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1. © 2004 Prentice-Hall, Inc. 18-1
Chapter 18
E-Business and the Supply Chain
Supply Chain Management
(2nd Edition)

2. © 2004 Prentice-Hall, Inc.
Outline
The Role of E-Business in a Supply Chain
The E-Business Framework
The B2B Addition to the E-Business Framework
E-Business in Practice

3. © 2004 Prentice-Hall, Inc.
Role of E-Business in a Supply Chain
E-business: Execution of business transactions
over the Internet
B2C: Business to consumer
B2B: Business to business

4. © 2004 Prentice-Hall, Inc.
E-Business Transactions
Providing information across the supply chain
Negotiating prices and contracts
Allowing customers to place orders
Allowing customers to track orders
Filling and delivering orders to customers
Receiving payment from customers
Placing orders with suppliers
Paying suppliers
These transactions were previously done through
other channels

5. © 2004 Prentice-Hall, Inc.
The Impact of E-Business on
Supply Chain Performance
Impact of E-Business on Responsiveness (which
primarily affects a company’s ability to grow and
protect revenue)
Impact of E-Business on Efficiency (which
primarily affects a company’s costs)

6. © 2004 Prentice-Hall, Inc.
Impact of E-Business
on Responsiveness
Offering direct sales to consumers
24-hour access from any location
Wider product portfolio and information aggregation
Personalization/customization
Faster time to market
Flexible pricing, product portfolio, and promotions
Price and service discrimination
Efficient funds transfer
Lower stockout levels
Convenience/automated processes
Potential revenue disadvantage of e-business (for customers
who require a short response time)

7. © 2004 Prentice-Hall, Inc.
Impact of E-Business on Cost
Inventory
Facilities
Transportation
Information

8. © 2004 Prentice-Hall, Inc.
The B2C E-Business Scorecard
(Table 18.1)
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
InformationPrice discrimination
TransportationFlexible pricing
FacilitiesTime to market
InventoryPersonalization
ConvenienceProduct portfolio
Lower stockouts24-hour access
Efficient funds
transfer
Direct sales
ImpactAreaImpactArea

9. © 2004 Prentice-Hall, Inc.
Applying the E-Business Framework
PC Industry
Book Industry
Grocery Industry
MRO Supplies Industry

10. © 2004 Prentice-Hall, Inc.
Revenue Impact of E-Business
on the PC Industry (Dell)
Sells PCs directly to customers and starts assembly after
receiving a customer order
Revenue disadvantage for customers who do not want to
wait or who need a lot of help setting up a computer
Revenue advantages:
– Offer virtually unlimited different PC configurations
– Bring new products to market faster
– Fast at providing customized PCs
– Price flexibility
– Direct selling eliminates distributor and retailer margins
– Negative working capital

11. © 2004 Prentice-Hall, Inc.
Cost Impact of E-Business
on the PC Industry
Inventory costs – geographic aggregation,
postponement, dampening of bullwhip effect
Facility costs – no physical distribution or retail
outlets; customer participation
Transportation costs – higher outbound
transportation costs (PCs are shipped
individually)
E-Business impact for Dell (Table 18.2)
– Significantly improved performance
– Exploited every advantage provided by the Internet

12. © 2004 Prentice-Hall, Inc.
The Impact of E-Business on Dell
Performance (Table 18.2)
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
ImpactAreaImpactArea
=Information=Price discrimination
-Transportation++Flexible pricing
++Facilities++Time to market
++Inventory++Personalization
=Convenience++Product portfolio
+Lower stockouts+24-hour access
++Efficient funds
transfer
++Direct sales

13. © 2004 Prentice-Hall, Inc.
Value of E-Business for a
Traditional PC Manufacturer
Potential value for traditional PC firm
Use e-business to sell customized PCs that are
hard to forecast
Sell standard configurations through traditional
channels
Introduce new models on the Internet
Allows lower inventory

14. © 2004 Prentice-Hall, Inc.
Revenue Impact of E-Business
on the Book Industry (Amazon)
Negative:
– An additional stage in the supply chain – the distributor (this
is more of a cost impact)
– Downward price pressure
– Does not attract customer who has a short response time
requirement or prefers to examine a book before purchase
Positive:
– Offers millions of books
– Uses Internet to recommend books
– Provides reviews and comments from other customers
– Quickly introduces new titles
– Allows shopping 24 hours, 7 days/week

15. © 2004 Prentice-Hall, Inc.
Cost Impact of E-Business
on the Book Industry
Inventory costs – geographic aggregation of high-
volume books; purchases low-volume books from
distributor after customer order
Facility costs – no retail outlets, but higher order-
processing costs
Transportation costs – very high
E-business impact at Amazon (Table 18.3)
– Mixed, few profits as yet
– There are not as many advantages to selling books on the
Internet compared to selling PCs

16. © 2004 Prentice-Hall, Inc.
Impact of E-Business on
Amazon.com (Table 18.3)
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
ImpactAreaImpactArea
-Information=Price discrimination
--Transportation+Flexible pricing
+Facilities+Time to market
+Inventory+Personalization
=Convenience++Product portfolio
+Lower stockouts+24-hour access
=Efficient funds
transfer
=Direct sales

17. © 2004 Prentice-Hall, Inc.
Value of E-Business for a
Traditional Bookstore Chain
Can benefit from setting up complementary
e-business
Carry high-volume books in stores, sell low-volume
books online to take advantage of aggregation
Provide access to online business in stores
Can possibly use technology to print a book on
demand
Can deliver books sold online to stores and allow
customers to pick them up there

18. © 2004 Prentice-Hall, Inc.
Revenue Impact of E-Business
on the Grocery Industry (Peapod)
Online grocer
Selling convenience, especially in urban areas
Specialty food stores also sell convenience
Peapod provides a customized shopping
experience based on customer preferences, which
a supermarket cannot do
Provides opportunities for targeted advertising;
selling information about customers

19. © 2004 Prentice-Hall, Inc.
Cost Impact of E-Business
on the Grocery Industry
Inventory costs: lower inventories, but aggregation is
limited because of the need for local fulfillment centers and
the fact that most groceries are staples with steady demand
Facility costs: no retail outlets, but higher order processing
costs
Transportation costs: higher transportation costs
– inbound and outbound transportation costs
– groceries have a relatively low value-to-weight ratio
E-business impact at Peapod (Table 18.4)
– some revenue advantages but higher costs
– less cost advantage for groceries than for books or PCs

20. © 2004 Prentice-Hall, Inc.
Impact of E-Business
on Peapod (Table 18.4)
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
-Information=Price discrimination
--Transportation+Flexible pricing
-Facilities=Time to market
=Inventory+Personalization
++Convenience=Product portfolio
=Lower stockouts+24-hour access
=Efficient funds
transfer
=Direct sales
ImpactAreaImpactArea

21. © 2004 Prentice-Hall, Inc.
Value of E-Business for a
Traditional Grocery Chain
E-business could be a beneficial complement to a
traditional grocer
E-business used to offer convenience to customers
who are willing to pay for it
Can offer a wide range of services at differing
prices based on the amount of work done by the
customer
Albertson’s is an example of this approach

22. © 2004 Prentice-Hall, Inc.
Using E-Business to Sell
MRO Supplies: Grainger.com
Grainger is a distributor of maintenance, repair,
and operating supplies
Traditional part of the business is through catalog
or in-person orders
Also sells online:
– Grainger.com
– FindMRO.com
– OrderZone.com

23. © 2004 Prentice-Hall, Inc.
Revenue Impact of
E-Business for Grainger
Prices for MRO supplies will drop because of the
Internet
But revenue enhancement for Grainger
– Customer can access all 220,000 items (limited to 80,000
in catalog)
– Searching for items is simpler on the Internet
– FindMRO and OrderZone allow the offering of a larger
variety of products
– A new product can be offered for sale as soon as it is
introduced
– Customers can place and check on orders anytime

24. © 2004 Prentice-Hall, Inc.
Cost Impact of E-Business
on Grainger (MRO supplies)
Inventory costs – slightly lower through
aggregation and lower lead times
Facility costs – lower order processing costs,
some branches may be closed
Transportation costs – no change likely
E-business impact at Grainger (Table 18.5)
– Marginal improvement in revenue
– Decrease in order processing cost
– Benefits to customers

25. © 2004 Prentice-Hall, Inc.
Impact of E-Business
on Grainger (Table 18.5)
++ Very positive; + Positive; = Neutral; - Negative; -- Very negative
-Information=Price discrimination
=Transportation+Flexible pricing
+Facilities+Time to market
=Inventory+Personalization
+Convenience++Product portfolio
=Lower stockouts+24-hour access
=Efficient funds
transfer
=Direct sales
ImpactAreaImpactArea

26. © 2004 Prentice-Hall, Inc.
The B2B Addition to the
E-Business Framework
The wide variety of factors potentially important in
B2C transactions can be reduced to three principal
categories:
– Reduced transaction costs
– Improved market efficiencies
– Supply chain benefits

27. © 2004 Prentice-Hall, Inc.
Transaction Costs: When E-Business
Will Have a Positive Impact
Transactions are frequent and small in size
Phone and fax are the current method of transmitting
orders
A lot of effort is spent reconciling product and
financial flows

28. © 2004 Prentice-Hall, Inc.
Improved Market Efficiencies: When
E-Business Will Have a Positive Impact
Limited buyer/seller qualification is required
A fragmented market exists with many competing
players either on the buy or sell side
A large number of buyers/sellers can be attracted to
the online site

29. © 2004 Prentice-Hall, Inc.
Supply Chain Benefits: When
E-Business Will Have a Positive Impact
The bullwhip effect is quite significant due to
information distortion in the supply chain
The supply chain as a whole achieves low inventory
turns and poor product availability
Each stage has little visibility into either the customer
or supplier stage
There is little collaboration in the supply chain in
terms of promotions and new product introduction
Product life cycles are short

30. © 2004 Prentice-Hall, Inc.
Application of the B2B
E-Business Framework
Figure 18.4: The E-Business Value Proposition
Figure 18.5: A Decision Tree Representation of the
B2B Addition to the E-Business Framework

31. © 2004 Prentice-Hall, Inc.
B2B E-Business Value Proposition
(Figure 18.4)
Reduced Transaction Charges
Market Efficiencies
Supply Chain Benefits
EaseofImplementation
EasyHard
Value Created
Low High

32. © 2004 Prentice-Hall, Inc.
E-Business in Practice
Integrate the Internet with the existing physical
network
Devise shipment pricing strategies that reflect costs
Optimize e-business logistics to handle packages, not
pallets
Design the e-business supply chain to handle returns
efficiently
Keep customers informed throughout the order
fulfillment cycle

33. © 2004 Prentice-Hall, Inc.
Summary of Learning Objectives
What is the role of e-business in the supply chain?
What are the effects of e-business on supply chain
performance?
How can the e-business framework be used to
evaluate whether a company is a good candidate for
e-business and where the company should target its
e-business efforts?