Supply Chain Management and the Internet – the global business revolution and supply chains
The Internet creates a new environment for exchanging information and conducting business transactions. More than ever possible before, the Internet increases the quantity and expands the richness of information in real-time to a much wider set of participants and thereby raises dramatically the value of information in supply chain management. The Internet also increases transparency, which is the ability to “see across the supply chain,” through the enhanced capacity to obtain, distribute, and create information across distances, and does so at a cost that has been decreasing by 35% per year.1 This ability changes the management of supply chains by expanding capabilities and extending the scope of management across the supply chain and contributes to reductions in cost and improved service.
How does the internet affect supply chain management?
The management of a supply chain in the era of globalization, lean and flexible manufacturing, and mass customization presents managers with a formidable set of tasks. The need for lower costs, greater speed, more flexibility, and increased service generates a series of optimization problems compounded by a complex array of trade-offs. Because the Internet is a cost-effective and near-ubiquitous medium of information exchange, it expands the opportunities for coping with these difficulties.
The most direct effect of the Internet is to create new opportunities to improve the efficiency and effectiveness of the operation of the supply chain. This is because of the cost-effective capacity to generate visibility across all aspects of the supply chain, including point-of-sale information, manufacturing schedules, vendor stocks, customer inventories, demand patterns, sales/marketing initiatives, and carrier schedules.
Opportunities for Gains
The greatest barrier to improvement in the operation of supply chains is the segmentation and separation of the various elements of the supply chain. The different units of a supply chain—suppliers, manufacturers, distributors, logistics, and retailers—have typically operated without the information integration, synchronization, and coordination needed to improve operations.
Even when firms in a supply chain have wanted to improve integration, because the information has traditionally been expensive to generate and distribute, they have been forced to operate in relative isolation. This contributes to higher inventory levels, difficulties in responding to customers in a timely manner, ineffective use of resources, problems in developing new products, limited knowledge of customer demand, and lower profits.
Management issues in supply chain collaboration
Most of the improvements in efficiency from the Internet happen only when the separate parts of a supply chain work closely together. There are considerable gains from collaboration, but there are perhaps as many hurdles to be overcome. Managers of supply chains must be even more aware of the barriers to collaboration and work to use the Internet to overcome these barriers. The demands of information sharing and collaboration in an extended, real-time enterprise are much greater than in traditional supply chains and will require organizational innovations.
Collaboration is difficult to achieve because different firms have different economic interests, goals, and ways of conducting business. Additionally, there are technical barriers, including problems in developing systems based on Internet standards that link legacy systems and provide a communication path between firms in the supply chain; integrating EDI systems to Internet systems; defining standards for content management; establishing XML and ebXML standards; providing common systems for logistics and procurement; and defining data mining standards.
Cisco’s products are quite complex and include the hardware (large-scale routers, LAN switches, and WAN switches), software, service, and integration capabilities to implement an end-to-end network solution for an enterprise. The extraordinary growth and the rapid technological changes in the networking market present significant challenges for Cisco.
In response, it has adopted an aggressive strategy for developing new technology and knowledge assets. In addition, Cisco created a remarkable networking system to link its customers, employees, and the myriad collection of assemblers, suppliers, semiconductor manufacturers, logistics, and service providers who make up the Cisco system. Cisco’s acquisitions and the creation of an extended, real-time enterprise have made a possible rapid expansion to meet sales growth and technology changes.
A central feature of Cisco’s overall business strategy was the creation of an integrated information system from customer to supplier, and the selection of strategic partners and suppliers to populate its supply chain. Indeed, Cisco is one of the best examples of the use of the Internet to create a collaborative system designed to benefit all members of the system. The main goal is the performance of the supply chain, not merely obtaining the lowest price from suppliers. Internet-defined protocols are used for all communications across the system and common applications throughout the company.