Managing a Business/E-COMMERCE
Q1.(A).Give a definition of Electronic commerce and Electronic commerce and the Trade cycle.
(B).Give a brief description on Internet Book shops and grocery
Q2.(A).Give EDI definition and the benefits of EDI.
(B).What is Inter-Organizational Transactions and the credit transaction Trade cycle?
Q3.(A).Write a note on markets and Electronic market and advantages and disadvantages of electronic market.
(B).Give details about postboxes and mailboxes and airline booking systems.
Q4.(A).Comment on competition and customer loyalty and web booking system.
(B).Write on the development of the Internet TCP/IP.
Q5.(A).Write a note on supply chain, porter’s value chain model, and Inter Organization value chain.
(B).What is competitive strategy? And competitive advantage using e-commerce.
Q6.(A). Write a short note on:
1. Bargaining power of buyer
2. Bargaining power of supplier
3. Business Environment
4. Business Capability
(B).Give Details about E-shop and Internet Shopping and the trade cycle.
(C).A web site Evaluation model and software supplier and support (comment)
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Q1 (a) Give a definition of Electronic commerce and Electronic commerce and the Trade cycle.
E-commerce (electronic commerce or EC) is the buying and selling of goods and services on the Internet. In practice, this term and e-business are often used interchangeably. For online retail selling, the term e-tailing is sometimes used.
Aspects of e-commerce include:
• E-tailing or "virtual storefronts" on websites with online catalogs.
• The gathering and use of demographic data through Web contacts.
• Electronic Data Interchange , the business-to-business exchange of data.
• email , <term>instant messaging</term> and <term>social networking</term> as media for reaching prospects and established customers.
• Business-to-business buying and selling.
• The security of business transactions.
E-tailing or The Virtual Storefront and the Virtual Mall
As a place for direct retail shopping, with its 24-hour availability, a global reach, the ability to interact and provide custom information and ordering, and multimedia prospects, the Web is a multi-billion dollar source of revenue for the world's businesses. As early as the middle of 1997, Dell Computers reported orders of a million dollars a day. By early 1999, projected e-commerce revenues for business were in the billions of dollars and the stocks of companies deemed most adept at e-commerce were skyrocketing. Web retailing continues to grow.
In early 1999, it was widely recognized that because of the interactive nature of the Internet, companies could gather data about prospects and customers in unprecedented amounts -through site registration, questionnaires, and as part of taking orders. The issue of whether data was being collected with the knowledge and permission of market subjects had been raised.
Electronic Data Interchange (EDI)
EDI is the exchange of business data using an understood data format. It predates today's Internet. EDI involves data exchange among parties that know each other well and make arrangements for one-to-one (or point-to-point) connection, usually dial-up. EDI may be replaced by one or more standard XML formats, such as ebXML.
Email, social networking and instant messaging
E-commerce is also conducted through email, instant messaging and social networking sites such as <term>Facebook</term>. To avoid the perception of spam, OPT-e-EMAIL is an option in which Web users voluntarily sign up to receive email, usually sponsored or containing ads, about product categories or other subjects they are interested in.
Business-to-Business Buying and Selling
Thousands of companies that sell products to other companies have discovered that the Web provides not only a 24-hour-a-day showcase for their products but a quick way to reach the right people in a company for more information.
The Security of Business Transactions
Security includes authenticating business transactors, controlling access to resources such as Web pages for registered or selected users, encrypting communications, and, in general, ensuring the privacy and effectiveness of transactions. Among the most widely-used security technologies is the Secure Sockets Layer , which is built into Web browsers.
Business Cycles: Meaning and Nature
Business cycle or trade is a part of the capitalist system. It refers to the phenomenon of cyclical booms and depressions. In a business cycle there are wave-like fluctuations in aggregate employment, income output and price level. The term business cycle has been defined in various ways by different economists. Professor Haberler’s definition is very simple when he says, “The business cycle in the general sense may be defined as alternation of periods of prosperity and depression of good and bad trade.” Keynes’s definition in his Treatise of money is more explicit: “a trade cycle is composed of periods of good trade charactertised by rising prices and low unemployment percentages, altering with periods of bad trade characterised by failing prices and high unemployment percentages.”
“Business cycles consist of recurring alternation of expansion and contraction in aggregate economic activity, the alternating movements in each direction being self-reinforcing and pervading virtually, all parts of the economy.”
“Business cycles are a type of fluctuations found in the aggregate economic activity of nations that organise their work mainly in business enterprise. A cycle consists of expansions occurring at about the same time in many economic activities followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic….” The same idea is expressed by Professor Estey in a simple way: “Cyclical fluctuations are characterised by alternating waves of expansion and contraction. They do not have a fixed rhythm, but they are cycles in that the phases of contraction and expansion recur frequently and in fairly similar patterns.”
An important point to be noted in the case of business cycles is that “no cycle is perfectly regular with uniform frequency and amplitude, that is, the time taken to move from one peak level of output to the next would always be the same, and the level of output and employment would always vary in the same proportion between the upper and lower turning-points. But such cycles have never occurred.” Thus business cycles are recurrent fluctuations in aggregate employment, income, and output and price level.
TYPES OF CYCLES:-
Business cycles are usually classified as under:
1. The Short Kitchin Cycle: - It is also known as the minor cycle, which is of approximately 40 months duration. It is famous after the name of the British economist Joseph Kitchin, who made a distinction between a major and a minor cycle in 1923. He came to the conclusion on the basis of his research that a major cycle is composed of two or three minor cycles of 40 months.
2. The Long Jugler Cycle: - This cycle is also known as the major cycle. It is defined “as the fluctuation of business activity between successive crises.” In 1862 Clement Juglers, a French economist showed that periods of prosperity, crises and liquidation followed each other always in the same order. Later economists have come to the conclusion that Jugler cycle’s duration is on the average nine and a half years.
3. The Very Long Kondratieff Cycle:- In 1925, N.D. Kondratieff, the Russian economist, came to the conclusion that there are longer waves of cycles of more than 50 years duration, made of six Jugler cycles. A very long cycle has come to be known as the Kondratieff wave.
4. Building Cycles: - Another type of cycle relates to the construction of buildings which is of fairly regular duration. Its duration is twice that of the major cycles are associated with the name of Warren and Pearson, two American economists who came to this conclusion in World Prices and the Building Industry (1937).
5. Kuznets Cycle: - Professor Simon Kuznets, the famous American economist, propounded a new type of cycle the secular swing of 16-22 years which is so pronounced that it dwarfs the 7 to 11 years cycle into relative insignificance. This has come to be known as the Kuznets Cycle.
PHASES OF A BUSINESS CYCLE
A typical cycle is generally divided into four phases: -
1. Expansion or Prosperity or the Upswing.
2. Recession or Upper-Turning Point.
3. Contraction or Depression or Downswing
4. Revival or Recovery or Lower turning point.
These phases are recurrent and uniform in the case of different cycles. But no phase has definite periodicity or time interval. As pointed out by Pigou, cycles may not be twins but they are of the same family. Like families they have common characteristics that are capable of description. Starting at the trough or low point, a cycle passes through a recovery and prosperity phase, rise to a peak, declines through a recession and depression phase and reaches a trough. This is shown in figure 32.1 where E is the equilibrium position. We describe below these characteristics of a business cycle.
We start from a situation when depression has lasted from some time and revival phase or the lower-turning point starts. The “originating forces” or “starters” may be exogenous or endogenous forces. Suppose the semi-durable goods wear out which necessitate their replacement in the economy. It leads to increased demand. To meet this increased demand, investment and employment increase. Industry begins to revive. Revival also starts in related capital goods industries. Once begun, the prices of revival become cumulative. As a result, the levels of employment, income and output rise steadily in the economy. In the early stages of the revival phase, there is considerable excess or idle capacity in the economy so that output increases without a proportionate increase in total costs. “But as time goes on, output becomes less elastic; bottlenecks appear with rising costs, deliveries are more difficult and plants may have to be expanded. Under these conditions, prices rise.” Profit increases. Business expectations improve. Optimism prevails. Investment is encouraged which tends to raise the demand for bank loans. It leads to credit expansion. Thus the cumulative process of increase in investment, employment, output, income and prices will feed upon itself and becomes self-reinforcing. Ultimately, revival enters the prosperity phase.
In the prosperity phase, demand, output, employment and income are at a high level. They tend to raise prices. But wages, salaries, interest rates, rentals and taxes do not rise in proportion to the rise in prices. The gap between prices and cost increases the margin of profit. The increase of profit and the prospect of its continuance commonly cause a rapid rise in stock market values. “All securities including bonds rise under the influence of improving expectations. The outstanding change is in stocks that, reflecting the capitalised values of prospective earnings, register in an exaggerated form the rising profits of enterprise.” The economy is engulfed in waves of optimism. Larger profit expectations further increase investment which is helped by liberal bank credit. Such investments are mostly in fixed capital, plant, equipment and machinery. They lead to considerable expansion in economic activity by increasing the demand for consumer goods and further raising the price level. This encourages retailers, wholesalers and manufacturers to add to inventories. In this way, the expansionary process becomes cumulative and self-reinforcing until the economy reaches a very high level of productions, known as the peak or boom.
The peak or prosperity may lead the economy to over full employment and to inflationary rise in prices. It is symptom of the end of the prosperity phase and the beginning of the recession. The seeds of recession are contained in the boom in the form of strains in the economic structure which act as brakes to the expansionary path. They are:
1. Scarcities of labour, raw materials, etc. leading to rise in costs relative to prices.
2. Rise in the rate of interest due to scarcity of capital.
3. Failure of consumption to rise due to rising prices and stable propensity to consume when incomes increase.
The first factor brings a decline in profit margins. The second makes investments costly and along with the first lowers business expectations. The third factor leads to the piling up of inventories indicating that sales or consumption lags behind production. These forces become cumulative and self-reinforcing. Entrepreneurs, businessmen and traders become over cautious and over optimism gives way to pessimism. This is the beginning of the upper turning point.
Recession starts when there is a downward descends from the ‘peak’ which is of a short duration. “It marks the turning period during which the forces that make for contraction finally win over the forces of expansion. Its outward signs are liquidation in the stock market, strain in the banking system and some liquidation of bank loans, and the beginning of the decline of prices.” As a result, profit margins decline further because costs start overtaking prices. Some firms close down. Others reduce production and try to sell out of accumulated stocks. Investment, employment, incomes and demand decline. This process becomes cumulative.
Recession may be mild or severe. The latter might lead to a sudden explosive situation emanating from the banking system or the stock exchange, and a panic or crisis occurs. “When a crisis, and more particularly a panic, does occur, it seems to be associated with a collapse of confidence and sudden demands for liquidity. This crisis of nerves may itself be occasioned by some spectacular and unexpected failure. A firm or a bank or a corporation announces its inability to meet its debts. This announcement weakens other firms and banks at a time when ominous signs of distress are appearing in the economic structure. Moreover, it sets off a wave of fright that culminates in a general run on financial institutions…Such was the experience of the United States in 1873, in 1893 and in 1907.” In the words of M.W.Lee, “A recession, once started, tends to build upon itself much as forest fire, once under way, tends to create its own draft and give internal impetus to its destructive ability.
Recession leads to depression when there is a general decline in economic activity. There is considerable reduction in the production of goods and services, employment, income, demand and prices. The general decline in economic activity leads to a fall in bank deposits. Credit expansion stops because the business community is not willing to borrow. Bank rate falls considerably. According to Professor Estey, “This fall in active purchasing power is the fundamental back ground of the fall in prices. That, despite the general reduction of output, charactertises the depression.” Thus a depression is characterised by mass unemployment; general fall in prices, profits, wages, interest rate, consumption, expenditure, investment, bank deposits and loans; factories closedown; and construction of all types of capital goods buildings, etc.—comes to a standstill. These forces are cumulative and self-reinforcing and the economy is at the trough.
The trough or depression may be short-lived or it may continue at the bottom for considerable time. But sooner or later limiting forces are set in motion which ultimately tends to bring the contraction phase to end and pave the way for the revival. A cycle is thus complete.
The behaviour of a business cycle is difficult to determine because of the multitudinous factors and circumstances that lie behind cyclical fluctuations. Attempts to explain them have brought forth a large number of theories. Some attribute cycles to exogenous causes and others to endogenous causes. Some economists classify business cycle theories them into real, psychological, monetary and those relating to variations in spending, saving and investment.
(b) Give a brief description on Internet Book shops and grocery
• The important differences between e-Commerce applications are:
• How they fit into the consumer market,
• How they are supported by the supply chain
• Their potential to alter the role of players in that supply chain.
2. Grocery Supplies;
• One of the first applications of e-Commerce
• Books have four advantages for the online retailer:
• They can be adequately described online.
• They are moderately priced.
• Many customers will wait for delivery.
• Delivery is manageable/affordable.
• Reactions of other players have included:
• Large existing players that set up their own e Bookstores;
• New operators have entered the online market;
• Conventional bookshop have been up-rated.
• e-Commerce has not altered the supply chain.
• All bookshops have two main sources of supply:
• Book wholesalers.
• Direct supply from the publisher.
(some e-fulfilment is direct from the wholesalers)
• Warehouse (as opposed to retail) premises
• Packaging and despatch
• IT infrastructure / Web site:
• A large database of books.
• A search engine for author, title, subject, etc.;
• Online access to details of stock
• Record of the readers’ interest
• Integration into the supply chain
• Amazon www.amazon.com,
• Barnes and Noble www.barnsandnoble.com
• Bertelsmann AG www.bol.com
• Blackwell www.bookshop.blackwell.co.uk
• Chapters www.chapters.ca
• Going to the supermarket can be just a chore - how much easier if, with just a few clicks of the mouse, the weekly shop could done.
• The logistics of an online supermarket are a bit different from other online stores:
• The supermarket stocks several thousand lines
• The customer may well select (say) 60 of them.
• Groceries are both bulky and perishable
• Common practice is to arrange a delivery slot with the customer.
• The home delivery grocery business requires local depots and it needs the same supply chain infrastructure, co-ordinated by EDI, that the supermarkets have in place.
• A home delivery operation can use a depot rather than a retail facility. However many existing players are using their local retail facilities for e-fulfilment.
• Peapod www.peapod.com
• Homestore www.homestore.com
• Sainsbury www.sainsbury.co.uk
• Tesco www.tesco.net
Q2 (a) Give EDI definition and the benefits of EDI.
(Electronic Data Interchange) The electronic communication of business transactions, such as orders, confirmations and invoices, between organizations. Third parties provide EDI services that enable organizations with different equipment to connect. Although interactive access may be a part of it, EDI implies direct computer-to-computer transactions into vendors' databases and ordering systems. An EDI message contains a string of data elements, each of which represents a singular fact, such as a price, product model number, and so forth, separated by DELIMITER.. The entire string is called a data segment. One or more data segments framed by a header and trailer form a transaction set, which is the EDI unit of transmission (equivalent to a message). A transaction set often consists of what would usually be contained in a typical business document or form. The parties who exchange EDI transmissions are referred to as trading partners.
EDI messages can be encrypted. EDI is one form of e-commerce , which also includes e-mail and fax.
It facilitates computer-to-computer exchange of electronic documents (such as purchase orders , advance shipment notices , and invoices ) without human intervention or human readable (paper or electronic) documents. EDI eliminates manual re-keying of data , cuts order processing costs , increases data accuracy , improves cycle time , and makes just-in -time deliveries possible. Like internet it is a standards based system independent of the type of computer hardware and software employed .
• EDI comes into its own when repetitive manual tasks are required to support a business relationship; Electronic Data Interchange simply eradicates them by automating the process and removing the paperwork element.
• It increases accuracy by eliminating the re-keying of data. The quality of data is enhanced by agreeing product codes, prices and location codes in advance.
• EDI also helps to cement customer/supplier partnerships by reducing the supply chain costs associated with manual processing.
• EDI-enabled suppliers are cheaper and easier to deal with.
(b) What is Inter-Organizational Transactions and the credit transaction Trade cycle?
INTER-ORGANIZATIONAL TRANSACTIONS MEANS
TRANSACTION BETWEEN INTER-UNITS [internal] AND
INTRA-UNITS [ units].
The coordination of activities within supply chains using information technology can be described as taking place using two broad types of mechanisms, both of which use intermediaries to carry out logistics activities. These are electronic hierarchies, consisting of legally separate firms that share a close relationship within a supply chain, and electronic markets characterized by short-term linkages that result from individual transactions. A key influence of information technology on logistics is the emergence of separate but linked intermediaries for handling physical goods and the information associated with those goods.
Corporate strategy is increasingly focused on the flow of information between buyers and suppliers. While physical goods cannot be moved as rapidly as information, expectations of what logistics processes can accomplish have risen with rapid improvements in IT. Accordingly, the physical distribution of goods is being restructured to take advantage of increased efficiencies in IT, notably in the ease of communication among the different components of the supply chain.
Interorganizational systems relies on transaction cost economics, and centers on the use of hierarchies and markets to characterize relationships between firms in a supply chain. We then review the emergence of electronic commerce as an application of interorganizational systems and the impact of electronic commerce on logistics activity. The next section proposes a conceptual structure for analyzing physical and information flows within supply chains that builds on research in IT.
HIERARCHIES AND MARKETS
Supply chains represent an example of business process change enabled by interorganizational systems (IOS). Bakos has defined an IOS as "an information system that links one or more firms to their customers or their suppliers, and facilitates the exchange of products and services." An information system is a set of people, procedures, and resources, whether manual or automated, that collects, transforms, and disseminates information.
Information systems perform three vital roles in any type of organization: they support business operations (such as capturing point-of-sale data), managerial decision making (such as choosing suppliers), and strategic competitive advantage (for example, a firm's ability to integrate its entire supply chain). The key enabler of IOS is telecommunications and information systems, such as the Internet or private networks, that link the terminals and computers or businesses with their customers and suppliers, resulting in new business alliances and partnerships.
Research into the employment of IOS is based on transaction cost theory, which considers two different types of coordination mechanisms for carrying out transactions between buyers and sellers: hierarchies and markets. In the context of IOS, we use the terms electronic hierarchies or electronic markets to emphasize that buyer-seller relationships are enabled by IT.
In an electronic hierarchy, the organizations involved share a long-term relationship and align their internal processes with one another. Purchasing and distribution are accomplished by managerial decision making within and between firms in the supply chain. Cooperation between firms may tend to blur the boundaries between the companies, even if they are legally separate. While an electronic hierarchy is enabled by the efficient exchange of information between its components, such factors as personal acquaintance, mutual understanding, and trust play an important supporting role.
The emergence of electronic hierarchies to link separate firms in the supply chain represents a response to switching costs --- "the massive costs of casual interactions." The use of the term "electronic hierarchy" to describe an inter-firm relationship represents a change in terminology as transaction cost theory views hierarchies as existing only within single firms. The blurring of boundaries between hierarchies and markets represents one of the key impacts of IT on managerial functions such as logistics.
The second type of IOS is an electronic market designed to match buyers and sellers who generally do not share long-term relationships, such as those who do business through a stock exchange. Electronic markets occupy a relatively neutral position between buyers and sellers, providing services to both sides of a transaction. The matching process includes "price discovery," the process of determining the prices where supply and demand "clear" and exchange occurs. Markets also facilitate transactions by supporting arrangements for logistics (including order fulfillment and delivery), settlement of payments, and in some cases, providing trust or insurance to guarantee commitments made by buyers or sellers.
Markets can generally be characterized as either centralized or decentralized. Centralized markets use one or more intermediaries such as brokers or distributors; buyers and sellers need only connect to one or more of these intermediaries to carry out a transaction-stock exchanges are a good example of a centralized market. More recently, online trade exchanges such as priceline.com, ebay.com, and the Covisint joint electronic marketplace , have demonstrated the increasing importance of centralized electronic markets. The exchange planned by the Big Three auto manufacturers is expected to account for purchases of approximately $250 billion a year and involve about 60,000 suppliers.
Even the term supply chain is expanding in breadth to reflect its increasing scope and importance in the enterprise.... Although many researchers maintain a narrow focus on supply process activities, others ... now concentrate on interorganizational relationships between enterprise buyers and sellers, emphasizing commercial exchanges of goods, services, information and money. Indeed, the distinction is blurring between supply chain management and commerce through business-to-business markets, and many important principles and trends apply to consumer markets as well.
Intermediaries add value to supply chains by reducing the cost of bringing a product to market, through actions such as aggregating buyer demand or seller production to achieve economies of scale, protecting buyers or sellers from opportunistic behavior, and matching buyers and sellers.
In contrast, in a decentralized market, all the participants can contact each other directly, and no intermediaries are present. For example, individual travelers who directly contact an airline to arrange travel, without going through a travel agent, are taking part in a decentralized market. Another example of a decentralized market would be one that uses intelligent agents to carry out transactions. Intelligent agents are software programs that possess knowledge (such as in the form of rules or facts) to make decisions and carry out tasks on behalf of their principals. For example, intelligent agents can match buyers with sellers and make purchase decisions based on pre-set criteria.
Relationships between pairs of firms in a supply chain enabled by electronic commerce can be characterized as being hierarchies or markets, although these relationships usually consist of some variant or combination of the two. For example, there may be only one major buyer for a supplier's products. Even though the two firms may negotiate prices and other terms of exchange on an individual transaction basis (that is, in a market-like way), the buying firm will exert considerable influence on the supplier, in a manner not unlike a hierarchical relationship. The trend toward a reduction in the number of suppliers is an example of the blending of markets and hierarchies in a single supply chain.
Despite the challenges of categorizing the relationships between firms in a supply chain as markets, hierarchies, or a hybrid of both, each of these two types of generalized relationships between buyers and suppliers has distinctive characteristics with respect to its cost structure. The costs of acquiring physical goods and associated services can be divided into production and coordination costs. Coordination costs include activities such as searching for a supplier, evaluating bids, negotiations, and contract administration associated with the acquisition of goods and services.
Credit transaction trade cycle
• Search – find a supplier
• Negotiate – agree terms of trade
• Order (purchasing procedures)
• Delivery (match delivery against order)
• Invoice (check against delivery)
• After Sales (warrantee, maintenance, etc.)
• Repeat – many orders repeat on a daily or weekly basis.
E-Commerce ©David Whiteley/McGraw-Hill, 2000
Credit transaction trade cycle
E-Commerce ©David Whiteley/McGraw-Hill, 2000
Credit transaction trade cycle
E-Commerce ©David Whiteley/McGraw-Hill, 2000
A variety of transactions
• Discrete transactions of commodity items:
• Use an Electronic Market
(if one is available)
• Repeat transactions for commodity items.
• EDI may well be appropriate
• Discrete transactions of non commodity items.
• Internet e-Commerce can be the answer
Q3 (a) Write a note on markets and Electronic market and advantages and disadvantages of electronic market.
(b) Give details about postboxes and mailboxes and airline booking systems.
Q4 (a) Comment on competition and customer loyalty and web booking system.
(b) Write on the development of the Internet TCP/IP.
Q5 (a) Write a note on supply chain, porter’s value chain model and Inter Organization value chain.
Supply Chain Management
A supply chain is the stream of processes of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer.
Managing the chain of events in this process is what is known as supply chain management. Effective management must take into account coordinating all the different pieces of this chain as quickly as possible without losing any of the quality or customer satisfaction, while still keeping costs down.
The first step is obtaining a customer order, followed by production, storage and distribution of products and supplies to the customer site. Customer satisfaction is paramount. Included in this supply chain process are customer orders, order processing, inventory, scheduling, transportation, storage, and customer service. A necessity in coordinating all these activities is the information service network.
In addition, key to the success of a supply chain is the speed in which these activities can be accomplished and the realization that customer needs and customer satisfaction are the very reasons for the network. Reduced inventories, lower operating costs, product availability and customer satisfaction are all benefits which grow out of effective supply chain management.
The decisions associated with supply chain management cover both the long-term and short-term. Strategic decisions deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities.
Furthermore, market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These are all factors, which change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly.
Structuring the supply chain requires an understanding of the demand patterns, service level requirements, distance considerations, cost elements and other related factors. It is easy to see that these factors are highly variable in nature and this variability needs to be considered during the supply chain analysis process. Moreover, the interplay of these complex considerations could have a significant bearing on the outcome of the supply chain analysis process.
There are six key elements to a supply chain:
5 Transportation, and
The following describes each of the elements:
Strategic decisions regarding production focus on what customers want and the market demands. This first stage in developing supply chain agility takes into consideration what and how many products to produce, and what, if any, parts or components should be produced at which plants or outsourced to capable suppliers. These strategic decisions regarding production must also focus on capacity, quality and volume of goods, keeping in mind that customer demand and satisfaction must be met. Operational decisions, on the other hand, focus on scheduling workloads, maintenance of equipment and meeting immediate client/market demands. Quality control and workload balancing are issues which need to be considered when making these decisions.
Next, an organization must determine what their facility or facilities are able to produce, both economically and efficiently, while keeping the quality high. But most companies cannot provide excellent performance with the manufacture of all components. Outsourcing is an excellent alternative to be considered for those products and components that cannot be produced effectively by an organization’s facilities. Companies must carefully select suppliers for raw materials. When choosing a supplier, focus should be on developing velocity, quality and flexibility while at the same time reducing costs or maintaining low cost levels. In short, strategic decisions should be made to determine the core capabilities of a facility and outsourcing partnerships should grow from these decisions.
Further strategic decisions focus on inventory and how much product should be in-house. A delicate balance exists between too much inventory, which can cost anywhere between 20 and 40 percent of their value, and not enough inventory to meet market demands. This is a critical issue in effective supply chain management. Operational inventory decisions revolved around optimal levels of stock at each location to ensure customer satisfaction as the market demands fluctuate. Control policies must be looked at to determine correct levels of supplies at order and reorder points. These levels are critical to the day to day operation of organizations and to keep customer satisfaction levels high.
Location decisions depend on market demands and determination of customer satisfaction. Strategic decisions must focus on the placement of production plants, distribution and stocking facilities, and placing them in prime locations to the market served. Once customer markets are determined, long-term commitment must be made to locate production and stocking facilities as close to the consumer as is practical. In industries where components are lightweight and market driven, facilities should be located close to the end-user. In heavier industries, careful consideration must be made to determine where plants should be located so as to be close to the raw material source. Decisions concerning location should also take into consideration tax and tariff issues, especially in inter-state and worldwide distribution.
Strategic transportation decisions are closely related to inventory decisions as well as meeting customer demands. Using air transport obviously gets the product out quicker and to the customer expediently, but the costs are high as opposed to shipping by boat or rail. Yet using sea or rail often times means having higher levels of inventory in-house to meet quick demands by the customer. It is wise to keep in mind that since 30% of the cost of a product is encompassed by transportation, using the correct transport mode is a critical strategic decision. Above all, customer service levels must be met, and this often times determines the mode of transport used. Often times this may be an operational decision, but strategically, an organization must have transport modes in place to ensure a smooth distribution of goods.
Effective supply chain management requires obtaining information from the point of end-use, and linking information resources throughout the chain for speed of exchange. Overwhelming paper flow and disparate computer systems are unacceptable in today's competitive world. Fostering innovation requires good organization of information. Linking computers through networks and the internet, and streamlining the information flow, consolidates knowledge and facilitates velocity of products. Account management software, product configurators, enterprise resource planning systems, and global communications are key components of effective supply chain management strategy.
Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the SUPPLY CHAIN with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.
Supply Chain Management "encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.
From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier's suppliers and on the customer side by your customer's customers.
Supply chain management FOCUSES on problems
Supply chain management must address the following problems:
1 Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers.
2 Distribution Strategy: Centralized versus decentralized, direct shipment, cross docking, pull or push strategies, third party logistics.
3 Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.
4 Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.
Resolution to supply chain problems span Strategic, Tactical, and Operational levels of activities.
1 Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities.
2 Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics.
3 Product design coordination, so that new and existing products can be optimally integrated into the supply chain.
4 Information Technology infrastructure, to support supply chain operations.
5 Where to make and what to make or buy decisions
1 Sourcing contracts and other purchasing decisions.
2 Production decisions, including contracting, locations, scheduling, and planning process definition.
3 Inventory decisions, including quantity, location, and quality of inventory.
4 Transportation strategy, including frequency, routes, and contracting.
5 Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.
6 Milestone Payments
1 Daily production and distribution planning, including all nodes in the supply chain.
2 Production scheduling for each manufacturing facility in the supply chain (minute by minute).
3 Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers.
4 Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers.
5 Inbound operations, including transportation from suppliers and receiving inventory.
6 Production operations, including the consumption of materials and flow of finished goods.
7 Outbound operations, including all fulfillment activities and transportation to customers.
8 Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.
9 Performance tracking of all activities
Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM.
Plan – This is the strategic portion of SCM. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.
Source – Choose the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments.
Make – This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.
Deliver – This is the part that many insiders refer to as logistics. Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
Return – The problem part of the supply chain. Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products.
SUPPLY CHAIN STEPS
-demand planning for core products
-demand planning for parts/accessories
-demand planning for critical items
-developing product life cycle trends
-product life cycle forecast for new products
BENEFITS FOR THE BUSINESS
-remove stock shortages
-improve inventory levels.
-quicker stock replenishment
-continual stock replenishment
-reduction in lead time
BENEFITS FOR THE BUSINESS
-improving stock availability
-reduction working capital
-better supply coordination
-more effective communication with supplier
-faster / timely communication
BENEFITS FOR THE BUSINESS
-developing supplier profile
-developing suppliers networking
-customer focused inventory building
-logistical lead time reduction
-demand based inventory
BENEFITS FOR THE BUSINESS
-better material availability
-good/ usable inventory levels
-elimination of wastages in production
-improving throughput effiiciency
BENEFITS FOR THE BUSINESS
-reducing back orders
-improving targeted delivery date
-reduction in logical leadtime
-full stock availability
BENEFITS FOR THE BUSINESS
-full total inventory
-full stock / range availability
-short--response time to query
-shortening order cycle time
BENEFITS FOR THE BUSINESS
-making targeted delivery date
-providing order status
-order fill rate
-backorder by age
-service/ parts availability
-targeted delivery date
BENEFITS FOR THE BUSINESS
-improve order fill rate
-improve on-time delivery
-reduce shipment delays
BENEFITS FOR THE BUSINESS
-timely order status
-timely delivery status.
THE SUPPLY CHAIN MANAGEMENT SOLUTIONS
-IMPROVING MATERIAL FLOWS
-REDUCE RAW MATERIAL INVENTORY LEVELS
-REDUCING PURCHASING COST
-REDUCE FREIGHT COST
-REDUCE OBSOLETE STOCK LEVELS
-IMPROVING WAREHOUSING OPERATIONS EFFICIENCY
-OPTIMISE STOCK LEVELS
-REDUCE LEAD TIME
-REDUCE TOTAL INVENTORY LEVELS
-REDUCE FINISHED STOCKS
-IMPROVE DEMAND FORECASTING
-IMPROVE MATERIAL RESOURCE PLANNING
THE SUPPLY CHAIN AIMS TO MAXIMIZE THE COMPANY RESULTS
-IMPROVING CUSTOMER SERVICE
-ADDS VALUE TO CUSTOMER SERVICE
-TAILORING SERVICE TO CUSTOMER REQUIREMENTS
-LEVERAGING OPPORTUNITIES T O BETTER RESULTS.
HENCE THIS IS GOING TO HELP YOU IN DEVELOPING
YOUR CLIENT RELATIONS THROUGH
PORTER'S VALUE CHAIN
The value chain analysis describes the activities the organization
performs and links them to the organizations competitive position.
Value chain analysis describes the activities within and around an organization, and relates them to ananalysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price. Porter argues that the ability to perform particular
activities and to manage the linkages between these activities is a source of competitive advantage.
Porter distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. They can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency.
There are four main areas of support activities: procurement, technology development (including R&D), human resource management, and infrastructure (systems for planning, finance, quality, information management etc.).
The basic model of Porters Value Chain is as follows:
The term ‚Margin’ implies that organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. In other words, the organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain.
Human Resource Management
Some thought about the linkages between activities: These linkages are crucial for corporate success.
The linkages are flows of information, goods and services, as well as systems and processes for adjusting activities. Their importance is best illustrated with some simple examples:
Only if the Marketing & Sales function delivers sales forecasts for the next period to all other departments in time and in reliable accuracy, procurement will be able to order the necessary material for the correct date. And only if procurement does a good job and forwards order information to inbound logistics,
only than operations will be able to schedule production in a way that guarantees the delivery of products in a timely and effective manner – as pre-determined by marketing.
In the result, the linkages are about seamless cooperation and information flow between the value chain activities.
In most industries, it is rather unusual that a single company performs all activities from product design, production of components, and final assembly to delivery to the final user by itself. Most often, organizations are elements of a value system or supply chain. Hence, value chain analysis should cover the whole value system in which the organization operates.
Within the whole value system, there is only a certain value of profit margin available. This is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service (e.g. raw material, energy etc.). It depends on the structure of the value system, how this margin spreads across the suppliers, producers, distributors, customers, and otherelements of the value system. Each member of the system will use its market position and negotiating
power to get a higher proportion of this margin. Nevertheless, members of a value system can cooperateto improve their efficiency and to reduce their costs in order to achieve a higher total margin tothe benefit of all of them (e.g. by reducing stocks in a Just-In-Time system).
A typical value chain analysis can be performed in the following steps:
•Analysis of own value chain – which costs are related to every single activity
•Analysis of customers value chains – how does our product fit into their value chain
•Identification of potential cost advantages in comparison with competitors
•Identification of potential value added for the customer – how can our product add value
to the customers value chain (e.g. lower costs or higher performance) – where does the
customer see such potential