Supply Chain Management – Integrating E-Purchasing and Retailing Concepts Dr. Dr. habil. Ulli Arnold Professor of Business-to-Business Marketing and Supply Management University of Stuttgart, Germany 70174, +49/711/121-3161 [email protected] and Eberhard E. Scheuing, Ph.D., C.P.M., A.P.P. NAPM Professor of Purchasing and Supply Leadership Emeritus St. John’s University, New York 11439, 480/471-7393 [email protected] Abstract. In this paper, we will analyze Supply Chain Management (SCM) to emphasize the need for a process view and the integration of all contributors within a specific value chain. We will show the basic SCM modules relevant for successful adoption and refer to successful SCM concepts used in manufacturing and retailing. Four German case studies provide useful insights into these two sectors. Retailers implement SCM in the form of Efficient Consumer Response (ECR) approaches. Brief Overview of SCM. Several authors attempted to systematize the “sources” of SCM and the contributions from several functional areas. For example, Bechtel/Mulumudi (1996), Croom/Romano/Gianakis (2000) and Tan (2001) identified different “schools” and “perspectives” (see Figure 1).

Source

SCM Perspective

Bechtel/ Mulumudi (1996)

Tan (2001)

Description

Chain Awareness School

Concentration on integrated material and related information flow from raw material to end customer.

Linkage/Logistics School

Connecting physical distribution processes

Information School

Information flow as central factor critical to success

Integration School

Redesign of company structures to form „virtual“ networks

Transportation and Logistics Perspective

Physical aspects of logistical distribution

Purchasing and Supply Perspective

Innovative sourcing concepts and supplier integration

Figure 1: A Taxonomy of SCM concepts Figure 1 shows that both purchasing and logistics are major elements of SCM. Sourcing is seen as an “integrative concept” which is related to all activities necessary for linking external resources to a company. This integration can be shown through continuous processes. Based on a universal information flow, these processes include demand management, order fulfillment and manufacturing flow management (see Figure 2).

material and information flow

tier 2 supplier

tier 1 supplier

purchasing

materials mgmt.

production

distribution

sales

customer

end consumer

relationship management customer service management demand management order fulfillment manufacturing flow management procurement product development and commercialization returns channel

information and financial flow

Figure 2: Framework of SCM The term supply chain management actually misdirects the real focus of SCM operations. It is the end customer who ultimately determines all activities in the chain. In fact, the term customer chain management might be more appropriate to processes like customer relationship management or customer service management. The need for incorporating a marketing perspective in SCM becomes obvious from a look at the retail-based Efficient Consumer Response (ECR) concept. Efficient Consumer Response. All logistical problems connected with the end customer are concentrated in the retailing sector. Therefore, significant improvements in distribution are only possible by optimizing new product introduction, promotion, and assortment in direct linkage with replenishment strategies (see Figure 3). ECR basic strategies

Efficient Replenishment

Efficient Assortment

Supply Chain Management (in a closer sense)

Efficient Promotion

Efficient Product Introduction

Category Management / Supply Chain Management (in a wider sense) Marketing

Logistics

Figure 3: ECR basic strategies In an empirical study in German companies, involving four in-depth case histories, we were able to compare the current state of SCM in manufacturing and retailing. The small number of case studies allows no generalization but gives first insights into the problem. In this paper, we concentrate on (a) importance of SCM for a company’s overall success, (b) relationship management, and (c) actual status of SCM implementation.

Importance of SCM for a Company’s Overall Success. Today, managers in German companies view the importance of SCM as very low. But change is under way. As Figure 4 indicates, all participants see the importance of SCM advancing to a much higher level. How important is SCM for the overall success of your company? retailing company

electronic industry

automotive supplier

construction supplies 0 not important

1

2

3

4 very important

today in the future

Figure 4: Importance of SCM for company success

Relationship management. In our definition of SCM, we identified relationship management as one of the core processes (see Figure 2). Trust is the major enabler for successful business relationships. When asked about the importance of trust, all companies saw it on or near the “very important” level. How important is trust within the supply chain? retailing company

electronic industry

automotive supplier

construction supplies 0 not important

1

2

3

4 very important

Figure 5: Trust within the supply chain Actual status of SCM implementation. As mentioned above, in German companies, SCM is often more of an objective than a reality. Our empirical findings support this statement. The implementation status is -- except for the electronics industry -- at a very

low level. This correlates with the fact that most companies see SCM as very important for the future, not for current business. How do you see the actual status of SCM implementation in your company? retailing company

electronic industry

automotive supplier

construction supplies 0 insufficient

1

2

3

4 world class

Figure 6: Actual SCM implementation

The integration of e-procurement. According to Neef (2001), “e-procurement means a giant leap forward in the long-sought-after development of the extended enterprise, where the supply chain becomes a continuous, uninterrupted process extending from buyer through selling partners.” Neef regards e-procurement as one of the major enablers for supply chain management. Breite and Vanhantara (2001) go a step further and believe that “information technology changed the supply chain management concept more radically than any other technology.” In the future, e-procurement will of course be a driving factor for SCM. Nevertheless, the “eratio” will never be 100% of purchasing volume. According to an recent study, the B2B-ecommerce ratio in 2003 will not be more than about 15% of the total transaction volume. Varying widely from industry to industry, this ratio is projected to range from 4% in agriculture to 28% in the automotive industry (Boston Consulting Group 2000).

References Bechtel, C. and J. Mulumudi. “Supply Chain Management: A Literature Review” 1996 NAPM Annual Academic Conference Proceedings, Portland,1996, pp. 1-10. Boston Consulting Group. Rennsaison: B2B-E-Commerce in Deutschland, Boston Consulting Group, Munich, 2000. Breite, R., and H. Vanhantara. “The Supply Chain in the New Economy: How to Manage IT?” 10th International Annual IPSERA Conference Proceedings, Jönköping, 2001, pp. 141152.

Cooper, M. C., Lambert, D. M. and J. D. Pagh. “Supply Chain Management: More Than a New Name for Logistics,” International Journal of Logistics Management, (8:1), 1997, pp. 114. Croom, S., Romano, P., and M. Giannakis. “Supply Chain Management: An Analytical Framework for Critical Literature Review,” European Journal of Purchasing and Supply Management, (6:1), March 2000, pp. 67-83. Mau, M. Supply Chain Management: Realisierung von Wertschöpfungspotenzialen durch ECR-Kooperation zwischen mittelständischer Industrie und Handel im Lebensmittelsektor, Frankfurt/Main 2000. Neef, D. e-Procurement: From Strategy to Implementation, Prentice Hall, Upper Saddle River, NJ 2001. Tan, K. C. “A Framework of Supply Chain Management Literature,” European Journal of Purchasing and Supply Management, (7:1), 2001, pp. 39-48.