CHAPTER III

E-COM SUPPLY CHAIN AND SMEs

RON CRAIG
 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

What are SMEs?

Segmentations basis: Number of employees

Micro (or very small) enterprises with fewer than five employees
Small enterprises with 100 or fewer employees
Medium-sized companies with 101-499 employees

Segmentations basis: Sales Volume

Manufacturing
Wholesale
Retail
Service

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

PROS v CONS?

PROS CONS
• Able to Service Small Markets • Resource Poor (in terms of
• Quick Reaction Time finance, time and expertise)
• Organizational and Managerial • Generally lag in integration into
Flexibility the new e-economy
• Innovativeness
• Closeness to Customer / Trust
Factor

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

ROLE OF SCM
Contributing Factors
• Globalization
• Technical innovation in ICTs
• External pressure from other supply chain members, including higher expectations
from customers
• Outsourcing trends
• Pressures to reduce costs and increase profits

Potential Benefits of SCM

• Eliminates delays and errors associated with traditional paper-based systems
• Improves customer satisfaction (fewer stockouts, paperwork savings)
• Reduce supply chain costs
• Lower data entry costs (single point of entry)
• Reduce inventory holdings (shorter lead times)
• Increase inventory turns

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

TAYLOR’S SCM MATRIX

• Rows in this matrix correspond to three

different levels of management (design,
planning, operations)
• Columns list business processes
concerned with supply, production, and
demand
• Single firm v/s Inter-organizational
networks
• SCM requires cooperation and
coordination between these components

Picture Reference: Taylor (2004

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

ICTs (Information and Communication Technologies)

IT in Manufacturing

MRP

MRP-
II

ERP

ASPs

Picture Reference: Kalakota & Robinson, 2000

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

ICTs (Information and Communication Technologies)

• Designed to support and integrate various internal functions and to create a suitable
interface to external customers and/or partners and their applications
• CRM (Customer Relationship Management) supports customer-oriented applications
for sales, service and marketing.
• SCM supports market demand, resource and capacity constraints and real-time
planning
• The sales chain management supports product customization, price and contract
management, offer and quotation generation, commission management and promotion
management.
• Work equipment management supports the procurement of office supplies, services
and companies
• Travel procurement, computer equipment/software/network operation
• MRO procurement (maintenance, repair and overhaul)
• ICT facilitate the 'e-business network'.
• Internet facilitates collaboration between members of a supply chain

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

Research around ICTs

• Davenport and Brooks (2004) describe how enterprise systems in large firms have
evolved to support SCM and how the Internet has brought a revolution into supply
chain thinking

• Garcia-Dastugue and Lambert (2003) classify Internet-enabled mechanisms as either

market mechanisms

• Patterson et al. (2004) investigated the diffusion of supply chain intra- and inter-
organizational technologies and software applications

• Ranganathan, Dhaliwal, and Teo’s (2004) SEM approach highlighted many supply
chain benefits from the deployment of Web technologies, including improved
customer service, better relationships with suppliers, and generation of competitive
advantage

• Lee and Whang (2001) show that e-business, which they define as the use of Internet-
based computing and is a key enabler driving supply chain integration.

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

Research Around ICTs and SCM in SMEs

• Raymond et al. (2005) point out that with the advent of global competition and new
organization forms based on networks of cooperating firms, the successful.
assimilation of e-business is bound to take added importance for many SMEs in terms
of survival, growth, and competitiveness

• Even burg (2005) is one of the few empirical researchers to consider size (micro,
small, and medium) within the SME segment and its impact on IT adoption

• Chou et al. (2005) propose a framework for evaluating industry portals and apply it to
Taiwan to create an optimized value chain

• Raymond et al. (2005) point out that with the advent of global competition and new
organization forms based on outsourcing and developing models

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

OPPORTUNITIES

SCM in General SCM in Specific

Growth of outsourcing Wynarczyk and Watson (2005)
Accenture defines a 4PL as “an integrator that “Even after allowing for sector, size, age and owner-
assembles the resources, capabilities, and technology manager motivations and supply chain opportunities
of its own organization and others to design, build and constraints, partnership firms achieved
and run SC solutions. significantly higher rates of growth.”

Agile Systems Levy and Powell (2003)

Agility was first applied to flexible manufacturing Owners’ recognition of the business value of the
systems, which stand in contrast to the traditional Internet, combined with owner attitude towards
manufacturing approach of assembly lines, business growth, are key factors determining Internet
rationalization, standardization, and adoption strategies.
elimination of uncertainty.

RFID Berlak and Weber (2004)

Brings new levels of visibility, security, How to configure, establish, and operate temporary
accountability, flexibility, and operating performance supply chains via ‘competence networks’.
to supply chains.

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 CHAPTER III: E-COM SUPPLY CHAIN AND SMES

CHALLENGES

SCM in General SCM in Specific

Incentivization Market Power
Narayanan and Raman (2004) point out The balance of power among a supply chain’s
that misaligned incentives can result in excess members plays a significant role in designing and
inventory, stock-outs, incorrect forecasts, inadequate operating a supply chain. SMEs, as more minor
sales efforts etc. members of the chain, often have little input.

Effort Resources
Heckmann, Shorten, and Engel (2003) In contrast to smaller firms, Larger firms can spread
refer to “Herculean SCM efforts,” which are the cost of ICT projects over a much greater revenue
commensurately rewarded. The companies making base.
the biggest commitment to improving their SCM While the potential is there to leverage the power of
system outperform those where the effort is no more the Internet, many SMEs have neither the desire nor
than incremental. ability to do this.
Also, larger firms have internal ICT development and
SCM Disruptions support services, which make it easier for them to
Negative impact in year preceding and following develop and maintain such systems as ERP and SCM.
public announcements or share price fluctuations.

11
CHAPTER IV

BUILDING AND
MANAGING
JOHN HAMILTON
MODERN E-
SERVICES
 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICE TOPOLOGY
Customer behaviour models:
Incorporating dynamic models of customer
retention (like loyalty), stochastic models of
customer behaviour(like satisfaction), and
customer behaviour models (like churn rate or a
customer lost through a single service
encounter).
Service Quality impact models:
Incorporating aggregate models (like customer
satisfaction effects) and disaggregated models
(like financial impacts of a service component).
Normative Service Models:
Housing organizationally focused marketing
models (like incentive schemes and trade-offs
between satisfaction and productivity) and
operations models (like queuing).

SOURCE: Rust, R., & Metters, R. (1996). Mathematical models

Mathematical models of service of service. European Journal of Operations Research, 91(3),
427-439

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICE TOPOLOGY

Services could be split into

marketing (product) or
operations (process)
orientations.
They believed that in delivering
a final ‘customized’ solution,
there remained a need to
integrate and interact with both
orientations.
They suggested research in the
‘interaction and integration’ area
may articulate strategies and
tactics for improving services.

Integrated Schematic Representation of Services

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICE TOPOLOGY

Roth and Menor operationally defined

their service strategy triad into below
five elements.
Supporting facilities (physical and structural resources)

Facilitating goods (materials and supplies that are consumed)

Facilitating information (supporting the explicit services)

Explicit services (customer experiential and sensual benefits)

Implicit services (psychological benefits)

Service Strategy Triad

Source
► Book: E-Supply Chain Technologies and
Management by Qingyu Zhang
► www.wikipedia.com
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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICES

ECONOMIES
ECONOMIES

Primary
Primary Secondary
Secondary Tertiary
Tertiary
(agriculture)
(agriculture) (manufacturing)
(manufacturing) (services)
(services)

Domestic
Domestic Related
Related
services(food
services(food and
and
lodging)
lodging)
Others
Others (recreation,
(recreation,
healthcare
healthcare and
and
education)
education)
Business
Business services
services

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICE MODEL ANALYSIS
The models indicate that the delivery of services requires the The
business to adopt both an internal and an external perspective. service
product

Approach
• Customer
Business
Behaviour customer
Model service
• Service Quality encounter
Impact Model Service
• Normative deliver The
Service Model y customer
system

To deliver quality business-customer service encounters, the

• Marketing business’s supply chain became an integral delivery tool for
Focus the final upstream service provider. In addition this supply
Servic • Operations chain needed to be capable of delivering customer
expectations. This required sound supply chain integration
e Focus
and management, the integration of the above functional
areas, and quality communications channels throughout the
supply chain network.

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SUPPLY CHAIN MANAGEMENT
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

Maximize performance at a minimum Create modularity to allow postponement of

Product design strategy
product cost product differentiation

Lower margins because price is a prime Higher margins because price is not a prime
Pricing strategy
customer driver customer driver

Maintain capacity flexibility to buffer

Manufacturing strategy Lower costs through high utilization
against demand/supply uncertainty

Maintain buffer inventory to deal with

Inventory strategy Minimize inventory to lower cost
demand/supply uncertainty

Reduce aggressively, even if the costs are

Lead-time strategy Reduce, but not at the expense of costs
significant

Select based on speed, flexibility, reliability,

Supplier strategy Select based on cost and quality
and quality

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
THE INTERNET

The Internet and extranets The Internet has driven

combined with new supply chain
sophisticated solutions in information
interconnected computer storage and transmission,
networks, has delivered e-business, Web-based
necessary and key customer relationship
enablers, to deliver management (e-CRM),
responsive and agile and supply chain
supply chain strategies. management

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
DEMAND CHAIN MANAGEMENT

Demand chain management aims to serve customers individually with customized bundles of goods
and services, thereby delivering high levels of customer satisfaction and of customer loyalty

The demand chain must balance a globally diverse mix of new customers, and it must also offer a
degree of uniqueness to the business

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
DEMAND CHAIN
MANAGEMENT
Key distinct supply and demand processes that needs to be integrated in
order to gain the greatest
1
value are:

The core processes of the supply and demand chains, as

viewed from a broad cross-enterprise vantage point, rather
than as discrete functions

The integrating processes that created the links between

the supply and demand chains

The supporting infrastructure that made such integration

possible

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
THE VALUE CHAIN
Value in terms of business or customer perspective equations
can be defined as :

Business value = (Benefits of each delivered value chain activity minus its
cost)
+ (Benefits of each service interface between value chain activity minus its
cost)

Customer value = (Benefits of each customer service interface interaction) +

(Benefits of each added value business offering) + (Benefit perceived for the
cost involved)

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
VALUE CHAIN MANAGEMENT
Comparison between Traditional and Modern Value Chain

Modern value chain (Source: Slywotzky & Morrison, 1997)

23
 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
VALUE CHAIN MANAGEMENT

Revised value chain (Source: McLarty, 2003)

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICE VALUE NETWORKS
Service value chain aggregator (Source: Beck, 2002)

Beck’s model suggested groups of

equal business partners would
(1) share their specific, market-leading
competencies,
(2) identify a group of similar buyers,
(3)would deliver the required vertical
solution repeatedly, reliably, and cost
effectively.
Beck suggested these ‘consortiums of
partners’
could specifically target the individual
customer,
deliver high client satisfaction, drive new
levels
of profitability, and achieve competitive
advantage

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
SERVICE VALUE NETWORKS
Service value network definition:

• “The flexible, dynamic delivery of a service, and/or product, by a business and

its networked, coordinated value chains (supply chains and demand chains
working in harmony); such that a value adding, and target specific service
and/or product solution is effectively, and efficiently, delivered to the individual
customer in a timely, physical, or virtual manner. (Hamilton, 2004)”

• Service value networks interlink the understanding and deliverability of the

business’s downstream business e-supply chain networks and its upstream
customer service offerings

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
THE BALANCED SCORECARD MODEL
Framework:
• “Delivers the enabling basis from which business industry blocks, like individual units, may be
translated into powerful e-service networks”

• “Delivers performance measures, allows high growth rates to be defined and targeted,
differentiates competitive advantage, and delivers considerable measurable financial rewards”

• The customers must be targeted to receive their expected outcomes, the business block must
develop its skills (and knowledge) and provide improved solutions

Balanced Scorecard Model (Source: Kaplan and Norton, 1992)

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
THE BALANCED SCORECARD MODEL

Balanced scorecard—nine-step strategy development cycle model (Source: Rohm, 2002)

The balanced scorecard offers a strategic measurement agenda allowing management to monitor tangible
and intangible service factors across their sphere of influence.

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 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
THE BALANCED SCORECARD MODEL

Balanced scorecard—nine-step strategy development cycle model (Source: Rohm, 2002)

2
 CHAPTER IV: BUILDING AND MANAGING MODERN E-
SERVICES
THE BALANCED SCORECARD MODEL

Balanced scorecard—Development of Specific Performance Measures

(Source: Rohm, 2002)