E-Commerce and Supply Chain Management (SCM) Chapter 4

Chapter Outline Supply chains What is a supply chain? Objectives of supply chain management Information sharing in the supply chain IMPORTANT: See Figures 4-1 and 4-2, pages Inventory management in the supply chain Retailers and distributors Manufacturers

Chapter Outline (2) Operations issues for online retailers Inventory management Shipping Customer returns Make/buy decisions for goods and services

Supply Chains A supply chain is the network of activities that deliver a product/service to the customer Sourcing (purchasing) of raw materials, parts, goods for sale, or service inventories Order entry Operations planning Transformation process (manufacturing or services) Quality management Logistics: Transportation (traffic) Distribution (delivering the product to the customer)

Supply Chain Management (SCM) Supply Chain Management is the business function that coordinates the movement of materials and information through the supply chain Objectives of supply chain management Minimize the cost of materials and material movement Minimize inventory investment Ensure timely delivery of materials at every level of the supply chain and to customers Ensure quality of materials used in manufacturing or services

Information Sharing in the Supply Chain Demand: sales forecasts, booked orders, and/or actual sales Custom orders Production plans Product availability Shipping schedules: items, quantities, delivery dates Shipments Suppliers' data on raw material quality

Reducing Inventory Costs Retailers and Distributors Objective: have right inventory in stock when needed, while reducing inventory and transportation costs. Channel assembly: Distributors or retailers assemble computers to order, with the manufacturer's brand name Used for products with modular design Retailer or distributor can offer more product choices, for a given inventory cost Short delay for customer

Reducing Inventory Costs Brick-and-mortar Stores Objective: have right inventory in stock when needed, while reducing inventory and transportation costs. Retailers collect point-of-sale data at the cash register. Retailer has 2 options Use point-of-sale date to forecast future sales and transmit order to manufacturer. Automatic replenishment: retailer transmits point-of-sale data to manufacturers, who ships what is needed. To reduce transportation costs, manufacturer usually ships multiple items in one truckload.

Operations Issues in Online Sales Inventory management Delivery Managing customer returns

Operations Issues in Online Sales Inventory Management Objective: get the right inventory to the customer promptly, while reducing inventory and transportation costs. Amazon's inventory policy Amazon stocks popular items and ships them directly to customers Drop shipping: For less popular items, Amazon transmits order to manufacturer, publisher, or distributor – who ships order to customer. Amazon pays the manufacturer, publisher, or distributor.

Operations Issues in Online Sales Delivery Objective: Deliver promptly, while minimizing delivery costs Brick-and-mortar stores (like Sears) can ship items to stores for customer pickup. Other online merchants ship via a package delivery service (like UPS) or U.S. postal service Online merchants use package delivery services for most shipments to other countries. Customers usually pay a standard shipping cost – different for U. S. and other countries

Operations Issues in Online Sales Customer Returns Objective: minimize the cost of customer returns and reduce "hassles" for customers 25% of Internet orders result in a customer return Problems in returning goods are the 2 nd biggest reason that consumers don't buy online Variety of approaches used to return goods: postal service, contract package delivery service, brick-and-mortar store Online retailer must process returned items Online retailer must ship a replacement item or issue credit to customer Policy issue: who pays for return shipping?

Reducing Inventory Costs Manufacturers Just-in-Time Manufacturer makes finished goods and ships them the same day Suppliers delivery parts and raw materials when they are needed Vendor-managed inventory: supplier owns the parts inventory at the customer's plant until the customer uses those parts.

Make/Buy Decisions Make/buy decisions apply to both goods (including parts) and services Does your firm have the ability to produce the good or service? If not, is it technically feasible to develop that ability? Is this a wise use of the firm's human and financial resources?

Make/Buy Decisions (2) Does your firm have the capacity to make the good or service? If not, can your company afford to invest in capacity? Is that the best use of the firm's money?

Make/Buy Decisions (3) Firms usually do not outsource (buy) Activities where they have a better technology than suppliers Activities that are part of a core competency Do not weaken a core competency Production that requires proprietary technology the firm wants to protect

Make/Buy Decisions (4) Who can do a better job: you or a supplier? Costs Quality Timely delivery Product or part designs Is there a supplier who can meet your firm's requirements in the above areas?