Description
Logistics is the management of the flow of resources between the point of origin and the point of consumption in order to meet some requirements, for example, of customers or corporations. The resources managed in logistics can include physical items, such as food, materials, equipment, liquids, and staff, as well as abstract items, such as time, information, particles, and energy.
Research Reports on Effect of E-Logistics on the Customer Satisfaction
ABSTRACT
Nothing has rocked the young field of supply chain management like the emergence of the Internet. While the management of information flows has always been a key aspect of Supply chain management, the rapid growth of web-based information transfer between companies, their suppliers, and their customers has decidedly increased the importance of information management in creating effective supply chains. A business cannot succeed without customers. What's a product without a customer to buy it, or a service without a customer to serve? It's how companies use those products and services to get, keep and grow customers that counts. For this reason, the ability to more effectively market to, sell to and serve customers has made its way to the center of corporate strategy. But strategy is only half the success story. It takes Customer Relationship Management (CRM) technology to put a strategy to work. Its technology that provides the underlying infrastructure that enables employees to get, keep and grow the customers so vital to success. The thesis describes how the advances in the information systems technology have had a huge impact on the evolution of supply chain management. As a result of such technological advances, supply chain partners can now work in tight coordination to optimize the chain-wide performance, and the realized return may be shared among the partners. The Internet signifies new opportunities for reaching the global market. Yet this, in turn, also signifies great demands on the actors who want to exploit these opportunities. Right now, there are several big actors who market themselves solely via the Internet, yet there are very few who do this profitably. Making it possible to use the Internet as a marketing channel requires new knowledge about how the entire logistics system needs to be developed in various environments and about the consequences this will imply for other actors.
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The integration of IT with logistics management is an important prerequisite for good logistics management. An electronic commerce portal can be used as a marketing channel in collaboration with existing intermediaries or through bypassing intermediaries--disintermediation will provide high leverage opportunities to the logistics function and increase its flexibility. Hence the development of E-Logistics becomes essential for success in global operations.
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Table of Content DECLARATION ................................................................................................... I Quran Aya .............................................................................................................II Acknowledgement............................................................................................... III ABSTRACT ........................................................................................................ IV Table of Content.................................................................................................. VI List of Figures .................................................................................................. VIII List of Table ..................................................................................................... VIII List Of Abbreviations?????????????????????..?IX Chapter One..........................................................................................................1 1.1. Introduction: ....................................................................................................1 1.2. Background (Literature review)......................................................................3 1.3 Study Objectives ..............................................................................................7 1.4 Research Methodology.....................................................................................7 1.5 Important Definitions .......................................................................................8 1.6 Model for information in E-Commerce ...........................................................9 1.7 The supply chain flows: .................................................................................13 Chapter Two .......................................................................................................15 2.1 Introduction ..................................................................................................15 2.2 Defining Customer Relationship Management..............................................16 2.3 A Brief History of CRM ................................................................................17 2.3 Why is CRM important? ................................................................................18 2.4 THE 6 LAWS OF CUSTOMER EXPERIENCE ..........................................18
2.4.1 Law #1: Every Interaction Creates A Personal Reaction ........................................................ 19 2.4.2 Law #2: People Are Instinctively Self-Centered ...................................................................... 21 2.4.3 Law #3: Customer Familiarity Breeds Alignment................................................................... 22 2.4.4 Law #4: Unengaged Employees Don't Create Engaged Customers ........................................ 23 VI
2.4.5 Law #5: Employees Do What Is Measured, Incented, and Celebrated.................................... 24 2.4.6 Law #6: You Can't Fake It....................................................................................................... 25
2.5 Distribution development within E-Commerce: .......................................25 2.6 Analysis of distribution development within E-Commerce...........................29 2.7 Sustainable developments ..............................................................................31 Chapter Three ....................................................................................................37 3.1 Introduction ..................................................................................................37 3.2 E-Logistics - Key to Success in the Digital Economy: ................................39 3.3 E-Commerce and logistics system .................................................................49 3.4 urban logistics system influenced by ICT......................................................52 3.5 E-logistics and Demand Chain Management..............................................55 Chapter Four ......................................................................................................58 4.1 Introduction ....................................................................................................58 4.2 Supply Chain Integration and E-Business .....................................................59
4.2.1 Electronic Information Integration........................................................................................... 62 4.2.2 Electronic Workflow Coordination ........................................................................................... 63 4.2.3 New Business Model................................................................................................................. 65
4.3 Changes in IT Investments................................................................................................. 70 4.4 Optimizing the E-Supply Chain: The Final Frontier .....................................71 4.5 Benefits from E-SCM and E-logistics ...........................................................74
4.5.1 Buyer benefits .......................................................................................................................... 74 4.5.2 Supplier Benefits ...................................................................................................................... 75 4.5.3 Facilitator Benefits ................................................................................................................... 76
4.6 Preparing For E-SCM.....................................................................................76 4.7 Categories of E-SCM Solutions .....................................................................80 Conclusion and recommendation .....................................................................84 Bibliography .......................................................................................................86
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LIST OF FIGURES Figure NO. Figure 1-1 Figure 1-2 Figure 2-1 Figure 2-2 Figure 2-3 Figure 2-4 Figure 2-5 Figure 3-1 Figure 3- 2 Figure 3- 3 Figure 3-4 Figure 3- 5 Figure 4 -1 Figure 4- 2 Figure 4- 3 Figure 4- 4 Figure 4- 5 Title Model for information in E-Commerce An Example of Supply chain The Value of the Customer Relationship Conventional distribution structure Distribution Processes for Internet buying Requirement of sustainable society regarding the tradeoffs on transportation and logistics systems. The Two Perspective of E-Commerce- Participant Focus The development of internet applications The E-Logistics concept Interplay in the interfaces between traditional Logistics, ICT, and Process management The Interface among core processes; TTM.TTC, and CCR Stockholders in logistics system ICT and Urban Logistics System Information Distortion and the Bullwhip Effect Expected Change in IT investment Methods of Discovering New IT Solutions The Tower of Babel The Rang of SCM Options Page 11 13 15 26 28 33 35 40 47 49 50 53 63 70 71 79 81
List of Table Table NO. Table 1 Table 2 Table 3 Title Concern of Stakeholders Supply Chain Integration Dimensions Categories of E-SCM Solutions Page 52 59 82
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List Of Abbreviations 1PL : 2PL : 3PL : 4PL : 5PL : B2B : B2B : B2C : B2C : CCE : CCR : CIO : Organizations. COP : CT : CTE : EDI : EFT : E-SC : FMCG : FTA : GIS : GPS : ITE : ITS : JIT : LBS : LCL : LFI : LSP : LTL : MF : NCPDM ND PPC PTE SC : : : : : which are the shipper or the consignee which are actual carriers Third party logistics Fourth-party logistics provider. Fifth party logistics. business to business Business to Business Business to consumer business to consumer collaborative community exchange Customer Creation and Retention Congress of Industrial customer order point Control type. Consortium trading exchange. Electronic Data interchange Eye for Transport e-supply chain Fast moving consuming goods Freight Transport Association. geographic information system global positioning system Independent trading exchange. intelligent transport system Just in Time Location-based service less container load Leading firm degree of influence. logistics service provider Less truck load market fragmentation National council of physical Distribution Management. network dynamism Product/process complexity. private trading exchange supply chain
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VE VI QR ECR LBS ERP DCI TTM TTC CCR BPR DC VTE
: : : : : : : : : : : : :
virtual enterprise Product/service value integration. Quick Response Efficient Customer Response Logistics Brokerage Systems Enterprise Resource Planning Demand Chain Integrator Time to Market Time to Cash Customer Creation and Retention Business Process Reengineering distribution center vendor trading exchange
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Chapter One
Introduction
1.1. Introduction: Nothing has rocked the young field of supply chain management like the emergence of the Internet. While the management of information flows has always been a key aspect of Supply chain management, the rapid growth of webbased information transfer between companies, their suppliers, and their customers has decidedly increased the importance of information management in creating effective supply chains. Indeed, the Internet has emerged as a most costeffective means of driving supply chain integration. We define E-Business as the marriage between the Internet and supply chain integration. This marriage is transforming many processes within the supply chain from procurement to customer management and product design. Interest in the Internet has changed so drastically in recent years that one can speak of a universal breakthrough. The remarkable increase in users can be attributed mainly to the appeal of the World Wide Web, the Internet feature that is enjoying the greatest growth. There is some uncertainty about how much the Internet and electronic commerce (E-Commerce) are being used, and especially about the expansion of such usage in the future. At the same time, E-Commerce is a new phenomenon that is surely going to have an enormous impact and significantly change the way both individuals and companies shop, manage their business activities and distribute their products. The number of households in Europe connected to the Internet is expected to triple, to 50 million, by the year 2004. But usage will not expand uniformly. Persistent forecasts of explosive increases in sales of goods via the Internet have so far been wrong. In Sweden, The Swedish Research Institute of Trade (HUI), recently assessed retail sales via the Internet to be SEK 600 million, which corresponds to a trifling 0.2% of total retail turnover. Increased access to Internet services must be accommodated by improvements in flow structures. The increased access to and offers of information created by the Internet must consequently be accompanied by a different distribution structure, one assuring that goods can even physically be transported to the customer quickly and rationally.
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E-Commerce will open an entirely new market for actors in the logistics field. Logistics and distribution system that function efficiently and effectively in all respects will be crucial for the success of the companies involved. This implies that manufacturing companies, and especially logistics companies, must identify and create effective logistics solutions in order to compete on the marketplace. Ordering materials of various kinds electronically, and primarily via the Internet, will become more and more common. This applies not only to business-tobusiness but also to business-to-customer. This end consumer will normally be a private person who orders everything from books, clothes and food to a new model computer. The result is that the end consumer can receive and will demand to receive the goods ordered significantly faster than via traditional distribution. The subsequent result will be shorter lead times, the disappearance of one or more physical intermediaries, and direct transports to far more addresses, especially in those cases where retail stores are circumvented. We can anticipate less use of private cars, but more employment of delivery vans, as well as smaller orders to be shipped longer distances, especially in the international context. During the preliminary phase, we might expect these consequences to imply greater direct costs, while the consumers' indirect costs for seeking, ordering and having their purchases deliver to their homes will go down. Simultaneously, however, we will see new opportunities for creating entirely new distribution systems involving different flow streams than those with which we are familiar. The companies who can cope with these demands with new approaches to production and distribution will be able to create new business opportunities and prepare for a greatly increased market for their products. The Internet signifies new opportunities for reaching the global market. Yet this, in turn, also signifies great demands on the actors who want to exploit these opportunities. Right now, there are several big actors who market themselves solely via the Internet (e.g. the booksellers Amazon.com and bokus.se), yet there are very few who do this profitably. Making it possible to use the Internet as a marketing channel requires new knowledge about how the entire logistics system needs to be developed in various environments and about the consequences this will imply for other actors.
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1.2. Background (Literature review) Defining e-SCM and e-logistics In order to define e-SCM and e-logistics, we need to establish what we understand by SCM and Logistics. We have adopted the definitions of Logistics and SCM proposed by (Lambert, Cooper et al. 1998). For SCM, they suggest to follow The Global Supply Chain Forum. The members of this forum defined SCM in 1998 as "the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders" (Lambert, Cooper et al. 1998) And, for Logistics they suggest to adopt the Council of Logistics Management (CLM) definition: "Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers' requirements" (Lambert, Cooper et al. 1998) 1 Both definitions entail a supply chain perspective from first supplier to end-user and a process approach. But, the main difference between them is that Logistics is a subset of SCM. Companies have realized that is not only the logistics process that cuts across supply chains, but in principle, all business processes (Lambert, Cooper et al. 1998). According to that, SCM ideally embraces all business processes cutting across all organizations within the supply chain, from initial point of supply to the ultimate point of consumption (Cooper, Lambert et al. 1998). For (Cooper, Lambert et al. 1998), SCM embraces the business processes identified by the International Center for Competitive Excellence (see Figure 1).We understand by elogistics and e-SCM the impact that Internet has on Logistics and SCM, respectively. Accordingly, e-SCM will refer to the impact that Internet has on the integration of key business processes from end user through original suppliers
1 Lambert, Cooper et al. 1998. Supplly chain Management : Implementation Issues and research Opportunities. International Journal of Logistics Management. 1998, Vol. 9, pp. 1 - 19.
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that provides products, services, and information that add value for customers and other stakeholders. And, e-logistics will refer to impact that Internet has on the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point- ofconsumption in order to meet customers' requirements". Logistics is a subset of SCM, and accordingly, e-logistics is a subset of e-SCM .In this paper, we will focus on e-SCM, and therefore, e-logistics will be one of the aspects to be analyzed, but not the only one. E-logistics has traditionally been referred to the impact of E-Commerce in the logistics activities; however we believe that Internet has Avery important effect on SCM that has been very often forgotten: the coordination and integration aspects. Managing customer relationships is a business activity that corporations have practiced for generation's .E-CRM known as electronic customer relationship management has rapidly widen due to fast growth of web technology .E-CRM has emerged in such a way mainly aiming to satisfy the customers at global level. E-CRM also includes online process applications, such as segmentation and personalization. The use of the internet, intranets and extranets made customer services, as well as services to partners much more effective and efficient than before E-CRM has been gone through in a way that, customers want to contact the company by email and web, even if the organization does not provide the business through internet. Sustainable and profitable revenue growth through the development of lifetime value is the largest benefit of E-CRM 1.2.1 CUSTOMER RELATION MANAGEMENT (CRM) Buttle, F. (2009.) has defined the CRM is nothing more than one to one relationship marketing and disintermediation, but that is a lot by influencing through continuous relevant communication and developing long term relationships to improve customer reliability, achievement, preservation and prosperity The evaluation of CRM is due to the fast changes and developments in the marketing and web technology .CRM's goal is a so called customer intimacy and achieving lasting success in competitive environment As
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CRM lies in each and every business operation Peelen, E. (2005) believes that CRM is a powerful tool in both the business to business and business to consumer environments, but it has been both oversold and underutilized2 1.2.2 ELECTRONIC CUSTOMER RELATION MANAGEMENT (ECRM) According to Dyche (2001) E-CRM is a combination of software, hardware, application and management commitment. Critical and significant point is that E-CRM takes into different forms depends on the objectives of the organizations .Dyche (2001) has defined two types like Analytical E-CRM and Operational E-CRM . Analytical CRM is a collection of customer's data as a continuous process. The main purpose of this means is to identify and understand customer's needs and to create new business opportunities by giving prior importance to the customers. Operational E-CRM means the diverse ways of resembling the customer by web based emails, phone, fax etc. Dyche (2001) has also identified the main aim of E-CRM systems is to improve and provide better customer service, develop a relationship and preserve valuable customers 1.2.3 DIFFERENCE BETWEEN CRM AND E-CRM3 According to (Chaffey, 2007) , E-CRM refers to electronic customer relationship management or simpler, CRM that is more web based. .The main differences between the CRM and E-CRM are that in CRM customer contact is initiated through traditional means of telephone, retail store or fax. Whereas E-CRM in addition to telephone customer contact, can initiate through the internet, email, wireless, mobile and latest technologies. Here in the E-CRM the beauty of running everything off one system is that we can look at the information any time whether we are near to the place and can also access to the information needed whenever we required. Coming to CRM direct implementation took more time and management is costly as the systems are located in different locations. Whereas when it comes to E-CRM it is very
2 Buttle, F., & Biggemann, S. 2003. Modeling Business-to-Business Relationship Quality . Sydney : Macquarie Graduate School of Management, 2003. 3 Chaffey, D. 2007. E-Business and E-Commerce Management: Strategy, Implementation and Practice. s.l. : Pearson, 2007.
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fast with less operation cost because system implementation and expansion can be managed in one location and one server.
1.2.4 BENEFITS OF E-CRM Customers Benefits Interaction with Customers and Satisfaction4 Due to E-CRM, you can interact with customer's right at your site through phone, chat, email, collaboration or forwarding of pages back and forth between the Representative and the Customer. According to Harris, E. K. (2000) E-CRM customers will have any service available anytime throughout the year and can assist the customer in any way he required and pass on any information about your company's product or service, right then and there with the prior permission when the customer is browsing through pages at your site. E-CRM maintains long term relationship with the customers with providing trust, ethics a nd friendship. 1.2.5 Speed of processing the transaction through e-response E-Responses were widely used by businesses to acknowledge receipt of orders, payment and delivery of information. Many companies have changed the target time to 24 from 48 hours by the usage of E-CRM .as customers are able to reach the company's website at any time. It has also been highlighted that the character of e-responses also helps build up the relationship between the provider and the customer 1.2.6 Better service quality The main proportions of service quality are reliability, performance responsiveness, quality, empathy and assurance, In addition delivering high quality services is a way companies manage to improve their CRM. Delivering high quality services is a qualification for achieving customer satisfaction and only through customer satisfaction can the company gain loyal customers.
4 Harris, E. K. 2000. Customer service : a practical approach. 2nd. s.l. : Elaine K. Harris, 2000.
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Secondly, several of the quality dimensions of perceived E-CRM are new and most of them are related to technology: ease of navigation, flexibility, efficiency, site aesthetics and price knowledge.
1.2.7 DRAWBACKS OF E-CRM 5 According to Sharp, D. E. (2003.) main drawbacks of E-CRM are Lack of technical support to customers, Reducing Field sales and services, resistance to payment services offered via the web, Implementation of time & cost, Lack of Customer services and support, reducing the productivity and overloading of emails. The main drawback due to E-CRM is a cutback in person contact with customers which leads to some problems .the measurement challenges faced by E-CRM is difficult to determine the users reached, costs and benefits. 1.3 Study Objectives 1. 2. 3. 4. Understanding development and growth of E-Logistics technology. Understanding how Distribution development within E-Commerce. Indicating the benefits and barriers to achieving IT integration. Understanding how to enhance the customer satisfaction through using Elogistics activities. 5. Identifying the benefits of the Customer, Company, and Service provider through using the E- logistics activities. 1.4 Research Methodology The research methodology used in this dissertation is a Descriptive research which attempts to describe systematically a situation, problem, phenomenon, or service, or provides information about.
5 Sharp, D. E. 2003. Customer relationship management systems handbook. London : Duane E.Sharp, 2003.
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1.5 Important Definitions Logistics "Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers 'requirements.". -Council of Logistics Management (www.clm1.org) Ecommerce (E-Commerce) Or electronic commerce, a subset of E-business, is the purchasing, selling, and exchanging of goods and services over computer networks (such as the Internet) through which transactions or terms of sale are performed electronically. Contrary to popular belief, ecommerce is not just on the Web. In fact, ecommerce was alive and well in business to business transactions before the Web back in the 70s via EDI (Electronic Data Interchange) through VANs (Value-Added Networks). Ecommerce can be broken into four main categories: B2B, B2C, C2B, and C2C. E-Commerce logistics,6 E-Logistics, therefore, is applying the concepts of logistics via the Internet in order to conduct those aspects of business electronically. (Bayles, 2002) E-fulfillment E-fulfillment can be defined as the integration of people, processes and technology to ensure customer satisfaction before, during and after the online buying experience. (Bayles, 2002)
6 Bayles, Deborah L. 2002. E-Logistics & E-Fulfillment:Beyond the "Buy" Button. [prod.] BridgeCommerce, Inc. CEO. Curaçao : UNCTAD Workshop, 2002.
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E-Procurement Is more than just a system for making purchases online. A properly implemented system can connect companies and their business processes directly with suppliers while managing all interactions between them. This includes management of correspondence, bids, questions and answers, previous pricing, and multiple emails sent to multiple participants. (Bayles, 2002) .7 A good e-procurement system helps a firm organize its interactions with its most crucial suppliers. It provides those who use it with a set of built-in monitoring tools to help control costs and assure maximum supplier performance. It provides an organized way to keep an open line of communication with potential suppliers during a business process. The system allows managers to confirm pricing, and leverage previous agreements to assure each new price quote is more competitive than the last. E-collaboration In the context of supply chain is an amorphous meta-concept that has been interpreted in many different ways by both organizations and individuals. The academic definitions of 'e' of e-collaboration mainly focus on B2B internetbased technologies, while practical definitions have wider scope referring to any electronic technologies. (Bayles, 2002) 1.6 Model for information in E-Commerce (Lumsden, 2010)8 Internet technology has forced companies to redefine their business models so as to improve the extended enterprise performance. A model describing how the Internet and information influences the business structure has been developed. The base for the model is Porter's five forces model. This model is generally used to analyze a company's position on the market and is used frequently as a means to evaluate the potential of a specific company. There is
7 Bayles, Deborah L. 2002. E-Logistics & E-Fulfillment:Beyond the "Buy" Button. [prod.] BridgeCommerce, Inc. CEO. Curaçao : UNCTAD Workshop, 2002. 8 Lumsden, Ola Hultkrantz and Kenth. 2010. THE IMPACT OF E-COMMERCE ON TRANSPORT. Sweden : Department of Transportation and Logistics, Chalmers University of Technology, 2010.
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however nothing that stops us from redesigning the model to analyze ECommerce. A range of new possibilities opens up as E-Commerce is implemented as a way to reach the end-consumers. Companies will have the opportunity to establish a contact outside the traditional marketing channel. If this becomes reality on a large scale there has to be a logistics service developed in order to correspond to the specific needs. Potential entrants There will always be a threat to the established companies when a new marketing channel is implemented; areas where established companies have failed to predict a demand. Potential entrants can also be established brands that due to a strong trademark they have the strength and the volumes to sell directly to the end customer on the Internet. The latter require that the trademark be sufficiently well known. One company is Amazon.com, which by selling books on the Internet Amazon became one of the largest book retailers in the USA. Amazon quickly became a threat to the traditional bricks and mortar companies as they could offer the same products to a lower price and with a higher level of customer service. By this they forced their competitors, for example Barnes & Nobles, to take action and to establish a similar business activity. Another example is when a product or service can be made in a completely different way. Computer programs or videotapes that for a long time have been sold in regular stores will soon be available on the Internet or the cable television network making the old market structure obsolete. Suppliers/Producers E-Commerce holds a wide range of possibilities for different actors to establish a market place for their products. A supplier can start competing with its retailer customers, a kind of cannibalism that in the long run can drive the traditional marketing and sales channels out of business. This can be considered
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as a vertical integration of the business process where one company takes control over the whole flow of goods. There are numbers of examples in which companies have begun to sell their products directly on the Internet as a complement to the retailing line. Computer manufacturers, companies like Hewlett and Packard (www.hp.se) and Compaq (www.compaq.se), have to meet the competition from Dell (www.dell.com), who started to sell computers over the Internet directly to their customers. In the future there will be opportunities for a wide range of different companies to communicate directly to the consumers and to reduce the costs associated by selling through a net of retailers. Another example is where transport services are being purchased. Today the main part of all transportation assignments is purchased through haulage contractors like Schenker or Danzas. Internet opens up new possibilities to get in contact with customers on the logistics area.
Figure 1-1
Model for information in E-Commerce
Source: (Lumsden, 2010)
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Buyers/Consumers At the same time as producers will take advantage of the possibilities of Internet consumers, the buyers, will use this forum to negotiate prices and offerings. In the consumer line there are examples like Lets buy it (www.letsbuyit.com) and different kinds of exchange services that bring together buyers/consumers and producers and providers of different services. One of the logistics providers that work in this way is Waytrack (www.waytrack.com). Waytrack bring together truck owners and small hauliers with companies that require a transport or a need for a specific capacity by being a forum for contact. Waytrack does not interfere with the logistics service. They offer a membership to their customers bringing them together into a site where companies that require transportation invite tenderers and transportation companies to compete to get the assignment. In this way Waytrack is a connection between suppliers and buyers without being a part of the transportation process, after the negotiation is finished Waytrack has no responsibility in the transportation process. Substitutes As a consequence of a late refinement in the value chain new companies have become parts of the manufacturing process, doing simple configurations to make the products correspond to the customer demands. On example is where IBM computers use a logistics provider, Schenker AG, to configure and install software on the computers. Here the logistics company in E-Commerce that in itself is a substitute fortraditional commerce takes over services from traditional retailers such as providing the client and carrying out some service on the products. In general there is a pattern that products are differentiated or consigned as late as possible in the supply chain. This means that logistics companies which have access to terminals and cross-docking opportunities will be able to take a larger part of the supply chain thus increase the potential profit margin Today is there a battle between post offices, forwarders and integrators for global domination in the expanding express parcel market. Since a lot of the "traditional" freight
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companies are involved we can say that this is valid for the total freight market. Through acquisitions, deals, partnering etc. the companies try to get a complete European network as a step towards achieving global coverage. One thing that is behind this network war is that the transportation companies want to get a larger share of the supply chain, value-added logistics. The manufacturing companies try to postpone operations that make their product unique for the customer. This operation can then be done by the logistics company. 1.7 The supply chain flows: "The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumers.
Figure 1-2
An Example of Supply chain
Source: (Lumsden, 2010)
The above figure indicates two important flows that we would like to emphasize the data flow and the physical flow. E-Commerce will impact all elements in the supply chain, which rely on data flow to improve efficiency. Still, physical transportation is needed for most products, implying the usefulness of deriving ecommerce demands on logistics by analyzing the logistics customers. Demands on a smooth integration of these flows will increase in the future, from being a competitive advantage to a necessity. In internal logistics, within a plant, fixed
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installation or permanent information connections often provide physical links between the sender and the receiver, whereas in external logistics (between companies in the chain) there are only virtual (abstract) Links between the nodes. Maintaining the relation between the information system and the physical goods can sometimes be difficult. The shipment may be forwarded by various modalities and different companies, consolidated with larger shipments or broken down into smaller ones. The information is often sent by a number of different means (mail, phone, fax, EDI or physically attached to the shipment). Since global trade is increasing, the physical flows will probably become even more complex in the future. This will increase not only the importance of the logistics service provider as an integrator between players in the chain, but also the demand on his or her role as a coordinator of information flow and physical flow. EDI has been available to business since the 1980s as an international standard for data communications. However, to set up corporate networks and establish electronic ties with trade partners' using the EDI standard requires costly private data networks and customized software, which makes EDI available only to an elite group of big companies. Therefore, EDI could not satisfy mass demand for integrated information systems, as it is too expensive and too rigid in structure. EDI has remained the province of large companies and their captive suppliers, used only by a small percentage of companies, e.g. 5% in the USA.
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Chapter Two
CRM and Customer Satisfaction
2.1 Introduction A business cannot succeed without customers. What's a product without a customer to buy it, or a service without a customer to serve? It's how companies use those products and services to get, keep and grow customers that counts. For this reason, the ability to more effectively market to, sell to and serve customers has made its way to the center of corporate strategy. But strategy is only half the success story. It takes Customer Relationship Management (CRM) technology to put a strategy to work. Its technology that provides the underlying infrastructure that enables employees to get, keep and grow the customers so vital to success. Customer relationship management (CRM) has been one of the most forceful operational concepts of the past 15 years. Beginning with poor roots in sales force automation, CRM has expanded to include a wide range of tasks, analytics and engagement tactics that maximize the value of the customer relationship and contribute to sustainable revenue growth.
Figure 2-1
The Value of the Customer Relationship
Source: (Ramadan, 2010)
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2.2 Defining Customer Relationship Management (Ramadan, 2010)9 Broadly defined, CRM including everything companies use to manage customer relationships, including capture and analysis of customer information and analytics to leverage that data toward better sales performance. Customer Relationship Management, or as it is more commonly known 'CRM', is one of the most widely-used yet misunderstood terms in today's technology-enabled corporate environments. Put simply 'CRM' is a catch-all term that is most commonly used to describe software and related technologies that manage customer-facing business functions (most notably Sales, Customer Service and Marketing), business processes and data. Done right, CRM allows companies to increase both their revenues and profits while lowering the cost of marketing, selling to and servicing their customers. The payoff is clear - by better aligning business processes and managing customer data across all customer-facing functions, companies can build successful, profitable and long-term customer relationships. Unfortunately, however, CRM has also gained a bit of a mixed reputation and one of the most-often-cited statistics regarding CRM is how often these solutions fail to meet their objectives. There's no denying it - getting CRM 'right' - and making it successful - is a significant challenge. A CRM strategy is about much more than merely selecting the right technology - rather, it is a business strategy that may very well necessitate that you completely reinvent how your company does business. Yet while CRM is not without challenges, it also cannot be avoided because after all CRM is ultimately about your customers. Despite the challenges, the fact remains that many companies - and that includes many Small and Medium Businesses (SMBs) - have seen wonderful success with CRM. This program will explore the key success factors of CRM, and describe a set of steps that your company can utilize to make CRM succeed - for your company, and for your customers.
9 Ramadan, Mahmoud. 2010. The strategic value of Customer Relationship Management(CRM. 2010.
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2.3 A Brief History of CRM (Ramadan, 2010) The term 'CRM' first emerged in the mid-1990's, created with the intent of describing how Sales, Marketing and Customer Service technologies needed to work not just within each department but also together. For instance, prior to the beginning of CRM, some companies had begun to deploy Sales Force Automation (SFA) applications to automate the selling process and track prospect data, but that data often didn't leave the sales department - thus when the customer called to complain the Customer Service department would be unaware of any interactions with Sales. This led to many situations where, from the customer's perspective, the company was acting in an incompetent and/or uncoordinated fashion. The result - the 'right hand doesn't know what the left hand is doing' syndrome -often would result in a frustrate customer departing for the competition. -facing applications - SFA, telemarketing, marketing campaign management, help desk and others - served their individual purposes, but were unable to provide the integration that allowed companies to serve their customers with a 'single face'. In response, CRM 'suites' were developed that promised to automate not just one but (purportedly) all customer-facing departments and functions. much more difficult. Many early CRM initiatives became bogged down by companies trying to do everything at once. Particularly in larger companies, there are many stories of companies spending millions of dollars and years of time in attempts to replace their entire sales, marketing and customer service infrastructures - and becoming plagued by the challenges (sometimes technological, but more often organizational) in doing so. The '360 degree view of the customer' so often promised as the result of CRM implementations became, for many, an unattainable goal as CRM initiatives became needlessly complex and prohibitively expensive.
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2.3 Why is CRM important? (Ramadan, 2010)10 1- Retaining customers isn't easy, though. The Internet has lowered the cost of switching and made markets more price-sensitive. 2- Customers increasingly are asking for custom solutions to their problems, using comparative shopping services and freely available rating systems to pit companies against each other. In this increasingly competitive environment, businesses must differentiate not only their products, but their customer experience. 3-In fact, customer experience is rising as the most important competitive differentiator between vendors in many markets. The focused ability to anticipate and respond to customer needs will separate market leaders from also-rans.
2.4 THE 6 LAWS OF CUSTOMER EXPERIENCE The 6 laws of customer experience are not meant to constrain behaviors. They are meant to empower highly effective customer experience efforts. By understanding these fundamental truths about how people and organizations behave, companies can make smarter decisions about what they do, and how they do it. Going against any of these laws will likely cause poor results. But if you conform to these laws, then you're better positioned to deliver great experiences to your customers.
Here are some thoughts about how to apply the 6 laws: ? Treat them as sacred. While it may be possible to find isolated exceptions to all of these laws, they accurately describe the basic behavior of people and organizations. So don't spend your time rationalizing why they don't apply to you. Instead, figure out how to capitalize on the laws.
10 Ramadan, Mahmoud. 2010. The strategic value of Customer Relationship Management(CRM. 2010.
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? Make sure you're not breaking them. Look at these laws regularly, especially when you are starting a new initiative. And ask yourself: Is this effort breaking any of the 6 laws of customer experience? If the answer is yes, don't go ahead. Find some other approach that conforms to these laws. ? Share them with others. The 6 laws will have the largest impact when they are widely understood across your organization. So share this document with as many people as possible And here they are, the 6 laws of customer experience: 1) Every interaction creates a personal reaction. 2) People are instinctively self-centered. 3) Customer familiarity breeds alignment. 4) Unengaged employees don't create engaged customers. 5) Employees do what is measured, incented, and celebrated. 6) You can't fake it. 2.4.1 Law #1: Every Interaction Creates a Personal Reaction This is the most fundamental customer experience law of them all. Simply put, experiences are totally in the eyes of the beholder. The same exact experience can be good for one person and bad for another. As a matter of fact, it can be good for someone at one point in time and then bad for that same person at another point in time. That's why we often say "experiences designed for everyone satisfy no one." Here are some implications of law #1: ? Experiences need to be designed for individuals. While it may not be possible to individualize every interaction, focusing on narrow segments (like Personas) is critical. ? Customer segments must be prioritized. Since you need to design for specific types of people, experiences will be optimized for a set of customers.
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That will require companies to have a very clear picture of their important (and not so important) customers. ? Customer feedback needs to be the key metric. Internal measurements may provide a sense of how the business operates, but they don't give a true evaluation of customer experience. That's why companies need to establish voice of the Customer (VOC) program; letting customer input drive priorities, decisions, and investments. ? Employees need to be empowered. Since every situation can be somewhat different, the needs of customers can vary across interactions. That's why frontline employees need to have the latitude to accommodate the needs of key customers. You know more than your customers; deal with it. You can't get rid of your biases, but it helps to acknowledge them. acronyms, and process steps that you regularly discuss at work. So there's a natural bias for making experiences too complicated for customers. Get in the habit of asking yourself: "Would our target customers fully understand this? " ? don't sell things, help customers buy them. Whenever you're thinking about a customer experience, always try and frame it from the customer's point of view. Look at all interactions as an opportunity to help customers to do something. How can you institutionalize this? Infuse the voice of the customer within your processes. Don't let company organization drive experiences. Just because you have separate organizations running your Website, retail stores, and call center does not permit you to make customers jump through hoops. Customers shouldn't have to know (and they certainly don't care) how you are organized. Here's a key symptom to look for: Any front-line employee that needs to explains to a customer how your company is organized.
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2.4.2 Law #2: People Are Instinctively Self-Centered Everyone has their own frame of reference, which heavily influences what they do and how they do it. Customers, for instance, care intensely about their own needs and desires but they don't generally know or care as much about how companies are organized. Employees also have their individual frames of reference; which often include a deeper understanding of products, company organization, and subject matter. If left unchecked, decisions made inside of companies will often reflect the frame of reference of employees, not customers. We sometimes call this problem self-referential design. Here are some implications of this law: You know more than your customers; deal with it. You can't eliminate your biases, but it helps to acknowledge them. Recognize that customers may not understand things like product names, acronyms, and process steps that you regularly discuss at work. So there's a natural bias for making experiences too complicated for customers. Get in the habit of asking yourself: "Would our target customers fully understand this?" ? don't sell things, help customers buy them. Whenever you're thinking about a customer experience, always try and frame it from the customer's point of view. Look at all interactions as an opportunity to help customers to do something. How can you institutionalize this? Infuse the voice of the customer within your processes. ? don't let company organization drive experiences. Just because you have separate organizations running your Website, retail stores, and call center does not permit you to make customers jump through hoops. Customers shouldn't have to know (and they certainly don't care) how you are organized. Here's a key symptom to look for: Any front-line employee that needs to explains to a customer how your company is organized.
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2.4.3 Law #3: Customer Familiarity Breeds Alignment (Ramadan, 2010)11 miserable for our customers." Yet every day, lots of employees (from front-liners to senior execs) make decisions that end up testing, trying, or downright upsetting their customers. individual actions that cause the problems. Often times, the issues come down to a lack of cooperation or coordination across people and organizations. Given that most people want their company to better serve customers, a clear view of what customers need, want, and dislike can align decisions and actions. If everyone shared a colorful view of the target customers and had visibility into customer feedback, then there would be less disagreement about what to do for them. While it may be difficult to agree on overall priorities and strategies, it's much easier to agree on the best way to treat customers.
? don't wait for organizational alignment. No organizational structure is perfect; they all have some flaws. And it takes a long time to make major organizational changes. So rather than waiting for a structural change to create alignment, use a clear focus on customer needs as a way to align the decisions and actions of individuals -- even if the organizations remain out of alignment. ? broadly share customer insight. While we all know that front-line employees affect customer experience, almost everyone in the company also has some impact on how customers are treated. Think of your company as a large production crew making the stars (front-line employees) shines on stage (during customer interactions). Since many of the decisions that impact customers aren't debated or discussed, they just happen; it helps for as many people as possible to understand customers. Think of this as a silent alignment process.
11 Ramadan, Mahmoud. 2010. The strategic value of Customer Relationship Management(CRM. 2010.
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? Talk about customer needs not personal preferences. Disagreements are somewhat natural when people debate things from their own points of view. Instead of discussing what you like or think, re-frame discussions to be about customers. If you find that you don't really know enough about customers to solve the disagreement, then stop arguing and go get more information about your customers. 2.4.4 Law #4: Unengaged Employees Don't Create Engaged Customers If you want to improve customer experience, then it might seem obvious that you should focus completely on customers. For most firms, though, that's not the correct approach. Where should you focus? On employees, while you can make some customers happy through brute force, you cannot sustain great customer experience unless your employees are bought-in to what you're doing and are aligned with the effort. If employees have low morale, then getting them to "wow" customers will be nearly impossible. Here are some implications of this law: ? don't under-spend on training. You can't just change some business rules and processes and hope that customers will be treated better. Just about any change to customer experience requires some employees to change what they do and how they do it. So don't skimp on the training effort. ? Make it easy to do the right thing. If it's hard for employees to do something, then they are less likely to do it -- and more likely to get frustrated. That's why enabling technologies need to be designed for employees to easily accomplish tasks that help customers. ? Communicate, communicate, communicate. If you want to have employees feel like they're a part of something, then you need to tell them what's going on. So develop a robust communications plan that not only tells employees what the company is doing, but also explains why you're doing it. And it helps if you sincerely solicit feedback! ? Find ways to celebrate, if employees do things that help customers, then find a way to celebrate those actions. These celebrations can take many different forms: a handwritten note from the president, acknowledgement in
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? Measure employee engagement, Firms need to put the same rigor in monitoring employee relationships that they do in monitoring customer relationships. So they need to develop a relationship tracking measure like "likelihood to recommend <firm> as a place to work" that is used to gauge progress and to identify corrective. 2.4.5 Law #5: Employees Do What Is Measured, Incented, and Celebrated Some executives struggle to understand why their company doesn't deliver better experiences to customers. But it shouldn't be such a big mystery. It's all about how you deal with employees, who tend to conform to the environment that they're in. What are the key elements to the corporate environs? They are like the metrics that are tracked, the activities that are rewarded, and the actions that are celebrated. These three items collectively drive how employees behave and how they ultimately treat customers. Here are some implications of this law: ? don't "expect" people to do the right thing. While employees may want to treat customers well, you can't just expect them to do it. Why not? Because companies want their employees to do a lot of things, but organizations often hone their measurements, incentives, and celebrations to achieve short-term growth and profitability targets. So without any explicit intervention on behalf of customer experience, the environment will push employees to focus on just about anything except customer experience. Clearly define good behavior. Before you just adjust the environment, it's important that you define/describe the type of behavior that you want from people in every role. Do you want customer service reps to spend whatever time they need to on the phone to solve a problem or do you want them to cut down the average handle time on each call? The measurements, incentives, and celebrations should be adjusted to reinforce those behaviors. ? Watch out for mixed messages. You can only get consistent behaviors from employees when all three levers (measurements, incentives, and celebrations) are working together. If you celebrate things that are different than what you measure, for instance, then employees aren't sure which signals to follow.
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2.4.6 Law #6: You Can't Fake It You can fool some people for some of the time, but most people can eventually tell what's real and what's not. This shows up in a couple of areas. First of all, employees can sense if customer experience is not really a top priority with the executive team. The second place this shows up is in marketing efforts. No matter how much money you spend on advertising, you can't convince customers that you provide better experiences than you do.
Here are some implications of this law:
? don't hide behind a 4th priority. While it's possible to come up with a long list of priorities, there's no way that many will get a great deal of attention. A good rule of thumb: Anything below your 3rd priority is not a priority at all. So make customer experience one of your top 3 priorities. ? Sometimes it's better not to start. If you're not committed to customer experience, then don't start a major initiative; it's a lot of hard work. And if customer experience isn't a top priority, then the effort will likely fail. The result: Frustrated employees who are increasingly reluctant to re-engage in thesetypes of efforts in the future. ? Advertise to reinforce, not create positioning. Since customers ultimately Know how you treat them, the best you can do with marketing is to reinforce the truth. If you want to change how you are perceived, then start by treating customers better; and then use advertising to reinforce the new way that they're being treated. 2.5 Distribution development within E-Commerce: 1) Conventional distribution In conventional international distribution, goods pass through several nodes, or stops, before reaching the customer, see Figure (2-2). After production, and possibly storage at the factory, the goods are
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delivered to the national distribution center (DC). Here they are stored, consolidated and reloaded, and then sent on to the next stop, the local DC. The goods are handled in the same way as at the national DC, and are thereafter sent on to the retailer, where they are sold to the customer.
Figure 2-2
Conventional distribution structure
Source: (Whang, 2001)
The point where the goods change from being delivered to stock to being delivered to order is called the customer order point (COP). In conventional distribution, the COP is at the retailer, where the customer's order and buy the products. This is called a push system since the company predicts the demand and the goods are pushed through the distribution channel. With E-Commerce there are several possibilities for new ways of distributing goods, and presumably there will be different ways of distribution for different types of goods. Time will be of great importance when deciding on what type of distribution model to use. The faster and more direct flow of information on the Internet will make it possible to skip one or more nodes in the distribution channel and thereby increase delivery speed. For example, in the future products might be delivered to the customer directly from the producer or from a national distribution warehouse. One likely scenario is that customers will have the possibility to choose how quickly they want their products
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delivered. The more the customers are willing to pay, the faster they can receive their products, and the distribution models will then be different according to the lead time allowed. 2) Distribution structures for Internet buying Along with the entry and expansion of E-Commerce, it will be possible and necessary to make large changes in companies' distribution processes. This is because the COP will be moved upstream in the distribution channel, in some cases all the way up to the producing company. Consequently, the distribution process can be simplified to consist only of direct distribution from the producing company to the customer. Several different distribution channels can be seen as possible future solutions. The base alternative is the conventional distribution, which is described earlier in the section about conventional distribution. An example from the food industry could be that the food producer is located in France, from where the groceries are shipped in full truckloads or trains to a national distribution center (DC) located somewhere in southern Sweden or in Denmark, e.g. Dancargo's national warehouse at Arendal, Denmark. In the DC the groceries are stored, reloaded and consolidated with other products and later shipped on to a local DC in full truckloads. This DC can for example be ICA Väst, located in Kungälv, Sweden. At ICA Väst the goods are again stored, reloaded and consolidated and from here transported to the retailer ICA Maxi by either full truckloads or less than full truckloads. Customers then purchase the groceries at ICA Maxi. 3) Distribution Channels The first alternative for a simpler distribution system for E- Commerce products is to remove the retailer and distribute goods directly from local warehouses to customer. This is called home delivery, and an example of this situation could be the purchasing of tulips over the Internet. The tulips are grown in the Netherlands and are shipped to a national DC in Sweden in refrigerated trucks, since the
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goods are perishable. In this warehouse the tulips are consolidated into smaller consignments and then transported to the retailers, for example an Interflora store. The customer now places an order at the Interflora store over the Internet, and the florist arranges the bouquet. The flowers are then distributed to the customers, either in Interflora's own vehicles or in a courier's van.
Figure 2-3
Distribution Processes for Internet buying
Source: (Whang, 2001)
Another possible alternative is to remove the local warehouse from the distribution channel and use the postal service to distribute the goods from the national warehouse to the customer. This is called mail- order shopping and works as follows. Using an example from the clothing trade, clothes are manufactured in Asia and transported to a national DC in Borås in Sweden. The customer places an order over the Internet to the mail-order company, and the clothes are packed in parcels. These parcels are then distributed to the local post office by the national postal service, and are finally delivered to the customer by the mailman. A third alternative is to distribute goods from the national distribution centers to the customers. A good example here is Tamro's distribution of incontinence protection articles for elderly people. The products are produced in Germany and transported to Tamro's national
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DC in Bäckebol, Göteborg. There they are stored and packed, and finally distributed directly to the customers by Schenker-BTL. The last alternative is to have direct distribution from the producing company to the final customer. This could, for example, be the distribution of tailor-made clothes by the company Tailoronline. The customers state their measurements and place an order over the Internet. The order is then sent to the factory in Estonia where the garments are produced and packed in parcels. The finished products are distributed to the customer by mail. Another example is Bokus.com's selling and distribution of books, which go directly from the printing house to the customer. Amazon.com is also a well-known company selling books via the Internet. They started their business with distribution directly from the printing house, but have had to switch logistics strategy to one in which they have to build warehouses in order to support the demand for shorter delivery time from the customers in the US. 2.6 Analysis of distribution development within E-Commerce: 12 (Lumsden, 2010) In section below will follow a discussion that starts out from this question: 1. What modes of distribution are interesting and what volumes and resources will be needed in order to rationalize this commerce? How to organize and coordinate with existing flows while waiting for sufficient volumes to motivate new, separate systems? Presumably the E-Commerce must be of a certain extent within the distribution chain to be effective. The resources meant to be part of the system must also be adapted to enable the organizing of extensive distribution routes. There will, for instance, be a demand for vehicles
12 Lumsden, Ola Hultkrantz and Kenth. 2010. THE IMPACT OF E-COMMERCE ON TRANSPORT. Sweden : Department of Transportation and Logistics, Chalmers University of Technology, 2010.
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which can distribute cold or frozen food together with packages to "refrigerating mail boxes" in residential areas, i.e. carry out deliveries when the customer is not at home and thereby decrease the resource utilization. 2. Will there be a demand for extended cooperation between different actors vertically as well as horizontally? How will this coordination be achieved? Is there a demand for incentive and control? Taking full advantage of the potential offered by E-Commerce will require that the actors in the supply chain cooperate to adjust the different subsystems in the chain. This applies to a vertical (along the refinement process) as well as a horizontal (between distribution spots near the customers) way. If, for instance, all shops were to send their own delivery vans for home distribution, the environmental gain would be negligible as compared to the customer taking his/her own car to the shop. 3. What role will different information systems play in these new, alternative logistics systems? Since the number of end customers (addresses) will increase considerably, this will necessitate efficient goods control, which in turn requires refined information systems for planning as well as execution and follow-up. Besides, the systems will be of vital importance when it comes to creating and maintaining customer relations. 4. How will the increased cost downstream be compensated with lower costs upstream? Since the last link in the distribution chain from shop to end customer (downstream) in normal systems does not affect the product, as the alternative cost (for the individual) is often considered low, the new logistics systems for E-Commerce will experience a cost increase here. This rise will then require compensation in the form of lower product
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costs (upstream) towards the customer to make him/her, from a cost independence perspective, choose home distribution 5. How will the time differentiation be affected by the prospect of alternative distribution solutions? Owing to the fact that the ordering via Internet and the deliveries may vary in time, different solutions for distribution can be efficiently. This, of course, enables new forms of price differentiation. 6. How will the distribution be allocated to a 24-hour period and how will this affect resource utilization? The great number of new addresses (end customers) will be an individual with other requests for delivery times, e.g. evenings and weekends, beyond what is normal in company relations. This might, in many cases, lead to improved resource utilization with larger distribution coverage of rural areas. The environmental impact under such circumstances must be carefully analyzed. 2.7 Sustainable developments: (Lumsden, 2010)13 In the transportation and logistics sector there are a number of general trends that can be observed. The trends identified in the transportation and logistics sector is of course closely linked to more general trends that can be identified. These more general trends are listed below in no particular order, just to mention the overall trends that can be identified throughout society. More power to the customer , which basically means that the customers demand more flexibility regarding product supply, delivery both in terms of time and place as well as a trend towards more custom made solutions in general.
13 Lumsden, Ola Hultkrantz and Kenth. 2010. THE IMPACT OF E-COMMERCE ON TRANSPORT. Sweden : Department of Transportation and Logistics, Chalmers University of Technology, 2010.
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Globalization , which is one of the major trends the latest decennium creating large multinational companies and this trend both allows and forces companies to target market segments on a worldwide basis. Consolidation , or spatial concentration, is both a trend within industries for companies to consolidate their position through buy- ups that is closely related to the globalization trend. It is also a trend towards consolidation of product groups and the production, transport and storage of these products. Deregulation of markets, for example the inner market of the EU that actually is a trend that is both a prerequisite and enforces the globalization and consolidation trends. Development of new technologies such as the Internet that allows for rationalization and the creation of more custom made systems with retained efficiency and also allows for new business models, such as Ebusiness. increased return on invested capital also creates new demands on especially transportation and logistics solutions in order to cut down on storage and other buffers in the systems. environment considerations are also a major trend that affects the way companies do business and is the basic factor behind the strive towards a sustainable society which creates new demands on all industry sectors. These different trends both enforce the complexity of transportation and logistics systems as well as make them less complex. In fact, some of the trends are the effect of industry sectors trying to restructure their systems in order to make them less complex and therefore easier to handle. The spatial concentration of inventory is a typical trend toward simplification of the network and process that is to be handled in order to fulfill the customer demands and be as efficient as possible. The trend towards globalizations is something that enforces the complexity of transportation and logistics systems since the networks
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used and the processes created to handle this global presence become larger and more complex and very hard to survey by the stakeholders involved.
a) Requirement of a sustainable society:
The focus in this context is given in Figure 2-4. In the figure the original ideas of the two different approaches to handle complexity in transportation and logistics systems are given. The basic assumption was, and still is, that there exists a tradeoff between a reductionist approach and an integrated approach. In the context of transportation and logistics this will mean a tradeoff between using an overcapacity of resources and the use of methods and strategies that uses information as the source to handle the complexity.
Figure 2-4
Requirement of sustainable society regarding the tradeoffs on transportation and logistics systems
Source: (Lumsden, 2010)
The upper level in previous figure is the strategy level, where the basic decision is whether to choose to reduce the system or keep it
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integrated. The traditional approach has been to choose the approach where we reduce the system in order to try to make them easier to handle. Methods and strategies to handle the problems arising in complex systems have not been readily available why this strategy is the predominating in the transport and logistics industry today. The next level is the tactical level showing the two dominating ways of creating simple enough systems to handle a complex demand or environment, surplus capacity or higher frequency (over transport), than necessary to accomplish the current volumes. The last level in this figure is the operational level that shows the practical solutions that are deployed in order to solve the problem, such as hub and spoke. The right hand side describes the other choice, sophisticated solutions to match the complex problem. In these strategies information and knowledge are the main sources to handle the complexity. In order to make the solutions sustainable for the future we believe that we have to move the approach from the side were we reduce the systems in order to make them easier to cope with to the other side were we integrate them and use the information in order to control and manage them. The requirements of the future will also be the requirements of a sustainable society and this demand for higher sophistication is both economic in that industry and consumers demand faster and cheaper solutions with less environmental impact. The demand for more sophisticated solutions to the transport of goods and persons also requires more sophisticated approaches, methods and models both to assess these systems properties and to be able to manage and control them in the most efficient way. This is the ultimate goal in using complexity to assess and model transportation and logistics systems.
b) Perspectives of E-Commerce
Regarding E-Commerce we can look at the figure out from two perspectives. The shippers' and the forwarder's perspectives, the shipper is more concerned about good valid and precise information about the cargo and the actual transport. The shipper is though not really interested in how the actual transport, capacity etc. is solved, i.e. the shipper is not
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interested if we use a transport system with over capacity or a system that use over transport. In this way we can say that the shippers focus is the commerce in this case E-Commerce. The forwarder is on the other hand more concerned over enough transport capacity and an easy to manage and redundant system. Figure 2-5
The Two Perspective of E-Commerce- Participant Focus
Source: (Lumsden, 2010) Buyers want to know their landed cost of the products, when and where the products can be delivered, etc. This additional information, the order management, the IT services on which these are based, and the Just-In-Time transport and delivery are summarized by the term e- fulfillment. But efulfillment can and frequently does cover much more: arranging for the insurances of goods in transit, export and import customs clearance etc. In the same way, as the shipper is interesting in the E-Commerce the forwarders are interesting in the e-fulfillment.
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One problem the E-Business has been struggling with is that these two perspectives haven't matched each other. The shippers haven't understood the forwarders perspective and the forwarder haven't understood the shipper's perspective.
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Chapter Three
The E-Logistics Function
3.1 Introduction The impact of E-Commerce on logistics service providers has been discussed by (Patrick Delfmann, 2002) 14. They argue that the logistical implications of E-Commerce can be classified into two main categories: the rise of e-marketplaces, and the elimination of supply chain elements (disintermediation). Virtual logistics resources can be traded in the way most goods are traded by companies and individuals. With the help of information technologies such as the Internet and WWW, resources can be purchased, utilized remotely, and lent or sold when supply outstrips requirements (Clarke, 1998). With virtual logistics operations there is much more flexibility in the allocation of resources, and this means that the resources available can be made equal to the resources actually used. ( Gunasekaran, et al., 2007)15 The integration of IT with logistics management is an important prerequisite for good logistics management. An electronic commerce portal can be used as a marketing channel in collaboration with existing intermediaries or through bypassing intermediaries--disintermediation will provide high leverage opportunities to the logistics function and increase its flexibility. Hence the development of E-Logistics becomes essential for success in global operations. LBS (Location-based service) is an open online information and integration system for transportation and logistics services, offering customs and financial links, pricing, space availability, booking capability for freight door-todoor and a single point of payment through clearing houses (DAMSGAARD, 1999)16 .examined the air cargo industry in Hong Kong, where an electronic trading network was launched in the mid-1990s with considerable success by four international airlines. He identified two critical success factors: (i) the electronic network limited its service to carefully preserve the distribution of power among the stakeholders, and (ii) the system took advantage of the four
14 Patrick Delfmann, Sebastian Herwig, ?ukasz Lis. 2002. UNIFIED ENTERPRISE KNOWLEDGE REPRESENTATION WITH CONCEPTUAL MODELS - CAPTURING CORPORATE LANGUAGE IN NAMING CONVENTIONS. Phoenix, Arizona , 2002. 15 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349. 16 DAMSGAARD. 1999. Stereological quantification of mast cells in human synovium. 1999. Vol. Volume 107.
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founding airlines' local strongholds as points of departure. E-Logistics consists of four important components: (i) one-stop value-added services, (ii) management of electronic information, (iii) a transportation network and (iv) automation in warehousing operations. In logistics, customer satisfaction can be improved by one-stop value-added services. This requires an integrated value chain to be linked to a customer-care advocate, so that customers can receive all of the required services with just one contact with suppliers. For example, in government services, one-stop services allow you to find out any council service, to make enquiries and applications, to pay your bills etc., - all less than one roof. A 3PL also provides multiple value-added services, including product assembly, packaging, re-packing, re-filling, labeling sorting, quality control, etc. to comply with local regulations. ( Gunasekaran, et al., 2007)17 E-Logistics can be defined, then, as: a logistics community network consisting of third-party logistics service providers including warehousing and transportation networks with suitable information technologies such as EDI, the Internet, wireless and mobile communication technologies, WWW and Radio Frequency Identification (RFID) with the objective of providing one-stop valueadded services to customers. ( Gunasekaran, et al., 2007) (van Hoek R., 2001) 18 Presents the experiences of UPS Worldwide Logistics (WWL), a company that had implemented a Fourth Party Logistics (4PL) model which was based on the integration of information in logistics and transport operations. Anderson Consultants define 4PL as "a supply chain integrator that assembles and manages the resources, capabilities and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution"2. 4PL is the integration of all companies involved along the supply chain. Web-based logistics information systems have several advantages, as less human intervention is involved. This minimizes errors in the exchange of information, hence facilitating good decision-making. The advantages include: real-time inventory information, single data entry to minimize human error as the data are input by the customers themselves with no
17 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349. 18 van Hoek R. 2001. The rediscovery of postponement: a literature review and directions for. 2001. pp. 161-184. Vol. Vol. 19.
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need to reenter the data, real-time online ordering functions, and multi-level password control so that different functions can have different access levels controlled by authorized people. The role of E-Commerce models in developing virtual logistics chains has been highlighted in many articles (Graham and Hardaker, 2000)19. The most important requirements for using new technology are that a firm must understand the value added for its customers and that it restructures many of its business processes in order to receive its full benefits. Ligon et al. (1992)20 discuss the role of EDI in logistics services. However, only a limited number of articles have dealt with 3PL and the role of IT in improving logistics performance. In the following section, an attempt is made to develop a conceptual model for effective logistics management in a 3PL environment. The appropriateness of the model design is confirmed. ( Gunasekaran, et al., 2007)21 3.2 E-Logistics - Key to Success in the Digital Economy:
3.2.1 The Internet
Today, it is almost a truism to state that the Internet is profoundly changing the whole business logic. Boundaries between markets, industries, companies, products and services, sellers and buyers, and so on, are disappearing. No one is untouched, and no one can stand alongside. The question is what to do if one wants to lead the development and not simply follow. Internet applications can be divided into three major stages; e-presence, ECommerce, and e-business.
19 Graham, G., Hardaker, G.,. , 2000. Supply-chain management across the Internet. International Journal of Physical Distribution and Logistics Management. , 2000, pp. 286-295. 20 Ligon F. K., Dietrich W. E. & Trush W. J. 1995. Downstream ecological effects of dams. Bioscience 45. 1995, pp. 183-92. 21 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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Figure 3-1
The development of internet applications
Source: ( Gunasekaran, et al., 2007) 3.2.2 E-Presence E-Presence often starts with one-way information about the company, its products and services. The Internet is primarily used to publish information. Suppliers can deliver product and service information directly to customers in a cost efficient way. The next step is to create two-way communication for e.g. customer support and answering FAQs. The value added imbedded in this "disintermediation" lies in the possibility to communicate directly with the customers as a supplement to traditional market communication. The Web server is a standalone server, usually outside the company's firewall. There is no link to internal ERP-systems. 3.2.3 E-Commerce ( Gunasekaran, et al., 2007)22 E-Commerce opportunities are opened for transactions. Transactions are the core elements in commercial activities. A transaction consists of two major parts; transaction creation and transaction fulfillment. In the digital economy, transaction creation is done over the Internet (E-Creation), which usually leads
22 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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to reduced transaction costs. When it comes to digitally transferable services and products, such as bank services, computer software, and music, transaction fulfillment can also be done over the Net (E-Fulfillment). For physical products, however, fulfillment has to be supported by physical movement (e-logistics). E-Commerce can be defined as transaction creation based on electronic media - and primarily the Internet - supported by transaction fulfillment which can be digital but in most cases is based on physical movement - e-logistics. ECommerce goes one step further than e-presence by making it possible for customers to order directly via a link to internal systems. For mail order companies, for example, this means that the Net is used for E-Creation that directly links to existing systems for fulfillment. Or, a customer can go directly to a computer supplier to download of the latest driver. E-Commerce can be divided into two separate areas; Business to Consumer (B2C) and Business to Business (B2B): with different e-logistics requirements. B2C can be seen as a rather traditional transaction where the buyer uses the computer instead of a telephone or fax machine. The difference lies in the freedom of choice created by easy access to information from several potential sellers. The buyer visits the seller's website, places an order and waits for delivery. Logistics costs can account for more than 40% of total costs in e-trade. This means that e-logistics, e.g. in terms of cross docking, and payment are the critical factors for profitability. The B2C transaction is normally preceded by some type of supply function where eB2B activities may be involved. Electronic business to business trade (eB2B) promises to cut costs while bringing companies closer together. B2B web sites are estimated to save companies 15-45 per cent in transaction costs through quicker ordering, speedier delivery, fewer errors, and offering more opportunities to find the lowest priced products and services. Forrester Research forecasts that eB2B will eventually be dominated by interconnected one stop shops where purchasing agents will have instant access to price comparisons. These sites will connect together services like risk management, financing, and logistics in a single, integrated purchasing flow. The e-market spaces established by for example Ericsson, SKF, Ford, GM and Chrysler/Mercedes are other examples of the evolution of ecommerce.
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The Internet development leads to disintermediation, i.e. middlemen are disappearing. But it also leads to re-intermediation, i.e. new types of middlemen offering new types of services are established. Infomediaries consolidate information from several sources as a service to the customer. Travelocity is one example of this "re-intermediation" incorporating information from other Web sources to provide its customers services such as flight tickets, hotel, and rental cars reservations. E-Logistics companies are also among the most important of these new intermediaries. Ecommerce transactions put heavy stress on effective and efficient logistics operations. ( Gunasekaran, et al., 2007)23 And this is where the e-logistics concept is of great help. e-Logistics companies can act as advanced 3PL partners and add value in a very profitable way - for all parties involved. Part - or sometimes the whole - of the customer's purchasing activities could be outsourced to the e-logistics company. Resources and valuable time can be released and put into more profitable core activities such as product and service development, marketing etc. Under the influences of E-Commerce, the supply chain is at the very core of what gives an enterprise its competitive edge and ultimately its shareholder value. E-Presence and ECommerce offer new ways for sellers to promote market and sell products and services. These models will continue to grow. However, these approaches are supplier oriented and customers are looking for sellers and what they get is standardized information with no customization. The pivotal change comes with a more interactive Internet that enables applications not only to view but also make active use of data. As this transition occurs, business systems evolve from being supplier oriented to being customer oriented. And the supply chain push will be replaced by a demand chain pull! 3.2.4 E-Business ( Gunasekaran, et al., 2007) The third phase - E-Business - involves transformation of processes and systems to increase integration and automation in order to take advantage of all the possibilities created by the Internet. E-Business implies a much deeper and more radical transformation of the company than E-Commerce. When ECommerce evolves into E-Business the architecture has to be reinvented in a
23 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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way unencumbered by existing business infrastructure. Developing the right infrastructure to support successful E-Business will be the real challenge. Most companies have made major investments in business applications and ERPsystems, but not very many have made investments in connecting these applications together in a way that can withstand the intense demands of the eworld. Connectivity solutions have to come in to help realize business goals of agility, adaptability, and durability by interaction with trading partners and customers. The growth of the Internet implies considerable systems integration. E-Business can be defined as an approach where processes, systems and behavior are adapted and integrated in order to take advantage of all the possibilities that are created in e-networks, i.e. effectiveness and efficiency in inter-organizational business processes are increased with the help of Internet technologies. Today's E-Commerce is, as mentioned, primarily sales and supply oriented. The great challenge arrives with a more interactive Internet that not only gives access to data and information but permits active use of it. No longer will companies just be using a browser to look into someone else's system, they will take control of the data and make it into intelligent information. When this happens, Internet applications will be demand rather than supply oriented. It will be a paradigm shift from the époque when customers' used their browser to get data from the sellers to the époque when sellers deliver customized information to the customers as they require. Sellers deliver digital data that can be integrated directly into the customer's systems. For example, a supplier can automatically keep a customer updated on order status which means that proactive steps can be taken to adapt to changing circumstances. This also initiates a radically different relationship between suppliers and customers - one in which the suppliers compete on the basis of how effectively they can integrate their information with those of their customers and suppliers in order to add value. Integration is one of the key words in e-business. The integration of business processes between companies, "e-collaboration", is well established with the grocery sector in the lead in most countries. The sharing of data between retailer and supplier means that both parties can have a complete and up-to-date picture of evolving supply chain processes. E-Collaboration can provide a step
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change in the way that supply and demand channels are run. In its simplest form, the sharing of information at key points in the process is vital if companies are to adapt to a demand led economy. However, the processing and management of large amounts of data will quickly become a major headache unless new tools are deployed to make sense of it all. Luckily enough, recent developments have made data mining techniques affordable and applicable to all types of business. Data mining tools and techniques enable businesses to analyze potentially vast quantities of data stored in "data warehouses". Patterns, trends and correlations can be detected at any level of aggregation down to the individual record. Increasingly, as E-Business interleaves the separate databases, systems, and operations of individual companies into a seamless demand chain, the users will be suppliers and customers just as much as internal staff. Data mining makes it possible for anyone in the supply chain to access the data warehouse and convert data into meaningful information. And, hence, it is an essential tool for the Internet and e-business. The second phase in E-Business focuses on two way, interactive process integration between the company, its supplier and customers. Process integration between the decision-making systems of enterprises, their suppliers and their customers becomes bidirectional and tightly integrated. Actions on one company's computers trigger processes at other companies. There is a dynamic interplay and processes can be initiated in inter organizational systems based on predefined rules. An order to a manufacturer may initiate information to OEMs, first and second tier suppliers. Dell, for example, has built its success on very close process integration with suppliers and customers. Fast, two way communications reduces lead times and total costs, streamlines the flow of resources in the channel - and puts very heavy demand on e-logistics. If the first two stages of Internet applications are seller and supply chain oriented, then the third stage is buyer and demand chain oriented. Distribution channels have to be restructured when companies move from E-Commerce to EBusiness and business processes become more integrated and partly automated.
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Supply chains are rapidly transformed as enterprises go beyond their Webbased storefronts and create systems that execute business processes with their suppliers and customers over the Internet. Internet-connected enterprises will remake interactions across the entire chain from raw materials supplier to the ultimate user. Traditional value chains are transformed into intelligent value webs! Companies working within intelligent value webs will be able to reduce inventory, increase flexibility and responsiveness and improve customer service. Fundamental changes in the way access is provided, content is marketed, and products are sold and delivered are occurring. Logisticians will have to plan and implement concurrently and as fast as the marketers. And a new breed of logistics - e-logistics - is emerging. 3.2.5 E-Logistics ( Gunasekaran, et al., 2007) What, then, is e-logistics? Of course, e-logistics is a spin-off from earlier generations of logistics. But it is something more and radically different than just a new generation of traditional, "industrial age" logistics. It is designed to fit into the new, digital economy and the Internet applications discussed above. The history of logistics can be divided into three major phases. The first phase - the Military phase - started a very long time ago with military warfare. Alexander the Great, Napoleon, and Gustaf II Adolf were among the leaders of logistics development. Later on, military logistics focused on operations research and logistics engineering. There has been two main paradigm shifts in the history of logistics. The first one was when military was replaced by business logistics, and the second one is happening right now with the advent of agile and flexible logistics designed for the digital economy - e-logistics. Development of modern logistics started in the 1960s. The first generation was highly cost-oriented. The innovation was the shift of focus from functional costs to total costs in the whole physical flow. The oil crises in 1973/74 were the triggering cues for the second generation of logistics - the revenue oriented approach. The focus on revenue using logistics as a means of competition - is easy to understand. The mission was to increase sales in a zero growth market. The third generation in the late 70s came as a remedy for the problems caused by too much emphasis on sales. Too much capital was tied up in order to satisfy customers. The rate of sales
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versus capital tied up in inventory was falling below 1! The rescue was the third generation - capital oriented - logistics.24 All of these three first generations of logistics were based on the prevailing paradigm of the first industrial revolution. The key words could be summarized; standardization, continuity, planning, and economies of scale. However, in the mid-1980s the first signs of a second industrial revolution started to show. Something was "trying to happen" as a response to changing customer requirements when the industrial society slowly was replaced by the emerging knowledge society. The new key words were; freedom of choice, discontinuity, flexibility, and Economies of scope. Quite an antithesis to the old key words! The second paradigm shift was under way! The next two generations of logistics were also typical children of this delta period - the reperiod. Rethinking, restructuring, reinventing, and reengineering. The fourth generation was focusing on inter-functional processes and process innovation for time based competition. The fifth generation was ITdriven and not simply IT based. The advent of the digital economy, however, has triggered a new very different breed of logistics - e-logistics. The key words of the digital economy can be summarized; speed, flexibility, connectivity, interactivity, and intangibles. Success in this environment requires e-logistics. The e-logistics concept is adapted to the digital economy in which the Internet is a major backbone. The information flow is the starting point and the enabler - not the physical resources. Physical resources for moving and storing products do not have to be owned by the e-logistics company. On the contrary, physical resources can be a disadvantage. The competitive advantage is embedded in knowledge and competence. Competence in continuously developing, improving and adapting physical flows and tools according to customers´ demands, But also competence in suggesting new and radically different solutions. E -Logistics is a major part of the network economy in which bits are moved by ICT and atoms are moved by logistics.
24 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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The e-logistics concept is developed in accordance with the new rules of play discussed above. The concept is defined by the interaction and integration taking place in the interfaces between traditional logistics, Information and Communication Technology (ICT) and process management . Deep knowledge and competence within all these areas is required in order to succeed.
Figure 3- 2
The E-Logistics concept Interplay in the interfaces between traditional Logistics, ICT, and Process management
Source: ( Gunasekaran, et al., 2007)
ICT provides the methods, systems, and techniques necessary. Data base technology and data mining techniques are major enablers in the implementation of the e-logistics concept. The gap between those who know enough about ICT and those who know enough about the application area - logistics - has to be bridged. This is a major task for research and education, and it also approached by Swedish universities. Logistics provides the frame of reference, the concepts, and the models for management of cross-functional and inter-organizational flows and processes. Logistics is, in many ways, the cradle for process orientation. The development towards process-driven structures started with the first flow oriented approaches within logistics in the 1960s. The purpose was to create efficiency by better coordination of purchasing, manufacturing, marketing and physical distribution. In the next step, engineering and product development
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were explicitly integrated in the approach. This cross-functional approach has been further accentuated by concepts such as concurrent engineering and Business Process Reengineering (BPR). Most of these approaches are intra-company and efficiency oriented. In today's customer focusing world, efficiency is not enough. Effectiveness has to be created by partnership and close cooperation in the whole distribution channel. The "new" Supply Chain Management concept as well as the "old" Vertical Marketing Systems concept is proponents of this view. These approaches have to be based on processes spanning the boundaries between functions and organizations. Virtual integration offers the solutions for inter- organizational coordination and cooperation, and also for the shift from supply chain to demand chain thinking. Process management, finally, helps in creating the necessary conditions for renewal. Renewal and change can never be based solely on techniques. The transition requires understanding and acceptance of what has to be done, why and how. The result (R) always equals technical/economic systems efficiency (S) time's social acceptance (A), i.e. R=S x A! Advanced logistics and ICT enable short lead-times in the creation of customized products and services. But a flexible and open organization based on process orientation and goal oriented teams is another necessary ingredient. Process management helps in focusing the customer and in creation of value. It integrates activities and facilitates handover between units. It provides a holistic view and it empowers employees. Process management creates increased efficiency and effectiveness, but rethinking and innovation is created by empowered people. Most of the effective and efficient relationships in the networks of the digital economy are process driven. In the e- Logistics context, process management mainly focuses on three inter-organizational core processes:
• Customer Creation and Retention (CCR) that creates and retains customer
relations all the way from the very first contact, via after sales, follow up and continuous improvement.
• Time to Cash (TTC) - the total materials, information and payment flow.
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• Time to Market (TTM) - the total process for development and improvement
of products and services. The concept of e-logistics focuses on integration and improvement of interaction in the interfaces between these processes.
Figure 3- 3
The Interface among core processes; TTM.TTC, and CCR
Source: (Johan Visser, 2001)
3.3 E-Commerce and logistics system (Johan Visser, 2001)25 E-Commerce defined as "doing business over the Internet" could cover any transactions between the organizations and people in the society, although the past literatures regarded B2B and B2C as important in terms of market size.
25 Johan Visser, Ryuichi Yoshimoto. 2001. THE IMPACT OF E-COMMERCE ON TRANSPORT. Tokyo , Japan : Faculty of Commerce and Management, Hitotsubashi University, 2001.
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In this paper, however, the government will be referred explicitly because they have responsibility to establish new logistics policies under different ICT conditions. Another original viewpoint is to divide "Business" into "Shipper" (e.g. suppliers, manufacturers, wholesalers, and retailers) and "Logistics Service Provider" (e.g. freight carriers, warehouse firms, and third party logistics). B2B usually means the transactions between shippers (S2S). It seems effective for us to distinguish the transactions in the market of logistics services, between Shipper and Logistics service provider (S2L) and between Logistics service providers (L2L). As E-Commerce becomes common practice, the more likely the shippers tend to outsource logistics services. We should recognize four major stakeholders if we want to analyze the impacts of ICT on the logistics system (Figure 3-4).
Figure 3-4
Stockholders in logistics system
Source: (Johan Visser, 2001)
Shippers are either the consignors who send goods or the consignees who receive goods in the supply chain. Their concerns are to maximize net profits by
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reducing lead-time from ordering to fulfillment, and decreasing opportunity cost resulting from failing to cope with changeable consumer needs, among others. Some of the shippers have the logistics functions in-house, because their logistics system makes their competitive power stronger. However, the share of logistics activities conducted by logistics service providers has been increasing in Japan. Logistics service providers are trying to minimize logistics costs (transportation cost, stock cost, data processing cost etc.) while meeting the requirements from the shippers. The requirements have become sophisticated and costly, including time-window for delivery, temperature control, and tracking information services for valuable goods. Consumers like to maximize consumer surplus by purchasing favorite goods conveniently at reasonable prices. The important aspect is that the price is one of the factors affecting consumer's satisfaction. They are willing to pay more money if quality goods are delivered just in time. We cannot neglect the fact that the consumers are at the same time the residents suffering from traffic congestion, traffic accidents, and environmental problems (air and noise pollution). Therefore, they hope that these problems be alleviated and a comfortable urban environment is maintained. Governments represent the local governments and other agencies concerned. They are tasked to maximize net social benefits (gross social benefits gross social costs) in the new situation where ecommerce and related logistics operations are actively performed by the private sector. Their interventions might be justified in providing public goods such as logistics infrastructure, in regulating logistics operations for safety purposes, and in internalizing externalities to make efficient and fair resource allocation (e.g. road pricing).
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Table 1 Concern of Stakeholders
Source: (Johan Visser, 2001) 3.4 urban logistics system influenced by ICT (Johan Visser, 2001)26 ICT will affect the logistics system in different ways. Concerning the influence of ICT on the logistics system, three aspects should be examined (Figure 3-5):
increasing/decreasing the demand of freight transportation (E-Commerce). where fragmented transportation needs might be consolidated (e-logistics). management based on real-time traffic data (e-fleet management).
26 Johan Visser, Ryuichi Yoshimoto. 2001. THE IMPACT OF E-COMMERCE ON TRANSPORT. Tokyo , Japan : Faculty of Commerce and Management, Hitotsubashi University, 2001.
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Figure 3- 5
ICT and Urban Logistics System
Source: (Johan Visser, 2001)
3.4.1 E-Commerce (Johan Visser, 2001) E-Commerce is expected to change the supply chain. Suppliers, manufactures, wholesalers, retailers, and consumers can choose their trade partners directly. As a result, logistics operations are affected immensely. Even small and medium-sized firms in local areas can demonstrate their products to overseas consumers, investigating the detailed needs. Parcel delivery firms can efficiently manage goods transport, and the accounts can be settled with credit cards or other services. Not only B2C but also B2B transactions would be affected. In the United States, the automobile industry established a web site involving several firms (suppliers, car dealers, and logistics service providers) where trade information are exchanged and shared, such as part order, inventory information, and even information on new designs. The Internet is used as a tool to cooperate with a small number of partners, as well as to procure mass-produced parts at a low price from all over the globe. The Internet can be the catalyst to accelerate the standardization of EDI (Electronic Data Interchange) between firms, which progressed slowly before.
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3.4.2 E-logistics (Johan Visser, 2001)27 Competition is certainly promoted by the development of E-Commerce, as firms and consumers can easily contact with more potential purchasers and suppliers. Therefore, a firm that has a competitive manufacturing know-how about a certain product might dominate the market entirely. Furthermore, the agent function, which helps us find the cheapest price of a certain product automatically, is promoting competition. When competition is intensified, the organization and activities that do not contribute to strengthening the competitive power (core competence) of the concerned firm should be restructured. In particular, logistics operations such as transportation, storage, packing, etc. are not necessarily profit-making activities with specialties. In many cases, it is more likely that outsourcing the logistics services makes more profits. In Japan, a seller or a consignor is responsible for the transport of the purchased goods to a buyer or a consignee traditionally. On the contrary, the consignee is often responsible in Europe and America. In both cases, however, the shippers (consignors and consignees) face difficulties if they themselves transport the ordered goods via the Internet. E-Commerce changes the supply chain from a large-lot thick stream (factory - wholesaler - retail store) to many small-lot narrow streams (factory - consumer). That is why shippers pressed for efficient employment of resources tend to outsource logistics services to third party logistics (3PL), which is neither the consignor nor the consignee.
3.4.3 Theory in practice: (Ericsson, 2000) There are several examples of practical applications of the thinking behind virtual integration and e-logistics both in Sweden and for example in the US. Michael Dell's well known approach to "direct sales" is based on virtual integration which, according to Dell, means: customer focus, market
27 Johan Visser, Ryuichi Yoshimoto. 2001. THE IMPACT OF E-COMMERCE ON TRANSPORT. Tokyo , Japan : Faculty of Commerce and Management, Hitotsubashi University, 2001.
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segmentation, mass customization, supplier partnership, and just in time manufacturing and logistics. Logistics is one of the major issues for E-Commerce startups. Therefore, Sweden Post has decided to develop an e-logistics company to become a valuable partner for, among others, E-Commerce companies. Sweden Post's "On line Logistics Company" (OLC) is a true e-logistics company with no physical resources but highly competent employees with state of the art knowledge of elogistics. The major Swedish E-Commerce company Bokus (a book store) is relying on OLC and has succeeded in getting the highest marks for delivery and customer service in independent ratings. OLC has also succeeded in cutting inventory down from around 122 days in the traditional supply chain to around 30 in the e-logistics set up. 3.5 E-logistics and Demand Chain Management The logistics concept has evolved from its early focus on cost efficiencies in transportation and warehousing to today's customer focused e-logistics approaches. During the 1980s methods were identified to make logistics operations function as an integrated set of processes. The 1990s presented a new definition of the logistician's role. This evolution intended to integrate many of the company's core operating processes and to provide a comprehensive view of the company's supply chain operations. The impact of supply chain operations on overall corporate performance was recognized and companies started to look for external help in delivering those results. The possibilities of third party logistics providers (TPLs) to improve the performance of the company's supply chain by outsourcing the transportation and warehousing functions were identified. Outsourcing allowed the company to focus on its core competencies, to provide a differentiated level of customer service and to take advantage of greater operational flexibility. Some operating and capital expenses could also be reduced. In practice, however, TPLs lacked the strategic expertise required to operate across the entire supply chain and the technology to truly integrate the related supply chain processes. While outsourcing often provided solid one-time reductions, it did not deliver the continuous savings and improvements desired.
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The issue right now is to meet management's expectations to create a truly integrated supply chain that improves operational performance, delivers the scope of services needed, and provides on-going financial benefits. At the same time, customer demands and requirements are further accentuated and highlighted with the development of Internet applications. The move from epresence, via E-Commerce to E-Business implies a shift from supplier oriented push to customer oriented pull strategies. That means an evolution from supply chain management to demand chain management, i.e. truly customer driven supply chains. The next significant evolution in logistics is emerging and it is called Demand Chain Integration which creates a new role - the Demand Chain Integrator (DCI). In essence, the DCI assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive demand chain solution. The DCI acts as a single point of interface with the client organization and provides the management of multiple service providers through a teaming partnership or alliance. The approach aligns the capabilities of the DCI and the "best of breed" service providers to deliver demand chain solutions. With the DCI focusing on the entire chain, dramatic customer service improvements can be attained. Operating cost reductions of up to 15% can be driven through operational efficiencies, process enhancements, and procurement savings. Savings can be achieved through the complete outsourcing of the demand chain function and creation of economies of scale. Synchronization of activities across chain participants can lead to operating cost reductions and lower cost of goods sold due to integration of processes, improved planning and execution of chain activities. Working capital reductions of up to 30% can be realized through inventory reductions and reduced "order to cash" cycle times. The Swedish company Sonat has proved that the theories discussed above can be realized in practice. Sonat is the first company to offer high growth European companies a comprehensive e-logistics solution, assuming responsibility for the entire extended demand chain. Sonat designs, integrates, and operates the chain for high-growth enterprises. Rather than being bound by fixed agreements with specific logistics suppliers, Sonat cooperates with those distributors and transportation companies that together form the most competitive, timesaving and cost-effective demand chain for each individual
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customer. By monitoring and operating the entire demand chain for a client, Sonat can guarantee defined service levels to the end customer. The company offers its customers a completely outsourced logistics department. The company's "Chain service" manages, plans, and integrates the customer's demand chain. Sonat targets small and medium-sized high growth enterprises, including dot.coms as well as more traditional companies. With dChain, Sonat takes responsibility for necessary process reengineering throughout the chain. Each customized demand chain is integrated by an ICT-infrastructure, connecting the various companies´ systems for planning, control, and follow-up. To achieve this integration, Sonat has formed partnerships with market leaders such as Oracle for applications and data-warehousing, SEMA Group for operations, communication and security and Viewlocity for integration of systems and information. Viewlocity is a global provider of B2B integration and online trading community solutions. Viewlocity´s flagship product, AMTrix, is used to ensure a seamless flow of information across enterprise boundaries, connecting Sonat´s customers with their suppliers and distributors, achieving end-to-end e-logistics solutions. (Ericsson, 2000) 28
28 Ericsson, Dag. 2000. e-Logistics - Key to Success in the Digital Economy. Athens : University of Skövde, 2000.
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Chapter Four
The Benefits of the Partners through Using E-Logistics
4.1 Introduction Logistics, just as all other areas of applied research, is under continuous development. Normally, the theoretical side is a couple of years ahead, pointing out what could be done if the tools were available. Then the technological development catches up - and visions are turned into reality. This is exactly what has happened in the development of theory and practice in relation to channels of distribution. The theoretical interest in coordinated, integrated, effective and efficient distribution channels was very big during the 1970s both in the US and in Sweden. Theories and models describing how cooperation ought to be carried out in effective and efficient channels were presented under the label "organized vertical marketing systems". Transaction and coordination costs were analyzed from macro as well as micro perspectives. Power structures and relations such as competition, cooperation and other types of influence were discussed from behavioral and socio-psychological aspects. Channel structure and behavior was analyzed from all possible theoretical angles. The focus was on vertical integration without ownership control, which is what today is called virtual integration, enabled by modern information and communication technology (ICT). A lot of the visions and ideas discussed at that time are now realized under concepts such as Efficient Customer Response (ECR) or Quick Response (QR). The application enabler was new tools for gathering, storing, handling, retrieving and distribution of data. The Swedish wholesaler Luna developed an information system for coordination and cooperation with first the customers and then also the suppliers. It was a very early application of ICT to improve effectiveness in physical distribution. The world's first extranet, before the term was even thought of! The system (Bascet Info-link) is still up and running, but the technique is, of course, renewed. Today's technology - and especially Internet offers possibilities for new and flexible solutions.
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4.2 Supply Chain Integration and E-Business: (Whang, 2001) How and where do we see the impact of E-Business on supply chain integration? There are four key dimensions in which the impacts can be found:29
• Information integration • Planning synchronization • Workflow coordination, and • New business models
Taken in order, these four represent escalating degrees of integration and coordination among supply chain members, culminating in whole new ways of conducting business.
Table 2 Supply Chain Integration Dimensions
Source: (Whang, 2001)
29
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l. : Stanford University, 2001.
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A- Information Integration: (Whang, 2001) Information integration refers to the sharing of information among members of the supply chain. This includes any type of data that could influence the actions and performance of other members of the supply chain. Some examples include: demand data, inventory status, capacity plans, production schedules, promotion plans, and shipment schedules. Ideally, such information can be accessible by the appropriate parties on a real-time, on-line basis without significant effort.30 B- Planning Synchronization (Whang, 2001) Planning synchronization refers to the joint design and execution of plans for product introduction, forecasting and replenishment. In essence, planning synchronization defines what is to be done with the information that is shared; it is the mutual agreement among members as to specific actions based on that information. Hence, members in a supply chain may have their order fulfillment plans coordinated so that all replenishments are made to meet the same objective - the ultimate customer demands c- Workflow Coordination (Whang, 2001) Workflow coordination refers to streamlined and automated workflow activities between supply chain partners. Here, we take integration one step further by defining not just "what" we would do with shared information, but "how." For example, procurement activities from a manufacturer to a supplier can be tightly coupled so that efficiencies in terms of accuracy, time, and cost, can be achieved. Product development activities involving multiple companies can also be integrated to achieve similar efficiencies. In the best-case situation, supply chain partners would rely on technology solutions to actually automate many or all of the internal and cross-company workflow steps. D- New Business Models (Whang, 2001) Adopting E-Business approaches to supply chain integration promises more than just incremental improvements in efficiency. Many companies are
30
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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discovering whole new approaches to conducting business, and even new business opportunities not previously possible. E-Business allows partners redefine logistics flows so that the roles and responsibilities of members may change to improve overall supply chain efficiency. A supply chain network may jointly create new products, pursue mass customization, and penetrate new markets and customer segments. New rules of the supply chain game can emerge as a result of integration fueled by the Internet. Integration = Co-operation (Whang, 2001) 31 Integration cannot be complete without a tight linkage of the organizational relationships between companies. This linkage must take place on many planes.
• Channels of communication must be well defined and maintained, with roles
and responsibilities clearly articulated.
• Performance measures for members of the supply chain also need to be
specified and monitored. A member of the supply chain may be held accountable for some performance measures of another member, and there may be some performance measures for which multiple organizations are jointly held accountable. Such extended performance measures encourage closer collaboration and coordination.
• Incentives must be aligned for all members in order for supply chain integration
to work. Incentive alignment requires a careful definition of mechanisms in which the risks and associated gains of integration efforts are equitably shared. Moreover, the incentive for each member must commensurate with her investment and risk. The success of any supply chain integration effort is predicated on close cooperation inspired by a perception of mutual benefit. As we will see, EBusiness approaches can go a long way toward fostering the necessary level of trust and commitment.
31
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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The Role of Technology and the Internet (Whang, 2001) Supply chain integration is not new; many companies have already pursued it as a way to gain competitiveness. Information technology has long been a major factor. Relational databases, client/server architecture, TCP/IP network protocols, multimedia, wireless technology, and most recently, the Internet, have each, in their way, spurred new innovation and new possibilities. The e-business, or Internet computing, model, has now emerged as perhaps the most compelling enabler for supply chain integration. Because it is open, standards-based and virtually ubiquitous, businesses can use the Internet to gain global visibility across their extended network of trading partners and help them respond quickly to changing business conditions such as customer demand and resource availability. The following sections provide abundant evidence of this, with examples from a wide range of companies and industries illustrating how the Internet has fundamentally changed their supply chain strategies.
4.2.1 Electronic Information Integration: (Whang, 2001)32
Information integration is the foundation of supply chain integration. For companies across a supply chain to coordinate their product, financial and information flows, they must have access to accurate and timely information reflecting the status of their supply chain. The capability for all supply chain partners to have access to share information on a timely basis is therefore a key to improving supply chain performance. To ensure that a supply chain is driven by true consumer demands, information sharing is critical. This is the most effective way to counter the problem of demand information distortion in a supply chain -- the well-known "bullwhip effect." Information distortion often arises when partners make use of local information to make demand forecasts and pass them to upstream partners; partners making ordering decisions based on local economic factors, local constraints or performance measures; and gaming behaviors to exaggerate orders when there are perceived uncertainties in supply conditions. These distortions are amplified from one level to another in a supply chain, and are considered to be one of the biggest causes of inefficiencies in a supply chain.
32
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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Figure 4 - 1 Information Distortion and the Bullwhip Effect
Source: (Whang, 2001)
One way to counter the bullwhip effect is to have transparency of demand information. Indeed, in the grocery industry, such transparency is considered to be the cornerstone of supply chain integration, and is a key ingredient of "Efficient Consumer Response," a movement towards total supply chain integration in that industry. Companies engaged in information sharing efforts usually share sales data, inventory status, production schedule, promotion plans, demand forecasts, and shipment schedule information.
4.2.2 Electronic Workflow Coordination (Whang, 2001)33
The Internet permits companies to take collaboration one steps further, through coordination, integration and even automation of critical business
33
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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processes. Workflow coordination can include activities such as procurement, order execution, engineering change, design optimization, and financial exchanges. The results are much more cost-effective, speedy, reliable and less error prone supply chain operations. Below, we offer a number of examples of how different companies are pioneering workflow coordination activities in these and other areas. 4.2.2.1 Procurement A typical manufacturing company needs to procure thousands of products from hundreds of suppliers. The Internet helps to manage the complexity of the procurement process. Numerous companies including Ariba and Commerce One offer Web-based enterprise procurement solutions that dynamically link the buyer into real-time trading communities over the Internet. They also automate the internal procurement process from requisition to order, as well as the supplier interactions from order to payment. The solutions enable companies to reduce operational costs and increase efficiency by automating the entire indirect goods and services supply chain. Indeed, most of the market exchanges, such as Covisint for the automobile industry, Exostar for the aerospace industry, Converge and e2open for the electronics industry, and Transora for the grocery industry, provide eprocurement solutions for their members. Increasingly, companies are also relying on scientific breplenishment1 software to drive the timing and quantity decisions in procurement. For example, Longs Drug Stores, a retail pharmacy chain, uses the service of Nonstop Solutions to manage its ordering and replenishment processes at their distribution centers and stores. This results in inventory turns that are head-andshoulders above the competition. Longs' supply chain has been dubbed the "hyper-efficient pharmaceutical demand chain." 4.2.2.2 Order Processing and Financial Flows: Instill, a Silicon Valley startup company, has created an Internet-based service to facilitate and process orders, as well as coordinate rebates, discounts, and other financial exchanges for operators (like restaurants), distributors and manufacturers in the foodservice industry. Its mission is to develop easy-to-use
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services that lower costs and provide valuable information for all members of the foodservice supply chain. Its solution replaces the traditional time-consuming, error-prone purchasing systems with a secure and user-friendly client program for food operators to order food products on the Web. In addition, the Web site serves as an information hub that links buyers and suppliers in the food service market. 4.2.2.3 Procurement Coordination for New Products Sourcing parts for new products can be a major hurdle to timely and profitable new product introductions. Using the Internet, companies can conduct complex purchasing tasks such as parts-list management, quoting, decisionmaking, ordering, and order change and order confirmation in hours instead of days. The Internet also lets companies tap into a bigger supply base to ensure dependable supply and backup sources. Timeliness in supplier selection, order quote generation and receipt, and the integration of purchasing decisions with a company's internal Enterprise Resource Planning systems are particularly valuable in new product introduction.34 Solectron, a leading contract manufacturer and unprecedented two-time winner of the National Malcolm Baldrige Award, made use of Digital Buyer, an Internet-based procurement software application provided by Digital Market (now part of Agile Software), to reach multiple suppliers and obtain price and availability quotes. In its pilot with Digital Buyer, 5 out of 6 suppliers responded in as little at 4 hours to requests for quotes for 55 parts. Within two days, the company had received a total of 156 quotes, a dramatic improvement over traditional methods. The end benefit is drastically reduced cycle time to support Solectron's customers' new product introduction process.
4.2.3 New Business Model: (Whang, 2001)
Once companies begin to realize the promise of E-Business enabled supply chain integration, they often discover entirely new ways of pursuing business objectives, developing strategies and business models that were neither apparent nor possible prior to the Internet. These new business models and
34
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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opportunities are as limitless as the imagination. The following examples show the range of possibilities. 4.2.3.1 Virtual Resources The Internet facilitates information search so that multiple resources in a supply chain that once acted independently can now be tapped simultaneously to satisfy special needs. Examples include inventory stockpiles, untapped capacity, or even unmet demand, all of which can be pooled to create a secondary market of "virtual resources." Such secondary markets can create high value for participants by minimizing imbalances between supply and demand and reducing exposure to inventory obsolescence. Internet-based secondary markets can thus benefit, in most cases, every member of the supply chain. One example of a virtual resource is World Chemical Exchange, an electronic marketplace operated by ChemConnect providing a global market for chemical and plastic manufacturers and buyers. More than 2,500 members, representing 80 percent of the world's top 25 chemical companies, now can conduct round-the-clock trading of chemicals and plastics of all types Converge operates a market exchange for the secondary market of electronics components. Since the high tech industry has very short product life cycles, excess inventory of components and parts can result in huge obsolescence costs, while suppliers and manufacturers are not always able to produce more of the products that are close to the end of the product life cycle. Converge minimizes such exposure by providing an open virtual marketplace for buyers and sellers. 4.2.3.2 Supply Chain Restructuring35 With the advance of information technologies, companies can also restructure the logistics flows of their products to gain efficiencies. Physical flows no longer have to follow information flows: the Internet allows information flows to substitute for some of the inefficient physical flows. Cisco has been one of the most successful companies engaged in using the Web to this end. With 74% of its sales conducted over the Internet, the company outsources most of its manufacturing while devoting sales efforts to creating new customers.
35
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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An elaborate Web-based information system links Cisco and its supply chain partners, and takes care of all the necessary information flows. But the physical flows can be quite simple - 55% of Cisco's sales are shipped directly from the subcontract manufacturers to the customers, without stopping at Cisco's distribution centers. The result: lower inventory, faster, more accurate order fulfillment, and reduced costs. 4.2.3.3 Product Upgrades Most of us are familiar with the use of the Internet to perform upgrades to software products. But some innovative companies are exploring ways to use the Internet to upgrade hardware products, as well. Xilinx is a semiconductor company producing field-programmable logic devices. Some of the products in which Xilinx integrated circuits reside are going through constant product generation changes that would require onsite updating or even physical replacement. To address this problem, Xilinx developed Internet Reconfigurable-Logic (IRL). With IRL, the field programming logic can be modified or updated after the installation at the end user's premises over networks and the Internet. These online field upgradeable systems can range from multi-use set-top boxes and wireless telephone cellular base stations to communications satellites and network management systems. Today, Xilinx is the market leader for field programmable logic. 4.2.3.4 Mass Customization The Internet enables many companies to use the Web to allow customers configure specific order options tailored to the tastes and preferences of the customers. Hence, the Internet facilitates mass customization. This has been a key feature of online retailers, but has now spread too many mainstream business and products. Examples run the gamut from personalized greeting cards (eGreetings, now part of American Greetings), to computers (Dell), from bicycles (Cannondale and Voodoo) to automobiles (Ford and GM). Mass customization, while not appropriate for every product or industry, can be a powerful way of cementing customer relationships by providing a highly cost-effective level of personalized service.
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4.2.3.5 Service & Support Service and support can be a time-consuming, costly diversion for many companies. Using the Internet to perform remote sensing and diagnosis has proven to be a highly cost-effective solution. Looking at the PC support area, a software company called tuneup.com developed a remote maintenance service aimed at helping individual and companies keep their PCs running. A subscriber of the service would allow the service center to remotely collect data on her computer, checking viruses and other anomalies, alerting the customer, and providing online fixes. They also advise and help the subscriber to install software upgrades, hardware drivers, and program add-ons specific to her computer. Subsequently acquired by Symantec and re-dubbed Norton Web, this remote service approach has been adopted by a wide range of end-user and enterprise service companies. Under an "Autotest" program, Cisco's suppliers run software routines that perform quality tests at their local test cells. The test data are sent over the Internet to Cisco, so that Cisco engineers can remotely monitor and control test cells. This enables them to resolve problems that the suppliers themselves cannot diagnose. The standardized test results across the entire supply base allow Cisco to scale the activity rapidly and obtain valuable information about their products that might not be available without such an arrangement. 4.2.3.6 from Products to Service Intuit develops and markets the world's best-selling personal finance, small business, and tax preparation software, as well as a set of Web-based financial tools. In the past, the company offered only software products sold primarily through retail stores. With the advance of the Internet, Intuit has been able to create Internet based services for both individuals and businesses. These range from online tax preparation and form submission to payroll, office supplies procurement, mortgage brokering, insurance, electronic bill payment and much more. (Butterworth-Heinemann.Chaffey, 2007)36
36 Butterworth-Heinemann.Chaffey, D. 2007. E-business and e-commerce management: strategy, implementation and practice. Pearson Education. [Online] 2007. [Cited: may 25, 2012.] http://books.google.co.uk/books?id=EOjG84UvrHMC&pg=PA394&dq=e-m&lr=#PPA394,M1.
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In addition, since Intuit has links to many key banking institutions, it can also access the appropriate data, such as dividends and interests payments, and include them in the electronic tax filing. The revenue from services, enabled by the Internet, is steadily increasing as a percentage of Intuit's overall revenue. Delivering these services to customers via the Internet is only the most visible aspect of this strategy. Behind the scenes, Intuit uses a range of Internet tools and solutions to link and orchestrate a vast supply chain of providers, from banks and brokerage houses to independent mortgage brokers, from insurers to office supplies retailers like Staples. Without the Internet, Intuit's transition to a service-based company would not be possible. 4.2.3.7Multi-channel Click-and Mortar Fulfillment The high cost of order fulfillment for online retailers has been viewed as a major impediment to success. Traditional "offline" retailers are pioneering the combination of the digital channel with traditional brick-and-mortar infrastructure. 7dream.com in Japan is an example of such a "click-and-mortar" multi-channel model. Seven-Eleven Japan (SEJ) is the largest and most successful convenience store chain in Japan. In 2000, SEJ created 7dream.com, a joint venture involving seven of Japan's industry giants: SEJ, Nomura Research Institute (NRI), Mitsui, Sony, JTB, NEC and Kinotrope. 7dream offers a large pool of products on its Website, allowing customers to pick up orders at a local SEJ store two or three days later. In this way, the value of Internet-based channel is combined with the power of SEJ's infrastructure of extensive stores and logistics without incurring the costs and risks of carrying an expanded range of inventory. Another example of click-and mortar multi-channel fulfillment is CVS, a major US pharmacy chain. CVS allows customers to place prescription orders on the CVS Web site and pick up their orders at their local store, eliminating wait. In another example, ToysRUs leverages the logistics infrastructure of Amazon.com for order fulfillment, while customers can order directly from the company via its Web site. Many others, like the Gap and Lands' End, are
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developing similar click-and-mortar multi-channel fulfillment and distribution strategies. 4.3 Changes in IT Investments (EFT, 2012)37 As with last year, the majority of respondents representing transport or logistics providers (70%) are increasing their IT investment this year. Only 4% are decreasing their investments. This is a very encouraging result for CIOs and Heads of IT, allowing them to explore more options regarding new technologies.
Figure 4- 2
Source: (EFT, 2012)
Popular Methods of Discovering New IT Solutions (EFT, 2012) Respondents were asked how they find out about new IT solutions. The most popular methods included: looking at customer requirements (61%), conferences (50%), developing and using home grown solutions (47%), and looking at what competitors are using (46%).38
37 EFT. 2012. 2011-2012 Transport & Logistics CIO Report. Amsterdam : EFT: Eye For Transport, 2012. p. 18.
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Figure 4- 3
Source: (EFT, 2012)
4.4 Optimizing the E-Supply Chain: The Final Frontier (Hayes, 2004). Of the myriad opportunities offered by the Internet, perhaps the one providing the most immediate benefit, and showing the greatest long-term promise, is supply chain optimization. The Internet's ability to remove inefficiencies, break down communication barriers, reach disparate audiences and foster collaboration is perfectly suited to managing and optimizing the diverse and distributed players in supply chains of all sizes.39 Cutting edge E-Supply chain examples abound. Dell Computer Corporation has achieved recognition and financial success for masterfully
39 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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streamlining its supply chain and business processes while providing customers with personalized product options. Ford Motor Company, Daimler/Chrysler and General Motors have teamed to develop Covisint, an online marketplace for purchasing automotive parts and direct materials from their vast group of first tier suppliers. The Paper Exchange, an Internet-based trade exchange, allows suppliers and buyers to offer and bid on paper products and pulp. Ford recently announced an initiative to share legacy-created product design drawings with its suppliers using an XML translation tool. Even industries that have traditionally been unaffected by supply chain issues, particularly services industries such as IT consulting, now find a host of online marketplaces and aggregators seeking to match buyers and sellers of services.40 Little wonder that so many companies are excited by E-Supply chain opportunities. Analyst predictions bear this excitement out. Boston Consulting Group forecasts that electronic, Internet-based business transactions will amount to $2.8 trillion by 2003, while Gartner Group predicts they will reach over $7 trillion. By 2002, Gartner Group expects 7,500 to 10,000 business-to-business (B2B) marketplaces will emerge. Giga Information Group and IDC estimate that these B2B marketplaces will offer savings of $180 billion to $480 billion in transaction costs and expenses come 2003. For the software, hardware and services vendors that would like a piece of the action, Jupiter Research believes that technology spending to operate B2B marketplaces will increase from about $2 billion in 2000 to $81 billion in 2005. Truly integrated and optimized supply and demand chains offer significant benefits to their participants. To understand, imagine what would happen if your company knew in advance exactly when you're top clients were going to make their purchases, what they intended to buy and where they needed the items delivered. Armed with these accurate forecasts, you could notify your suppliers of your precise needs, exactly when needed. Instead of buying raw materials at inopportune moments, you could plan your purchases to take advantage of favorable pricing. To lower overhead, you could manufacture and warehouse products in the most ideal location. With more insight into buying patterns, you could better predict customer needs, developing even more suitable products and
40 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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services in collaboration with your suppliers. Finally, to expand your market, you could offer all of these products and services online, through one or more emarketplaces. What company wouldn't want these benefits? The Internet is elevating supply chain optimization to new levels, but the concept of supply chain management (SCM) is not new. Every company, no matter its industry, is part of one or more supply chains both as a supplier and buyer of goods. Supply chain investments, ranging from direct materials used to manufacture products to indirect materials such as PCs and office equipment can be huge. Any efficiency that can be introduced into the supply chain has the potential to result in enormous cost savings. For manufactured goods, every dollar squeezed from the "cost of goods sold" is a dollar added to profits. Every reduction in carried inventory frees capital for other uses. Relying on techniques such as "just-in-time" inventory management and logistics planning, and applying automation where needed, many companies have started the process of integrating and optimizing their supply chains. Auto manufacturers now rely on automated systems to forecast and order parts mere minutes before they are needed on the assembly line, and retailers like Wal-Mart have squashed their competitors by developing sophisticated logistics, inventory management and distribution systems, all tightly coordinated with suppliers.41 In many ways, modern day E-SCM efforts are an outgrowth of the enterprise resource planning (ERP) initiatives undertaken by many large companies over the past two decades. With the advent of ERP systems, it became much easier for companies to access production, scheduling and operational data -- precisely the information needed to tighten the supply chain. Companies of all sizes now have automated and rigorous procurement functions to reduce the overhead of purchasing and tracking indirect materials like paper, office supplies and furnishings. Advanced planning and scheduling systems are common across a range of companies and industries. These enterprise-level systems not only assist companies in integrating their supply chains, they also enable them to deconstruct their businesses, outsourcing inefficient or commodity functions to the most efficient suppliers. Suppliers now regularly take responsibility for managing their customers' inventory and stock rooms
41 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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through vendor managed inventory programs, and third party service providers perform a range of logistics functions. 4.5 Benefits from E-SCM and E-logistics (Hayes, 2004) For E-SCM efforts to make sense, two overriding things must be present. First, all parties must have sufficient incentives to participate and make the investments needed to help the effort succeed. To thrive, most E-SCM efforts need a critical mass of participants. If prospective players perceive the effort as simply a means of driving down their prices, they have little incentive to join, dooming the project from the start. Second, supporting technology, hardware, software and processes must be available to ensure that the efforts actually can be implemented. Today, the abundance of supply chain software, hardware platforms and delivery options, from the Internet to ASPs to virtual private networks, has removed many of the technological barriers to implementing ESCM programs.42 E-SCM efforts can range from simple (an electronic catalog posted on an e-marketplace) to complex (a platform to enable product design and development between an entire supply chain). The benefits offered by each of these E-SCM projects will vary. For example, a supplier posting an electronic catalog on an industry-wide e-marketplace is not expecting to foster greater product development collaboration with its customers. In total, however, the benefits of E-SCM are plentiful. Depending on the position that a company occupies in the supply chain, these benefits can be broken down by the buyer's, supplier's and facilitator's perspective.
4.5.1 Buyer benefits
In general, there are three classes of benefits that a buyer can derive from E-SCM efforts: First, a buyer may be able to purchase both direct and indirect materials at a lower cost, primarily due to price transparency and competition. Buyers that purchase goods through an active e-marketplace populated by many suppliers hope to take advantage of competition and dynamic pricing opportunities to secure the lowest possible price for goods and services.
42 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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Although larger buyers such as Wal-Mart and Ford already enjoy sufficient leverage to command price breaks and discounts, medium and smaller-sized buyers gain access to more favorable pricing when suppliers are bidding for their business via e-marketplaces and trading exchanges. Second, a buyer is likely to achieve greater efficiency when purchasing goods and services, ultimately lowering the overall cost of conducting commerce. By automating the procurement function, offloading purchasing activities to end users, and integrating purchasing data with legacy accounting systems, companies can lower their transaction costs and overhead. For medium and smaller-sized companies, B2B marketplaces offer opportunities for price discovery that would be inefficient or prohibitively expensive to conduct through human effort alone. Third, a buyer may be able to forge stronger ties with its suppliers, collaborating with them more closely in the design and development of goods and services, and in forecasting, scheduling and planning production activities. ERP systems have enabled many companies to share a subset of this information already. The collaborative software, middleware XML translators and more powerful customer relationship management (CRM) functionality available today promise to align buyers more closely with all participants in their supply chain.
4.5.2 Supplier Benefits 43
Supplier benefits generally fall into two classes, depending on the type of E-SCM program in which they participate. For E-SCM programs that concentrate on collaboration -- sharing product data, product designs, etc. -suppliers have the potential to strengthen their forecasting ability, meet and exceed customer demands by offering the right combination of products and services at the right time, align their production schedules and manufacturing capacity with buying patterns to improve inventory management and more. For E-SCM programs that concentrate on commerce opportunities, the supplier's greatest benefit comes from participating in large, active online marketplaces. These marketplaces, if frequented by a critical mass of buyers, extend the supplier's market reach and potentially increase its overall sales. Because this
43 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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extensive market reach is achieved at a fraction of the cost associated with other sales channels -- mass mailings, telemarketing, on site sales calls -- it is a more cost-effective way to market and sell goods and services. Suppliers can also take advantage of B2B marketplaces to gauge the demand for their goods and services and, using dynamic pricing features such as auctions and bids, the price that the market is willing to bear for these items. Although the price transparency fostered by online marketplaces may deter suppliers from participating at first, once a sufficient number of buyers and competitors are using the model, every supplier must eventually join. Marketplaces can be helpful with inventory management activities, allowing suppliers to auction off excess inventory to a large group of potential bidders.
4.5.3 Facilitator Benefits44
A facilitator of E-SCM efforts is a party that provides some component or service integral to the effort. A software or hardware vendor is a facilitator, as is an ASP providing application functionality and/or Internet connectivity. In the case of a B2B marketplace, the facilitator is the market maker that establishes, administrates and operates the electronic marketplace, perhaps including services such as financial settlement, fulfillment, logistics etc. In general, the benefits to a facilitator are strictly monetary -- the software or hardware vendor receives license fees and the ASP normally receives monthly rental or usage fees. The market maker typically receives a percentage of each transaction; the Paper Exchange marketplace charges 3% of each transaction completed by its members. If the market maker also happens to be a large purchaser, and participates in the marketplace as a buyer, then it will also enjoy all of the benefits that accrue to a buyer. 4.6 Preparing For E-SCM (Hayes, 2004) The benefits of E-SCM are so plentiful, and the potential synergies so compelling, that companies, vendors, service providers and investors have been dazzled by its promise. Pick up any publication, surf the Web or attend a conference and you'll find dozens of stories about existing and planned electronic supply chain endeavors. Ford is attempting to foster greater collaboration with its suppliers by simplifying and automating the process of
44 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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sharing product design data. Tier 1 auto suppliers are developing their own design, collaboration and commerce exchanges to interact with their smaller suppliers. The dairy industry is launching a B2B exchange to auction perishable dairy products. Businesses worldwide recognize the imperative of automating and tightening their supply chains through electronic mediums. They don't really have much of a choice. One by one, their competitors are doing it. Large buyers are using their leverage to demand better supply chain management. Just as one company puts pressure on its supply chain to increase efficiency and reduce costs, it is also pressured by its trading partners to make its own operations more efficient and its prices more competitive. Without the Internet, E-SCM efforts would be on the slow track rather than the fast track. The Internet is the ideal platform for launching E-SCM because it shares many of the same characteristics of a supply chain. Both consist of a web of participants, communicating and sharing data and information in a standard way. The Internet simply makes this communication and data sharing more cost-effective through the use of standard protocols, a choice of relatively inexpensive connections and high adoption rates. An array of software products, translation middleware and XML are removing some of the last barriers to widespread exchange of data. There are some fairly painless ways to get immediate benefits out of ESCM. Participating in an e-marketplace as a buyer or seller is one method. Implementing an automated procurement system is another. To extract even stronger benefits out of E-SCM requires more complex and integrated solutions. These solutions take greater effort and investment, and depend on industry dynamics, competitors' activities and customer demands. Before embarking on an E-SCM project, consider these issues: Leverage Your company's size, relative to others in the supply chain, will determine who has the leverage to dictate terms. A small business customer does not have the clout to tell Staples how to construct its Web storefront; Staples makes that decision. Tier 1 auto suppliers, while individually large, do not have the leverage
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to refuse participating in the big 3 automakers' marketplace. Be aware of your position in the grand supply chain scheme. The Tower of Babel: Communicating and sharing data between scores of supply chain partners is utter chaos. Most meaningful E-SCM solutions require a fair amount of integration between supplier systems including front-end sell-side, CRM, ERP and advanced planning and scheduling applications. Except in rare cases, these systems run on different platforms, use different technologies, store and manipulate data in different ways and have ill-defined or non-existent interfaces. Somehow, a modicum of standardization and definition has to be imposed on this Tower of Babel to enable accurate and timely data sharing. Many point-topoint ERP and electronic data interchange (EDI) implementations permit this type of sharing, but are not widespread enough to integrate an entire supply chain.
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Figure 4- 4
The Tower of Babel
Source: (EFT, 2012) Collaboration and coordination45 The more complicated the E-SCM solution, the more collaboration and coordination required among the participants. Leverage may determine who gets to run the show, but an uncooperative participant can wreak havoc on the project. Suppliers that are involved in multiple E-SCM initiatives, perhaps a cross several industries, will resist adopting conflicting, redundant or grossly expensive SCM approaches. Designing, implementing and testing a complex E-SCM solution between scores of players will stress any organization's program management abilities. Commitment and perseverance are essential to putting a large-scale ESCM effort in place.
45 EFT. 2012. 2011-2012 Transport & Logistics CIO Report. Amsterdam : EFT: Eye For Transport, 2012. p. 18.
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4.7 Categories of E-SCM Solutions (Hayes, 2004) There are virtually hundreds of E-SCM solutions from which to choose, ranging from simple to complex and requiring different levels of investment, participation and integration. Electing to participate in an e-marketplace is a relatively straightforward decision. Creating a custom extranet to give suppliers access to your production data and sales forecasts is another matter. E-SCM solutions range from "close" to "open." As illustrated, close ESCM solutions are custom, private implementations, driven by one or more powerful buyers or suppliers. These point solutions are built to specification between several or many supply chain participants and may be quite complex, requiring a high degree of system integration. Close E-SCM solutions include early ERP and EDI implementations, but also encompass more functionally rich offerings. The primary purpose of these solutions is to foster rich information exchange, although they can also support commercial transactions and a range of specialized services. Although these close E-SCM solutions may be built using "out of the box" components, they also may offer a range of customized functionality not present in the public, commodity exchanges such as sharing of forecasting, sales, production, planning and scheduling data.46
46 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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Figure 4- 5 The Rang of SCM Options
Source: (EFT, 2012) Open E-SCM solutions focus on commerce between suppliers and buyers, and may also include ancillary services such as payment processing, fulfillment and logistics. These open solutions are available to and used by the public and typically revolve around a vertical industry such as healthcare or retail, a product or set of products such as electronic components, or a service such as travel. These solutions, which include e-marketplaces and trade exchanges, operate much like a financial or commodities exchange. Dynamic bids and sales are generally supported. Buyers may advertise RFPs or RFQs, or may invite sales proposals for commodity goods. Sellers may solicit bids for products or services. Price negotiations, sales and financial settlement are all conducted online.
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Table 3 Categories of E-SCM Solutions Private SCM One-to-many Private Collaboration and/or Commerce Rich info. exchange Relationship building High integration Vertical Marketplace Many-to-many Public Industry, product or service based Fosters liquidity, dynamic pricing Little info. exchange Low integration Commodity products/services Fosters liquidity, dynamic pricing Little info. exchange Low integration Global Marketplace Many-to-many Public
Source: (Hayes, 2004) 4.7.1 Basic Supply Chain Execution Components Although many E-SCM systems focus on enabling communications and collaboration with external entities, there are a host of internal, back-office systems that help companies execute various supply chain-related functions apart from their suppliers and partners. These systems include custom-developed and packaged software systems that aid product design, order processing, inventory management, logistics (transportation, warehouse management, fulfillment), forecasting, planning and scheduling. In addition, companies rely on strategic planning tools to help them optimize their sourcing and other aspects of their supply relationships. Decision support tools are also used to access and manipulate the data produced by these systems. Software vendors such as i2 Technologies, SynQuest, McHugh, Logility and Optum provide supply chain execution solutions. Several IT consulting firms, such as Keane and Cap Gemini Ernst & Young, have dedicated supply chain practices to help companies implement supply chain execution components.
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• ERP/EDI
Enterprise Resource Planning (ERP) systems standardize companies' internal applications and give them access to data generated across the enterprise, from accounting to operations to sales and marketing. This standardization enables companies to share data with suppliers and partners using similar paradigms. Electronic Data Interchange (EDI) implementations are generally custom interfaces built to exchange data between two parties' dissimilar systems. The type of data exchanged is generally product/inventory information, reflecting some sort of contractual agreement between the parties, however, many ERP vendors are adding specific supply chain functionality that allows for broader exchange of information and collaboration. ERP solutions are expensive, typically costing millions of dollars to implement. They are advantageous, however, because they integrate all of the back-end systems that typically prevent companies from instigating meaningful SCM programs. Because of this integration, ERP systems provide companies with access to abundant data. While this feature makes ERP systems very powerful, it also makes integration with outside entities more complicated. Suppliers may not have the same type of ERP system, or any ERP system at all, so developing an interface is a complex proposal. As a result, companies usually devise point solutions, linking up their most important suppliers one-by-one. Historically, these interfaces have been implemented using EDI. Software vendors offering ERP/E-SCM solutions include: SAP, Baan, People soft, J.D. Edwards, Oracle and Great Plains Software. Consulting help also abounds, especially from firms such as Accenture, Price Waterhouse Coopers and KPMG to implement ERP packaged solutions and to design custom solutions. Custom Interfaces with Trading Partners In addition to ERP/EDI solutions, some companies have devised customized interfaces with their trading partners, vendors and customers to share information and strengthen relationships. These custom interfaces may rely on extranets or virtual private networks that allow one-to-many interactions with third parties. These custom interfaces may involve data exchange -- sharing
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information to enable better materials planning, inventory management, etc. -- or may facilitate some form of commerce between the parties. Because these ESCM solutions are implemented on a custom basis, they often rely on outside consulting assistance and may also incorporate some of the SCM vendor offerings listed throughout this section. Web Storefronts Functionality (CRM, ERP, etc.), businesses may be able to accumulate although not thought of as a classic example of E-SCM; Web storefronts give companies another channel for selling to their customers. Depending on the sophistication of the storefront and the underlying technology and significant information about their demand chains, that in turn can improve forecasting, scheduling and planning abilities. Although a storefront is advantageous for the seller, allowing it to reach a potentially huge audience, it is not as beneficial for buyers. These storefronts facilitate one-on-one transactions rather than aggregate buyers and sellers. A buyer that wishes to purchase goods or services through Web storefronts still must conduct extensive research and price discovery manually. Without dynamic pricing capabilities, buyers are not ensured of receiving the most favorable pricing terms possible. There are hundreds of software vendors (Ariba, Commerce One, BroadVision?etc.) that provide components of a web storefront from catalog/content management, to credit card processing, to fulfillment, etc. Many of these solutions are also offered on a hosted, ASP basis by companies such as PurchasePro, US Internetworking and Interliant. Almost every Internet and IT consulting firm can perform the interactive design work and the technology/infrastructure components required by a Web storefront. Procurement Systems Standalone corporate procurement systems, typically implemented over an intranet, are used to distribute the purchasing function to end users. Information about supplies and electronic catalogs from pre-approved vendors are posted on the intranet. These vendors usually have some minimal agreement with the company about price discounts, volume purchases, etc. Procurement systems also allow authorizations, rules and approvals to be specified and applied
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automatically as end users perform their purchasing activities. Purchases conducted over the procurement system are fed into back-office accounting and legacy systems, which helps to reduce overhead and potential data entry errors. Companies generally use procurement systems to lower transaction costs rather than obtain the lowest price possible for supplies. Because procurement systems work with a set of pre-approved vendors and do not support dynamic selling or bidding, they are not designed to force prices down. The cost of implementing a procurement system and maintaining electronic catalogs puts it outside of the reach of small and medium-sized companies; however, ASP offerings may be more cost-effective. Software vendors offering procurement systems include Ariba, Commerce One, i2 Technologies and Trilogy. ASPs offering procurement software include PurchasePro, Clarus and US Internetworking. E-Marketplaces, Trading Exchanges, etc.: E-marketplaces, also known as trading exchanges, trading hubs, trading communities, etc., support many-to-many relationships between buyers and sellers. Members of these communities conduct commerce, offering and purchasing commodities, products and services. Marketplaces may be private or public and may be formed around a product or service, the needs of a large supplier or buyer, or a particular industry. They may include electronic catalogs of suppliers' wares, or simply a posting board where offers, bids and requests are broadcast, similar to a financial exchange. Most marketplaces have dynamic pricing features that allow suppliers and buyers to conduct auctions, offers/counteroffers and other types of price negotiations online. In addition, ancillary services such as financial settlement, fulfillment, logistics, transportation, etc. are increasingly being offered through the marketplace. Marketplaces are established, administered and managed by a large buyer, seller or neutral third party called a market maker. The market maker recoups its costs by either taking a percentage of each transaction and/or by participating as a seller or buyer in the market and enjoying the associated benefits. These marketplaces require a critical mass of buyers and suppliers for the model to work. ASPs offering marketplace services include PurchasePro and VerticalNet. Software vendors include CommerceOne, Ariba, i2 Technologies and
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Manugistics. There are many consulting firms including Keane, Intelligent Information Systems and Sapient that work with e-marketplace participants to integrate their back-office systems with the marketplace transactional data. Collaboration Platforms Many companies are looking for ways to enrich their communication and relationships with the important players in their supply and demand chains. These initiatives are based more on collaboration than they are on commerce, and are meant to optimize supply chain operations, particularly in the product design, planning and forecasting areas. Ford's effort to improve the sharing of product design information with its suppliers is one example. Kmart's trial of CPRF (collaborative planning, forecasting, and replenishment) with its suppliers is another example. Software collaboration vendors include Syncra, Manugistics, i2 Technologies, Logility and webPLAN.
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CONCLUSION AND RECOMMENDATION
Conclusion and recommendation
From the previous studying about E-logistics and E-supply Chain Management, there are some results from my point of view as following 1. Through the globalization new political geography, gradual removal of international trade barriers, rabid technological advancements are just a few of factors that have had major effect on the business management practices which intensify the needs for strong and integrated information systems. 2. The internet enables customers to interact with the business from any place in the world, at any time. 3. Businesses can use the internet to gain global visibility across their extended network of trading partners and help them to respond quickly to a range of variables, from customer demand to resource shortages. 4. The E-Business vision uses the internet to integrate the information flow across the traditional boundaries (Buy side - in side - Supply side). Transactions are now possible in a variety of formats considering that speed and accuracy of data flow re improved the cost per transaction falls. 5. Customer relationships should be improved by enhancing feedback and by creating customer communities therefore they can share their experience. But there are some Problems along the Supply Chain are summarized in: 1. Supply chains can be very long, involving many internal and external partners located in different places. 2. Both materials and information must flow among several entities, and these transfers, especially when manually handled, can be slow and error-prone. 3. Companies can improve their demand forecasting by using IT-supported forecasts, which are done in collaboration with business Typical Problems along the Supply Chain. 4. Other problems along the ESC mainly stem from the need to coordinate several activities and internal units and business partners.
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There are a lot of E-Commerce Solutions along the Supply Chain summarized in: 1. Order taking can be done over the Internet, EDI, EDI/Internet, or an extranet, and may be fully automated 2. Order fulfillment can become instant if the products can be digitized 3. Electronic payments can expedite both the order fulfillment cycle and the payment delivery period 4. Managing risk to avoid supply-chain breakdown can be done in several ways 5. Inventories can be minimized by introducing a build-to-order (on-demand) manufacturing process as well as by providing fast and accurate information to suppliers 6. Collaborative commerce among members of the supply chain can be done in many areas But there are some Barriers to C-Commerce along the Supply Chain and ELogistics: 1. Technical reasons involving integration, standards, and networks. 2. Security and privacy concerns. 3. Internal resistance to information sharing and to new approaches. 4. Lack of internal skills to conduct collaborative commerce. 5. Lack of defined and universally agreed-upon standards. So the success of an E-Supply chain depends on: A. The ability of all supply chain partners to view partner collaboration as a strategic asset. B. Information visibility along the entire supply chain. C. Speed, cost, quality, and customer service as major factors in supply Chain successful. D. Integrating the supply chain more tightly.
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doc_348463705.docx
Logistics is the management of the flow of resources between the point of origin and the point of consumption in order to meet some requirements, for example, of customers or corporations. The resources managed in logistics can include physical items, such as food, materials, equipment, liquids, and staff, as well as abstract items, such as time, information, particles, and energy.
Research Reports on Effect of E-Logistics on the Customer Satisfaction
ABSTRACT
Nothing has rocked the young field of supply chain management like the emergence of the Internet. While the management of information flows has always been a key aspect of Supply chain management, the rapid growth of web-based information transfer between companies, their suppliers, and their customers has decidedly increased the importance of information management in creating effective supply chains. A business cannot succeed without customers. What's a product without a customer to buy it, or a service without a customer to serve? It's how companies use those products and services to get, keep and grow customers that counts. For this reason, the ability to more effectively market to, sell to and serve customers has made its way to the center of corporate strategy. But strategy is only half the success story. It takes Customer Relationship Management (CRM) technology to put a strategy to work. Its technology that provides the underlying infrastructure that enables employees to get, keep and grow the customers so vital to success. The thesis describes how the advances in the information systems technology have had a huge impact on the evolution of supply chain management. As a result of such technological advances, supply chain partners can now work in tight coordination to optimize the chain-wide performance, and the realized return may be shared among the partners. The Internet signifies new opportunities for reaching the global market. Yet this, in turn, also signifies great demands on the actors who want to exploit these opportunities. Right now, there are several big actors who market themselves solely via the Internet, yet there are very few who do this profitably. Making it possible to use the Internet as a marketing channel requires new knowledge about how the entire logistics system needs to be developed in various environments and about the consequences this will imply for other actors.
IV
The integration of IT with logistics management is an important prerequisite for good logistics management. An electronic commerce portal can be used as a marketing channel in collaboration with existing intermediaries or through bypassing intermediaries--disintermediation will provide high leverage opportunities to the logistics function and increase its flexibility. Hence the development of E-Logistics becomes essential for success in global operations.
V
Table of Content DECLARATION ................................................................................................... I Quran Aya .............................................................................................................II Acknowledgement............................................................................................... III ABSTRACT ........................................................................................................ IV Table of Content.................................................................................................. VI List of Figures .................................................................................................. VIII List of Table ..................................................................................................... VIII List Of Abbreviations?????????????????????..?IX Chapter One..........................................................................................................1 1.1. Introduction: ....................................................................................................1 1.2. Background (Literature review)......................................................................3 1.3 Study Objectives ..............................................................................................7 1.4 Research Methodology.....................................................................................7 1.5 Important Definitions .......................................................................................8 1.6 Model for information in E-Commerce ...........................................................9 1.7 The supply chain flows: .................................................................................13 Chapter Two .......................................................................................................15 2.1 Introduction ..................................................................................................15 2.2 Defining Customer Relationship Management..............................................16 2.3 A Brief History of CRM ................................................................................17 2.3 Why is CRM important? ................................................................................18 2.4 THE 6 LAWS OF CUSTOMER EXPERIENCE ..........................................18
2.4.1 Law #1: Every Interaction Creates A Personal Reaction ........................................................ 19 2.4.2 Law #2: People Are Instinctively Self-Centered ...................................................................... 21 2.4.3 Law #3: Customer Familiarity Breeds Alignment................................................................... 22 2.4.4 Law #4: Unengaged Employees Don't Create Engaged Customers ........................................ 23 VI
2.4.5 Law #5: Employees Do What Is Measured, Incented, and Celebrated.................................... 24 2.4.6 Law #6: You Can't Fake It....................................................................................................... 25
2.5 Distribution development within E-Commerce: .......................................25 2.6 Analysis of distribution development within E-Commerce...........................29 2.7 Sustainable developments ..............................................................................31 Chapter Three ....................................................................................................37 3.1 Introduction ..................................................................................................37 3.2 E-Logistics - Key to Success in the Digital Economy: ................................39 3.3 E-Commerce and logistics system .................................................................49 3.4 urban logistics system influenced by ICT......................................................52 3.5 E-logistics and Demand Chain Management..............................................55 Chapter Four ......................................................................................................58 4.1 Introduction ....................................................................................................58 4.2 Supply Chain Integration and E-Business .....................................................59
4.2.1 Electronic Information Integration........................................................................................... 62 4.2.2 Electronic Workflow Coordination ........................................................................................... 63 4.2.3 New Business Model................................................................................................................. 65
4.3 Changes in IT Investments................................................................................................. 70 4.4 Optimizing the E-Supply Chain: The Final Frontier .....................................71 4.5 Benefits from E-SCM and E-logistics ...........................................................74
4.5.1 Buyer benefits .......................................................................................................................... 74 4.5.2 Supplier Benefits ...................................................................................................................... 75 4.5.3 Facilitator Benefits ................................................................................................................... 76
4.6 Preparing For E-SCM.....................................................................................76 4.7 Categories of E-SCM Solutions .....................................................................80 Conclusion and recommendation .....................................................................84 Bibliography .......................................................................................................86
VII
LIST OF FIGURES Figure NO. Figure 1-1 Figure 1-2 Figure 2-1 Figure 2-2 Figure 2-3 Figure 2-4 Figure 2-5 Figure 3-1 Figure 3- 2 Figure 3- 3 Figure 3-4 Figure 3- 5 Figure 4 -1 Figure 4- 2 Figure 4- 3 Figure 4- 4 Figure 4- 5 Title Model for information in E-Commerce An Example of Supply chain The Value of the Customer Relationship Conventional distribution structure Distribution Processes for Internet buying Requirement of sustainable society regarding the tradeoffs on transportation and logistics systems. The Two Perspective of E-Commerce- Participant Focus The development of internet applications The E-Logistics concept Interplay in the interfaces between traditional Logistics, ICT, and Process management The Interface among core processes; TTM.TTC, and CCR Stockholders in logistics system ICT and Urban Logistics System Information Distortion and the Bullwhip Effect Expected Change in IT investment Methods of Discovering New IT Solutions The Tower of Babel The Rang of SCM Options Page 11 13 15 26 28 33 35 40 47 49 50 53 63 70 71 79 81
List of Table Table NO. Table 1 Table 2 Table 3 Title Concern of Stakeholders Supply Chain Integration Dimensions Categories of E-SCM Solutions Page 52 59 82
VIII
List Of Abbreviations 1PL : 2PL : 3PL : 4PL : 5PL : B2B : B2B : B2C : B2C : CCE : CCR : CIO : Organizations. COP : CT : CTE : EDI : EFT : E-SC : FMCG : FTA : GIS : GPS : ITE : ITS : JIT : LBS : LCL : LFI : LSP : LTL : MF : NCPDM ND PPC PTE SC : : : : : which are the shipper or the consignee which are actual carriers Third party logistics Fourth-party logistics provider. Fifth party logistics. business to business Business to Business Business to consumer business to consumer collaborative community exchange Customer Creation and Retention Congress of Industrial customer order point Control type. Consortium trading exchange. Electronic Data interchange Eye for Transport e-supply chain Fast moving consuming goods Freight Transport Association. geographic information system global positioning system Independent trading exchange. intelligent transport system Just in Time Location-based service less container load Leading firm degree of influence. logistics service provider Less truck load market fragmentation National council of physical Distribution Management. network dynamism Product/process complexity. private trading exchange supply chain
IX
VE VI QR ECR LBS ERP DCI TTM TTC CCR BPR DC VTE
: : : : : : : : : : : : :
virtual enterprise Product/service value integration. Quick Response Efficient Customer Response Logistics Brokerage Systems Enterprise Resource Planning Demand Chain Integrator Time to Market Time to Cash Customer Creation and Retention Business Process Reengineering distribution center vendor trading exchange
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Chapter One
Introduction
1.1. Introduction: Nothing has rocked the young field of supply chain management like the emergence of the Internet. While the management of information flows has always been a key aspect of Supply chain management, the rapid growth of webbased information transfer between companies, their suppliers, and their customers has decidedly increased the importance of information management in creating effective supply chains. Indeed, the Internet has emerged as a most costeffective means of driving supply chain integration. We define E-Business as the marriage between the Internet and supply chain integration. This marriage is transforming many processes within the supply chain from procurement to customer management and product design. Interest in the Internet has changed so drastically in recent years that one can speak of a universal breakthrough. The remarkable increase in users can be attributed mainly to the appeal of the World Wide Web, the Internet feature that is enjoying the greatest growth. There is some uncertainty about how much the Internet and electronic commerce (E-Commerce) are being used, and especially about the expansion of such usage in the future. At the same time, E-Commerce is a new phenomenon that is surely going to have an enormous impact and significantly change the way both individuals and companies shop, manage their business activities and distribute their products. The number of households in Europe connected to the Internet is expected to triple, to 50 million, by the year 2004. But usage will not expand uniformly. Persistent forecasts of explosive increases in sales of goods via the Internet have so far been wrong. In Sweden, The Swedish Research Institute of Trade (HUI), recently assessed retail sales via the Internet to be SEK 600 million, which corresponds to a trifling 0.2% of total retail turnover. Increased access to Internet services must be accommodated by improvements in flow structures. The increased access to and offers of information created by the Internet must consequently be accompanied by a different distribution structure, one assuring that goods can even physically be transported to the customer quickly and rationally.
1
E-Commerce will open an entirely new market for actors in the logistics field. Logistics and distribution system that function efficiently and effectively in all respects will be crucial for the success of the companies involved. This implies that manufacturing companies, and especially logistics companies, must identify and create effective logistics solutions in order to compete on the marketplace. Ordering materials of various kinds electronically, and primarily via the Internet, will become more and more common. This applies not only to business-tobusiness but also to business-to-customer. This end consumer will normally be a private person who orders everything from books, clothes and food to a new model computer. The result is that the end consumer can receive and will demand to receive the goods ordered significantly faster than via traditional distribution. The subsequent result will be shorter lead times, the disappearance of one or more physical intermediaries, and direct transports to far more addresses, especially in those cases where retail stores are circumvented. We can anticipate less use of private cars, but more employment of delivery vans, as well as smaller orders to be shipped longer distances, especially in the international context. During the preliminary phase, we might expect these consequences to imply greater direct costs, while the consumers' indirect costs for seeking, ordering and having their purchases deliver to their homes will go down. Simultaneously, however, we will see new opportunities for creating entirely new distribution systems involving different flow streams than those with which we are familiar. The companies who can cope with these demands with new approaches to production and distribution will be able to create new business opportunities and prepare for a greatly increased market for their products. The Internet signifies new opportunities for reaching the global market. Yet this, in turn, also signifies great demands on the actors who want to exploit these opportunities. Right now, there are several big actors who market themselves solely via the Internet (e.g. the booksellers Amazon.com and bokus.se), yet there are very few who do this profitably. Making it possible to use the Internet as a marketing channel requires new knowledge about how the entire logistics system needs to be developed in various environments and about the consequences this will imply for other actors.
2
1.2. Background (Literature review) Defining e-SCM and e-logistics In order to define e-SCM and e-logistics, we need to establish what we understand by SCM and Logistics. We have adopted the definitions of Logistics and SCM proposed by (Lambert, Cooper et al. 1998). For SCM, they suggest to follow The Global Supply Chain Forum. The members of this forum defined SCM in 1998 as "the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders" (Lambert, Cooper et al. 1998) And, for Logistics they suggest to adopt the Council of Logistics Management (CLM) definition: "Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers' requirements" (Lambert, Cooper et al. 1998) 1 Both definitions entail a supply chain perspective from first supplier to end-user and a process approach. But, the main difference between them is that Logistics is a subset of SCM. Companies have realized that is not only the logistics process that cuts across supply chains, but in principle, all business processes (Lambert, Cooper et al. 1998). According to that, SCM ideally embraces all business processes cutting across all organizations within the supply chain, from initial point of supply to the ultimate point of consumption (Cooper, Lambert et al. 1998). For (Cooper, Lambert et al. 1998), SCM embraces the business processes identified by the International Center for Competitive Excellence (see Figure 1).We understand by elogistics and e-SCM the impact that Internet has on Logistics and SCM, respectively. Accordingly, e-SCM will refer to the impact that Internet has on the integration of key business processes from end user through original suppliers
1 Lambert, Cooper et al. 1998. Supplly chain Management : Implementation Issues and research Opportunities. International Journal of Logistics Management. 1998, Vol. 9, pp. 1 - 19.
3
that provides products, services, and information that add value for customers and other stakeholders. And, e-logistics will refer to impact that Internet has on the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point- ofconsumption in order to meet customers' requirements". Logistics is a subset of SCM, and accordingly, e-logistics is a subset of e-SCM .In this paper, we will focus on e-SCM, and therefore, e-logistics will be one of the aspects to be analyzed, but not the only one. E-logistics has traditionally been referred to the impact of E-Commerce in the logistics activities; however we believe that Internet has Avery important effect on SCM that has been very often forgotten: the coordination and integration aspects. Managing customer relationships is a business activity that corporations have practiced for generation's .E-CRM known as electronic customer relationship management has rapidly widen due to fast growth of web technology .E-CRM has emerged in such a way mainly aiming to satisfy the customers at global level. E-CRM also includes online process applications, such as segmentation and personalization. The use of the internet, intranets and extranets made customer services, as well as services to partners much more effective and efficient than before E-CRM has been gone through in a way that, customers want to contact the company by email and web, even if the organization does not provide the business through internet. Sustainable and profitable revenue growth through the development of lifetime value is the largest benefit of E-CRM 1.2.1 CUSTOMER RELATION MANAGEMENT (CRM) Buttle, F. (2009.) has defined the CRM is nothing more than one to one relationship marketing and disintermediation, but that is a lot by influencing through continuous relevant communication and developing long term relationships to improve customer reliability, achievement, preservation and prosperity The evaluation of CRM is due to the fast changes and developments in the marketing and web technology .CRM's goal is a so called customer intimacy and achieving lasting success in competitive environment As
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CRM lies in each and every business operation Peelen, E. (2005) believes that CRM is a powerful tool in both the business to business and business to consumer environments, but it has been both oversold and underutilized2 1.2.2 ELECTRONIC CUSTOMER RELATION MANAGEMENT (ECRM) According to Dyche (2001) E-CRM is a combination of software, hardware, application and management commitment. Critical and significant point is that E-CRM takes into different forms depends on the objectives of the organizations .Dyche (2001) has defined two types like Analytical E-CRM and Operational E-CRM . Analytical CRM is a collection of customer's data as a continuous process. The main purpose of this means is to identify and understand customer's needs and to create new business opportunities by giving prior importance to the customers. Operational E-CRM means the diverse ways of resembling the customer by web based emails, phone, fax etc. Dyche (2001) has also identified the main aim of E-CRM systems is to improve and provide better customer service, develop a relationship and preserve valuable customers 1.2.3 DIFFERENCE BETWEEN CRM AND E-CRM3 According to (Chaffey, 2007) , E-CRM refers to electronic customer relationship management or simpler, CRM that is more web based. .The main differences between the CRM and E-CRM are that in CRM customer contact is initiated through traditional means of telephone, retail store or fax. Whereas E-CRM in addition to telephone customer contact, can initiate through the internet, email, wireless, mobile and latest technologies. Here in the E-CRM the beauty of running everything off one system is that we can look at the information any time whether we are near to the place and can also access to the information needed whenever we required. Coming to CRM direct implementation took more time and management is costly as the systems are located in different locations. Whereas when it comes to E-CRM it is very
2 Buttle, F., & Biggemann, S. 2003. Modeling Business-to-Business Relationship Quality . Sydney : Macquarie Graduate School of Management, 2003. 3 Chaffey, D. 2007. E-Business and E-Commerce Management: Strategy, Implementation and Practice. s.l. : Pearson, 2007.
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fast with less operation cost because system implementation and expansion can be managed in one location and one server.
1.2.4 BENEFITS OF E-CRM Customers Benefits Interaction with Customers and Satisfaction4 Due to E-CRM, you can interact with customer's right at your site through phone, chat, email, collaboration or forwarding of pages back and forth between the Representative and the Customer. According to Harris, E. K. (2000) E-CRM customers will have any service available anytime throughout the year and can assist the customer in any way he required and pass on any information about your company's product or service, right then and there with the prior permission when the customer is browsing through pages at your site. E-CRM maintains long term relationship with the customers with providing trust, ethics a nd friendship. 1.2.5 Speed of processing the transaction through e-response E-Responses were widely used by businesses to acknowledge receipt of orders, payment and delivery of information. Many companies have changed the target time to 24 from 48 hours by the usage of E-CRM .as customers are able to reach the company's website at any time. It has also been highlighted that the character of e-responses also helps build up the relationship between the provider and the customer 1.2.6 Better service quality The main proportions of service quality are reliability, performance responsiveness, quality, empathy and assurance, In addition delivering high quality services is a way companies manage to improve their CRM. Delivering high quality services is a qualification for achieving customer satisfaction and only through customer satisfaction can the company gain loyal customers.
4 Harris, E. K. 2000. Customer service : a practical approach. 2nd. s.l. : Elaine K. Harris, 2000.
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Secondly, several of the quality dimensions of perceived E-CRM are new and most of them are related to technology: ease of navigation, flexibility, efficiency, site aesthetics and price knowledge.
1.2.7 DRAWBACKS OF E-CRM 5 According to Sharp, D. E. (2003.) main drawbacks of E-CRM are Lack of technical support to customers, Reducing Field sales and services, resistance to payment services offered via the web, Implementation of time & cost, Lack of Customer services and support, reducing the productivity and overloading of emails. The main drawback due to E-CRM is a cutback in person contact with customers which leads to some problems .the measurement challenges faced by E-CRM is difficult to determine the users reached, costs and benefits. 1.3 Study Objectives 1. 2. 3. 4. Understanding development and growth of E-Logistics technology. Understanding how Distribution development within E-Commerce. Indicating the benefits and barriers to achieving IT integration. Understanding how to enhance the customer satisfaction through using Elogistics activities. 5. Identifying the benefits of the Customer, Company, and Service provider through using the E- logistics activities. 1.4 Research Methodology The research methodology used in this dissertation is a Descriptive research which attempts to describe systematically a situation, problem, phenomenon, or service, or provides information about.
5 Sharp, D. E. 2003. Customer relationship management systems handbook. London : Duane E.Sharp, 2003.
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1.5 Important Definitions Logistics "Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers 'requirements.". -Council of Logistics Management (www.clm1.org) Ecommerce (E-Commerce) Or electronic commerce, a subset of E-business, is the purchasing, selling, and exchanging of goods and services over computer networks (such as the Internet) through which transactions or terms of sale are performed electronically. Contrary to popular belief, ecommerce is not just on the Web. In fact, ecommerce was alive and well in business to business transactions before the Web back in the 70s via EDI (Electronic Data Interchange) through VANs (Value-Added Networks). Ecommerce can be broken into four main categories: B2B, B2C, C2B, and C2C. E-Commerce logistics,6 E-Logistics, therefore, is applying the concepts of logistics via the Internet in order to conduct those aspects of business electronically. (Bayles, 2002) E-fulfillment E-fulfillment can be defined as the integration of people, processes and technology to ensure customer satisfaction before, during and after the online buying experience. (Bayles, 2002)
6 Bayles, Deborah L. 2002. E-Logistics & E-Fulfillment:Beyond the "Buy" Button. [prod.] BridgeCommerce, Inc. CEO. Curaçao : UNCTAD Workshop, 2002.
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E-Procurement Is more than just a system for making purchases online. A properly implemented system can connect companies and their business processes directly with suppliers while managing all interactions between them. This includes management of correspondence, bids, questions and answers, previous pricing, and multiple emails sent to multiple participants. (Bayles, 2002) .7 A good e-procurement system helps a firm organize its interactions with its most crucial suppliers. It provides those who use it with a set of built-in monitoring tools to help control costs and assure maximum supplier performance. It provides an organized way to keep an open line of communication with potential suppliers during a business process. The system allows managers to confirm pricing, and leverage previous agreements to assure each new price quote is more competitive than the last. E-collaboration In the context of supply chain is an amorphous meta-concept that has been interpreted in many different ways by both organizations and individuals. The academic definitions of 'e' of e-collaboration mainly focus on B2B internetbased technologies, while practical definitions have wider scope referring to any electronic technologies. (Bayles, 2002) 1.6 Model for information in E-Commerce (Lumsden, 2010)8 Internet technology has forced companies to redefine their business models so as to improve the extended enterprise performance. A model describing how the Internet and information influences the business structure has been developed. The base for the model is Porter's five forces model. This model is generally used to analyze a company's position on the market and is used frequently as a means to evaluate the potential of a specific company. There is
7 Bayles, Deborah L. 2002. E-Logistics & E-Fulfillment:Beyond the "Buy" Button. [prod.] BridgeCommerce, Inc. CEO. Curaçao : UNCTAD Workshop, 2002. 8 Lumsden, Ola Hultkrantz and Kenth. 2010. THE IMPACT OF E-COMMERCE ON TRANSPORT. Sweden : Department of Transportation and Logistics, Chalmers University of Technology, 2010.
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however nothing that stops us from redesigning the model to analyze ECommerce. A range of new possibilities opens up as E-Commerce is implemented as a way to reach the end-consumers. Companies will have the opportunity to establish a contact outside the traditional marketing channel. If this becomes reality on a large scale there has to be a logistics service developed in order to correspond to the specific needs. Potential entrants There will always be a threat to the established companies when a new marketing channel is implemented; areas where established companies have failed to predict a demand. Potential entrants can also be established brands that due to a strong trademark they have the strength and the volumes to sell directly to the end customer on the Internet. The latter require that the trademark be sufficiently well known. One company is Amazon.com, which by selling books on the Internet Amazon became one of the largest book retailers in the USA. Amazon quickly became a threat to the traditional bricks and mortar companies as they could offer the same products to a lower price and with a higher level of customer service. By this they forced their competitors, for example Barnes & Nobles, to take action and to establish a similar business activity. Another example is when a product or service can be made in a completely different way. Computer programs or videotapes that for a long time have been sold in regular stores will soon be available on the Internet or the cable television network making the old market structure obsolete. Suppliers/Producers E-Commerce holds a wide range of possibilities for different actors to establish a market place for their products. A supplier can start competing with its retailer customers, a kind of cannibalism that in the long run can drive the traditional marketing and sales channels out of business. This can be considered
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as a vertical integration of the business process where one company takes control over the whole flow of goods. There are numbers of examples in which companies have begun to sell their products directly on the Internet as a complement to the retailing line. Computer manufacturers, companies like Hewlett and Packard (www.hp.se) and Compaq (www.compaq.se), have to meet the competition from Dell (www.dell.com), who started to sell computers over the Internet directly to their customers. In the future there will be opportunities for a wide range of different companies to communicate directly to the consumers and to reduce the costs associated by selling through a net of retailers. Another example is where transport services are being purchased. Today the main part of all transportation assignments is purchased through haulage contractors like Schenker or Danzas. Internet opens up new possibilities to get in contact with customers on the logistics area.
Figure 1-1
Model for information in E-Commerce
Source: (Lumsden, 2010)
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Buyers/Consumers At the same time as producers will take advantage of the possibilities of Internet consumers, the buyers, will use this forum to negotiate prices and offerings. In the consumer line there are examples like Lets buy it (www.letsbuyit.com) and different kinds of exchange services that bring together buyers/consumers and producers and providers of different services. One of the logistics providers that work in this way is Waytrack (www.waytrack.com). Waytrack bring together truck owners and small hauliers with companies that require a transport or a need for a specific capacity by being a forum for contact. Waytrack does not interfere with the logistics service. They offer a membership to their customers bringing them together into a site where companies that require transportation invite tenderers and transportation companies to compete to get the assignment. In this way Waytrack is a connection between suppliers and buyers without being a part of the transportation process, after the negotiation is finished Waytrack has no responsibility in the transportation process. Substitutes As a consequence of a late refinement in the value chain new companies have become parts of the manufacturing process, doing simple configurations to make the products correspond to the customer demands. On example is where IBM computers use a logistics provider, Schenker AG, to configure and install software on the computers. Here the logistics company in E-Commerce that in itself is a substitute fortraditional commerce takes over services from traditional retailers such as providing the client and carrying out some service on the products. In general there is a pattern that products are differentiated or consigned as late as possible in the supply chain. This means that logistics companies which have access to terminals and cross-docking opportunities will be able to take a larger part of the supply chain thus increase the potential profit margin Today is there a battle between post offices, forwarders and integrators for global domination in the expanding express parcel market. Since a lot of the "traditional" freight
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companies are involved we can say that this is valid for the total freight market. Through acquisitions, deals, partnering etc. the companies try to get a complete European network as a step towards achieving global coverage. One thing that is behind this network war is that the transportation companies want to get a larger share of the supply chain, value-added logistics. The manufacturing companies try to postpone operations that make their product unique for the customer. This operation can then be done by the logistics company. 1.7 The supply chain flows: "The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumers.
Figure 1-2
An Example of Supply chain
Source: (Lumsden, 2010)
The above figure indicates two important flows that we would like to emphasize the data flow and the physical flow. E-Commerce will impact all elements in the supply chain, which rely on data flow to improve efficiency. Still, physical transportation is needed for most products, implying the usefulness of deriving ecommerce demands on logistics by analyzing the logistics customers. Demands on a smooth integration of these flows will increase in the future, from being a competitive advantage to a necessity. In internal logistics, within a plant, fixed
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installation or permanent information connections often provide physical links between the sender and the receiver, whereas in external logistics (between companies in the chain) there are only virtual (abstract) Links between the nodes. Maintaining the relation between the information system and the physical goods can sometimes be difficult. The shipment may be forwarded by various modalities and different companies, consolidated with larger shipments or broken down into smaller ones. The information is often sent by a number of different means (mail, phone, fax, EDI or physically attached to the shipment). Since global trade is increasing, the physical flows will probably become even more complex in the future. This will increase not only the importance of the logistics service provider as an integrator between players in the chain, but also the demand on his or her role as a coordinator of information flow and physical flow. EDI has been available to business since the 1980s as an international standard for data communications. However, to set up corporate networks and establish electronic ties with trade partners' using the EDI standard requires costly private data networks and customized software, which makes EDI available only to an elite group of big companies. Therefore, EDI could not satisfy mass demand for integrated information systems, as it is too expensive and too rigid in structure. EDI has remained the province of large companies and their captive suppliers, used only by a small percentage of companies, e.g. 5% in the USA.
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Chapter Two
CRM and Customer Satisfaction
2.1 Introduction A business cannot succeed without customers. What's a product without a customer to buy it, or a service without a customer to serve? It's how companies use those products and services to get, keep and grow customers that counts. For this reason, the ability to more effectively market to, sell to and serve customers has made its way to the center of corporate strategy. But strategy is only half the success story. It takes Customer Relationship Management (CRM) technology to put a strategy to work. Its technology that provides the underlying infrastructure that enables employees to get, keep and grow the customers so vital to success. Customer relationship management (CRM) has been one of the most forceful operational concepts of the past 15 years. Beginning with poor roots in sales force automation, CRM has expanded to include a wide range of tasks, analytics and engagement tactics that maximize the value of the customer relationship and contribute to sustainable revenue growth.
Figure 2-1
The Value of the Customer Relationship
Source: (Ramadan, 2010)
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2.2 Defining Customer Relationship Management (Ramadan, 2010)9 Broadly defined, CRM including everything companies use to manage customer relationships, including capture and analysis of customer information and analytics to leverage that data toward better sales performance. Customer Relationship Management, or as it is more commonly known 'CRM', is one of the most widely-used yet misunderstood terms in today's technology-enabled corporate environments. Put simply 'CRM' is a catch-all term that is most commonly used to describe software and related technologies that manage customer-facing business functions (most notably Sales, Customer Service and Marketing), business processes and data. Done right, CRM allows companies to increase both their revenues and profits while lowering the cost of marketing, selling to and servicing their customers. The payoff is clear - by better aligning business processes and managing customer data across all customer-facing functions, companies can build successful, profitable and long-term customer relationships. Unfortunately, however, CRM has also gained a bit of a mixed reputation and one of the most-often-cited statistics regarding CRM is how often these solutions fail to meet their objectives. There's no denying it - getting CRM 'right' - and making it successful - is a significant challenge. A CRM strategy is about much more than merely selecting the right technology - rather, it is a business strategy that may very well necessitate that you completely reinvent how your company does business. Yet while CRM is not without challenges, it also cannot be avoided because after all CRM is ultimately about your customers. Despite the challenges, the fact remains that many companies - and that includes many Small and Medium Businesses (SMBs) - have seen wonderful success with CRM. This program will explore the key success factors of CRM, and describe a set of steps that your company can utilize to make CRM succeed - for your company, and for your customers.
9 Ramadan, Mahmoud. 2010. The strategic value of Customer Relationship Management(CRM. 2010.
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2.3 A Brief History of CRM (Ramadan, 2010) The term 'CRM' first emerged in the mid-1990's, created with the intent of describing how Sales, Marketing and Customer Service technologies needed to work not just within each department but also together. For instance, prior to the beginning of CRM, some companies had begun to deploy Sales Force Automation (SFA) applications to automate the selling process and track prospect data, but that data often didn't leave the sales department - thus when the customer called to complain the Customer Service department would be unaware of any interactions with Sales. This led to many situations where, from the customer's perspective, the company was acting in an incompetent and/or uncoordinated fashion. The result - the 'right hand doesn't know what the left hand is doing' syndrome -often would result in a frustrate customer departing for the competition. -facing applications - SFA, telemarketing, marketing campaign management, help desk and others - served their individual purposes, but were unable to provide the integration that allowed companies to serve their customers with a 'single face'. In response, CRM 'suites' were developed that promised to automate not just one but (purportedly) all customer-facing departments and functions. much more difficult. Many early CRM initiatives became bogged down by companies trying to do everything at once. Particularly in larger companies, there are many stories of companies spending millions of dollars and years of time in attempts to replace their entire sales, marketing and customer service infrastructures - and becoming plagued by the challenges (sometimes technological, but more often organizational) in doing so. The '360 degree view of the customer' so often promised as the result of CRM implementations became, for many, an unattainable goal as CRM initiatives became needlessly complex and prohibitively expensive.
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2.3 Why is CRM important? (Ramadan, 2010)10 1- Retaining customers isn't easy, though. The Internet has lowered the cost of switching and made markets more price-sensitive. 2- Customers increasingly are asking for custom solutions to their problems, using comparative shopping services and freely available rating systems to pit companies against each other. In this increasingly competitive environment, businesses must differentiate not only their products, but their customer experience. 3-In fact, customer experience is rising as the most important competitive differentiator between vendors in many markets. The focused ability to anticipate and respond to customer needs will separate market leaders from also-rans.
2.4 THE 6 LAWS OF CUSTOMER EXPERIENCE The 6 laws of customer experience are not meant to constrain behaviors. They are meant to empower highly effective customer experience efforts. By understanding these fundamental truths about how people and organizations behave, companies can make smarter decisions about what they do, and how they do it. Going against any of these laws will likely cause poor results. But if you conform to these laws, then you're better positioned to deliver great experiences to your customers.
Here are some thoughts about how to apply the 6 laws: ? Treat them as sacred. While it may be possible to find isolated exceptions to all of these laws, they accurately describe the basic behavior of people and organizations. So don't spend your time rationalizing why they don't apply to you. Instead, figure out how to capitalize on the laws.
10 Ramadan, Mahmoud. 2010. The strategic value of Customer Relationship Management(CRM. 2010.
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? Make sure you're not breaking them. Look at these laws regularly, especially when you are starting a new initiative. And ask yourself: Is this effort breaking any of the 6 laws of customer experience? If the answer is yes, don't go ahead. Find some other approach that conforms to these laws. ? Share them with others. The 6 laws will have the largest impact when they are widely understood across your organization. So share this document with as many people as possible And here they are, the 6 laws of customer experience: 1) Every interaction creates a personal reaction. 2) People are instinctively self-centered. 3) Customer familiarity breeds alignment. 4) Unengaged employees don't create engaged customers. 5) Employees do what is measured, incented, and celebrated. 6) You can't fake it. 2.4.1 Law #1: Every Interaction Creates a Personal Reaction This is the most fundamental customer experience law of them all. Simply put, experiences are totally in the eyes of the beholder. The same exact experience can be good for one person and bad for another. As a matter of fact, it can be good for someone at one point in time and then bad for that same person at another point in time. That's why we often say "experiences designed for everyone satisfy no one." Here are some implications of law #1: ? Experiences need to be designed for individuals. While it may not be possible to individualize every interaction, focusing on narrow segments (like Personas) is critical. ? Customer segments must be prioritized. Since you need to design for specific types of people, experiences will be optimized for a set of customers.
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That will require companies to have a very clear picture of their important (and not so important) customers. ? Customer feedback needs to be the key metric. Internal measurements may provide a sense of how the business operates, but they don't give a true evaluation of customer experience. That's why companies need to establish voice of the Customer (VOC) program; letting customer input drive priorities, decisions, and investments. ? Employees need to be empowered. Since every situation can be somewhat different, the needs of customers can vary across interactions. That's why frontline employees need to have the latitude to accommodate the needs of key customers. You know more than your customers; deal with it. You can't get rid of your biases, but it helps to acknowledge them. acronyms, and process steps that you regularly discuss at work. So there's a natural bias for making experiences too complicated for customers. Get in the habit of asking yourself: "Would our target customers fully understand this? " ? don't sell things, help customers buy them. Whenever you're thinking about a customer experience, always try and frame it from the customer's point of view. Look at all interactions as an opportunity to help customers to do something. How can you institutionalize this? Infuse the voice of the customer within your processes. Don't let company organization drive experiences. Just because you have separate organizations running your Website, retail stores, and call center does not permit you to make customers jump through hoops. Customers shouldn't have to know (and they certainly don't care) how you are organized. Here's a key symptom to look for: Any front-line employee that needs to explains to a customer how your company is organized.
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2.4.2 Law #2: People Are Instinctively Self-Centered Everyone has their own frame of reference, which heavily influences what they do and how they do it. Customers, for instance, care intensely about their own needs and desires but they don't generally know or care as much about how companies are organized. Employees also have their individual frames of reference; which often include a deeper understanding of products, company organization, and subject matter. If left unchecked, decisions made inside of companies will often reflect the frame of reference of employees, not customers. We sometimes call this problem self-referential design. Here are some implications of this law: You know more than your customers; deal with it. You can't eliminate your biases, but it helps to acknowledge them. Recognize that customers may not understand things like product names, acronyms, and process steps that you regularly discuss at work. So there's a natural bias for making experiences too complicated for customers. Get in the habit of asking yourself: "Would our target customers fully understand this?" ? don't sell things, help customers buy them. Whenever you're thinking about a customer experience, always try and frame it from the customer's point of view. Look at all interactions as an opportunity to help customers to do something. How can you institutionalize this? Infuse the voice of the customer within your processes. ? don't let company organization drive experiences. Just because you have separate organizations running your Website, retail stores, and call center does not permit you to make customers jump through hoops. Customers shouldn't have to know (and they certainly don't care) how you are organized. Here's a key symptom to look for: Any front-line employee that needs to explains to a customer how your company is organized.
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2.4.3 Law #3: Customer Familiarity Breeds Alignment (Ramadan, 2010)11 miserable for our customers." Yet every day, lots of employees (from front-liners to senior execs) make decisions that end up testing, trying, or downright upsetting their customers. individual actions that cause the problems. Often times, the issues come down to a lack of cooperation or coordination across people and organizations. Given that most people want their company to better serve customers, a clear view of what customers need, want, and dislike can align decisions and actions. If everyone shared a colorful view of the target customers and had visibility into customer feedback, then there would be less disagreement about what to do for them. While it may be difficult to agree on overall priorities and strategies, it's much easier to agree on the best way to treat customers.
? don't wait for organizational alignment. No organizational structure is perfect; they all have some flaws. And it takes a long time to make major organizational changes. So rather than waiting for a structural change to create alignment, use a clear focus on customer needs as a way to align the decisions and actions of individuals -- even if the organizations remain out of alignment. ? broadly share customer insight. While we all know that front-line employees affect customer experience, almost everyone in the company also has some impact on how customers are treated. Think of your company as a large production crew making the stars (front-line employees) shines on stage (during customer interactions). Since many of the decisions that impact customers aren't debated or discussed, they just happen; it helps for as many people as possible to understand customers. Think of this as a silent alignment process.
11 Ramadan, Mahmoud. 2010. The strategic value of Customer Relationship Management(CRM. 2010.
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? Talk about customer needs not personal preferences. Disagreements are somewhat natural when people debate things from their own points of view. Instead of discussing what you like or think, re-frame discussions to be about customers. If you find that you don't really know enough about customers to solve the disagreement, then stop arguing and go get more information about your customers. 2.4.4 Law #4: Unengaged Employees Don't Create Engaged Customers If you want to improve customer experience, then it might seem obvious that you should focus completely on customers. For most firms, though, that's not the correct approach. Where should you focus? On employees, while you can make some customers happy through brute force, you cannot sustain great customer experience unless your employees are bought-in to what you're doing and are aligned with the effort. If employees have low morale, then getting them to "wow" customers will be nearly impossible. Here are some implications of this law: ? don't under-spend on training. You can't just change some business rules and processes and hope that customers will be treated better. Just about any change to customer experience requires some employees to change what they do and how they do it. So don't skimp on the training effort. ? Make it easy to do the right thing. If it's hard for employees to do something, then they are less likely to do it -- and more likely to get frustrated. That's why enabling technologies need to be designed for employees to easily accomplish tasks that help customers. ? Communicate, communicate, communicate. If you want to have employees feel like they're a part of something, then you need to tell them what's going on. So develop a robust communications plan that not only tells employees what the company is doing, but also explains why you're doing it. And it helps if you sincerely solicit feedback! ? Find ways to celebrate, if employees do things that help customers, then find a way to celebrate those actions. These celebrations can take many different forms: a handwritten note from the president, acknowledgement in
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? Measure employee engagement, Firms need to put the same rigor in monitoring employee relationships that they do in monitoring customer relationships. So they need to develop a relationship tracking measure like "likelihood to recommend <firm> as a place to work" that is used to gauge progress and to identify corrective. 2.4.5 Law #5: Employees Do What Is Measured, Incented, and Celebrated Some executives struggle to understand why their company doesn't deliver better experiences to customers. But it shouldn't be such a big mystery. It's all about how you deal with employees, who tend to conform to the environment that they're in. What are the key elements to the corporate environs? They are like the metrics that are tracked, the activities that are rewarded, and the actions that are celebrated. These three items collectively drive how employees behave and how they ultimately treat customers. Here are some implications of this law: ? don't "expect" people to do the right thing. While employees may want to treat customers well, you can't just expect them to do it. Why not? Because companies want their employees to do a lot of things, but organizations often hone their measurements, incentives, and celebrations to achieve short-term growth and profitability targets. So without any explicit intervention on behalf of customer experience, the environment will push employees to focus on just about anything except customer experience. Clearly define good behavior. Before you just adjust the environment, it's important that you define/describe the type of behavior that you want from people in every role. Do you want customer service reps to spend whatever time they need to on the phone to solve a problem or do you want them to cut down the average handle time on each call? The measurements, incentives, and celebrations should be adjusted to reinforce those behaviors. ? Watch out for mixed messages. You can only get consistent behaviors from employees when all three levers (measurements, incentives, and celebrations) are working together. If you celebrate things that are different than what you measure, for instance, then employees aren't sure which signals to follow.
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2.4.6 Law #6: You Can't Fake It You can fool some people for some of the time, but most people can eventually tell what's real and what's not. This shows up in a couple of areas. First of all, employees can sense if customer experience is not really a top priority with the executive team. The second place this shows up is in marketing efforts. No matter how much money you spend on advertising, you can't convince customers that you provide better experiences than you do.
Here are some implications of this law:
? don't hide behind a 4th priority. While it's possible to come up with a long list of priorities, there's no way that many will get a great deal of attention. A good rule of thumb: Anything below your 3rd priority is not a priority at all. So make customer experience one of your top 3 priorities. ? Sometimes it's better not to start. If you're not committed to customer experience, then don't start a major initiative; it's a lot of hard work. And if customer experience isn't a top priority, then the effort will likely fail. The result: Frustrated employees who are increasingly reluctant to re-engage in thesetypes of efforts in the future. ? Advertise to reinforce, not create positioning. Since customers ultimately Know how you treat them, the best you can do with marketing is to reinforce the truth. If you want to change how you are perceived, then start by treating customers better; and then use advertising to reinforce the new way that they're being treated. 2.5 Distribution development within E-Commerce: 1) Conventional distribution In conventional international distribution, goods pass through several nodes, or stops, before reaching the customer, see Figure (2-2). After production, and possibly storage at the factory, the goods are
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delivered to the national distribution center (DC). Here they are stored, consolidated and reloaded, and then sent on to the next stop, the local DC. The goods are handled in the same way as at the national DC, and are thereafter sent on to the retailer, where they are sold to the customer.
Figure 2-2
Conventional distribution structure
Source: (Whang, 2001)
The point where the goods change from being delivered to stock to being delivered to order is called the customer order point (COP). In conventional distribution, the COP is at the retailer, where the customer's order and buy the products. This is called a push system since the company predicts the demand and the goods are pushed through the distribution channel. With E-Commerce there are several possibilities for new ways of distributing goods, and presumably there will be different ways of distribution for different types of goods. Time will be of great importance when deciding on what type of distribution model to use. The faster and more direct flow of information on the Internet will make it possible to skip one or more nodes in the distribution channel and thereby increase delivery speed. For example, in the future products might be delivered to the customer directly from the producer or from a national distribution warehouse. One likely scenario is that customers will have the possibility to choose how quickly they want their products
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delivered. The more the customers are willing to pay, the faster they can receive their products, and the distribution models will then be different according to the lead time allowed. 2) Distribution structures for Internet buying Along with the entry and expansion of E-Commerce, it will be possible and necessary to make large changes in companies' distribution processes. This is because the COP will be moved upstream in the distribution channel, in some cases all the way up to the producing company. Consequently, the distribution process can be simplified to consist only of direct distribution from the producing company to the customer. Several different distribution channels can be seen as possible future solutions. The base alternative is the conventional distribution, which is described earlier in the section about conventional distribution. An example from the food industry could be that the food producer is located in France, from where the groceries are shipped in full truckloads or trains to a national distribution center (DC) located somewhere in southern Sweden or in Denmark, e.g. Dancargo's national warehouse at Arendal, Denmark. In the DC the groceries are stored, reloaded and consolidated with other products and later shipped on to a local DC in full truckloads. This DC can for example be ICA Väst, located in Kungälv, Sweden. At ICA Väst the goods are again stored, reloaded and consolidated and from here transported to the retailer ICA Maxi by either full truckloads or less than full truckloads. Customers then purchase the groceries at ICA Maxi. 3) Distribution Channels The first alternative for a simpler distribution system for E- Commerce products is to remove the retailer and distribute goods directly from local warehouses to customer. This is called home delivery, and an example of this situation could be the purchasing of tulips over the Internet. The tulips are grown in the Netherlands and are shipped to a national DC in Sweden in refrigerated trucks, since the
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goods are perishable. In this warehouse the tulips are consolidated into smaller consignments and then transported to the retailers, for example an Interflora store. The customer now places an order at the Interflora store over the Internet, and the florist arranges the bouquet. The flowers are then distributed to the customers, either in Interflora's own vehicles or in a courier's van.
Figure 2-3
Distribution Processes for Internet buying
Source: (Whang, 2001)
Another possible alternative is to remove the local warehouse from the distribution channel and use the postal service to distribute the goods from the national warehouse to the customer. This is called mail- order shopping and works as follows. Using an example from the clothing trade, clothes are manufactured in Asia and transported to a national DC in Borås in Sweden. The customer places an order over the Internet to the mail-order company, and the clothes are packed in parcels. These parcels are then distributed to the local post office by the national postal service, and are finally delivered to the customer by the mailman. A third alternative is to distribute goods from the national distribution centers to the customers. A good example here is Tamro's distribution of incontinence protection articles for elderly people. The products are produced in Germany and transported to Tamro's national
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DC in Bäckebol, Göteborg. There they are stored and packed, and finally distributed directly to the customers by Schenker-BTL. The last alternative is to have direct distribution from the producing company to the final customer. This could, for example, be the distribution of tailor-made clothes by the company Tailoronline. The customers state their measurements and place an order over the Internet. The order is then sent to the factory in Estonia where the garments are produced and packed in parcels. The finished products are distributed to the customer by mail. Another example is Bokus.com's selling and distribution of books, which go directly from the printing house to the customer. Amazon.com is also a well-known company selling books via the Internet. They started their business with distribution directly from the printing house, but have had to switch logistics strategy to one in which they have to build warehouses in order to support the demand for shorter delivery time from the customers in the US. 2.6 Analysis of distribution development within E-Commerce: 12 (Lumsden, 2010) In section below will follow a discussion that starts out from this question: 1. What modes of distribution are interesting and what volumes and resources will be needed in order to rationalize this commerce? How to organize and coordinate with existing flows while waiting for sufficient volumes to motivate new, separate systems? Presumably the E-Commerce must be of a certain extent within the distribution chain to be effective. The resources meant to be part of the system must also be adapted to enable the organizing of extensive distribution routes. There will, for instance, be a demand for vehicles
12 Lumsden, Ola Hultkrantz and Kenth. 2010. THE IMPACT OF E-COMMERCE ON TRANSPORT. Sweden : Department of Transportation and Logistics, Chalmers University of Technology, 2010.
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which can distribute cold or frozen food together with packages to "refrigerating mail boxes" in residential areas, i.e. carry out deliveries when the customer is not at home and thereby decrease the resource utilization. 2. Will there be a demand for extended cooperation between different actors vertically as well as horizontally? How will this coordination be achieved? Is there a demand for incentive and control? Taking full advantage of the potential offered by E-Commerce will require that the actors in the supply chain cooperate to adjust the different subsystems in the chain. This applies to a vertical (along the refinement process) as well as a horizontal (between distribution spots near the customers) way. If, for instance, all shops were to send their own delivery vans for home distribution, the environmental gain would be negligible as compared to the customer taking his/her own car to the shop. 3. What role will different information systems play in these new, alternative logistics systems? Since the number of end customers (addresses) will increase considerably, this will necessitate efficient goods control, which in turn requires refined information systems for planning as well as execution and follow-up. Besides, the systems will be of vital importance when it comes to creating and maintaining customer relations. 4. How will the increased cost downstream be compensated with lower costs upstream? Since the last link in the distribution chain from shop to end customer (downstream) in normal systems does not affect the product, as the alternative cost (for the individual) is often considered low, the new logistics systems for E-Commerce will experience a cost increase here. This rise will then require compensation in the form of lower product
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costs (upstream) towards the customer to make him/her, from a cost independence perspective, choose home distribution 5. How will the time differentiation be affected by the prospect of alternative distribution solutions? Owing to the fact that the ordering via Internet and the deliveries may vary in time, different solutions for distribution can be efficiently. This, of course, enables new forms of price differentiation. 6. How will the distribution be allocated to a 24-hour period and how will this affect resource utilization? The great number of new addresses (end customers) will be an individual with other requests for delivery times, e.g. evenings and weekends, beyond what is normal in company relations. This might, in many cases, lead to improved resource utilization with larger distribution coverage of rural areas. The environmental impact under such circumstances must be carefully analyzed. 2.7 Sustainable developments: (Lumsden, 2010)13 In the transportation and logistics sector there are a number of general trends that can be observed. The trends identified in the transportation and logistics sector is of course closely linked to more general trends that can be identified. These more general trends are listed below in no particular order, just to mention the overall trends that can be identified throughout society. More power to the customer , which basically means that the customers demand more flexibility regarding product supply, delivery both in terms of time and place as well as a trend towards more custom made solutions in general.
13 Lumsden, Ola Hultkrantz and Kenth. 2010. THE IMPACT OF E-COMMERCE ON TRANSPORT. Sweden : Department of Transportation and Logistics, Chalmers University of Technology, 2010.
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Globalization , which is one of the major trends the latest decennium creating large multinational companies and this trend both allows and forces companies to target market segments on a worldwide basis. Consolidation , or spatial concentration, is both a trend within industries for companies to consolidate their position through buy- ups that is closely related to the globalization trend. It is also a trend towards consolidation of product groups and the production, transport and storage of these products. Deregulation of markets, for example the inner market of the EU that actually is a trend that is both a prerequisite and enforces the globalization and consolidation trends. Development of new technologies such as the Internet that allows for rationalization and the creation of more custom made systems with retained efficiency and also allows for new business models, such as Ebusiness. increased return on invested capital also creates new demands on especially transportation and logistics solutions in order to cut down on storage and other buffers in the systems. environment considerations are also a major trend that affects the way companies do business and is the basic factor behind the strive towards a sustainable society which creates new demands on all industry sectors. These different trends both enforce the complexity of transportation and logistics systems as well as make them less complex. In fact, some of the trends are the effect of industry sectors trying to restructure their systems in order to make them less complex and therefore easier to handle. The spatial concentration of inventory is a typical trend toward simplification of the network and process that is to be handled in order to fulfill the customer demands and be as efficient as possible. The trend towards globalizations is something that enforces the complexity of transportation and logistics systems since the networks
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used and the processes created to handle this global presence become larger and more complex and very hard to survey by the stakeholders involved.
a) Requirement of a sustainable society:
The focus in this context is given in Figure 2-4. In the figure the original ideas of the two different approaches to handle complexity in transportation and logistics systems are given. The basic assumption was, and still is, that there exists a tradeoff between a reductionist approach and an integrated approach. In the context of transportation and logistics this will mean a tradeoff between using an overcapacity of resources and the use of methods and strategies that uses information as the source to handle the complexity.
Figure 2-4
Requirement of sustainable society regarding the tradeoffs on transportation and logistics systems
Source: (Lumsden, 2010)
The upper level in previous figure is the strategy level, where the basic decision is whether to choose to reduce the system or keep it
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integrated. The traditional approach has been to choose the approach where we reduce the system in order to try to make them easier to handle. Methods and strategies to handle the problems arising in complex systems have not been readily available why this strategy is the predominating in the transport and logistics industry today. The next level is the tactical level showing the two dominating ways of creating simple enough systems to handle a complex demand or environment, surplus capacity or higher frequency (over transport), than necessary to accomplish the current volumes. The last level in this figure is the operational level that shows the practical solutions that are deployed in order to solve the problem, such as hub and spoke. The right hand side describes the other choice, sophisticated solutions to match the complex problem. In these strategies information and knowledge are the main sources to handle the complexity. In order to make the solutions sustainable for the future we believe that we have to move the approach from the side were we reduce the systems in order to make them easier to cope with to the other side were we integrate them and use the information in order to control and manage them. The requirements of the future will also be the requirements of a sustainable society and this demand for higher sophistication is both economic in that industry and consumers demand faster and cheaper solutions with less environmental impact. The demand for more sophisticated solutions to the transport of goods and persons also requires more sophisticated approaches, methods and models both to assess these systems properties and to be able to manage and control them in the most efficient way. This is the ultimate goal in using complexity to assess and model transportation and logistics systems.
b) Perspectives of E-Commerce
Regarding E-Commerce we can look at the figure out from two perspectives. The shippers' and the forwarder's perspectives, the shipper is more concerned about good valid and precise information about the cargo and the actual transport. The shipper is though not really interested in how the actual transport, capacity etc. is solved, i.e. the shipper is not
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interested if we use a transport system with over capacity or a system that use over transport. In this way we can say that the shippers focus is the commerce in this case E-Commerce. The forwarder is on the other hand more concerned over enough transport capacity and an easy to manage and redundant system. Figure 2-5
The Two Perspective of E-Commerce- Participant Focus
Source: (Lumsden, 2010) Buyers want to know their landed cost of the products, when and where the products can be delivered, etc. This additional information, the order management, the IT services on which these are based, and the Just-In-Time transport and delivery are summarized by the term e- fulfillment. But efulfillment can and frequently does cover much more: arranging for the insurances of goods in transit, export and import customs clearance etc. In the same way, as the shipper is interesting in the E-Commerce the forwarders are interesting in the e-fulfillment.
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One problem the E-Business has been struggling with is that these two perspectives haven't matched each other. The shippers haven't understood the forwarders perspective and the forwarder haven't understood the shipper's perspective.
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Chapter Three
The E-Logistics Function
3.1 Introduction The impact of E-Commerce on logistics service providers has been discussed by (Patrick Delfmann, 2002) 14. They argue that the logistical implications of E-Commerce can be classified into two main categories: the rise of e-marketplaces, and the elimination of supply chain elements (disintermediation). Virtual logistics resources can be traded in the way most goods are traded by companies and individuals. With the help of information technologies such as the Internet and WWW, resources can be purchased, utilized remotely, and lent or sold when supply outstrips requirements (Clarke, 1998). With virtual logistics operations there is much more flexibility in the allocation of resources, and this means that the resources available can be made equal to the resources actually used. ( Gunasekaran, et al., 2007)15 The integration of IT with logistics management is an important prerequisite for good logistics management. An electronic commerce portal can be used as a marketing channel in collaboration with existing intermediaries or through bypassing intermediaries--disintermediation will provide high leverage opportunities to the logistics function and increase its flexibility. Hence the development of E-Logistics becomes essential for success in global operations. LBS (Location-based service) is an open online information and integration system for transportation and logistics services, offering customs and financial links, pricing, space availability, booking capability for freight door-todoor and a single point of payment through clearing houses (DAMSGAARD, 1999)16 .examined the air cargo industry in Hong Kong, where an electronic trading network was launched in the mid-1990s with considerable success by four international airlines. He identified two critical success factors: (i) the electronic network limited its service to carefully preserve the distribution of power among the stakeholders, and (ii) the system took advantage of the four
14 Patrick Delfmann, Sebastian Herwig, ?ukasz Lis. 2002. UNIFIED ENTERPRISE KNOWLEDGE REPRESENTATION WITH CONCEPTUAL MODELS - CAPTURING CORPORATE LANGUAGE IN NAMING CONVENTIONS. Phoenix, Arizona , 2002. 15 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349. 16 DAMSGAARD. 1999. Stereological quantification of mast cells in human synovium. 1999. Vol. Volume 107.
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founding airlines' local strongholds as points of departure. E-Logistics consists of four important components: (i) one-stop value-added services, (ii) management of electronic information, (iii) a transportation network and (iv) automation in warehousing operations. In logistics, customer satisfaction can be improved by one-stop value-added services. This requires an integrated value chain to be linked to a customer-care advocate, so that customers can receive all of the required services with just one contact with suppliers. For example, in government services, one-stop services allow you to find out any council service, to make enquiries and applications, to pay your bills etc., - all less than one roof. A 3PL also provides multiple value-added services, including product assembly, packaging, re-packing, re-filling, labeling sorting, quality control, etc. to comply with local regulations. ( Gunasekaran, et al., 2007)17 E-Logistics can be defined, then, as: a logistics community network consisting of third-party logistics service providers including warehousing and transportation networks with suitable information technologies such as EDI, the Internet, wireless and mobile communication technologies, WWW and Radio Frequency Identification (RFID) with the objective of providing one-stop valueadded services to customers. ( Gunasekaran, et al., 2007) (van Hoek R., 2001) 18 Presents the experiences of UPS Worldwide Logistics (WWL), a company that had implemented a Fourth Party Logistics (4PL) model which was based on the integration of information in logistics and transport operations. Anderson Consultants define 4PL as "a supply chain integrator that assembles and manages the resources, capabilities and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution"2. 4PL is the integration of all companies involved along the supply chain. Web-based logistics information systems have several advantages, as less human intervention is involved. This minimizes errors in the exchange of information, hence facilitating good decision-making. The advantages include: real-time inventory information, single data entry to minimize human error as the data are input by the customers themselves with no
17 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349. 18 van Hoek R. 2001. The rediscovery of postponement: a literature review and directions for. 2001. pp. 161-184. Vol. Vol. 19.
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need to reenter the data, real-time online ordering functions, and multi-level password control so that different functions can have different access levels controlled by authorized people. The role of E-Commerce models in developing virtual logistics chains has been highlighted in many articles (Graham and Hardaker, 2000)19. The most important requirements for using new technology are that a firm must understand the value added for its customers and that it restructures many of its business processes in order to receive its full benefits. Ligon et al. (1992)20 discuss the role of EDI in logistics services. However, only a limited number of articles have dealt with 3PL and the role of IT in improving logistics performance. In the following section, an attempt is made to develop a conceptual model for effective logistics management in a 3PL environment. The appropriateness of the model design is confirmed. ( Gunasekaran, et al., 2007)21 3.2 E-Logistics - Key to Success in the Digital Economy:
3.2.1 The Internet
Today, it is almost a truism to state that the Internet is profoundly changing the whole business logic. Boundaries between markets, industries, companies, products and services, sellers and buyers, and so on, are disappearing. No one is untouched, and no one can stand alongside. The question is what to do if one wants to lead the development and not simply follow. Internet applications can be divided into three major stages; e-presence, ECommerce, and e-business.
19 Graham, G., Hardaker, G.,. , 2000. Supply-chain management across the Internet. International Journal of Physical Distribution and Logistics Management. , 2000, pp. 286-295. 20 Ligon F. K., Dietrich W. E. & Trush W. J. 1995. Downstream ecological effects of dams. Bioscience 45. 1995, pp. 183-92. 21 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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Figure 3-1
The development of internet applications
Source: ( Gunasekaran, et al., 2007) 3.2.2 E-Presence E-Presence often starts with one-way information about the company, its products and services. The Internet is primarily used to publish information. Suppliers can deliver product and service information directly to customers in a cost efficient way. The next step is to create two-way communication for e.g. customer support and answering FAQs. The value added imbedded in this "disintermediation" lies in the possibility to communicate directly with the customers as a supplement to traditional market communication. The Web server is a standalone server, usually outside the company's firewall. There is no link to internal ERP-systems. 3.2.3 E-Commerce ( Gunasekaran, et al., 2007)22 E-Commerce opportunities are opened for transactions. Transactions are the core elements in commercial activities. A transaction consists of two major parts; transaction creation and transaction fulfillment. In the digital economy, transaction creation is done over the Internet (E-Creation), which usually leads
22 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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to reduced transaction costs. When it comes to digitally transferable services and products, such as bank services, computer software, and music, transaction fulfillment can also be done over the Net (E-Fulfillment). For physical products, however, fulfillment has to be supported by physical movement (e-logistics). E-Commerce can be defined as transaction creation based on electronic media - and primarily the Internet - supported by transaction fulfillment which can be digital but in most cases is based on physical movement - e-logistics. ECommerce goes one step further than e-presence by making it possible for customers to order directly via a link to internal systems. For mail order companies, for example, this means that the Net is used for E-Creation that directly links to existing systems for fulfillment. Or, a customer can go directly to a computer supplier to download of the latest driver. E-Commerce can be divided into two separate areas; Business to Consumer (B2C) and Business to Business (B2B): with different e-logistics requirements. B2C can be seen as a rather traditional transaction where the buyer uses the computer instead of a telephone or fax machine. The difference lies in the freedom of choice created by easy access to information from several potential sellers. The buyer visits the seller's website, places an order and waits for delivery. Logistics costs can account for more than 40% of total costs in e-trade. This means that e-logistics, e.g. in terms of cross docking, and payment are the critical factors for profitability. The B2C transaction is normally preceded by some type of supply function where eB2B activities may be involved. Electronic business to business trade (eB2B) promises to cut costs while bringing companies closer together. B2B web sites are estimated to save companies 15-45 per cent in transaction costs through quicker ordering, speedier delivery, fewer errors, and offering more opportunities to find the lowest priced products and services. Forrester Research forecasts that eB2B will eventually be dominated by interconnected one stop shops where purchasing agents will have instant access to price comparisons. These sites will connect together services like risk management, financing, and logistics in a single, integrated purchasing flow. The e-market spaces established by for example Ericsson, SKF, Ford, GM and Chrysler/Mercedes are other examples of the evolution of ecommerce.
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The Internet development leads to disintermediation, i.e. middlemen are disappearing. But it also leads to re-intermediation, i.e. new types of middlemen offering new types of services are established. Infomediaries consolidate information from several sources as a service to the customer. Travelocity is one example of this "re-intermediation" incorporating information from other Web sources to provide its customers services such as flight tickets, hotel, and rental cars reservations. E-Logistics companies are also among the most important of these new intermediaries. Ecommerce transactions put heavy stress on effective and efficient logistics operations. ( Gunasekaran, et al., 2007)23 And this is where the e-logistics concept is of great help. e-Logistics companies can act as advanced 3PL partners and add value in a very profitable way - for all parties involved. Part - or sometimes the whole - of the customer's purchasing activities could be outsourced to the e-logistics company. Resources and valuable time can be released and put into more profitable core activities such as product and service development, marketing etc. Under the influences of E-Commerce, the supply chain is at the very core of what gives an enterprise its competitive edge and ultimately its shareholder value. E-Presence and ECommerce offer new ways for sellers to promote market and sell products and services. These models will continue to grow. However, these approaches are supplier oriented and customers are looking for sellers and what they get is standardized information with no customization. The pivotal change comes with a more interactive Internet that enables applications not only to view but also make active use of data. As this transition occurs, business systems evolve from being supplier oriented to being customer oriented. And the supply chain push will be replaced by a demand chain pull! 3.2.4 E-Business ( Gunasekaran, et al., 2007) The third phase - E-Business - involves transformation of processes and systems to increase integration and automation in order to take advantage of all the possibilities created by the Internet. E-Business implies a much deeper and more radical transformation of the company than E-Commerce. When ECommerce evolves into E-Business the architecture has to be reinvented in a
23 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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way unencumbered by existing business infrastructure. Developing the right infrastructure to support successful E-Business will be the real challenge. Most companies have made major investments in business applications and ERPsystems, but not very many have made investments in connecting these applications together in a way that can withstand the intense demands of the eworld. Connectivity solutions have to come in to help realize business goals of agility, adaptability, and durability by interaction with trading partners and customers. The growth of the Internet implies considerable systems integration. E-Business can be defined as an approach where processes, systems and behavior are adapted and integrated in order to take advantage of all the possibilities that are created in e-networks, i.e. effectiveness and efficiency in inter-organizational business processes are increased with the help of Internet technologies. Today's E-Commerce is, as mentioned, primarily sales and supply oriented. The great challenge arrives with a more interactive Internet that not only gives access to data and information but permits active use of it. No longer will companies just be using a browser to look into someone else's system, they will take control of the data and make it into intelligent information. When this happens, Internet applications will be demand rather than supply oriented. It will be a paradigm shift from the époque when customers' used their browser to get data from the sellers to the époque when sellers deliver customized information to the customers as they require. Sellers deliver digital data that can be integrated directly into the customer's systems. For example, a supplier can automatically keep a customer updated on order status which means that proactive steps can be taken to adapt to changing circumstances. This also initiates a radically different relationship between suppliers and customers - one in which the suppliers compete on the basis of how effectively they can integrate their information with those of their customers and suppliers in order to add value. Integration is one of the key words in e-business. The integration of business processes between companies, "e-collaboration", is well established with the grocery sector in the lead in most countries. The sharing of data between retailer and supplier means that both parties can have a complete and up-to-date picture of evolving supply chain processes. E-Collaboration can provide a step
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change in the way that supply and demand channels are run. In its simplest form, the sharing of information at key points in the process is vital if companies are to adapt to a demand led economy. However, the processing and management of large amounts of data will quickly become a major headache unless new tools are deployed to make sense of it all. Luckily enough, recent developments have made data mining techniques affordable and applicable to all types of business. Data mining tools and techniques enable businesses to analyze potentially vast quantities of data stored in "data warehouses". Patterns, trends and correlations can be detected at any level of aggregation down to the individual record. Increasingly, as E-Business interleaves the separate databases, systems, and operations of individual companies into a seamless demand chain, the users will be suppliers and customers just as much as internal staff. Data mining makes it possible for anyone in the supply chain to access the data warehouse and convert data into meaningful information. And, hence, it is an essential tool for the Internet and e-business. The second phase in E-Business focuses on two way, interactive process integration between the company, its supplier and customers. Process integration between the decision-making systems of enterprises, their suppliers and their customers becomes bidirectional and tightly integrated. Actions on one company's computers trigger processes at other companies. There is a dynamic interplay and processes can be initiated in inter organizational systems based on predefined rules. An order to a manufacturer may initiate information to OEMs, first and second tier suppliers. Dell, for example, has built its success on very close process integration with suppliers and customers. Fast, two way communications reduces lead times and total costs, streamlines the flow of resources in the channel - and puts very heavy demand on e-logistics. If the first two stages of Internet applications are seller and supply chain oriented, then the third stage is buyer and demand chain oriented. Distribution channels have to be restructured when companies move from E-Commerce to EBusiness and business processes become more integrated and partly automated.
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Supply chains are rapidly transformed as enterprises go beyond their Webbased storefronts and create systems that execute business processes with their suppliers and customers over the Internet. Internet-connected enterprises will remake interactions across the entire chain from raw materials supplier to the ultimate user. Traditional value chains are transformed into intelligent value webs! Companies working within intelligent value webs will be able to reduce inventory, increase flexibility and responsiveness and improve customer service. Fundamental changes in the way access is provided, content is marketed, and products are sold and delivered are occurring. Logisticians will have to plan and implement concurrently and as fast as the marketers. And a new breed of logistics - e-logistics - is emerging. 3.2.5 E-Logistics ( Gunasekaran, et al., 2007) What, then, is e-logistics? Of course, e-logistics is a spin-off from earlier generations of logistics. But it is something more and radically different than just a new generation of traditional, "industrial age" logistics. It is designed to fit into the new, digital economy and the Internet applications discussed above. The history of logistics can be divided into three major phases. The first phase - the Military phase - started a very long time ago with military warfare. Alexander the Great, Napoleon, and Gustaf II Adolf were among the leaders of logistics development. Later on, military logistics focused on operations research and logistics engineering. There has been two main paradigm shifts in the history of logistics. The first one was when military was replaced by business logistics, and the second one is happening right now with the advent of agile and flexible logistics designed for the digital economy - e-logistics. Development of modern logistics started in the 1960s. The first generation was highly cost-oriented. The innovation was the shift of focus from functional costs to total costs in the whole physical flow. The oil crises in 1973/74 were the triggering cues for the second generation of logistics - the revenue oriented approach. The focus on revenue using logistics as a means of competition - is easy to understand. The mission was to increase sales in a zero growth market. The third generation in the late 70s came as a remedy for the problems caused by too much emphasis on sales. Too much capital was tied up in order to satisfy customers. The rate of sales
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versus capital tied up in inventory was falling below 1! The rescue was the third generation - capital oriented - logistics.24 All of these three first generations of logistics were based on the prevailing paradigm of the first industrial revolution. The key words could be summarized; standardization, continuity, planning, and economies of scale. However, in the mid-1980s the first signs of a second industrial revolution started to show. Something was "trying to happen" as a response to changing customer requirements when the industrial society slowly was replaced by the emerging knowledge society. The new key words were; freedom of choice, discontinuity, flexibility, and Economies of scope. Quite an antithesis to the old key words! The second paradigm shift was under way! The next two generations of logistics were also typical children of this delta period - the reperiod. Rethinking, restructuring, reinventing, and reengineering. The fourth generation was focusing on inter-functional processes and process innovation for time based competition. The fifth generation was ITdriven and not simply IT based. The advent of the digital economy, however, has triggered a new very different breed of logistics - e-logistics. The key words of the digital economy can be summarized; speed, flexibility, connectivity, interactivity, and intangibles. Success in this environment requires e-logistics. The e-logistics concept is adapted to the digital economy in which the Internet is a major backbone. The information flow is the starting point and the enabler - not the physical resources. Physical resources for moving and storing products do not have to be owned by the e-logistics company. On the contrary, physical resources can be a disadvantage. The competitive advantage is embedded in knowledge and competence. Competence in continuously developing, improving and adapting physical flows and tools according to customers´ demands, But also competence in suggesting new and radically different solutions. E -Logistics is a major part of the network economy in which bits are moved by ICT and atoms are moved by logistics.
24 Gunasekaran, Angappa, Ngai, Eric W. T and Edwin Cheng, T. C. 2007. Developing an E-Logistics System: A Case Study. International Journal of Logistics: Research & Applications. 2007, Vols. Vol. 10, No. 4, pp. 333 - 349.
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The e-logistics concept is developed in accordance with the new rules of play discussed above. The concept is defined by the interaction and integration taking place in the interfaces between traditional logistics, Information and Communication Technology (ICT) and process management . Deep knowledge and competence within all these areas is required in order to succeed.
Figure 3- 2
The E-Logistics concept Interplay in the interfaces between traditional Logistics, ICT, and Process management
Source: ( Gunasekaran, et al., 2007)
ICT provides the methods, systems, and techniques necessary. Data base technology and data mining techniques are major enablers in the implementation of the e-logistics concept. The gap between those who know enough about ICT and those who know enough about the application area - logistics - has to be bridged. This is a major task for research and education, and it also approached by Swedish universities. Logistics provides the frame of reference, the concepts, and the models for management of cross-functional and inter-organizational flows and processes. Logistics is, in many ways, the cradle for process orientation. The development towards process-driven structures started with the first flow oriented approaches within logistics in the 1960s. The purpose was to create efficiency by better coordination of purchasing, manufacturing, marketing and physical distribution. In the next step, engineering and product development
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were explicitly integrated in the approach. This cross-functional approach has been further accentuated by concepts such as concurrent engineering and Business Process Reengineering (BPR). Most of these approaches are intra-company and efficiency oriented. In today's customer focusing world, efficiency is not enough. Effectiveness has to be created by partnership and close cooperation in the whole distribution channel. The "new" Supply Chain Management concept as well as the "old" Vertical Marketing Systems concept is proponents of this view. These approaches have to be based on processes spanning the boundaries between functions and organizations. Virtual integration offers the solutions for inter- organizational coordination and cooperation, and also for the shift from supply chain to demand chain thinking. Process management, finally, helps in creating the necessary conditions for renewal. Renewal and change can never be based solely on techniques. The transition requires understanding and acceptance of what has to be done, why and how. The result (R) always equals technical/economic systems efficiency (S) time's social acceptance (A), i.e. R=S x A! Advanced logistics and ICT enable short lead-times in the creation of customized products and services. But a flexible and open organization based on process orientation and goal oriented teams is another necessary ingredient. Process management helps in focusing the customer and in creation of value. It integrates activities and facilitates handover between units. It provides a holistic view and it empowers employees. Process management creates increased efficiency and effectiveness, but rethinking and innovation is created by empowered people. Most of the effective and efficient relationships in the networks of the digital economy are process driven. In the e- Logistics context, process management mainly focuses on three inter-organizational core processes:
• Customer Creation and Retention (CCR) that creates and retains customer
relations all the way from the very first contact, via after sales, follow up and continuous improvement.
• Time to Cash (TTC) - the total materials, information and payment flow.
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• Time to Market (TTM) - the total process for development and improvement
of products and services. The concept of e-logistics focuses on integration and improvement of interaction in the interfaces between these processes.
Figure 3- 3
The Interface among core processes; TTM.TTC, and CCR
Source: (Johan Visser, 2001)
3.3 E-Commerce and logistics system (Johan Visser, 2001)25 E-Commerce defined as "doing business over the Internet" could cover any transactions between the organizations and people in the society, although the past literatures regarded B2B and B2C as important in terms of market size.
25 Johan Visser, Ryuichi Yoshimoto. 2001. THE IMPACT OF E-COMMERCE ON TRANSPORT. Tokyo , Japan : Faculty of Commerce and Management, Hitotsubashi University, 2001.
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In this paper, however, the government will be referred explicitly because they have responsibility to establish new logistics policies under different ICT conditions. Another original viewpoint is to divide "Business" into "Shipper" (e.g. suppliers, manufacturers, wholesalers, and retailers) and "Logistics Service Provider" (e.g. freight carriers, warehouse firms, and third party logistics). B2B usually means the transactions between shippers (S2S). It seems effective for us to distinguish the transactions in the market of logistics services, between Shipper and Logistics service provider (S2L) and between Logistics service providers (L2L). As E-Commerce becomes common practice, the more likely the shippers tend to outsource logistics services. We should recognize four major stakeholders if we want to analyze the impacts of ICT on the logistics system (Figure 3-4).
Figure 3-4
Stockholders in logistics system
Source: (Johan Visser, 2001)
Shippers are either the consignors who send goods or the consignees who receive goods in the supply chain. Their concerns are to maximize net profits by
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reducing lead-time from ordering to fulfillment, and decreasing opportunity cost resulting from failing to cope with changeable consumer needs, among others. Some of the shippers have the logistics functions in-house, because their logistics system makes their competitive power stronger. However, the share of logistics activities conducted by logistics service providers has been increasing in Japan. Logistics service providers are trying to minimize logistics costs (transportation cost, stock cost, data processing cost etc.) while meeting the requirements from the shippers. The requirements have become sophisticated and costly, including time-window for delivery, temperature control, and tracking information services for valuable goods. Consumers like to maximize consumer surplus by purchasing favorite goods conveniently at reasonable prices. The important aspect is that the price is one of the factors affecting consumer's satisfaction. They are willing to pay more money if quality goods are delivered just in time. We cannot neglect the fact that the consumers are at the same time the residents suffering from traffic congestion, traffic accidents, and environmental problems (air and noise pollution). Therefore, they hope that these problems be alleviated and a comfortable urban environment is maintained. Governments represent the local governments and other agencies concerned. They are tasked to maximize net social benefits (gross social benefits gross social costs) in the new situation where ecommerce and related logistics operations are actively performed by the private sector. Their interventions might be justified in providing public goods such as logistics infrastructure, in regulating logistics operations for safety purposes, and in internalizing externalities to make efficient and fair resource allocation (e.g. road pricing).
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Table 1 Concern of Stakeholders
Source: (Johan Visser, 2001) 3.4 urban logistics system influenced by ICT (Johan Visser, 2001)26 ICT will affect the logistics system in different ways. Concerning the influence of ICT on the logistics system, three aspects should be examined (Figure 3-5):
increasing/decreasing the demand of freight transportation (E-Commerce). where fragmented transportation needs might be consolidated (e-logistics). management based on real-time traffic data (e-fleet management).
26 Johan Visser, Ryuichi Yoshimoto. 2001. THE IMPACT OF E-COMMERCE ON TRANSPORT. Tokyo , Japan : Faculty of Commerce and Management, Hitotsubashi University, 2001.
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Figure 3- 5
ICT and Urban Logistics System
Source: (Johan Visser, 2001)
3.4.1 E-Commerce (Johan Visser, 2001) E-Commerce is expected to change the supply chain. Suppliers, manufactures, wholesalers, retailers, and consumers can choose their trade partners directly. As a result, logistics operations are affected immensely. Even small and medium-sized firms in local areas can demonstrate their products to overseas consumers, investigating the detailed needs. Parcel delivery firms can efficiently manage goods transport, and the accounts can be settled with credit cards or other services. Not only B2C but also B2B transactions would be affected. In the United States, the automobile industry established a web site involving several firms (suppliers, car dealers, and logistics service providers) where trade information are exchanged and shared, such as part order, inventory information, and even information on new designs. The Internet is used as a tool to cooperate with a small number of partners, as well as to procure mass-produced parts at a low price from all over the globe. The Internet can be the catalyst to accelerate the standardization of EDI (Electronic Data Interchange) between firms, which progressed slowly before.
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3.4.2 E-logistics (Johan Visser, 2001)27 Competition is certainly promoted by the development of E-Commerce, as firms and consumers can easily contact with more potential purchasers and suppliers. Therefore, a firm that has a competitive manufacturing know-how about a certain product might dominate the market entirely. Furthermore, the agent function, which helps us find the cheapest price of a certain product automatically, is promoting competition. When competition is intensified, the organization and activities that do not contribute to strengthening the competitive power (core competence) of the concerned firm should be restructured. In particular, logistics operations such as transportation, storage, packing, etc. are not necessarily profit-making activities with specialties. In many cases, it is more likely that outsourcing the logistics services makes more profits. In Japan, a seller or a consignor is responsible for the transport of the purchased goods to a buyer or a consignee traditionally. On the contrary, the consignee is often responsible in Europe and America. In both cases, however, the shippers (consignors and consignees) face difficulties if they themselves transport the ordered goods via the Internet. E-Commerce changes the supply chain from a large-lot thick stream (factory - wholesaler - retail store) to many small-lot narrow streams (factory - consumer). That is why shippers pressed for efficient employment of resources tend to outsource logistics services to third party logistics (3PL), which is neither the consignor nor the consignee.
3.4.3 Theory in practice: (Ericsson, 2000) There are several examples of practical applications of the thinking behind virtual integration and e-logistics both in Sweden and for example in the US. Michael Dell's well known approach to "direct sales" is based on virtual integration which, according to Dell, means: customer focus, market
27 Johan Visser, Ryuichi Yoshimoto. 2001. THE IMPACT OF E-COMMERCE ON TRANSPORT. Tokyo , Japan : Faculty of Commerce and Management, Hitotsubashi University, 2001.
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segmentation, mass customization, supplier partnership, and just in time manufacturing and logistics. Logistics is one of the major issues for E-Commerce startups. Therefore, Sweden Post has decided to develop an e-logistics company to become a valuable partner for, among others, E-Commerce companies. Sweden Post's "On line Logistics Company" (OLC) is a true e-logistics company with no physical resources but highly competent employees with state of the art knowledge of elogistics. The major Swedish E-Commerce company Bokus (a book store) is relying on OLC and has succeeded in getting the highest marks for delivery and customer service in independent ratings. OLC has also succeeded in cutting inventory down from around 122 days in the traditional supply chain to around 30 in the e-logistics set up. 3.5 E-logistics and Demand Chain Management The logistics concept has evolved from its early focus on cost efficiencies in transportation and warehousing to today's customer focused e-logistics approaches. During the 1980s methods were identified to make logistics operations function as an integrated set of processes. The 1990s presented a new definition of the logistician's role. This evolution intended to integrate many of the company's core operating processes and to provide a comprehensive view of the company's supply chain operations. The impact of supply chain operations on overall corporate performance was recognized and companies started to look for external help in delivering those results. The possibilities of third party logistics providers (TPLs) to improve the performance of the company's supply chain by outsourcing the transportation and warehousing functions were identified. Outsourcing allowed the company to focus on its core competencies, to provide a differentiated level of customer service and to take advantage of greater operational flexibility. Some operating and capital expenses could also be reduced. In practice, however, TPLs lacked the strategic expertise required to operate across the entire supply chain and the technology to truly integrate the related supply chain processes. While outsourcing often provided solid one-time reductions, it did not deliver the continuous savings and improvements desired.
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The issue right now is to meet management's expectations to create a truly integrated supply chain that improves operational performance, delivers the scope of services needed, and provides on-going financial benefits. At the same time, customer demands and requirements are further accentuated and highlighted with the development of Internet applications. The move from epresence, via E-Commerce to E-Business implies a shift from supplier oriented push to customer oriented pull strategies. That means an evolution from supply chain management to demand chain management, i.e. truly customer driven supply chains. The next significant evolution in logistics is emerging and it is called Demand Chain Integration which creates a new role - the Demand Chain Integrator (DCI). In essence, the DCI assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive demand chain solution. The DCI acts as a single point of interface with the client organization and provides the management of multiple service providers through a teaming partnership or alliance. The approach aligns the capabilities of the DCI and the "best of breed" service providers to deliver demand chain solutions. With the DCI focusing on the entire chain, dramatic customer service improvements can be attained. Operating cost reductions of up to 15% can be driven through operational efficiencies, process enhancements, and procurement savings. Savings can be achieved through the complete outsourcing of the demand chain function and creation of economies of scale. Synchronization of activities across chain participants can lead to operating cost reductions and lower cost of goods sold due to integration of processes, improved planning and execution of chain activities. Working capital reductions of up to 30% can be realized through inventory reductions and reduced "order to cash" cycle times. The Swedish company Sonat has proved that the theories discussed above can be realized in practice. Sonat is the first company to offer high growth European companies a comprehensive e-logistics solution, assuming responsibility for the entire extended demand chain. Sonat designs, integrates, and operates the chain for high-growth enterprises. Rather than being bound by fixed agreements with specific logistics suppliers, Sonat cooperates with those distributors and transportation companies that together form the most competitive, timesaving and cost-effective demand chain for each individual
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customer. By monitoring and operating the entire demand chain for a client, Sonat can guarantee defined service levels to the end customer. The company offers its customers a completely outsourced logistics department. The company's "Chain service" manages, plans, and integrates the customer's demand chain. Sonat targets small and medium-sized high growth enterprises, including dot.coms as well as more traditional companies. With dChain, Sonat takes responsibility for necessary process reengineering throughout the chain. Each customized demand chain is integrated by an ICT-infrastructure, connecting the various companies´ systems for planning, control, and follow-up. To achieve this integration, Sonat has formed partnerships with market leaders such as Oracle for applications and data-warehousing, SEMA Group for operations, communication and security and Viewlocity for integration of systems and information. Viewlocity is a global provider of B2B integration and online trading community solutions. Viewlocity´s flagship product, AMTrix, is used to ensure a seamless flow of information across enterprise boundaries, connecting Sonat´s customers with their suppliers and distributors, achieving end-to-end e-logistics solutions. (Ericsson, 2000) 28
28 Ericsson, Dag. 2000. e-Logistics - Key to Success in the Digital Economy. Athens : University of Skövde, 2000.
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Chapter Four
The Benefits of the Partners through Using E-Logistics
4.1 Introduction Logistics, just as all other areas of applied research, is under continuous development. Normally, the theoretical side is a couple of years ahead, pointing out what could be done if the tools were available. Then the technological development catches up - and visions are turned into reality. This is exactly what has happened in the development of theory and practice in relation to channels of distribution. The theoretical interest in coordinated, integrated, effective and efficient distribution channels was very big during the 1970s both in the US and in Sweden. Theories and models describing how cooperation ought to be carried out in effective and efficient channels were presented under the label "organized vertical marketing systems". Transaction and coordination costs were analyzed from macro as well as micro perspectives. Power structures and relations such as competition, cooperation and other types of influence were discussed from behavioral and socio-psychological aspects. Channel structure and behavior was analyzed from all possible theoretical angles. The focus was on vertical integration without ownership control, which is what today is called virtual integration, enabled by modern information and communication technology (ICT). A lot of the visions and ideas discussed at that time are now realized under concepts such as Efficient Customer Response (ECR) or Quick Response (QR). The application enabler was new tools for gathering, storing, handling, retrieving and distribution of data. The Swedish wholesaler Luna developed an information system for coordination and cooperation with first the customers and then also the suppliers. It was a very early application of ICT to improve effectiveness in physical distribution. The world's first extranet, before the term was even thought of! The system (Bascet Info-link) is still up and running, but the technique is, of course, renewed. Today's technology - and especially Internet offers possibilities for new and flexible solutions.
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4.2 Supply Chain Integration and E-Business: (Whang, 2001) How and where do we see the impact of E-Business on supply chain integration? There are four key dimensions in which the impacts can be found:29
• Information integration • Planning synchronization • Workflow coordination, and • New business models
Taken in order, these four represent escalating degrees of integration and coordination among supply chain members, culminating in whole new ways of conducting business.
Table 2 Supply Chain Integration Dimensions
Source: (Whang, 2001)
29
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l. : Stanford University, 2001.
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A- Information Integration: (Whang, 2001) Information integration refers to the sharing of information among members of the supply chain. This includes any type of data that could influence the actions and performance of other members of the supply chain. Some examples include: demand data, inventory status, capacity plans, production schedules, promotion plans, and shipment schedules. Ideally, such information can be accessible by the appropriate parties on a real-time, on-line basis without significant effort.30 B- Planning Synchronization (Whang, 2001) Planning synchronization refers to the joint design and execution of plans for product introduction, forecasting and replenishment. In essence, planning synchronization defines what is to be done with the information that is shared; it is the mutual agreement among members as to specific actions based on that information. Hence, members in a supply chain may have their order fulfillment plans coordinated so that all replenishments are made to meet the same objective - the ultimate customer demands c- Workflow Coordination (Whang, 2001) Workflow coordination refers to streamlined and automated workflow activities between supply chain partners. Here, we take integration one step further by defining not just "what" we would do with shared information, but "how." For example, procurement activities from a manufacturer to a supplier can be tightly coupled so that efficiencies in terms of accuracy, time, and cost, can be achieved. Product development activities involving multiple companies can also be integrated to achieve similar efficiencies. In the best-case situation, supply chain partners would rely on technology solutions to actually automate many or all of the internal and cross-company workflow steps. D- New Business Models (Whang, 2001) Adopting E-Business approaches to supply chain integration promises more than just incremental improvements in efficiency. Many companies are
30
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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discovering whole new approaches to conducting business, and even new business opportunities not previously possible. E-Business allows partners redefine logistics flows so that the roles and responsibilities of members may change to improve overall supply chain efficiency. A supply chain network may jointly create new products, pursue mass customization, and penetrate new markets and customer segments. New rules of the supply chain game can emerge as a result of integration fueled by the Internet. Integration = Co-operation (Whang, 2001) 31 Integration cannot be complete without a tight linkage of the organizational relationships between companies. This linkage must take place on many planes.
• Channels of communication must be well defined and maintained, with roles
and responsibilities clearly articulated.
• Performance measures for members of the supply chain also need to be
specified and monitored. A member of the supply chain may be held accountable for some performance measures of another member, and there may be some performance measures for which multiple organizations are jointly held accountable. Such extended performance measures encourage closer collaboration and coordination.
• Incentives must be aligned for all members in order for supply chain integration
to work. Incentive alignment requires a careful definition of mechanisms in which the risks and associated gains of integration efforts are equitably shared. Moreover, the incentive for each member must commensurate with her investment and risk. The success of any supply chain integration effort is predicated on close cooperation inspired by a perception of mutual benefit. As we will see, EBusiness approaches can go a long way toward fostering the necessary level of trust and commitment.
31
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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The Role of Technology and the Internet (Whang, 2001) Supply chain integration is not new; many companies have already pursued it as a way to gain competitiveness. Information technology has long been a major factor. Relational databases, client/server architecture, TCP/IP network protocols, multimedia, wireless technology, and most recently, the Internet, have each, in their way, spurred new innovation and new possibilities. The e-business, or Internet computing, model, has now emerged as perhaps the most compelling enabler for supply chain integration. Because it is open, standards-based and virtually ubiquitous, businesses can use the Internet to gain global visibility across their extended network of trading partners and help them respond quickly to changing business conditions such as customer demand and resource availability. The following sections provide abundant evidence of this, with examples from a wide range of companies and industries illustrating how the Internet has fundamentally changed their supply chain strategies.
4.2.1 Electronic Information Integration: (Whang, 2001)32
Information integration is the foundation of supply chain integration. For companies across a supply chain to coordinate their product, financial and information flows, they must have access to accurate and timely information reflecting the status of their supply chain. The capability for all supply chain partners to have access to share information on a timely basis is therefore a key to improving supply chain performance. To ensure that a supply chain is driven by true consumer demands, information sharing is critical. This is the most effective way to counter the problem of demand information distortion in a supply chain -- the well-known "bullwhip effect." Information distortion often arises when partners make use of local information to make demand forecasts and pass them to upstream partners; partners making ordering decisions based on local economic factors, local constraints or performance measures; and gaming behaviors to exaggerate orders when there are perceived uncertainties in supply conditions. These distortions are amplified from one level to another in a supply chain, and are considered to be one of the biggest causes of inefficiencies in a supply chain.
32
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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Figure 4 - 1 Information Distortion and the Bullwhip Effect
Source: (Whang, 2001)
One way to counter the bullwhip effect is to have transparency of demand information. Indeed, in the grocery industry, such transparency is considered to be the cornerstone of supply chain integration, and is a key ingredient of "Efficient Consumer Response," a movement towards total supply chain integration in that industry. Companies engaged in information sharing efforts usually share sales data, inventory status, production schedule, promotion plans, demand forecasts, and shipment schedule information.
4.2.2 Electronic Workflow Coordination (Whang, 2001)33
The Internet permits companies to take collaboration one steps further, through coordination, integration and even automation of critical business
33
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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processes. Workflow coordination can include activities such as procurement, order execution, engineering change, design optimization, and financial exchanges. The results are much more cost-effective, speedy, reliable and less error prone supply chain operations. Below, we offer a number of examples of how different companies are pioneering workflow coordination activities in these and other areas. 4.2.2.1 Procurement A typical manufacturing company needs to procure thousands of products from hundreds of suppliers. The Internet helps to manage the complexity of the procurement process. Numerous companies including Ariba and Commerce One offer Web-based enterprise procurement solutions that dynamically link the buyer into real-time trading communities over the Internet. They also automate the internal procurement process from requisition to order, as well as the supplier interactions from order to payment. The solutions enable companies to reduce operational costs and increase efficiency by automating the entire indirect goods and services supply chain. Indeed, most of the market exchanges, such as Covisint for the automobile industry, Exostar for the aerospace industry, Converge and e2open for the electronics industry, and Transora for the grocery industry, provide eprocurement solutions for their members. Increasingly, companies are also relying on scientific breplenishment1 software to drive the timing and quantity decisions in procurement. For example, Longs Drug Stores, a retail pharmacy chain, uses the service of Nonstop Solutions to manage its ordering and replenishment processes at their distribution centers and stores. This results in inventory turns that are head-andshoulders above the competition. Longs' supply chain has been dubbed the "hyper-efficient pharmaceutical demand chain." 4.2.2.2 Order Processing and Financial Flows: Instill, a Silicon Valley startup company, has created an Internet-based service to facilitate and process orders, as well as coordinate rebates, discounts, and other financial exchanges for operators (like restaurants), distributors and manufacturers in the foodservice industry. Its mission is to develop easy-to-use
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services that lower costs and provide valuable information for all members of the foodservice supply chain. Its solution replaces the traditional time-consuming, error-prone purchasing systems with a secure and user-friendly client program for food operators to order food products on the Web. In addition, the Web site serves as an information hub that links buyers and suppliers in the food service market. 4.2.2.3 Procurement Coordination for New Products Sourcing parts for new products can be a major hurdle to timely and profitable new product introductions. Using the Internet, companies can conduct complex purchasing tasks such as parts-list management, quoting, decisionmaking, ordering, and order change and order confirmation in hours instead of days. The Internet also lets companies tap into a bigger supply base to ensure dependable supply and backup sources. Timeliness in supplier selection, order quote generation and receipt, and the integration of purchasing decisions with a company's internal Enterprise Resource Planning systems are particularly valuable in new product introduction.34 Solectron, a leading contract manufacturer and unprecedented two-time winner of the National Malcolm Baldrige Award, made use of Digital Buyer, an Internet-based procurement software application provided by Digital Market (now part of Agile Software), to reach multiple suppliers and obtain price and availability quotes. In its pilot with Digital Buyer, 5 out of 6 suppliers responded in as little at 4 hours to requests for quotes for 55 parts. Within two days, the company had received a total of 156 quotes, a dramatic improvement over traditional methods. The end benefit is drastically reduced cycle time to support Solectron's customers' new product introduction process.
4.2.3 New Business Model: (Whang, 2001)
Once companies begin to realize the promise of E-Business enabled supply chain integration, they often discover entirely new ways of pursuing business objectives, developing strategies and business models that were neither apparent nor possible prior to the Internet. These new business models and
34
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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opportunities are as limitless as the imagination. The following examples show the range of possibilities. 4.2.3.1 Virtual Resources The Internet facilitates information search so that multiple resources in a supply chain that once acted independently can now be tapped simultaneously to satisfy special needs. Examples include inventory stockpiles, untapped capacity, or even unmet demand, all of which can be pooled to create a secondary market of "virtual resources." Such secondary markets can create high value for participants by minimizing imbalances between supply and demand and reducing exposure to inventory obsolescence. Internet-based secondary markets can thus benefit, in most cases, every member of the supply chain. One example of a virtual resource is World Chemical Exchange, an electronic marketplace operated by ChemConnect providing a global market for chemical and plastic manufacturers and buyers. More than 2,500 members, representing 80 percent of the world's top 25 chemical companies, now can conduct round-the-clock trading of chemicals and plastics of all types Converge operates a market exchange for the secondary market of electronics components. Since the high tech industry has very short product life cycles, excess inventory of components and parts can result in huge obsolescence costs, while suppliers and manufacturers are not always able to produce more of the products that are close to the end of the product life cycle. Converge minimizes such exposure by providing an open virtual marketplace for buyers and sellers. 4.2.3.2 Supply Chain Restructuring35 With the advance of information technologies, companies can also restructure the logistics flows of their products to gain efficiencies. Physical flows no longer have to follow information flows: the Internet allows information flows to substitute for some of the inefficient physical flows. Cisco has been one of the most successful companies engaged in using the Web to this end. With 74% of its sales conducted over the Internet, the company outsources most of its manufacturing while devoting sales efforts to creating new customers.
35
Whang, Hau L. Lee and Seungjin. 2001. E-Business and Supply Chain Integration. s.l.: Stanford University, 2001.
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An elaborate Web-based information system links Cisco and its supply chain partners, and takes care of all the necessary information flows. But the physical flows can be quite simple - 55% of Cisco's sales are shipped directly from the subcontract manufacturers to the customers, without stopping at Cisco's distribution centers. The result: lower inventory, faster, more accurate order fulfillment, and reduced costs. 4.2.3.3 Product Upgrades Most of us are familiar with the use of the Internet to perform upgrades to software products. But some innovative companies are exploring ways to use the Internet to upgrade hardware products, as well. Xilinx is a semiconductor company producing field-programmable logic devices. Some of the products in which Xilinx integrated circuits reside are going through constant product generation changes that would require onsite updating or even physical replacement. To address this problem, Xilinx developed Internet Reconfigurable-Logic (IRL). With IRL, the field programming logic can be modified or updated after the installation at the end user's premises over networks and the Internet. These online field upgradeable systems can range from multi-use set-top boxes and wireless telephone cellular base stations to communications satellites and network management systems. Today, Xilinx is the market leader for field programmable logic. 4.2.3.4 Mass Customization The Internet enables many companies to use the Web to allow customers configure specific order options tailored to the tastes and preferences of the customers. Hence, the Internet facilitates mass customization. This has been a key feature of online retailers, but has now spread too many mainstream business and products. Examples run the gamut from personalized greeting cards (eGreetings, now part of American Greetings), to computers (Dell), from bicycles (Cannondale and Voodoo) to automobiles (Ford and GM). Mass customization, while not appropriate for every product or industry, can be a powerful way of cementing customer relationships by providing a highly cost-effective level of personalized service.
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4.2.3.5 Service & Support Service and support can be a time-consuming, costly diversion for many companies. Using the Internet to perform remote sensing and diagnosis has proven to be a highly cost-effective solution. Looking at the PC support area, a software company called tuneup.com developed a remote maintenance service aimed at helping individual and companies keep their PCs running. A subscriber of the service would allow the service center to remotely collect data on her computer, checking viruses and other anomalies, alerting the customer, and providing online fixes. They also advise and help the subscriber to install software upgrades, hardware drivers, and program add-ons specific to her computer. Subsequently acquired by Symantec and re-dubbed Norton Web, this remote service approach has been adopted by a wide range of end-user and enterprise service companies. Under an "Autotest" program, Cisco's suppliers run software routines that perform quality tests at their local test cells. The test data are sent over the Internet to Cisco, so that Cisco engineers can remotely monitor and control test cells. This enables them to resolve problems that the suppliers themselves cannot diagnose. The standardized test results across the entire supply base allow Cisco to scale the activity rapidly and obtain valuable information about their products that might not be available without such an arrangement. 4.2.3.6 from Products to Service Intuit develops and markets the world's best-selling personal finance, small business, and tax preparation software, as well as a set of Web-based financial tools. In the past, the company offered only software products sold primarily through retail stores. With the advance of the Internet, Intuit has been able to create Internet based services for both individuals and businesses. These range from online tax preparation and form submission to payroll, office supplies procurement, mortgage brokering, insurance, electronic bill payment and much more. (Butterworth-Heinemann.Chaffey, 2007)36
36 Butterworth-Heinemann.Chaffey, D. 2007. E-business and e-commerce management: strategy, implementation and practice. Pearson Education. [Online] 2007. [Cited: may 25, 2012.] http://books.google.co.uk/books?id=EOjG84UvrHMC&pg=PA394&dq=e-m&lr=#PPA394,M1.
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In addition, since Intuit has links to many key banking institutions, it can also access the appropriate data, such as dividends and interests payments, and include them in the electronic tax filing. The revenue from services, enabled by the Internet, is steadily increasing as a percentage of Intuit's overall revenue. Delivering these services to customers via the Internet is only the most visible aspect of this strategy. Behind the scenes, Intuit uses a range of Internet tools and solutions to link and orchestrate a vast supply chain of providers, from banks and brokerage houses to independent mortgage brokers, from insurers to office supplies retailers like Staples. Without the Internet, Intuit's transition to a service-based company would not be possible. 4.2.3.7Multi-channel Click-and Mortar Fulfillment The high cost of order fulfillment for online retailers has been viewed as a major impediment to success. Traditional "offline" retailers are pioneering the combination of the digital channel with traditional brick-and-mortar infrastructure. 7dream.com in Japan is an example of such a "click-and-mortar" multi-channel model. Seven-Eleven Japan (SEJ) is the largest and most successful convenience store chain in Japan. In 2000, SEJ created 7dream.com, a joint venture involving seven of Japan's industry giants: SEJ, Nomura Research Institute (NRI), Mitsui, Sony, JTB, NEC and Kinotrope. 7dream offers a large pool of products on its Website, allowing customers to pick up orders at a local SEJ store two or three days later. In this way, the value of Internet-based channel is combined with the power of SEJ's infrastructure of extensive stores and logistics without incurring the costs and risks of carrying an expanded range of inventory. Another example of click-and mortar multi-channel fulfillment is CVS, a major US pharmacy chain. CVS allows customers to place prescription orders on the CVS Web site and pick up their orders at their local store, eliminating wait. In another example, ToysRUs leverages the logistics infrastructure of Amazon.com for order fulfillment, while customers can order directly from the company via its Web site. Many others, like the Gap and Lands' End, are
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developing similar click-and-mortar multi-channel fulfillment and distribution strategies. 4.3 Changes in IT Investments (EFT, 2012)37 As with last year, the majority of respondents representing transport or logistics providers (70%) are increasing their IT investment this year. Only 4% are decreasing their investments. This is a very encouraging result for CIOs and Heads of IT, allowing them to explore more options regarding new technologies.
Figure 4- 2
Source: (EFT, 2012)
Popular Methods of Discovering New IT Solutions (EFT, 2012) Respondents were asked how they find out about new IT solutions. The most popular methods included: looking at customer requirements (61%), conferences (50%), developing and using home grown solutions (47%), and looking at what competitors are using (46%).38
37 EFT. 2012. 2011-2012 Transport & Logistics CIO Report. Amsterdam : EFT: Eye For Transport, 2012. p. 18.
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Figure 4- 3
Source: (EFT, 2012)
4.4 Optimizing the E-Supply Chain: The Final Frontier (Hayes, 2004). Of the myriad opportunities offered by the Internet, perhaps the one providing the most immediate benefit, and showing the greatest long-term promise, is supply chain optimization. The Internet's ability to remove inefficiencies, break down communication barriers, reach disparate audiences and foster collaboration is perfectly suited to managing and optimizing the diverse and distributed players in supply chains of all sizes.39 Cutting edge E-Supply chain examples abound. Dell Computer Corporation has achieved recognition and financial success for masterfully
39 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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streamlining its supply chain and business processes while providing customers with personalized product options. Ford Motor Company, Daimler/Chrysler and General Motors have teamed to develop Covisint, an online marketplace for purchasing automotive parts and direct materials from their vast group of first tier suppliers. The Paper Exchange, an Internet-based trade exchange, allows suppliers and buyers to offer and bid on paper products and pulp. Ford recently announced an initiative to share legacy-created product design drawings with its suppliers using an XML translation tool. Even industries that have traditionally been unaffected by supply chain issues, particularly services industries such as IT consulting, now find a host of online marketplaces and aggregators seeking to match buyers and sellers of services.40 Little wonder that so many companies are excited by E-Supply chain opportunities. Analyst predictions bear this excitement out. Boston Consulting Group forecasts that electronic, Internet-based business transactions will amount to $2.8 trillion by 2003, while Gartner Group predicts they will reach over $7 trillion. By 2002, Gartner Group expects 7,500 to 10,000 business-to-business (B2B) marketplaces will emerge. Giga Information Group and IDC estimate that these B2B marketplaces will offer savings of $180 billion to $480 billion in transaction costs and expenses come 2003. For the software, hardware and services vendors that would like a piece of the action, Jupiter Research believes that technology spending to operate B2B marketplaces will increase from about $2 billion in 2000 to $81 billion in 2005. Truly integrated and optimized supply and demand chains offer significant benefits to their participants. To understand, imagine what would happen if your company knew in advance exactly when you're top clients were going to make their purchases, what they intended to buy and where they needed the items delivered. Armed with these accurate forecasts, you could notify your suppliers of your precise needs, exactly when needed. Instead of buying raw materials at inopportune moments, you could plan your purchases to take advantage of favorable pricing. To lower overhead, you could manufacture and warehouse products in the most ideal location. With more insight into buying patterns, you could better predict customer needs, developing even more suitable products and
40 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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services in collaboration with your suppliers. Finally, to expand your market, you could offer all of these products and services online, through one or more emarketplaces. What company wouldn't want these benefits? The Internet is elevating supply chain optimization to new levels, but the concept of supply chain management (SCM) is not new. Every company, no matter its industry, is part of one or more supply chains both as a supplier and buyer of goods. Supply chain investments, ranging from direct materials used to manufacture products to indirect materials such as PCs and office equipment can be huge. Any efficiency that can be introduced into the supply chain has the potential to result in enormous cost savings. For manufactured goods, every dollar squeezed from the "cost of goods sold" is a dollar added to profits. Every reduction in carried inventory frees capital for other uses. Relying on techniques such as "just-in-time" inventory management and logistics planning, and applying automation where needed, many companies have started the process of integrating and optimizing their supply chains. Auto manufacturers now rely on automated systems to forecast and order parts mere minutes before they are needed on the assembly line, and retailers like Wal-Mart have squashed their competitors by developing sophisticated logistics, inventory management and distribution systems, all tightly coordinated with suppliers.41 In many ways, modern day E-SCM efforts are an outgrowth of the enterprise resource planning (ERP) initiatives undertaken by many large companies over the past two decades. With the advent of ERP systems, it became much easier for companies to access production, scheduling and operational data -- precisely the information needed to tighten the supply chain. Companies of all sizes now have automated and rigorous procurement functions to reduce the overhead of purchasing and tracking indirect materials like paper, office supplies and furnishings. Advanced planning and scheduling systems are common across a range of companies and industries. These enterprise-level systems not only assist companies in integrating their supply chains, they also enable them to deconstruct their businesses, outsourcing inefficient or commodity functions to the most efficient suppliers. Suppliers now regularly take responsibility for managing their customers' inventory and stock rooms
41 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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through vendor managed inventory programs, and third party service providers perform a range of logistics functions. 4.5 Benefits from E-SCM and E-logistics (Hayes, 2004) For E-SCM efforts to make sense, two overriding things must be present. First, all parties must have sufficient incentives to participate and make the investments needed to help the effort succeed. To thrive, most E-SCM efforts need a critical mass of participants. If prospective players perceive the effort as simply a means of driving down their prices, they have little incentive to join, dooming the project from the start. Second, supporting technology, hardware, software and processes must be available to ensure that the efforts actually can be implemented. Today, the abundance of supply chain software, hardware platforms and delivery options, from the Internet to ASPs to virtual private networks, has removed many of the technological barriers to implementing ESCM programs.42 E-SCM efforts can range from simple (an electronic catalog posted on an e-marketplace) to complex (a platform to enable product design and development between an entire supply chain). The benefits offered by each of these E-SCM projects will vary. For example, a supplier posting an electronic catalog on an industry-wide e-marketplace is not expecting to foster greater product development collaboration with its customers. In total, however, the benefits of E-SCM are plentiful. Depending on the position that a company occupies in the supply chain, these benefits can be broken down by the buyer's, supplier's and facilitator's perspective.
4.5.1 Buyer benefits
In general, there are three classes of benefits that a buyer can derive from E-SCM efforts: First, a buyer may be able to purchase both direct and indirect materials at a lower cost, primarily due to price transparency and competition. Buyers that purchase goods through an active e-marketplace populated by many suppliers hope to take advantage of competition and dynamic pricing opportunities to secure the lowest possible price for goods and services.
42 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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Although larger buyers such as Wal-Mart and Ford already enjoy sufficient leverage to command price breaks and discounts, medium and smaller-sized buyers gain access to more favorable pricing when suppliers are bidding for their business via e-marketplaces and trading exchanges. Second, a buyer is likely to achieve greater efficiency when purchasing goods and services, ultimately lowering the overall cost of conducting commerce. By automating the procurement function, offloading purchasing activities to end users, and integrating purchasing data with legacy accounting systems, companies can lower their transaction costs and overhead. For medium and smaller-sized companies, B2B marketplaces offer opportunities for price discovery that would be inefficient or prohibitively expensive to conduct through human effort alone. Third, a buyer may be able to forge stronger ties with its suppliers, collaborating with them more closely in the design and development of goods and services, and in forecasting, scheduling and planning production activities. ERP systems have enabled many companies to share a subset of this information already. The collaborative software, middleware XML translators and more powerful customer relationship management (CRM) functionality available today promise to align buyers more closely with all participants in their supply chain.
4.5.2 Supplier Benefits 43
Supplier benefits generally fall into two classes, depending on the type of E-SCM program in which they participate. For E-SCM programs that concentrate on collaboration -- sharing product data, product designs, etc. -suppliers have the potential to strengthen their forecasting ability, meet and exceed customer demands by offering the right combination of products and services at the right time, align their production schedules and manufacturing capacity with buying patterns to improve inventory management and more. For E-SCM programs that concentrate on commerce opportunities, the supplier's greatest benefit comes from participating in large, active online marketplaces. These marketplaces, if frequented by a critical mass of buyers, extend the supplier's market reach and potentially increase its overall sales. Because this
43 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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extensive market reach is achieved at a fraction of the cost associated with other sales channels -- mass mailings, telemarketing, on site sales calls -- it is a more cost-effective way to market and sell goods and services. Suppliers can also take advantage of B2B marketplaces to gauge the demand for their goods and services and, using dynamic pricing features such as auctions and bids, the price that the market is willing to bear for these items. Although the price transparency fostered by online marketplaces may deter suppliers from participating at first, once a sufficient number of buyers and competitors are using the model, every supplier must eventually join. Marketplaces can be helpful with inventory management activities, allowing suppliers to auction off excess inventory to a large group of potential bidders.
4.5.3 Facilitator Benefits44
A facilitator of E-SCM efforts is a party that provides some component or service integral to the effort. A software or hardware vendor is a facilitator, as is an ASP providing application functionality and/or Internet connectivity. In the case of a B2B marketplace, the facilitator is the market maker that establishes, administrates and operates the electronic marketplace, perhaps including services such as financial settlement, fulfillment, logistics etc. In general, the benefits to a facilitator are strictly monetary -- the software or hardware vendor receives license fees and the ASP normally receives monthly rental or usage fees. The market maker typically receives a percentage of each transaction; the Paper Exchange marketplace charges 3% of each transaction completed by its members. If the market maker also happens to be a large purchaser, and participates in the marketplace as a buyer, then it will also enjoy all of the benefits that accrue to a buyer. 4.6 Preparing For E-SCM (Hayes, 2004) The benefits of E-SCM are so plentiful, and the potential synergies so compelling, that companies, vendors, service providers and investors have been dazzled by its promise. Pick up any publication, surf the Web or attend a conference and you'll find dozens of stories about existing and planned electronic supply chain endeavors. Ford is attempting to foster greater collaboration with its suppliers by simplifying and automating the process of
44 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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sharing product design data. Tier 1 auto suppliers are developing their own design, collaboration and commerce exchanges to interact with their smaller suppliers. The dairy industry is launching a B2B exchange to auction perishable dairy products. Businesses worldwide recognize the imperative of automating and tightening their supply chains through electronic mediums. They don't really have much of a choice. One by one, their competitors are doing it. Large buyers are using their leverage to demand better supply chain management. Just as one company puts pressure on its supply chain to increase efficiency and reduce costs, it is also pressured by its trading partners to make its own operations more efficient and its prices more competitive. Without the Internet, E-SCM efforts would be on the slow track rather than the fast track. The Internet is the ideal platform for launching E-SCM because it shares many of the same characteristics of a supply chain. Both consist of a web of participants, communicating and sharing data and information in a standard way. The Internet simply makes this communication and data sharing more cost-effective through the use of standard protocols, a choice of relatively inexpensive connections and high adoption rates. An array of software products, translation middleware and XML are removing some of the last barriers to widespread exchange of data. There are some fairly painless ways to get immediate benefits out of ESCM. Participating in an e-marketplace as a buyer or seller is one method. Implementing an automated procurement system is another. To extract even stronger benefits out of E-SCM requires more complex and integrated solutions. These solutions take greater effort and investment, and depend on industry dynamics, competitors' activities and customer demands. Before embarking on an E-SCM project, consider these issues: Leverage Your company's size, relative to others in the supply chain, will determine who has the leverage to dictate terms. A small business customer does not have the clout to tell Staples how to construct its Web storefront; Staples makes that decision. Tier 1 auto suppliers, while individually large, do not have the leverage
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to refuse participating in the big 3 automakers' marketplace. Be aware of your position in the grand supply chain scheme. The Tower of Babel: Communicating and sharing data between scores of supply chain partners is utter chaos. Most meaningful E-SCM solutions require a fair amount of integration between supplier systems including front-end sell-side, CRM, ERP and advanced planning and scheduling applications. Except in rare cases, these systems run on different platforms, use different technologies, store and manipulate data in different ways and have ill-defined or non-existent interfaces. Somehow, a modicum of standardization and definition has to be imposed on this Tower of Babel to enable accurate and timely data sharing. Many point-topoint ERP and electronic data interchange (EDI) implementations permit this type of sharing, but are not widespread enough to integrate an entire supply chain.
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Figure 4- 4
The Tower of Babel
Source: (EFT, 2012) Collaboration and coordination45 The more complicated the E-SCM solution, the more collaboration and coordination required among the participants. Leverage may determine who gets to run the show, but an uncooperative participant can wreak havoc on the project. Suppliers that are involved in multiple E-SCM initiatives, perhaps a cross several industries, will resist adopting conflicting, redundant or grossly expensive SCM approaches. Designing, implementing and testing a complex E-SCM solution between scores of players will stress any organization's program management abilities. Commitment and perseverance are essential to putting a large-scale ESCM effort in place.
45 EFT. 2012. 2011-2012 Transport & Logistics CIO Report. Amsterdam : EFT: Eye For Transport, 2012. p. 18.
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4.7 Categories of E-SCM Solutions (Hayes, 2004) There are virtually hundreds of E-SCM solutions from which to choose, ranging from simple to complex and requiring different levels of investment, participation and integration. Electing to participate in an e-marketplace is a relatively straightforward decision. Creating a custom extranet to give suppliers access to your production data and sales forecasts is another matter. E-SCM solutions range from "close" to "open." As illustrated, close ESCM solutions are custom, private implementations, driven by one or more powerful buyers or suppliers. These point solutions are built to specification between several or many supply chain participants and may be quite complex, requiring a high degree of system integration. Close E-SCM solutions include early ERP and EDI implementations, but also encompass more functionally rich offerings. The primary purpose of these solutions is to foster rich information exchange, although they can also support commercial transactions and a range of specialized services. Although these close E-SCM solutions may be built using "out of the box" components, they also may offer a range of customized functionality not present in the public, commodity exchanges such as sharing of forecasting, sales, production, planning and scheduling data.46
46 Hayes, Ian S. 2004. Optimizing the e-Supply Chain: The Final Frontier. 2004.
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Figure 4- 5 The Rang of SCM Options
Source: (EFT, 2012) Open E-SCM solutions focus on commerce between suppliers and buyers, and may also include ancillary services such as payment processing, fulfillment and logistics. These open solutions are available to and used by the public and typically revolve around a vertical industry such as healthcare or retail, a product or set of products such as electronic components, or a service such as travel. These solutions, which include e-marketplaces and trade exchanges, operate much like a financial or commodities exchange. Dynamic bids and sales are generally supported. Buyers may advertise RFPs or RFQs, or may invite sales proposals for commodity goods. Sellers may solicit bids for products or services. Price negotiations, sales and financial settlement are all conducted online.
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Table 3 Categories of E-SCM Solutions Private SCM One-to-many Private Collaboration and/or Commerce Rich info. exchange Relationship building High integration Vertical Marketplace Many-to-many Public Industry, product or service based Fosters liquidity, dynamic pricing Little info. exchange Low integration Commodity products/services Fosters liquidity, dynamic pricing Little info. exchange Low integration Global Marketplace Many-to-many Public
Source: (Hayes, 2004) 4.7.1 Basic Supply Chain Execution Components Although many E-SCM systems focus on enabling communications and collaboration with external entities, there are a host of internal, back-office systems that help companies execute various supply chain-related functions apart from their suppliers and partners. These systems include custom-developed and packaged software systems that aid product design, order processing, inventory management, logistics (transportation, warehouse management, fulfillment), forecasting, planning and scheduling. In addition, companies rely on strategic planning tools to help them optimize their sourcing and other aspects of their supply relationships. Decision support tools are also used to access and manipulate the data produced by these systems. Software vendors such as i2 Technologies, SynQuest, McHugh, Logility and Optum provide supply chain execution solutions. Several IT consulting firms, such as Keane and Cap Gemini Ernst & Young, have dedicated supply chain practices to help companies implement supply chain execution components.
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• ERP/EDI
Enterprise Resource Planning (ERP) systems standardize companies' internal applications and give them access to data generated across the enterprise, from accounting to operations to sales and marketing. This standardization enables companies to share data with suppliers and partners using similar paradigms. Electronic Data Interchange (EDI) implementations are generally custom interfaces built to exchange data between two parties' dissimilar systems. The type of data exchanged is generally product/inventory information, reflecting some sort of contractual agreement between the parties, however, many ERP vendors are adding specific supply chain functionality that allows for broader exchange of information and collaboration. ERP solutions are expensive, typically costing millions of dollars to implement. They are advantageous, however, because they integrate all of the back-end systems that typically prevent companies from instigating meaningful SCM programs. Because of this integration, ERP systems provide companies with access to abundant data. While this feature makes ERP systems very powerful, it also makes integration with outside entities more complicated. Suppliers may not have the same type of ERP system, or any ERP system at all, so developing an interface is a complex proposal. As a result, companies usually devise point solutions, linking up their most important suppliers one-by-one. Historically, these interfaces have been implemented using EDI. Software vendors offering ERP/E-SCM solutions include: SAP, Baan, People soft, J.D. Edwards, Oracle and Great Plains Software. Consulting help also abounds, especially from firms such as Accenture, Price Waterhouse Coopers and KPMG to implement ERP packaged solutions and to design custom solutions. Custom Interfaces with Trading Partners In addition to ERP/EDI solutions, some companies have devised customized interfaces with their trading partners, vendors and customers to share information and strengthen relationships. These custom interfaces may rely on extranets or virtual private networks that allow one-to-many interactions with third parties. These custom interfaces may involve data exchange -- sharing
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information to enable better materials planning, inventory management, etc. -- or may facilitate some form of commerce between the parties. Because these ESCM solutions are implemented on a custom basis, they often rely on outside consulting assistance and may also incorporate some of the SCM vendor offerings listed throughout this section. Web Storefronts Functionality (CRM, ERP, etc.), businesses may be able to accumulate although not thought of as a classic example of E-SCM; Web storefronts give companies another channel for selling to their customers. Depending on the sophistication of the storefront and the underlying technology and significant information about their demand chains, that in turn can improve forecasting, scheduling and planning abilities. Although a storefront is advantageous for the seller, allowing it to reach a potentially huge audience, it is not as beneficial for buyers. These storefronts facilitate one-on-one transactions rather than aggregate buyers and sellers. A buyer that wishes to purchase goods or services through Web storefronts still must conduct extensive research and price discovery manually. Without dynamic pricing capabilities, buyers are not ensured of receiving the most favorable pricing terms possible. There are hundreds of software vendors (Ariba, Commerce One, BroadVision?etc.) that provide components of a web storefront from catalog/content management, to credit card processing, to fulfillment, etc. Many of these solutions are also offered on a hosted, ASP basis by companies such as PurchasePro, US Internetworking and Interliant. Almost every Internet and IT consulting firm can perform the interactive design work and the technology/infrastructure components required by a Web storefront. Procurement Systems Standalone corporate procurement systems, typically implemented over an intranet, are used to distribute the purchasing function to end users. Information about supplies and electronic catalogs from pre-approved vendors are posted on the intranet. These vendors usually have some minimal agreement with the company about price discounts, volume purchases, etc. Procurement systems also allow authorizations, rules and approvals to be specified and applied
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automatically as end users perform their purchasing activities. Purchases conducted over the procurement system are fed into back-office accounting and legacy systems, which helps to reduce overhead and potential data entry errors. Companies generally use procurement systems to lower transaction costs rather than obtain the lowest price possible for supplies. Because procurement systems work with a set of pre-approved vendors and do not support dynamic selling or bidding, they are not designed to force prices down. The cost of implementing a procurement system and maintaining electronic catalogs puts it outside of the reach of small and medium-sized companies; however, ASP offerings may be more cost-effective. Software vendors offering procurement systems include Ariba, Commerce One, i2 Technologies and Trilogy. ASPs offering procurement software include PurchasePro, Clarus and US Internetworking. E-Marketplaces, Trading Exchanges, etc.: E-marketplaces, also known as trading exchanges, trading hubs, trading communities, etc., support many-to-many relationships between buyers and sellers. Members of these communities conduct commerce, offering and purchasing commodities, products and services. Marketplaces may be private or public and may be formed around a product or service, the needs of a large supplier or buyer, or a particular industry. They may include electronic catalogs of suppliers' wares, or simply a posting board where offers, bids and requests are broadcast, similar to a financial exchange. Most marketplaces have dynamic pricing features that allow suppliers and buyers to conduct auctions, offers/counteroffers and other types of price negotiations online. In addition, ancillary services such as financial settlement, fulfillment, logistics, transportation, etc. are increasingly being offered through the marketplace. Marketplaces are established, administered and managed by a large buyer, seller or neutral third party called a market maker. The market maker recoups its costs by either taking a percentage of each transaction and/or by participating as a seller or buyer in the market and enjoying the associated benefits. These marketplaces require a critical mass of buyers and suppliers for the model to work. ASPs offering marketplace services include PurchasePro and VerticalNet. Software vendors include CommerceOne, Ariba, i2 Technologies and
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Manugistics. There are many consulting firms including Keane, Intelligent Information Systems and Sapient that work with e-marketplace participants to integrate their back-office systems with the marketplace transactional data. Collaboration Platforms Many companies are looking for ways to enrich their communication and relationships with the important players in their supply and demand chains. These initiatives are based more on collaboration than they are on commerce, and are meant to optimize supply chain operations, particularly in the product design, planning and forecasting areas. Ford's effort to improve the sharing of product design information with its suppliers is one example. Kmart's trial of CPRF (collaborative planning, forecasting, and replenishment) with its suppliers is another example. Software collaboration vendors include Syncra, Manugistics, i2 Technologies, Logility and webPLAN.
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CONCLUSION AND RECOMMENDATION
Conclusion and recommendation
From the previous studying about E-logistics and E-supply Chain Management, there are some results from my point of view as following 1. Through the globalization new political geography, gradual removal of international trade barriers, rabid technological advancements are just a few of factors that have had major effect on the business management practices which intensify the needs for strong and integrated information systems. 2. The internet enables customers to interact with the business from any place in the world, at any time. 3. Businesses can use the internet to gain global visibility across their extended network of trading partners and help them to respond quickly to a range of variables, from customer demand to resource shortages. 4. The E-Business vision uses the internet to integrate the information flow across the traditional boundaries (Buy side - in side - Supply side). Transactions are now possible in a variety of formats considering that speed and accuracy of data flow re improved the cost per transaction falls. 5. Customer relationships should be improved by enhancing feedback and by creating customer communities therefore they can share their experience. But there are some Problems along the Supply Chain are summarized in: 1. Supply chains can be very long, involving many internal and external partners located in different places. 2. Both materials and information must flow among several entities, and these transfers, especially when manually handled, can be slow and error-prone. 3. Companies can improve their demand forecasting by using IT-supported forecasts, which are done in collaboration with business Typical Problems along the Supply Chain. 4. Other problems along the ESC mainly stem from the need to coordinate several activities and internal units and business partners.
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There are a lot of E-Commerce Solutions along the Supply Chain summarized in: 1. Order taking can be done over the Internet, EDI, EDI/Internet, or an extranet, and may be fully automated 2. Order fulfillment can become instant if the products can be digitized 3. Electronic payments can expedite both the order fulfillment cycle and the payment delivery period 4. Managing risk to avoid supply-chain breakdown can be done in several ways 5. Inventories can be minimized by introducing a build-to-order (on-demand) manufacturing process as well as by providing fast and accurate information to suppliers 6. Collaborative commerce among members of the supply chain can be done in many areas But there are some Barriers to C-Commerce along the Supply Chain and ELogistics: 1. Technical reasons involving integration, standards, and networks. 2. Security and privacy concerns. 3. Internal resistance to information sharing and to new approaches. 4. Lack of internal skills to conduct collaborative commerce. 5. Lack of defined and universally agreed-upon standards. So the success of an E-Supply chain depends on: A. The ability of all supply chain partners to view partner collaboration as a strategic asset. B. Information visibility along the entire supply chain. C. Speed, cost, quality, and customer service as major factors in supply Chain successful. D. Integrating the supply chain more tightly.
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