2-1, LR
Introduction and background
Supply chain
management and the
Internet
William M. Lankford
The author
William M. Lankford is at the Richards College of Business at
the State University of West Georgia, Carrollton, Georgia, USA.
Keywords
Supply chain management, Inventory control,
Distribution management, Operations management
Abstract
Supply chain management (SCM) encompasses all activities
associated with a firm moving its composite flow of information,
materials and services from the raw materials stage through
production and on to the end customer. This includes sourcing
and procurement, production scheduling, order processing,
inventory management, transportation, manufacturing,
warehousing, customer service and the information systems
used to monitor these activities. The sudden increase in
electronic commerce and the Internet have resulted in new
opportunities to improve the performance of the supply chain.
Potential internet-based opportunities and problems related to
SCM will be discussed.
Electronic access
The Emerald Research Register for this journal is
available at
www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is
available at
www.emeraldinsight.com/1468-4527.htm
Online Information Review
Volume 28 · Number 4 · 2004 · pp. 301-305
q Emerald Group Publishing Limited · ISSN 1468-4527
DOI 10.1108/14684520410553796
301
Business is becoming increasingly competitive and
needs to find creative ways to operate as efficiently
as possible. In the late 1980s and early 1990s, this
was achieved through downsizing as
manufacturing became more efficient in producing
goods. As businesses search for other efficiencies,
one opportunity is streamlining supply chain
management. The Internet is playing an increasing
role in the search for efficient supply chain
management (SCM), but the novelty of both the
concept of SCM and the Internet has placed the
combination of the two in the position of finding
the right balance of both.
“Traditional” supply chain management
Logistics management refers to the concept of an
organization achieving greater goods-related
efficiency, whether those goods are raw materials
for manufacturing, getting finished product to
distribution centers, or forecasting with greater
accuracy. Nearly all aspects of business from
design through delivering to the customer can
qualify in some manner as being contained within
the supply chain (Anon, 1999).
The ultimate goal of SCM is to integrate many
of the aspects of total quality management (TQM)
that contribute to increased manufacturing
efficiency and quality while reducing costs and
maintaining the customer as the ending station of
the production line (Deming, 1986). It
incorporates the goals of just-in-time (JIT)
manufacturing in which producers maintain just
enough raw materials to produce only those goods
that will be needed right away. JIT depends on
accurate forecasting and close cooperation with
suppliers to achieve success, but pays off in less
capital tied up in raw materials, finished goods that
may or may not sell, and the expense of storage.
Applicability of the Internet
The Internet can provide for the exchange of
information crucial to efficient SCM, either in the
form of Web pages accessible only to specific
vendors or by means of an intranet enabled by the
Internet. For the manufacturer dependent on
vendors to maintain sufficient inventories of
components to supply the manufacturer’s JIT
needs, the manufacturer necessarily must inform
the vendor not only of its upcoming needs; it also
Revised article received 15 April 2004
Accepted for publication 16 April 2004
 Supply chain management and the Internet
William M. Lankford
needs to give the vendor access to current
inventory levels. If it is to be the responsibility of
the vendor to deliver components on an as-needed
basis, then the vendor needs to be able to identify
when that need has arrived.
The Internet also has given rise to another
feature of SCM in providing a venue for business-
to-business product and services sales. Business-
to-business e-commerce grew much more quickly
than did the market for consumer goods:
Forrester Research projects that Internet business-
to-business sales will increase to $2.7 trillion in
2004, with 53 percent flowing through e-hub
(Nelson, 2000, p. 1).
In the new economy, one of the greatest changes is
the level of competition. Poor decisions can
weaken an organization’s competitive advantage. It
also has become necessary to manage, rather than
“run” a company in the ways in which many
organizations formerly survived. Louis and Carson
wrote that the then-emerging new economy would
force executives to perform well:
Many lost a measure of job security when they lost
inflation, unable to cover their sins with price
increases, they must learn to cut costs, raise
productivity, and adapt swiftly to customer needs
(Louis and Carson, 1986, p. 21).
Cutting costs has been one result of globalization;
finding new and larger markets has been another.
Many nations that were considered to be
underdeveloped 20 years ago are now able to
compete in today’s market. The new economy
depends less on where organizations are located
when taking advantage of communications
capabilities, such as the Internet and wireless
technologies, which did not even exist when Louis
and Carson (1986) made their predictions.
The importance of Internet-based supply
chain management
Many firms have improved both internal efficiency
and quality management practices to the extent
that additional cost reduction and quality
improvements may offer little additional
competitive advantage. Increasing the speed of the
supply chain may be the best opportunity to
reduce costs, improve productivity, decrease order
cycle time and increase profits. Supply chain
management may represent the single most
effective tool that today’s organizations can employ
to create competitive advantage in their markets
(Lattimore, 2001). According to Mecker (1999),
the battle for leadership in many business markets
has shifted from company versus company to one
company’s virtual supply chain versus another’s
(Mecker, 1999).
An effective supply chain requires integration,
collaboration, reliability, speed and flexibility to
302
Online Information Review
Volume 28 · Number 4 · 2004 · 301-305
maximize both customer and supplier
relationships. While many strategies can be used to
improve the performance of the supply chain, the
growth in electronic commerce and Internet usage
has increased its importance as an SCM tool.
Measuring a supply chain’s performance
The performance of a supply chain is evaluated by
how it reduces cost or increases value. SCM
performance monitoring is important; in many
industries, the supply chain represents roughly 75
percent of the operating budget expense (Palevich,
1999). Three common measures of performance
are used when evaluating SCM performance
(Chase et al., 2001, pp. 332-338):
(1) Efficiency focuses on minimizing cost by
decreasing the inventory investment or value
relative to the cost of goods sold. An efficient
firm is therefore one with a higher inventory
turnover or fewer weeks’ worth of inventory
on hand.
(2) Responsiveness focuses on reduction in both
inventory costs and missed sales that comes
with a faster, more flexible supply chain. A
responsive firm is proficient in an uncertain
market environment, because it can quickly
adjust production to meet demand.
(3) Effectiveness of the supply chain relates to the
degree to which the supply chain creates value
for the customer. Effectiveness-focused
supply chains are called “value chains”
because they focus more on creating customer
value than reducing costs and improving
productivity.
To examine the effect of the Internet and
electronic commerce on the supply chain is to
examine the impact the Internet has on the
efficiency, responsiveness, effectiveness, and
overall performance of the supply chain.
Advantages of Internet/e-commerce
integrated supply chain
The primary advantages of Internet utilization in
supply chain management are speed, decreased
cost, flexibility, and the potential to shorten the
supply chain.
Speed
A competitive advantage accrues to those firms
that can quickly respond to changing market
conditions (Mecker, 1999). Because the
Internet allows near instantaneous transfer of
information between various links in the supply
chain, it is ideally suited to help firms keep pace
with their environments. Many businesses have
placed a priority upon real-time information
regarding the status of orders and production from
other members of the supply chain (Demers,
 Supply chain management and the Internet
William M. Lankford
2001). Federal Express is an example of such a
business (King, 1999). Federal Express allows
customers to track packages easily and quickly
themselves in real-time. This makes Federal
Express a critical member of other organizations’
supply chains.
For example, Federal Express has partnered
with Hewlett-Packard so that when a customer
orders a printer directly from the Hewlett-Packard
Web site, the order actually goes to Federal
Express via the Internet. Federal Express fulfills
and ships the order from its own facility that
warehouses all the products Hewlett-Packard sells
online. When Federal Express ships the orders, it
sends e-mail notifications to customers to let them
know that the goods are on the way and inventory
notices to Hewlett-Packard that facilitate
continuous stock replenishment at the Federal
Express warehouse facility. Federal Express is
exploiting the speed and interactivity of the
Internet to leverage its existing competency and
make itself an indispensable member of Hewlett-
Packard’s e-commerce supply chain (King, 1999).
Cost decrease
Internet-based electronic procurement helps
reduce costs by decreasing the use of paper and
labor, reducing errors, providing better tracking of
purchase orders and goods delivery, streamlining
ordering processes, and cutting acquisition cycle
times. Recent research by the Aberdeen group, an
Internet research firm, has shown that an Internet-
based electronic procurement system can cut
average purchase order processing costs from $100
(when done manually) to $33 and cut requisition-
processing time from about ten days to two-and-a-
half days (Williams, 2002). One survey of large
companies by an IT research and consulting firm
found that Internet-based electronic procurement
can save roughly 5 percent on high-cost strategic
goods, allow a reduction in procurement staff by
10 percent, and offer a return on investment as
high as 13-to-1 (Konicki, 2002).
Siemens AG made combined purchases of more
than $1 billion over a 12-month period in 2001/
2002 using a proprietary direct-materials
procurement Web portal that lets buyers and
sellers communicate via the Internet. Initial use of
electronic procurement helped certain divisions of
the company realize a savings of roughly $50 per
transaction when purchasing low-cost, low-
priority supplies. More recently, a Siemens
division saved 46 percent on a large contract for
high-priced strategic materials by negotiating the
deal via the Internet (Konicki, 2002).
Flexibility
The Internet allows for custom interfaces between
a company and its different clients, helping to cost-
303
Online Information Review
Volume 28 · Number 4 · 2004 · 301-305
effectively establish mass customization. A
manufacturer can easily create a custom template
or Web site for a fellow supply chain member with
pre-negotiated prices for various products listed on
the site, making re-ordering only a mouse click
away. The information regarding this transaction
can be sent via the Internet to the selling firm’s
production floor and the purchasing firm’s
purchasing and accounting departments. The
accuracy and reliability of the information is
greater than the traditional paper and pencil
transaction, personnel time and expense is
reduced, and the real-time dissemination of the
relevant information to interested parties improves
responsiveness. These advantages can benefit both
firms involved in the transaction.
The Ford motor company has embraced and
aggressively pursued an Internet-based supply
chain, attempting to divest itself of in-house
manufacturing, which is asset intensive and yields
low-margins. Ford has been focusing on
developing a highly-integrated, Internet-based
supply chain that depends heavily on outsourcing,
freeing the company to interact with customers,
forge better consumer relationships and enhance
their brand value (Akasie, 2000).
Shortening the supply chain
Dell computers has become a classic example of
the power the Internet can have on a supply chain.
Dell helped create one of the first fully Internet-
enabled supply chains and revolutionized the
personal-computer industry by selling directly to
businesses and consumers, rather than through
retailers and middlemen. In mid-1996, Dell began
allowing consumers to configure and order
computers online. By 1998, the company recorded
roughly $1 billion in “pure” Internet orders. By
reducing sales costs and attracting customers who
spend more per transaction, Dell estimates that it
yields 30 percent greater profit margins on Internet
sales compared to telephone sales (Joachim,
1998).
Disadvantages of Internet/e-commerce
integrated supply chain
Negative features of an Internet-integrated supply
chain include increased interdependence, the costs
of implementation, and keeping up with the
change in expectations.
Increased interdependence
It is true that the Internet facilitates various levels
of integration that help members of the supply
chain to create improved partnerships, coordinate
their operations more closely, and reduce
inefficiencies; however doing so requires an
enormous amount of trust and information
sharing (Palevich, 1999). To stay competitive,
 Supply chain management and the Internet
William M. Lankford
many companies find that they must share
information electronically that they once
considered proprietary (IIE Solutions, 1999).
Increased commoditization, increased
competition, and shrinking profit margins are
forcing companies to increase outsourcing and
subcontracting to minimize cost (Mecker, 1999).
By focusing on its core competencies, a firm
should be able to maximize its economies of scale
and its competitiveness. However, such a strategy
requires increased reliance and information
sharing between members of the supply chain.
Increased dependency on various members of the
supply chain can have disastrous consequences if
these supply chain members are unable to handle
the functions assigned to them.
The costs of implementation
Implementation of a fully-integrated Internet-
based supply chain is expensive. This expense
includes hardware cost, software cost,
reorganization cost, and training costs. Sonia
Syngal, Sun’s director of procurement strategy
commented on the implementation of Sun’s
Internet-based procurement strategy:
Making this work has more to do with cultural
change than the technology. It has been an exercise
in change management (London, 2001).
While the Internet promises many advantages once
it is fully integrated into a supply chain, a
significant up front investment is needed for full
deployment.
Keeping up with the change in expectations
Expectations have increased as Internet use has
become part of daily life. When customers send
orders electronically, they expect to get a quick
confirmation and delivery or denial if the order can
not be met (Democker, 2000). Increasingly, in this
and other ways, customers are dictating terms and
conditions to suppliers (IIE Solutions, 1999). Dale
Hayes, vice president of electronic commerce for
United Parcel Service, in a recent interview said:
We are not in control of our supply chain any more,
whether we like it or not. You, our customers, are
(O’Toole and Robinson, 1999).
The introduction of Internet-based supply chains
make possible the change to a “pull”
manufacturing strategy replacing the traditional
“push” strategy that has been the standard in most
industries.
Implementing an Internet-based system
William Copacino, an SCM analyst with Andersen
Consulting, says that the Internet is being used in
SCM but that it has not yet reached its full
304
Online Information Review
Volume 28 · Number 4 · 2004 · 301-305
capability in achieving the greatest benefit
possible. Copacino (2000) describes a system he
calls an “e-synchronized supply chain,” a concept
that links suppliers, manufacturers, distributors,
customers, and carriers in an Internet-enabled
electronic network that allows for coordinated
planning, real-time exchange of information,
bidding and negotiation, transaction execution,
and performance reporting. It will enable
profound improvements in efficiency and
effectiveness (Copacino, 2000, p. 38).
Business-to-business exchanges are developing
in nearly all industries and take the form either of
seller-centric, Web-centric or true exchanges in
which many sellers have access to many buyers.
The narrow view of using the Internet for SCM is
that of integrating a customer and several vendors
in full communication of formerly confidential
information. In this form, vendors have access to
customers’ needs based on the customer’s current
state of business that includes production
capabilities (i.e. the rate at which the customer will
use the material it already has in inventory), orders
pending, forecast sales for the immediate and
short-term future, and even forecasts for the long-
term so that vendors also can better plan their own
needs.
This is difficult for businesses to share with
outsiders; should competitors become aware of
such proprietary information the results could be
devastating. Organizations striving to achieve
optimum SCM through the use of the Internet
necessarily will need to have absolute confidence in
their suppliers and others involved in the supply
chain. However, this is not far from the level of
trust required to operate under a JIT system. Any
manufacturer depending on its vendors to ship
when existing inventories reach a predetermined
level have already entrusted those vendors with
significant responsibility for its success. Using the
Internet for the same purpose does not represent a
major paradigm shift in belief systems, only the
ability to operate the same systems within a
different setting (Anon, 2000).
Conclusion
The Internet provides a tool that allows supply
chain activities to be carried out in a synchronized,
instantaneous manner, facilitating maximum
supply chain performance. The positive benefits of
integrating the Internet into management of the
supply chain generally outweigh the risks and
associated costs, and firms who have completed
such integration hold a current competitive
advantage over those that have not. Internet
deployment is not a means to an end in and of
 Supply chain management and the Internet
William M. Lankford
itself, but is rather a supply chain management tool
that can be used to improve customer satisfaction,
reduce costs, smooth production flows and
shorten cycle times.
Research by the Forrester Research group
estimated that roughly $1 trillion in business was
done worldwide through e-commerce in 2000, and
predicted that this will increase to $6.9 trillion by
the end of 2004 (Urbanski, 2001). Within a few
years, larger firms will not be able stay competitive
without leveraging the power of the Internet to
improve their supply chain performance. For
better or worse, the Internet is an SCM tool that is
here to stay.
References
Akasie, J. (2000), “Ford’s Model E”, Forbes: Special B2B issue, 17
July, pp. 30-4.
Anon (1999), “Cahners Business Information launches supply
chain link Web site: supply chain professionals benefit
from a comprehensive information Web resource”,
Business Wire, 10 January.
Anon (2000), “E-logistics 2000 main conference, 24-25 May
2000”, WBResearch, available at: www.wbresearch.com/
elogistics00/
Chase, R.B., Aquilano, N.J. and Jacobs, F.R. (2001), Operations
Management for Competitive Advantage, 9th ed.,
McGraw-Hill, Boston, MA.
Copacino, W. (2000), “The e-synchronized supply chain”,
Logistics Management Distribution Report, Vol. 39, p. 38.
Demers, M.E. (2001), “The supply chain sprint”, Electronic
News, Vol. 47 No. 9, pp. 14-40, available at: www.reed-
electronics.com/electronicnews/article/
CA64048?text ¼ the+supply+chain+sprint
Deming, E. (1986), Out of the Crisis, MIT Center for Advanced
Engineering Studies, Cambridge, MA.
Democker, J. (2000), “Businesses seek to cut weak links from
supply chains”, Information Week, No. 776, pp. 141-6,
available at: www.informationweek.com/776/supply.htm
305
Online Information Review
Volume 28 · Number 4 · 2004 · 301-305
IIE Solutions (1999), “Control of the supply chain is shifting”, IIE
Solutions, Vol. 31 No. 7, p. 7, available at: www.iienet.org/
membersonly/backissues/0799.htm
Joachim, D. (1998), “Dell links virtual supply chain”,
Internetweek, No. 739, p. 1, available at:
www.internetwk.com/news1198/news110298-3.htm
King, J. (1999), “Shipping firms exploit IT to deliver e-commerce
goods”, Computerworld, Vol. 33 No. 31, p. 24, available
at: www.computerworld.com/home/print.nsf/all/
990802B16
Konicki, S. (2002), “Procurement power”, Information Week,
No. 900, p. 48, available at: www.informationweek.com/
story/IWK20020801S0004
Lattimore, O. (2001), “Electronic commerce tools that address
supply chain performance”, Logistics Spectrum, Vol. 35
No. 4, pp. 11-12.
London, S. (2001), “Sun smiles on auctions: e-procurement: the
company’s supply costs are being cut by a virtual
marketplace”, Financial Times, p. 21, 15 October.
Louis, A. and Carson, L. (1986), “Special Report”, Fortune 21,
23 June.
Mecker, S.S. (1999), “Internet supply chain management”,
Electronic News, Vol. 45 No. 33, pp. 48, available at:
www.reed-electronics.com/electronicnews/article/
CA66924?text ¼ internet+supply+chain+management/
Nelson, K. (2000), “B to B portal directory: show me the markets:
every industry has its own portals: here are hundreds of
the best”, B to B, Vol. 85, p. 1.
O’Toole, K. and Robinson, J. (1999), “Internet trade puts pressure
on businesses”, Sanford Online Report, 10 May, available
at: http://news-service.stanford.edu/news/1999/may12/
ecommerce-512.html
Palevich, F.R. (1999), “Supply chain management”, Hospital
Material Management Quarterly, Vol. 20 No. 3, pp. 54-63.
Urbanski, B. (2001), “Mining for gold on the Internet”, Air
Conditioning, Heating & Refrigeration News, Vol. 213
No. 15, p. 24, available at: www.achrnews.com/CDA/
ArticleInformation/features/BNP_Features_Item/
0,1338,60923,00.html
Williams, A. (2002), “Why e-procurement makes sense”,
Financial Executive, Vol. 18 No. 7, p. 45, available at:
http://finance.pro2net.com/x36303.xml