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Comparison Between Upstream and Downstream Supply Chain

Management and How they are Affected by E-Business

Article  in  Journal of Computer Science and Technology · January 2013

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 ORIENT AL JOURNAL OF
ORIENTAL ISSN: 0974-6471
COMPUTER SCIENCE & TECHNOL OG
TECHNOLOG
OGYY June 2013,
An International Open Free Access, Peer Reviewed Research Journal Vol. 6, No. (2):
Published By: Oriental Scientific Publishing Co., India. Pgs.01-08
www.computerscijournal.org

Comparison between Upstream and Downstream Supply

Chain Management and How they are affected
by E-business
MOHAMMAD SHKOUKANI, EMAN ALNA
SHKOUKANI, GI and RA
ALNAGI RAWWAN ABUL AIL
ABULAIL

Applied Science University, Amman, 11931-166 (Jordan) .

Philadelphia University, Amman, (Jordan)

(Received: May 23, 2013; Accepted: June 10, 2013)

ABSTRACT

With the increasing interactions and interrelationships among companies, their suppliers
and customers, the need for management of the flow of products, material and information is
increasing, which created the concept of the Supply Chain Management. SCM is an old concept
implemented to create integration between these entities for many years ago, but with the emergent
of e-business and the widespread of internet technologies, the activities and processes of supply
chain management have been enhanced.

This paper gives short description of the concept of SCM, with its two models, Upstream
and Downstream. Two case studies are discussed within these concepts. And finally, it discusses
the impact of e-business evolution on the processes of both models of SCM.

Key words: Supply Chain Management, E-business, Upstream Supply Chain,

Downstream Supply Chain, E-Procurement.

INTRODUCTION This chain of suppliers, companies and customers

and whatever intermediary distributors,
The world is full with types of wholesalers and retailers included, is called the
relationships. Individuals can't live separately in supply chain (Chaffey, 2011; Mentzer et al., 2001;
this world without interacting with others in the Muffatto and Payaro, 2004).
boundaries of family, friends, colleges, neighbors
or even citizens in one country. This principle of Due to the complexity of processes and
interrelationship has been widened to include relationships between those entities, supply chain
businesses as well. There is nothing called a management concept has been created to
stand-alone business. There are always inputs coordinate and integrate among them; the key
and outputs to any business. Either production, players of the supply chain. In addition, to managing
industrial, service providing or any type of the main activities of supply chain, such as;
companies need to sell their products or services purchasing, outsourcing, manufacturing, inventory
to customers, and need to purchase supplies for control, distribution and customer services.
certain processes or even just stationary supplies.
2

According to (Chaffey 2011) and (Rayport used for purchase orders and invoices.
and Sviokla 1996), the concentration is usually With the emergence of internet, the
laid on the activities within the supply chain that concept of e-procurement has been created to
actually add value to the process, which is known describe the use of internet technologies to
as the value chain. integrate among firms and suppliers in
procurement activities (Chaffey, 2011; Presutti Jr.,
With the emergent of internet and e- 2003).
business, the supply chain activities have been
dealt with other perspectives. With the technology Kell & Rigby Pty Ltd., is an Australian
involved, many non-useful and expensive construction company that construct and manage
activities have been eliminated and only activities medium and large projects for several sectors such
with value added have been remained (McIvor, as; commercial, industrial and government. Their
2000). offices are distributed in Sydney, Canberra and
Shanghai, with a staff of 135 full time employees.
Due to the different types of companies The case study is published in the site of the
included in a supply chain, with different positions, National Office for the Information Economy (NOIE)
two models, upstream and downstream supply as an example of applying e-business solutions in
chains have been found. For companies that deal Australian firms (NOIE, 2012).
mainly with suppliers on its buy-side, are
considered within an upstream supply chain, while In order to achieve transparency and
other companies that concentrates on customers flexibility in dealing with customers and suppliers,
and providing services deals in the perspective of Kell & Rigby had adopted system integration and
the sell-side of the supply chain, downstream new web-enabled systems including e-
(Chaffey, 2011). procurement, research and banking. E-
procurement system will have the full concentration
In the following sections, two case studies in the case discussion.
are discussed, each describing either an upstream
or downstream supply chain. Then in section 4, RESUSLTS
the general impact of e-business on the supply
chain is discussed. Finally a conclusion and The main objectives targeted by Kell &
recommendation is given in section 5. Rigby when adopting the e-procurement software,
were to manage their purchasing processes,
Upstream supply chain management: enabling their suppliers of inventory controlling
Kell & rigby case and creating a repository of suppliers information,
As discussed earlier, the upstream supply including contacts, products and lead times
chain concentrates on processes performed on information.
the buy-side of the firm which are mainly its
suppliers passing by any existing intermediaries. The e-procurement software enables the following
According to Chaffey (2011) the main activities processes:
related to this supply chain model are procurement 1. Including description of company's
and inbound logistics. The case study discussed requirements of products to purchase.
in this section focuses on the procurement activity. 2. Allowing suppliers to view the requirements
and accordingly submit details about them,
(Muffatto and Payaro 2004) have defined their products and lead times. These
procurement in its old fashion, as any activities information are used for assessing and
that relate to operations between the firm and the selecting of suppliers.
suppliers, including selecting these suppliers, 3. Adding selected suppliers details to
ordering products or services, delivery of them, repository.
invoicing and payment. In addition to any 4. Allowing company to negotiate prices with
paperwork needed for agreements and the forms competent suppliers.
 3

5. Sending purchasing orders online with a Other results are improving staff
corresponding transaction to the account productivity and efficiency, attaining competitive
receivables. prices, locating proper suppliers and enabling
6. Processing the order by targeted supplier, suppliers to publish their advertising information
and arranging for delivery. within the system.

The previously listed processes were These benefits and more were discussed
discussed in several researches as e-procurement by several researchers. (Presutti Jr. 2003), for
processes (Chaffey, 2011; Presutti Jr., 2003; example, has discussed certain benefits of e-
Atkinson, 2007), but they have also added others. procurement such as the ability of suppliers
Such as; invoicing and payment electronically. assessment due to the availability of electronic
These processes weren't mentioned among the information about them, reducing costs of materials
processes of the e-procurement software adopted due to competition, reducing inventory costs due
by Kell & Rigby. This is considered, in the author's to the supplier involvement in inventory control,
viewpoint, a shortcoming in the software if such and finally enabling exchanging information about
processes weren't implemented within it. Since orders, deliveries and product in real-time.
electronic invoicing and payment will save cost of
paperwork, meetings between buyers and Such benefits were also discussed by
suppliers, and maybe banking transactions. It has (Lancioni et al. 2003) and (Davila et al. 2003).
been added, though, in the company's revenues While (Muffatto and Payaro 2004) have added the
and costs sheet, were savings in banking and bill benefits of reducing mistakes, shortening the
payments are displayed, which gives indication of purchase cycle time, inventory control and giving
having such processes. advantage for suppliers with better products
quality.
Inventory control was one of the
objectives mentioned in the case study, but no Several challenges face an e-
details or processes were described about procurement software implementation. Adopting
achieving this objective. According to (Atkinson such software needs a large investment, as (Davila
2007) many companies use e-procurement et al. 2003) has advised small companies to adopt
software for ordering products or services online. simple procurement technologies rather than
(Atkinson 2007) advices companies to full utilize software.
such software in order to add value to the supply
chain. When sharing transparent information about Kell & Rigby has invested in the e-
inventory with suppliers, they can easily forecast procurement software about $185,500 and
the demand in advance and prepare for the needed recorded ongoing costs in year 2001 of about
order at the needed time. This strategy has been $400,775 which matches the previous opinion of
adopted by Dell Company in sharing its full (Davila et al. 2003). But according to the positive
inventory information with their suppliers, since net benefit resulted in that year, it can be concluded
they don't believe in protecting their information that Kell & Rigby have overcome this challenge.
while they can use them for better performance
(Magretta, 1998). Another challenge faced Kell & Rigby was
the resistance of the staff to use new internet-based
Adopting e-procurement software had software. The company solved this problem by
resulted benefits to Kell & Rigby mainly in cost gradually implementing the system and conducting
and time savings. In year 2001, the e-commerce training courses to the staff. Other solutions can be
operation had yielded net benefit of $41,225 to added to such a situation, suggested by (Davila et
the company, with total cost savings of $442,000 al. 2003), such as; convincing the new users of the
and total ongoing e-commerce costs of $400,775. benefits they would gain from using the software.
The savings were in the area of paperwork, traveling For example, how applying the supply chain
costs, brochures, printing and photocopying, etc. processes will become easier by using the
4

software. Also, they should be convinced that using redefine the relationship with the supplier as one
the system doesn't need high computer skills that of the first two forms.
can't be attained by simple training. Finally, besides
staff, suppliers using the software should be Downstream supply chain management:
confident that their private information is secured. Tesco .com case
esco.com
Downstream supply chain includes
A broader challenge faces the e- processes of the sell-side of the supply chain,
procurement software, according to (Davila et al. containing distributors and customers. (Chaffey
2003), which is the need of integration of the 2011) has considered outbound logistics and
software with other internal systems in the fulfillment as the key activities of this model. Other
company and external systems in the suppliers' issues related to the downstream supply chain are
side. This problem wasn't explicitly pointed to in marketing and customer relationship management
the case study, so the author can conclude that it (CRM).
has been managed.
In the case study on hand, the focus will
A final important issue concerning the be laid on CRM accomplished by a British retailer
upstream supply chain is the company's company, Tesco. (Mendoza et al. 2007) defines
relationships with its suppliers. (McIvor 2000) has CRM as an organization strategy, its aim is
emphasized on the importance of building solid customer satisfaction and customer long-term
relationships with the key suppliers, by involving relationships. Any strategic or operational activity
them in the product development or design, related to these objectives is considered a CRM
collaborating with them to adopt integrated activity. Such activities are; marketing, human
business processes and sharing useful information resources, sales, customer services and R&D.
with them. (Mendoza et al. 2007) consider processes, people
and technologies as the basic aspects that serve
9Stuart and McCutcheon 2000) have the objectives of CRM.
described three forms of suppliers relationships;
the first one is the competitive tension relationship, A case study about Tesco.com is
which is based on suppliers competition to gain published by (Chaffey 2011). In this case study,
the purchase order, which is the case in Kell & Tesco has adopted several strategies to support
Rigby. The second form is the strategic alliance CRM. Tesco is a British food retailer, originally
relationship, which allows a full involvement of the specialized in grocery. Tesco.com is the company's
supplier in a certain product or a component; it web site developed to perform online selling of
even may let the supplier to provide the design of grocery. On the year 2005, the profit of Tesco has
this product. An example of such alliance is Dell increased about 37% due to online grocery selling,
Company and Sony. According to (Magretta 1998) resulted from the increase of purchase orders
Sony is the sole provider of Dell Computers received by the site, which were about 170,000
monitors. The relationship between them had orders in that year. Among its competitors, Tesco
reached to far boundaries, since Dell doesn't check leads the grocery retailers in UK in terms of market
on monitors provided from Sony before delivering share. In addition to its lead in the area of online
them to customers. selling and the better performance of Tesco.com
than other competitors web sites.
The final form of relationship is the
cooperative partnership. This relationship is DISCUSSION
temporary. The buyer may find sides to be
enhanced in a product provided by such supplier. Several models describing CRM
For strategic reasons, the buyer may not desire to activities have been described in literature. (Chaffey
switch to another supplier, so the buyer gets 2011) has described four activities; customer
involved in fixing the shortcoming in the current selection, acquisition, retention and extension.
supplier. When this is done, the buyer has to (Winer 2001), on the other hand, has described a
 5

CRM model starting with creating customer householders and housewives buying grocery,
database, analysis, selection, customer targeting, they have targeted different types of customers of
relationship marketing, privacy issues and finally different ages.
metrics for customers' evaluation. In this case
discussion, the author adopts the activities A service promotion strategy has been
described by (Chaffey 2011). also adopted by Tesco concentrating on its existent
customer in order to achieve customer retention. It
Several strategies have been adopted by depends on e-mailing offers and promotions to
Tesco to enhance its customer relationships. The such customers according to their loyalty levels,
first and most important strategy, is the development which are evaluated according to the frequency of
of Tesco.com as an e-business portal where Tesco purchasing online and the closeness of purchasing
performs online selling of its products. With this periods. A trigger messaging approach is used to
site, Tesco has converted to what is called e-CRM, send e-mails to customers from his/her first
which is, according to (Chaffey 2011) and registration with promotions and offers every
(Feinberg et al. 2002) , using internet and planned period of time. If the customer performs
communication technologies to encourage an online purchase, another stream of e-mails with
customers to use their online services and thus other types of promotions are sent. To achieve the
extending their customer base and enhance their customer extension, the system starts sending
service quality. offers on similar or related products or services to
the previously purchased ones, to attract the
Both (Chaffey 2011) and (Feinberg et al. customer to further purchase.
2002) have discussed features and activities
performed by e-CRM. For example, online selling, By adopting this e-mailing approach,
membership, site map, mailing list, search engine, Tesco either use the Opt-in or Opt-out strategies.
e-mail marketing, online product information. By a By Opt-in, they start e-mailing the customer directly
quick browsing on Tesco.com, the author noticed after registration, with assumption of his/her
many of these activities adopted in the site. A site approval. Opt-out, on the other hand, a customer
map provides information for the first-time-user. has the right to accept or decline receiving such
Products has been categorized and their emails (Chaffey, 2011; Winer, 2001).
information are available with searching option is
given. Possibility of registering and becoming a In order to enhance Tesco's relationships
member on the site gives a user certain privileges, with customers, improvements on the site have
such as joining the advertising e-mailing list. been done to reduce the time spent on entering a
purchase order. Also, home delivery of products
An outstanding provided service has has become one of the essential services.
been also noticed by the author, which is the
comparison of products prices in Tesco with their A loyalty program has been also applied
corresponding prices in other competitors, such by Tesco, to reward its frequent purchasing
as Sainsburys and Ocado. All these services and customers with coupons and discounts according
more attracts the first viewer of the site to become to the sizes of their purchases (Hagel III and
a continuous visitor which achieves one of the Rayport, 1997). Such programs increase loyalty of
activities of CRM, customer acquisition. customers by increasing their satisfaction with the
services provided. According to (Heskett et al.
Another strategy is the product diversity. 1994), a customer loyalty would eventually be
They have started as grocery retailers, but now translated into profit, since a loyal customer is more
they sell every type of goods, such as books, CDs, convinced with the prices offered and is a good
electronics, etc. and they even provide certain advertiser of the services provided. Loyalty
services such as e-diets. With this strategy, Tesco programs, on the other hand, could be expensive
has achieved the activity of customer selection, and if a mistake occurred, it can't be correctable,
since it hasn't limited the target customer in since gifts cannot be refundable, and finally they
6

can't guarantee customer loyalty after all (Winer, E-business solutions have added value
2001). to relationships with customers and suppliers, by
introducing better services and increasing
Finally, customers are the most important collaboration among them which is resulted from
investment for a company, and retaining good the better integration between the business
relationships with them returns great benefits, and partners. In addition to flexible information sharing
accordingly, CRM implementation has many that enables demand forecasting and inventory
benefits and value added to the company and the control (Alberta Efuture Center, 2007; Sanders,
customers, especially when e-business 2007; Lancioni et al., 2003; Muffatto and Payaro,
technologies are used. 2004).

Such benefits are; lowering costs of Finally, it can't be neglected that e-

advertisements when using web sites and e-mails, business has affected organizations and staff. E-
which also allows rapid interaction with the business evolution had created new concepts as
customers and thus better relationships. Other e-procurement, e-logistics, e-marketing, e-CRM
benefits like increasing in profitability, customer and others. These electronic applications have
satisfaction and retention, increasing in participated largely in the development and
productivity, enhancing customer services through enhancement of the supply chain activities, in
better communication and understanding of addition to increasing productivity and efficiency
customer requirements (Chaffey, 2011; Winer, of company's staff due to the new skills learned
2001; King and Burgess, 2007). (Chaffey, 2011; Lancioni et al., 2003).

Impact of e-business on supply chain CONCLUSION

management
In the previous two sections, benefits of Supply chain management is an
applying e-procurement and e-CRM systems were essential concept in the world of integrated and
discussed. In this section the general benefits of interacted businesses. With both models of supply
applying e-business solutions on the supply chain chain, upstream and downstream, a company
are discussed. concentrates its efforts on enhancing either its buy-
side suppliers activities, or its sell-side customers
Researchers have agreed on cost activities, respectively. With the emergent of e-
reduction as the most important impact of e- business, these activities has been enhanced to
business. ( Alberta Efuture Center 2011 ) has become more effective, productive and more
included it in general, while (McIvor 2000), valuable to the entities in concern.
9Muffatto and Payaro 2004) have specified cost
reduction in inventory, setup, operational and In the discussion of both case studies of
switching suppliers costs. (Lancioni et al. 2003) Kell & Rigby as an upstream supply chain
have considered cost reduction in transportation conductor, and Tesco.com as a downstream supply
and logistics operations. chain conductor, the main and shared concern was
to develop and enhance the processes in the
Other impacts like flexibility in products corresponding supply chain to achieve satisfaction
and information movements between the business of the company, its suppliers and customers to
partners (Alberta Efuture Center, 2007), speeding reach the needed collaboration among all of them.
of supply chain processes like ordering, delivery
and payment due to cancellation of paperwork and The researchers recommend paying full
unnecessary operations (McIvor, 2000) and attention to the small details and differences in
flexibility in creating relationships (Muffatto and these two streams of the supply chain, whenever
Payaro, 2004) were also discussed as time and needed to be implemented. A company should
cost savings. notice that dealing with variable and large number
of customers will surely need different strategies
 7

than dealing with suppliers, especially the ones A CKNOWLEDGMENTS

who are considered as long-term strategic
partners. But, both ends of the supply chain have The authors are grateful to the Applied
one thing in common, which is the need of trust. A Science Private University, Amman, Jordan, for the
customer needs to trust the quality of service financial support granted to cover the publication
provided from a company, and a strategic partner fees of this research article.
supplier needs to trust the commitment of the same
company.

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