1. Recalibrating Demand-Supply Chains for the Digital Economy Arun Rai eCommerce Institute Robinson College of Business Georgia State University Atlanta, GA 30303 arunrai@gsu.edu e-Business Research Seminar University of British Columbia May 11, 2001 Competition is now between supply webs … not companies.

2. Quiz A box of cereal spends ? days in the supply chain. Total inventory in the pharmaceutical supply chain exceeds ? days and ? $ in savings to be realized. Poor coordination in the food industry supply chain wasted ? dollars. Boeing wrote-off ? dollars in 1997 due to supply chain inefficiencies. It costs, on average, ? dollars to process each purchase order. Bonus question: What’s been happening @ X’mas?

3. Answers A box of cereal spends 104 days in the supply chain. Distorted information causes total inventory in the pharmaceutical supply chain to exceed 100 days with $11 billion in savings to be realized. Poor coordination wasted $ 30 billion annually in the food industry. $ 2.6 billion is how much Boeing wrote-off in 1997 due to supply chain inefficiencies $80 was paid, on average, to process each purchase order. And, Santa did not show up last year with e-toys! Fulfillment score = D --

4. Agenda What is driving supply chain reconfiguration? How do supply chains configurations differ in their strategic assumptions? What e-coordination capabilities are required to support each configuration? How should supply chain transformations be managed?

5. Traditional supply chain obsolescence Direction of flow of demandDirection of flow of product Raw Material vendor Tier-II Suppliers Tier-I Suppliers Manufacturers Distribution Centers Retailers Customer Zones Point of differentiation Distribution costs Market mediation costs

6. Design & TransformationKnowledge Fulfillment Expectations Value Chain Roles Supply Chain Configuration&Coordination? e-coordinationInnovations Industry standards Horizontal & vertical solutions E-intermediary models Effective market mediation Complex order fulfillment Ongoing service expectation Multi-channel synchronization Product & process modularity Transformation asset obsolescence Value migration Consolidation patterns Discontinuity

7. Supply chain configurations Vertically integrated Fragmented Solution Web Modular End-to-end integrated Customer Push Demand Pull Synchronized Push-Pull Collaborative Push Downstream Push Firm Hierarchy Networks Markets Demand Fulfillment Perspective Organizing Logic

8. The vertically integrated firm Microprocessors Operating systems Peripherals Applications software Network services Assembled hardware IBM DECBUNCH Vertically Integrated Supplier-driver Mass Production The Computer Industry, 1975-85 Tightly coupled knowledge Massive capital assets High fixed costs Large product volumes for capital productivity

9. Fragmented chain Inadequate information processing ability Firm as unit of competition Internecine warfare Zero-sum games Consumer RetailerManufacturerSupplier Store 1-800 e-Store  Stockouts and stockpiles Capital inefficiency Poor customer service

10. Integrated Chain End-to-end supply chain perspective Order management, fulfillment & revenue management Materials, information and financial flows  High fill rates & on time delivery Reduced inventory costs Working capital efficiency Negative cash conversion cycles ConsumerRetailer Manufacturer Supplier e-Store Store Collaborative Planning & Forecasting The UPS Opportunity? Management services Distribution, Storage & Transportation Internet-enabled applications infrastructure

11. Modular product design Microprocessors Operating systems Peripherals Applications software Network services Assembled hardware IBM DECBUNCH Vertically Integrated Supplier-driver Mass Production The Computer Industry, 1975-85 Source: Fine, 1998 IntelMotoAMDetc. MicrosoftAppleUnix HPEpsonSeagateetc. MicrosoftLotusNovelletc. DECHPIBMEDSetc. HPCompaqIBMDelletc. The Computer Industry, 1985-95 Microprocessors Operating systems Peripherals Applications software Network services Assembled hardware Horizontal structure Innovation focused Mass customization

12. Modular chain Distributor/ Manufacturer Web site 3 PL Partners Supply chain perspective Separates architectural & modular knowledge Low interdependency; high recombinability Contract manufacturers Contribution margin focus Innovation, order management, fulfillment, & revenue management Suppliers Resellers Distributor - DCs, Warehouses Physical Information/Financial

13. Cold plug-ins (spot equity focus) Short-term service partners e-Platform infrastructure (network, data, applications) Long-term business partners MRO Capacity Office Automation Routine IT Services Knowledge Complements Utilities Requirements Determination Solution Development Revenue Management Reverse Logistics Fulfillment Platform Development Hot plug-ins (serial equity focus) Customer Knowledge integration & platform services Transaction integration Solution webs Challenging “artificial”: Product categories Consolidated demand time Integral product designs

14. Strategic profiles of supply chain configurations

16. Fragmented fulfillment: The bullwhip effect CustomerRetailerDistributorFactoryTier 1 supplierTier II supplier Upstream amplification of demand variation Progression of a brushfire to an inferno! Poor coordination of material, information and financial flows between and among enterprises participating in the demand fulfillment process. Sequential interdependence Low transaction specific capital Limited information sharing Safety stock exaggeration Host-centric legacy apps IT reinforces decision structures

17. Machine tools at bullwhip tip Reported in Fine, 1998

18. Multi-channel End-to-End Integration Pharmaceutical Manufacturers McKesson Distribution Center CVS Distribution Center Store Supply chain-wide visibility Stellar order management & fulfillment e-ramps to complementary resources SCM+ERP+CRM Multi-echelon resource planning Optimally staging and moving goods Online channels & flows Offline channels & flows “Calibrated” online & offline coupling e-Store Physical Information/Financial

19. Modular chains Suppliers Ingram Web Site Reseller/ Customer 3 PL Providers Buffer staging & movement Component level inventory rationalization Inventory velocity & channel assembly Solectron Service role of distributors 3PL outsourcing SC Knowledge co-creation Suppliers Warehouses, DCs Physical Info/Financial

20. Solution Webs: Weaving Boundary Spanning Partnerships Carriers, 3PLs Solutions development Systems solutions Management of 4PL Process & Metrics Management Systems integration 3PL Management Process Execution Customer service excellence Investment in resources Asset structure (Cisco/UPS; Kozmo & Strabucks) Multiple value architectures (UPS’ eReturns) Partnerships & complex contracts Transaction aggregation (UPS & Buy.com) Visible platform architectures Coordinating inter-generational innovations

24. Supply chain transformation Vertically integrated Fragmented Solution Web Modular End-to-end integrated Customer Push Demand Pull Synchronized Push-Pull Collaborative Push Downstream Push Firm Hierarchy Networks Markets Demand Fulfillment Perspective Organizing Logic Integrate end-to-end supply chain Rationalize multi-channel operations Infuse e-coordination technologies Develop info. sharing mindset Manage principal-agent conflicts Develop suppliers

25. Supply chain transformation Vertically integrated Fragmented Solution Web Modular End-to-end integrated Customer Push Demand Pull Synchronized Push-Pull Collaborative Push Downstream Push Firm Hierarchy Networks Markets Demand Fulfillment Perspective Organizing Logic Reconfigure assets, products, processes & e-solutions Integrate using architecture information Deploy multi-echelon buffering Develop “deep” relationships [3PL, other] Exploit arbitrage opportunities

26. Supply chain transformation Vertically integrated Fragmented Solution Web Modular End-to-end integrated Customer Push Demand Pull Synchronized Push-Pull Collaborative Push Downstream Push Firm Hierarchy Networks Markets Demand Fulfillment Perspective Organizing Logic Develop platform capabilities Embrace real options perspective Implement governance methods for dynamic transactions, incomplete contracts, revenue flows & settlement

27. Thank You!