component of the business model, since it determines the ‘permitted’ environment, where the business can satisfy its employees and customers. Also, it connects with the implementation component, defining all conditions and people who are involved in the business.


From financial point of view, the main KSF is the maximization of the return on investment. Whether instigated primarily by cost reduction motives or to sustain competitive advantage, becoming an e-business represents an investment of sizable magnitude (Goutsos and Karacapilidis, 2004). Identifying the return on investment or ROI, for such a business, is as important as the business itself. In fact, the ROI component may be crucial to the future direction of e-business (Libresco, 2000). With regard to the Afuah & Tucci model, this KSF relates to the revenue source component of the e-business model. The approach to revenue is different in comparison to traditional businesses, which are often based on large volumes of sales. E-business is based on attracting more customers and satisfying their needs and wants, thus maximizing the customer value and making revenues from customer investments in the particular e-business. Trust and security are also considered to be vital factors that determine the success of any ebusiness model. As consumers gain more knowledge of the Internet, trust in e-businesses will become a key differentiator that will determine the success or failure of many companies. The trust of consumers in e-business could be divided into three areas: trust in the Internet and the specific Web-site, trust in the information displayed, and trust in delivery fulfillment and service (Brynolfsson and Kahin, 2001). In fact, trust has an influence on developing positive customer attitude, intention, and purchasing. Moreover, according to Huff (2001) one of the most common problems occurring over the Net is connected to the security of financial transactions and payment systems. Another important KSF for any organisation’s SCM transformation exercise and e-business model is attracting customers and sustaining their acceptance. Companies should make special efforts to motivate customers to make the move to an online environment; otherwise they will be lost in a crowd of competing firms and will never become connected to the electronic marketplace. Businesses have to prepare efficient internal systems to respond quickly to customers’ requests, questions, and comments (Johnson and Seungjin, 2002). According to Kalakota and Robinson (2001), the operational excellence model that delivers the highest customer satisfaction is built on an e-business infrastructure that has four characteristics: it is user-friendly, functional, reliable, and delivers integrated performance. According to Neumann (1994), the opinion of end-users or the customers is the only thing that matters when determining whether any business is a success or not. These two factors relate to the customer value component of the Afuah & Tucci model. The reason is that both factors are aiming to attract new customers in every possible way and to retain existing ones for the long-term. Other two KSFs of considerable importance to an SCM transformation exercise and ebusiness are IT infrastructure and web-site design. Broadbent and Weill (1997) consider an adequate IT infrastructure to be a vital factor in successful e-business. Some important ele-


ments that must be considered include computer literacy (all parties in the relationship or transaction must be familiar with PCs and appreciate the benefits and potential of IT applications) and availability of equipment for access and services. (For more detailed discussion of IT infrastructure and architecture, please refer to Section IV) The Afuah & Tucci model demonstrates that IT infrastructure is a KSF that relates to the capability component on one hand, giving explanation through the practice and theory that need to be learned, and to the pricing, depending on how expensive technology would be used and how much it would lower the costs of doing business, on the other. Lastly, web-site design represents another crucial KSF. In fact, the creation of a web-site is not a one-time effort. Web-sites must provide valuable, accurate content and information that is continually maintained and updated if they are to attract new customers and encourage them to return (Kumar, 2001). The majority of on-line users come to the Internet for relevant information, and organisations that provide more such information on their products and services are more likely to succeed. According to the Afuah & Tucci model, web-site design is part of the capability components, which relate to the question of what the business can offer to customers that differentiates them from competitors. In addition, this KSF also has to do with the implementation component, because web-site design is one of the most powerful tools a business can use to implement its activities. In summary, all these KSFs and others, that may be more important to specific companies and organisations, must be taken into serious consideration by managers seeking to successfully implement a SCM transformation (Afuah, 2003). By utilizing IT and newly-developed e-business models, companies must realise that these principles that the KSFs represent are the ones that may lead to long-term success. Of course, these must not only be realized but rather fully integrated into the e-business and overall strategy of a firm. While learning some important lessons from the Afuah & Tucci model, many managers may be on their way of establishing the structures of successful e-business/e-commerce models for the future.

III. How the “six shifts in business focus driven by SCM” can affect the nature of competition and competitive advantage. In their article “The Supply Chain Management Effect”, Kopczak and Johnson (2003) explain their research and findings concerning the “six shifts in business focus driven by SCM”. The authors reveal that SCM has increasingly been finding its place as one of the most dominant business philosophies of the past decade. More and more businesses have understood the opportunities that properly utilized SCM can provide to organisations. In fact, the influence of SCM has been so great that it has shifted business focus in a number of important ways. According to Kopczak and Johnson (2003), supply chain management has resulted in six major shifts in business focus, and each shift has redefined management’s view of what busi-


ness questions are being asked as well as what information needs to be gathered and shared. It is interesting to note that several factors have contributed to the facilitation of those shifts. IT has been recognized as the major enabler of this transformation. Advances in information technology, including ECR (efficient consumer response) and collaborative planning, have greatly contributed to the occurrence of the six shifts. It is useful to consider each of these shifts in detail.

Shift 1. From Cross-Functional Integration to Cross-Enterprise The first of the shifts has been from cross-functional integration within companies to integration across companies. In fact, IT advances have enabled this shift to a considerable degree. Companies have sought to better coordinate and improve supply and thus satisfy more customers by building deep and better supplier relationships (Kopczak and Johnson, 2003). It just takes some reading to spot the quiet change that is sweeping the business world. Suppliers and customers alike are being renamed to ‘business partners.’ This simple change of words, however, may convey a lot of meaning. Although companies still face certain difficulties with improving the supply-side, the situation is much better. Global companies continue to network their IT systems, and extranets have become ubiquitous. While in the past business relations were characterized mainly by rivalries, now terms like ‘collaboration’ seem more appropriate. For example, Dell has regular meetings with its suppliers to find more ways to streamline the supply-chain. The company also sends its special squad that analyzes each supplier’s business processes and tries to improve them, for the supply-chain’s benefit as a whole. Toyota also supervises its suppliers, by sending monthly report cards to coresuppliers, thus facilitating immediate and constant feedback. It develops suppliers’ technical capabilities. It also shares information intensively, though selectively, and conducts joint improvement activities (Kopczak and Johnson, 2003). These and other examples clearly show that companies who cooperate sensibly are likely to reap major benefits.

Shift 2. From Physical Efficiency to Market Mediation Companies that excel at SCM usually manage two aspects of supply: physical supply and market mediation. In the past, the focus has been on the physical supply since it has been clearer for companies to identify and understand. However, since businesses have increasingly realized the importance of market mediation costs, more emphasize has shifted towards the latter. In fact, a supply-chain cannot work unless it is based on three core principles (the three A’s): Agility, Adaptability and Alignment (Fisher, 1997). If it is not agile, it cannot respond to unexpected changes. If it does not adapt while markets or strategies


evolve, it will become obsolete. If it is not aligned, then its members will not work in the direction, which will maximize the chain’s profits. Incentives, which have proved to be a very important tool, are used to address market-mediation costs. This can significantly affect the chain’s performance. The danger of non-alignment can be understood by looking at Cisco’s case. Everyone thought Cisco’s supply chain was infallible. However, in 2001 Cisco had to write-off $2.5 billion worth of inventory. Since Cisco uses contractor manufactures, some of them had stockpiled semi-finished products because demand for Cisco’s products usually exceeded supply. They had an incentive to build buffer stocks, and Cisco rewarded them when they delivered supplies quickly. Contractors had nothing to lose by building excess inventory; however, in this case the problem was apparent (Donovan, 2002). The lesson learned was that correct alignment can minimize the costs of matching supply and demand, while allowing for continuing reduction in the costs of production and distribution.

Shift 3. From Supply Focus to Demand Focus A third important shift has shown that while companies do maintain efforts to improve supply, many have put even more emphasis on gathering better demand information and employing demand management. In essence, the entire philosophy of the old ‘push’ strategy has been replaced by the new ‘pull’ strategy (Kotler, 1994). Some practical examples come from Japan. In Toyota there is a term for surplus inventory: muda (or ‘waste’). Companies now have the experience, the will, and the technological infrastructure to tackle this major problem. Two decades ago inventory and stock levels had to be high. Now companies use JIT and ECR (effective customer response) techniques in order to eliminate waste. CRM and ERP programs include modules that make accurate forecasts and thereby reduce the risk of overstocking or stock-outs. Seven-Eleven Japan (SEJ) is an example of how a company that builds its supply chain on agility, adaptability, and alignment stays ahead of its rivals. The company has designed its supply chain in such a way that allows it to respond to quick changes in demand. It has invested in real-time systems to detect changes in customer preferences and tracks data on sales and consumers at every store. The data allows the supply chain to detect fluctuations in demand between stores, to alert suppliers of potential shifts in requirements, to help reallocate inventory among stores, and to ensure that the company restocks at the right time (Kopczak and Johnson, 2003). Shift 4. From Single-Company Product Design to Collaborative, Concurrent Product, Process and Supply-Chain Design Today, most business has shifted toward collaboration in one way or another. Companies now no longer design products separately, but rather do it in collaborative, concurrent ways.


They also do it along the entire supply chain, involving their suppliers and customers. Since it is usually customers that know their needs and preferences best, many companies have involved the consumers in the product/service design process. Examples include GE with their “LightSpeed VCT” heart scanner; Staples, the American office-supplies retailer, with their “wordlock” gadget (a padlock that uses words instead of numbers); and BMW with their prototype telematics (combining computing, telecommunications, and online services for a new generation of luxury cars) (Turban et al., 2004). In other cases companies have send the basic requirements (size, shape, function) to their supplies and have asked them to design the products/services themselves. Other even more inventive companies buy the design, customize it and sell it under their own brand (e.g. Motorola phones). Toyota, when it needs new parts for its models, sends the description of the part (i.e. tires) to the vendors. Toyota provides the vendors with feedback and suggestions during the design stage. It then tries the prototypes. The vendor who will offer the best quality/price will earn a contract for the lifetime of the model. It is probably no surprise that Toyota’s models rank first in terms of quality (Huff, 2001). The important point is that all of these companies and others have realized that collaborating with customers and suppliers often proves extremely beneficial.

Shift 5. From Cost Reduction to Breakthrough Business Models Tesco, Toyota, Dell, Zara, Southwest, IKEA, Seven-Eleven Japan, Samsung, Amazon and P&G are all companies who are true leaders in their industries. The reasons behind this are their business models (Afuah, 2004). All these companies have, by combining IT and SCM, created new unique business models. Dell, for example, has dominated the PC retailing business by cutting off the intermediates. Today, in 2005, Dell Computer has an unrivaled market share due to the incredible combination of innovative SCM with a breakthrough business model. P&G, the consumer goods giant, invests heavily in technology (especially CRM systems) in order to create promotions for its products, to gauge their success, to help redirect marketing dollars to more profitable activities and propose new products that could boost sales. P&G also employs IT techniques that help the whole supply chain to run smoothly and avoid stock-outs at retailers. P&G continues to grow while its rivals, Unilever and ColgatePalmolive, lag behind it. Finally, the venerable Toyota is not only the world’s most profitable automotive company but also the company behind Just-in-time, one of the most used principles of SCM. All these companies have the best growth rates in their industries and they boast the highest margins. The advent of the Internet, the increase of international trade, the ability to produce everywhere, the proliferation of business software and computer hardware, and the accumulated business expertise have led to the creation of a very strong competitive advantage, SCM (Barnes-Vieyra and Claycomb, 2001). Companies that recognize this opportunity and take advantage of it are the ones most likely to succeed.


Shift 6. From Mass-Market Supply to Tailored Offerings The era of the Mass-Market is almost over, because businesses differentiate more and more. Segments are more difficult to define, and tastes and preferences change on a daily basis. Since customer loyalty is difficult to maintain, companies are now trying to snatch competitors’ customers, while retaining their own (Kopczak and Johnson, 2003). This shift can be clearly observed in the fashion industry. What is trendy today can easily be considered oldfashioned in a month. To deal with this, Zara uses a postponement strategy. It orders 40% of its fabrics dyed and the other 60% white. Zara never keeps a SKU (stock keeping unit) more than three weeks. If a color does not sell well, Zara stops producing it and starts producing a different one. This saves time, money, and creates a product that customers want. KimberlyClark, on the other hand, uses CRM to design promotional packages for specific retailers. Now Kimberly-Clark is implementing an ambitious system designed to reach into a wide array of consumer-advertising and promotional activities (Turban et al., 2004). Other businesses have also been quick in recognizing the shift from mass marketing to tailored offerings. In many industries, the battle for customers has begun, and the companies that stay behind may never catch up. It has been argued that SCM and IT, both as an enabler and a driver, have changed industries, introduced new business models, and altered the nature of competition. In fact, companies that do understand the six shifts influenced by SCM are more likely to become and remain competitive than their rivals who fail in this endeavor. All of these shifts have completely changed the nature of marketing and competition. The focus on collaboration across company lines, demand rather than supply-side issues, more specialization, and development of unique business models to respond has been very clearly displayed in the business of the past decade. The six shifts have also meant that companies can now develop breakthrough competitive advantages using a large array of tools, including SCM and IT-assisted solutions and applications. However, these shifts have also meant that sustaining those competitive advantages will become more and more difficult as these tools are discovered by more and more businesses (Porter, 1985). At the moment, the companies that pioneered SCM are reaping the rewards and enjoying windfall profits. Sooner or later, however, their competitors will finally catch up. Yet, by then new business models will have appeared to take the lead over the incumbents. This is the story of evolution. Countries rise and fall, businesses flourish and go bust. Processes and strategies gain and lose in popularity and acceptance. But the chips are on the fact that the following decade will most likely belong to SCM (Kopczak and Johnson, 2003).


IV. How the IT architecture of an organisation affects its ability to transform its Supply Chain Management. In order to understand how the IT architecture of an organisation can affect its ability to transform its SCM, it is important to jointly consider the concepts of information infrastructure and information technology architecture. As seen in Section II, the information infrastructure of an organisation is extremely important and is even considered a key success factor in any SCM transformation exercise. In fact, the information infrastructure refers to the physical facilities, services, and management that support all shared computing resources in an organisation (Turban et al., 2004). According to Broadbent and Weill (1997), there are five major components of the infrastructure: computer hardware, software, networks and communications facilities (including the Internet and intranets), databases, and information management personnel. IT infrastructure is in turn derived from IT architecture. The IT architecture then is a map of the information assets in an organisation. On the Web, IT architecture includes the content and organisation of the site as well as the interface to support browsing and search capabilities. The IT architecture of an e-business is a guide for current operations and an outline for future directions (Turban et al., 2004). It assures managers that the organisation’s IT structure will meet its strategic business needs. Creating the IT architecture is a recurring process, which is driven by the business architecture. Finally, the business architecture describes organisational plans, visions, objectives and problems, and the information required to support them (Koontz, 2000). It is also important to recognize the different ‘types’ of IT architectures that may exist in organisations based on the predominant computing environment. In fact, the type of IT architecture that a particular organisation uses would also determine its ability to transform its SCM. The different environments that can exist in organisations concerning IT architecture fall under three categories (Turban et al., 2004). First, in a mainframe environment, processing of information is done by one or more mainframe computers. Users work with passive terminals to access information, while being controlled by the mainframe. In a PC environment, on the other hand, only PCs provide the computing power in the information system. In this scenario, numerous computers can be connected to form a network. And finally, in distributed computing (where processing work is divided between two or more computers, using a network for connection) the participating computers can be all mainframes, all PCs, or as in most cases, a combination of the two types. Distributed computing is the predominant model in organisations today since it provides some important advantages. First of all, many software applications can be shared among users with the use of networked computers and the necessary software. In addition, this type of IT architecture provides more flexibility to organisations that can make use of it by transforming their SCM to better integrate the needs of their suppliers and customers throughout the supply chain


(Harmon, 2001). A successful example of an organisation transforming its IT architecture to improve its SCM is the case of Chase Manhattan Bank (now J. P. Morgan Chase). The company reorganized many of its processes and designed improved IT architecture to expand its service range and create additional value for both its partners and customers (Turban et al., 2004). To better understand how IT architecture affects an organisation’s ability to transform supply chain management, some additional concepts should be explored as well, namely the ‘range’ and ‘reach’ capabilities. In essence, both terms have to do with the scope of a business model, as described by Afuah and Tucci (2003). The ‘reach’ refers to the market segments or geographic areas that a company can target, while the ‘range’ has to do with the different types of products/services that the company can offer to the targeted segments of customers. In fact, in the past several decades, most organisations faced serious problems with both the ‘reach’ and ‘range’ due to the limited nature of IT systems (e.g. EDIs that were only used by large companies). Today the situation has improved considerably, and the problem of ‘reach’ has been solved almost entirely. This is, of course, due to the advent of the Internet, which now allows companies to connect their IT systems to the Web and use the Net for doing business. Now, it is no longer a question of how many customers can a company reach, but rather of how many is a business prepared to service. On the other hand, the problem of ‘range’ still causes trouble to many businesses. Even though IT and the Internet have brought considerable progress, some products and, especially, services cannot be provided electronically without compromising their quality. This problem is made even worse by the fact that many customers are unwilling to switch to e-business when it comes to some traditional offerings. However, it is likely that evolving technology will alleviate the situation in the future. In summary, in order to successfully transform their SCM, organisations must realize that by changing their supply chains to e-supply chains (please refer to Section I), by improving their IT architectures, and by collaborating with suppliers, customers, and even rival companies along the supply chain, they multiply their chances of success. In fact, organisations can also focus on CRM (customer relationship management) and especially on PRM (partner relationship management) to achieve better results. PRM uses automated processes to support partnerships, and it usually utilizes Web-based technologies. By securely acquiring, distributing, and managing information, PRM applications facilitate partner relationships and improve strategic alliances. (Turban et al., 2004) In fact, the more flexible an organisation becomes, the more likely it is to effectively and efficiently respond to customers’ needs and wants. One way through which companies can become more flexible involves the development of better IT architectures that foster this flexibility. Knowledge of information technology and the enormous opportunities provided by the Internet is essential so that businesses


can concentrate their resources appropriately in any SCM transformation exercise. Lastly, the e-business opportunities of today’s highly competitive business environment seem to be more sensibly explored with cooperative efforts and initiatives. This is not to suggest that companies should not strive for individuality and uniqueness, but rather to propose that constructive collaboration is what often makes the difference between failure and success.

As described in Sections I through IV, there is a number of important issues that must be considered by companies seeking to transform their SCM and proceed into e-business. Organisations must have extensive knowledge of the processes of SCM as well as of the different types of e-business models and their implications. In addition, businesses must learn to identify the key success factors that contribute to a sound e-business model and make use of them accordingly. Companies should be aware of the major shifts in business focus influenced by SCM and pay particular attention to the emphasis upon collaboration, customer focus, and customization of products/services. Furthermore, successful organisations must know their IT architectures well and the opportunities that these provide for doing business. If a specific need is identified, the IT architecture of a company must be transformed in order to better support the SCM function. In fact, businesses can also approach the opportunities for gradual improvement offered by BPR or business process redesign, rather than business process reengineering described by Hammer and Champy (1993). Once a company has maximized its SCM function via the use of IT and the Internet, it can also seek to improve particular processes that seem to lag behind in speed or performance. Since BPR offers considerable options, organisations can aim at redesigning individual processes or groups of processes simultaneously (El Sawy, 2001). Finally, some businesses can even go a step further and explore the opportunities of DBD (digital business design). Some authors, including Slywotzky and Morrison (2001), have argued that DBD is yet another dimension in the development of business. Digital business design is described as the art and science of using digital technologies to expand a company’s strategic options. DBD is not about technology for its own sake; it is about serving customers, creating unique value propositions, leveraging talent, improving productivity, and increasing profits. According to Slywotzky and Morrison (2001), DBD is about using digital options to craft a business model that is not only superior, but also unique. What is certain is that businesses should definitely understand technology, but, even more importantly, they must rely upon solid business models and strategies if they are to benefit from the often complementary nature of IT and the Internet. Because, as Michael Dell perhaps put it best, “If you take a business that is a bad business and put it on-line, it’s still a bad business. It’s just become an on-line bad business” (Slywotzky and Morrison, 2001).


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