Supply Chain Demand

Supply chain management is essentially the optimisation of material flows and associated information flows involved with an organisation’s operations. To manage these flows, digital business applications are today essential. Supply chain management capabilities are best known for their importance in delivering profitability. For example, AMR (2008) reported that Nike, a company best known for its marketing, used improvements to its supply chain to increase operating margins of between 10 and 15% in each of the preceding four years. But for Nike and other companies that constantly innovate to renew products, selecting the right technology is important to ‘orchestrate the constant collaboration between supply, demand and product management groups that brings profitable new products to market’. Managing distribution and returns from e-commerce sites is a further challenge. Clear Returns estimated that returns cost UK retailers £60 billion a year, of which £20bn is generated by items bought over the Internet. A recent report in the Financial Times (Ram, 2016) said that a culture of returning is becoming ‘more established’ in the UK and Germany, and online fashion retailer ASOS has found that around 70% of items ordered in Germany are returned, compared with 25% in the UK for women’s fashion.

What is supply chain management and e-procurement?

Supply chain management (SCM) involves the coordination of all supply activities of an organisation from its suppliers and delivery of products to its customers. Supply chain management (SCM) The coordination of all supply activities of an organisation from its suppliers and partners to its customers. For most commercial and not-for-profit organisations we can distinguish between upstream supply chain activities, which are equivalent to buy-side e-commerce and downstream supply chain activities, which correspond to sell-side e-commerce.

            According to IGD (2017), the pace of change in supply chain management, mainly due to the utilisation of technology, has noticeably increased over the last few years. IGD has published the ‘Four Pillars of Supply Chain Success’. The key elements of supply chain success (IGD, 2017) are:

1 Customer centric. The supply chain exists to serve its customers and the best ones build their upstream processes to support providing an outstanding service for their end customer.

2 Powered by people. The best supply chains utilise people to add value; however, there are skills shortages in some areas. This means that attracting, retaining and retraining are important elements of supply chain management.

3 Transformed by technology. Technological innovation and adoption have helped transform the supply chain. Key areas include automation, synchronisation and transition to a data-driven environment. This also brings new challenges to digital businesses and online retailers.

 Upstream supply chain Transactions between an organisation and its suppliers and intermediaries, equivalent to buy-side e-commerce.

 Downstream supply chain Transactions between an organisation and its customers and intermediaries, equivalent to sell-side e-commerce.

Options for restructuring the supply chain.

            As part of strategy definition for digital business, managers will consider how the structure of the supply chain can be modified. These are mainly choices that have existed for many years, but Internet technology provides a more efficient enabler and lower-cost communications.

Supply chain management options can be viewed as a continuum between internal control (’vertical integration’) and external control through outsourcing (’virtual integration’). The intermediate situation is sometimes referred to as ‘vertical disintegration’ or ‘supply chain disaggregation’.

By acquiring these companies, which are part of a pharmaceutical company’s downstream supply chain, the aim is to ‘get closer to the customer’ while at the same time favourably controlling the distribution of the company’s own drugs.

Vertical integration

The extent to which supply chain activities are undertaken and controlled within the organisation.

Virtual integration

The majority of supply chain activities are undertaken and controlled outside the organisation by third parties.

Using digital business to restructure the supply chain.

Information supply chain

An information-centric view of the supply chain, which addresses the organisational and technological challenges of achieving technology-enabled supply chain management efficiency and effectiveness.

Information asymmetry

Imperfect information sharing between members of a supply chain, which increases uncertainty about demand and pricing.

Using digital communications to improve supply chain efficiency is dependent on effective exchange and sharing of information. The challenges of achieving standardised data formats and data exchange have given rise to the study of optimisation of the information supply chain (ISC) as suggested by Marinos (2005) and Sun and Yen (2005). March et al. (2007) describe the ISC as: an information-centric view of physical and virtual supply chains where each entity adds value to the chain by providing the right information to the right entity at the right time in a secure manner. ISCs create value for the collaborating entities by gathering, organizing, selecting, synthesizing, and distributing information. The challenges to cultivating an ISC arise from both organizational and technological perspectives. Agility and flexibility in both internal and inter-organizational business processes are required to benefit from technology investments in ISCs.

Research by Legner and Schemm (2008) suggests two different types of information sharing and coordination problems in the retail and consumer goods industries: (1) the transactional information flow that allows for coordinating the physical demand and supply chain (demand signals, forecasts, orders, shipping, notifications, or invoices); and (2) the contextual

Chaffey, Dave; Hemphill, Tanya; Edmundson-Bird, David. Digital Business and E-Commerce Management (pp. 775-776). Pearson Education Limited. Kindle Edition.

Supply chain management implementation

 The supply chain is becoming increasingly complicated because of the connected consumer. According to a KPMG report (2017): In essence, the mission for any supply chain leader remains what it always was: to get the right product in front of the right consumer at the right time and for the right price. It’s just that, in a world where shoppers can buy in-store, on a website, via their smartphone or, with the advent of the connected consumer, by pressing a button at home, ensuring that they won’t run out of their favorite brands, that task has become exponentially more complicated. Even the delivery options are less straightforward: the consumer may want to collect it, receive it at home, at work, or have it sent to a locker (the preferred option in Germany).

            The supply chain management strategy process A strategic approach for supply chain management can also be defined using the SOSTAC. Approach to supply chain management strategy development based on the guidance of Hughes et al. (1998).

Goal-setting and performance management for eSCM

Goal-setting and performance management for eSCM Sambasivan et al. (2009) have consolidated performance measures described by other supply chain management researchers. In their measurement framework, they identified these categories of measures and gave examples of metrics within each:

 1 Cost in supply chain: Total cost, distribution cost, manufacturing cost, inventory cost.

 2 Profitability: ROI.

 3 Customer responsiveness: Time required to produce, number of orders delivered on time, number of units produced, fill rate, stockout probability, number of back orders, number of stockouts, customer response time, average lead time, shipping errors, customer complaints.

 4 Flexibility: Volume flexibility, delivery flexibility, mix flexibility, new product flexibility, planned order procedures, order lead time, customer order path.

 5 Supply chain partnership: Level and degree of information sharing, buyer-vendor cost-saving initiatives, extent of mutual cooperation leading to improved quality, extent of mutual assistance in problem-solving efforts, the entity and stage at which supplier is involved.

 6 Production level metric: Range of products and services, effectiveness of scheduling techniques, capacity utilisation.

7 Delivery performance: Delivery-to-request data, delivery-to-commit date, order fill lead time, number of faultless notes invoiced, flexibility of delivery systems to meet customer needs, total distribution cost, delivery lead time.

8 Customer service and satisfaction: Flexibility, customer query time, post-transaction measures of customer service, customer perception of service.

9 Supply chain finance and logistics cost: Cost associated with assets and ROI, total inventory cost, total cash flow time.

10 Cost performance: Material cost, labour cost, machinery energy cost, machinery material consumption, inventory and WIP level, total. productivity, direct labour productivity, fixed capital productivity, indirect labour productivity, working capital productivity, value-added productivity.

11 Internal and external time performance: Time to market, distribution lead time, delivery reliability, supplier lead time, supplier reliability, manufacturing lead time, standard run time, set-up time, wait time, move time, inventory turnover, order carrying-out time.

12 Quality performance: SPC measures, machine reliability, rework, quality system cost, inbound quality, vendor quality rating, customer satisfaction, technical assistance, returned goods.

13 Customer relationship management: Supplier relationship management and order fulfilment process, measures not discussed in paper.

What is e-procurement?

Understanding the procurement process Before the advent of e-procurement, organisational purchasing processes had remained similar for decades. The buyer then fills in an order form that is dispatched to the supplier. After the item is delivered, the item and a delivery note are usually reconciled with the order form and an invoice and then payment occurs. Procurement also includes the transport, storage and distribution of goods received within the business – this is referred to as ‘inbound logistics’.

            Types of procurement. To understand the benefits of e-procurement, and also to highlight some of the practical considerations with introducing e-procurement, we need to briefly consider the different types of items that are obtained by procurement (what is bought) and types of ordering (how it is bought). Businesses tend to buy by one of two methods:

• Systematic sourcing – negotiated contracts with regular suppliers.
• Spot sourcing – fulfilment of an immediate need, typically of a commoditised item for which it is less important to know the credibility of the supplier.

Participants in different types of e-procurement. Riggins and Mitra (2007) identify eight types of intermediary that need to be reviewed to understand options for changes to procurement as part of developing an e-procurement strategy:

• Traditional manufacturers, which produce physical goods that are generally sold to other corporate customers.
• Direct sales manufacturers, similar to traditional manufacturers except that they bypass intermediaries and sell direct to end consumers via web or phone channels. These can include services companies. Direct sales manufacturers can be a cost-effective option for companies procuring business services such as flight bookings for staff.
• Value-added procurement partners, who act as intermediaries to sell products and services to other businesses; examples include travel agents and office solutions companies.

Drivers of e-procurement

            Drivers of e-procurement identifies five key drivers or supplier selection criteria for e-procurement adoption related to improving:

1 Control – improving compliance, achieving centralisation, raising standards, optimising sourcing strategy and improved auditing of data. Enhanced budgetary control is achieved through rules to limit spending and improved reporting facilities.

2 Cost – improved buying leverage through increased supplier competition, monitoring savings targets and transactional cost reduction.

3 Process – rationalisation and standardisation of e-procurement processes giving reduced cycle time, improved visibility of processes for management and efficient invoice settlement.

4 Individual performance – knowledge sharing, value-added productivity and productivity improvements.

 5 Supplier management – reduced supplier numbers, improved supplier management and selection and integration.

Barriers and risks of e-procurement adoption

Of course, there are also barriers to adoption of e-procurement. CIPS (2008) identifies the following issues for suppliers: • competition issues, e.g. in exchanges using collaborative purchasing; • possible negative perception from suppliers, e.g. their margins reduced further as a result of e-auctions;

• negotiated procurement benefits may be shared with other exchange users who may be competitors;
• creation of catalogues can be a long process and costly to suppliers;
• culture profile within organisations, e.g. resistance to change.

Implementing e-procurement

            Implementing e-procurement has the challenges of change management associated with any information system. If the implementation can mirror existing practices, then it will be mostly straightforward, but many of the benefits will not be gained and the use of new technology often forces new processes to be considered. The different types of system are as follows.

• Stock-control system – this relates mainly to production-related procurement; the system highlights that reordering is required when the number in stock falls below reorder thresholds.
• CD or web-based catalogue – paper catalogues have been replaced by electronic forms that make it quicker to find suppliers.
• Email- or database-based workflow systems – these integrate the entry of the order by the originator, approval by manager and placement by buyer. The order is routed from one person to the next and will wait in their inbox for actioning. Such systems may be extended to accounting systems.
• Order entry on website – the buyer often has the opportunity to order directly on the supplier’s website, but this will involve rekeying and there is no integration with systems for requisitioning or accounting.

Use of different information systems for different aspects of the fulfilment cycle

• Accounting systems – networked accounting systems enable staff in the buying department to enter an order, which can then be used by accounting staff to make payment when the invoice arrives. The IFO-Basware (2012) global e-invoicing reports that automation is still limited, with around half of companies receiving email invoices with PDF attachments. Around a half receive XML e-invoices using a service provider and 14% with their own system.
• Integrated e-procurement or ERP systems – these aim to integrate all the facilities above and will also include integration with suppliers’ systems. Companies face a difficult choice in achieving full-cycle e-procurement, since they have the option of trying to link different systems or purchasing a single new system that integrates the facilities of the previous systems. Purchasing a new system may be the simplest technical option, but it may be more expensive than trying to integrate existing systems and it also requires retraining in the system.

The future of e-procurement

Software (intelligent) agents Software programs that assist humans by automatically gathering information from the Internet or exchanging data with other agents based on parameters supplied by the user. In the future, some suggest that the task of searching for suppliers and products may be taken over by software agents that have defined rules or some degree of intelligence that replicates intelligence in humans. On the Internet, agents can already be used for marketing research by performing searches using many search engines, and in the future they may also be used to search for products or even to purchase products. Agents work using predetermined rules or may learn rules using neural network techniques. Such rules will govern whether purchases should be made or not.

Magnus Bergfors, research director at Gartner, says: A procurement VPA can improve the end-user experience of traditional procurement tools and increase spend under management by guiding people to the correct purchasing tool. A CPA can provide summaries, recommendations and advice in everything from supplier assessments and performance management, to risk management and compliance.