MM ELEC 3

E-COMMERCE

MODULE 18
SUPPLY CHAIN STRATEGY PROCESS

Strategies for supply chain improvement have been categorized according to the
scope of change and the speed of change.
o The two strategies that are relatively limited in scope apply to individual
processes such as procurement or outbound logistics and can be thought
of as delivering improvement at an operational level.
 These may give short-term benefits while minimizing the risk of
more radical change.
o Conversely, where the scope of change is more extensive there is a
greater risk, but also greater potential reward.
 These changes include complete re-engineering of processes or
major changes to the supply chain.

Strategy element Supply chain management approach

Situation analysis Gather the data:

Internal assessment of current approaches to the supply
chain
External analysis of marketplace trends and customer
opportunities

Objective setting Set the objectives - definition of required target returns and
release of shareholder value

Strategy Frame the strategies - development of supply chain

strategies to achieve these goals (actions)

Tactics Prioritization of operational improvement strategies and

quick wins

Actions Implement the change and challenge the thinking:

Formation of a supply chain strategy forum to assess the
needs
Analysis of value-added, cost and cycle time of supply chain
activities
Cascade of executive-led project groups to scrutinise key
processes
Allocation of business development strategies to sponsor
executives

Source: Chaffey, David. 2015. Digital Business and E-Commerce Management: Strategy, Implementation
and Practice, 6th Edition. Pearson
Control Measure the outcome:
Integration of supply chain measurement in corporation-wide
reviews
Baselining to maintain pressure for performance delivery

Categories of performance measurement framework

 Cost in supply chain
o Total cost, distribution cost, manufacturing cost, inventory cost.

 Profitability
o Return on investment (ROI)

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

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

 Supply chain partnership

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

 Production level metric

o Range of products and services, effectiveness of scheduling techniques,
capacity utilization.

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

 Customer service and satisfaction

o Flexibility, customer query time, post- transaction measures of customer
service, customer perception of service.

 Supply chain finance and logistics cost

o Cost associated with assets and ROI, total inventory cost, total cash flow
time.

Source: Chaffey, David. 2015. Digital Business and E-Commerce Management: Strategy, Implementation
and Practice, 6th Edition. Pearson
  Cost performance
o Material cost, labor cost, machinery energy cost, machinery material
consumption, inventory and WIP level, total productivity, direct labor
productivity, fixed capital productivity, indirect labor productivity, working
capital productivity, value- added productivity.

 Internal and external time performance

o Time to market, distribution lead time, delivery reliability, supplier lead
time, supplier reliability, manufacturing lead time, standard run time,
set-up time, wait time, move time, inventory turnover, order carrying-out
time.

 Quality performance
o Machine reliability, rework, quality system cost, inbound quality, vendor
quality rating, customer satisfaction, technical assistance, returned goods.

 Customer relationship management

o Supplier relationship management and order fulfilment process

Managing partnerships
A key element of restructuring of the supply chain is examining the form of
relationships with partners such as suppliers and distributors.
o This needs to review the form of partnership has been accentuated with
the globalization enabled by e-commerce.

The modification of supply chain partnerships usually follows what is described

as the ‘received wisdom which many practitioners are rigidly following’.
o This approach requires companies to:
 (1) Focus on core competencies.
 (2) Reduce their number of suppliers.
 (3) Develop strong partnership relationships built on shared
information and trust with the remaining suppliers.

As the depth of relationship between partners increases, the volume and

complexity of information exchange requirements will increase.
o For a long-term arrangement information exchange can include:
 Short-term orders
 Medium-to-long-term capacity commitments
 Longterm financial or contractual agreement
 Product design, including specifications
 Performance monitoring, standard of product and service quality
 Logistics

Source: Chaffey, David. 2015. Digital Business and E-Commerce Management: Strategy, Implementation
and Practice, 6th Edition. Pearson
Managing global distribution
Manufacturers should follow as they enter new overseas markets enabled by the
Internet.
o The seven actions are:
 Select distributors - do not let them select you
 Look for distributors capable of developing markets rather than
those with new customer contacts
 Treat the local distributors as long-term partners, not temporary
market entry vehicles
 Support market entry by committing money, managers and proven
marketing ideas
 From the start, maintain control over marketing strategy
 Make sure distributors provide you with detailed market and
financial performance data
 Build links amongst national distributors at the earliest opportunity

Summary
 Supply chain management involves the coordination of all supply activities of an
organization from its suppliers and partners to its customers.
o Upstream supply chain activities (procurement and inbound logistics) are
equivalent to buy-side e-commerce and downstream supply chain
activities (sales, outbound logistics and fulfilment) correspond to sell-side
e-commerce.

 There has been a change in supply chain management thinking from a push-
oriented supply chain that emphasizes distribution of a product to passive
customers to a pulloriented supply chain that utilizes the supply chain to deliver
value to customers who are actively involved in product and service specification.

 The value chain concept is closely allied to supply chain management. It

considers how value can be added both between and within elements of the
supply chain and at the interface between them.

 Electronic communications enable value networks to be created that enable the

external value chain to be dynamically updated in response to marketplace
variables.

 Supply chains and value chains can be revised by disaggregation or

re-aggregation.
o Disaggregation may involve outsourcing core supply chain activities to
external parties.
 As more activities are outsourced a company moves towards
becoming a virtual organization.

Source: Chaffey, David. 2015. Digital Business and E-Commerce Management: Strategy, Implementation
and Practice, 6th Edition. Pearson
  Electronic communications have played a major role in facilitating new models of
supply chain management.
o Technology applications that have facilitated supply chain management
are:
 Email
 Web-based ordering
 EDI of invoices and payment
 Webbased order tracking

 Benefits of deploying these technologies include:

o More efficient, lower-cost execution of processes
o Reduced complexity of the supply chain (disintermediation)
o Improved data integration between elements of the supply chain
o Reduced costs through ease of dynamic outsourcing
o Enabling innovation and customer responsiveness

 Intranets connecting internal business applications such as operational

enterprise resource planning systems and decision supportoriented data
warehouses enable supply chain management.
o Such systems increasingly support external links to third parties such as
suppliers.

 Key strategic issues in supply chain management include:

o Redesigning supply chain activities
o Restructuring partnerships which support the supply chain through
outsourcing or ownership.

Source: Chaffey, David. 2015. Digital Business and E-Commerce Management: Strategy, Implementation
and Practice, 6th Edition. Pearson