This paper examines how Internet technologies are reshaping Supply Chain Management (SCM) by enabling real-time, near-instantaneous information sharing among all participants in the supply chain. It traces the limitations of traditional sequential SCM processes — where information could only follow inventory flow — and explains how Web-based tools, Electronic Data Interchange, RFID, and intranet systems allow organizations to share mission-critical data directly across every supply chain level. The paper also discusses measurable benefits such as reduced inventory, lower costs, shorter cycle times, and improved on-time performance, while cautioning that technology adoption without a clearly defined strategy can prove costly.
The network of services and distribution choices that fulfills the task of acquiring materials, transforming those materials into intermediate and finished products, and delivering the finished products to customers is broadly referred to as Supply Chain Management (SCM). Both manufacturing concerns and service organizations engage with SCM, even though the complexity of the process differs from industry to industry and from firm to firm. In its simplest form, a supply chain for a single product involves the procurement of raw materials from vendors, the transformation of those materials into a finished product in a single step, delivery to distribution centers, and finally delivery to customers. In real life, however, supply chains are far more complex, involving multiple end products with shared components, facilities, and capabilities (Ganeshan & Harrison, "An Introduction to Supply Chain Management").
Conventionally, the marketing, distribution, planning, manufacturing, and purchasing departments of an organization operate somewhat independently along the supply chain. Such departments have their own functions and goals, which are often in conflict with one another. Many manufacturing concerns are traditionally structured to maximize productivity and lower costs, disregarding the impact on inventory levels and distribution capabilities. Purchase contracts are sometimes negotiated with little information about current trends. This independent view deprives the organization of an integrated plan that seeks to align different functions in pursuit of the clear objective of maximizing productivity. Supply Chain Management is envisioned as a strategy that provides for such integration — a middle ground between the fully vertically integrated firm, where all material flow is owned by a single entity, and the fully fragmented model, where each channel member operates quite independently (Ganeshan & Harrison, "An Introduction to Supply Chain Management").
The Supply Chain Management field has yet to fully realize the advantages that have been promised. Companies identified as early adopters of SCM have drawn benefits from strategies such as Vendor Managed Inventory (VMI), Efficient Consumer Response (ECR), and Distribution Resource Planning (DRP). It is increasingly recognized that the elementary building block of SCM — effective information sharing — has not been well supported by traditional technology. The application of Internet technologies in this sphere is now seen as expanding the principles of SCM by providing a cost-effective communication backbone that enables the sharing of the right information between business partners more efficiently and more effectively than ever before. Supply Chain Management solutions using the Internet are intended to help customers and suppliers share mission-critical information in a timely manner, enabling real-time and effective decision making ("Internet-enabled supply chain management").
The major application in this direction is Electronic Data Interchange (EDI), an enabler that supports a variety of continuous replenishment strategies. In all such cases the objective is to enhance partnerships with suppliers and customers, share information more successfully, and exploit real win-win benefits such as reduced inventory, higher service levels, and reduced obsolescence. The Internet is regarded as a complex association of integrated servers around the world, with the greatest concentration in the United States and Europe, linking all kinds of organizations ranging from educational and professional to entertainment. The emphasis is on corporate presence through a homepage, reflecting the ideology of an "electronic storefront" — a mode of electronically attracting customers and business partners through the Internet using the HTML programming language.
The SCM process in many organizations fails to achieve the desired business advantages because those organizations are still operating as they always have. The traditional SCM process is sequential: the retailer sells a product and then places an order to replenish inventory; the supplier receives the order and restocks the retailer; the supplier then uses its own inventory and places an order on the manufacturer; the manufacturer, in turn, consumes inventory and places an order on the raw material supplier — and the cycle continues. The process involved in the supply chain appears logical and even predictable due to this sequential nature ("Internet-enabled supply chain management").
In such a model, information flow at best precedes inventory flow, and at worst must follow it. Companies traditionally guarded their business forecasts and had little inclination or motive to share them with business partners, viewing such sharing as potentially hazardous. This remains standard business practice today, irrespective of what visionaries recommend. As a result, traditional SCM had only the tools to focus on cycle time reduction rather than cycle time elimination.
The criticalities of order management, manufacturing, and product delivery constrain every process within SCM systems. Most systems are not sufficiently up to date to handle all the variables present along the supply chain. The Supply Chain Management solutions that were anticipated have largely not been delivered, because the foundational requirement — effective, timely information sharing — was not supported by traditional technology.
Internet technologies have enabled organizations to extend their infrastructures beyond physical boundaries. Consumers, retailers, and buyers at manufacturer locations can all access the Internet. Rather than maintaining a sequential order-placement relationship, the World Wide Web transforms the SCM process into a web of near-instantaneous communication, allowing information to be passed directly to the relevant level of the supply chain. Internet technologies make persistent and near-real-time information sharing possible through a ready-made infrastructure, rather than forcing information to follow the traditional inventory flow ("Internet-enabled supply chain management").
Determinants of demand can be quantified and communicated to the retailer in order to create and manage in-store promotions. Near-real-time access to supply chain partners influences the way Point of Sale (POS) data is used by the retailer for replenishment. New methods of accounting for customer and consumer preferences reshape the traditional vision of POS replenishment solutions, as the Internet communicates varied needs and habits to more companies more effectively than the traditional "place order, consume inventory, place order, consume inventory" cycle.
To make SCM more effective, organizations can also provide for internal information sharing through an intranet that supports internal processes. Sales personnel in the field can collect data on customer requirements and supplier information and feed that data directly into the system via dial-up to a server, without requiring client-side involvement. Customers doing business with large numbers of distributors may collect field information — such as distributor orders, medium-range promotions, or long-range business plans — through the Internet. The Internet is thus viewed as the most effective mode of gathering information from large groups of people and companies spread across a wide area. With the application of the Internet, it becomes possible to reduce inventory levels throughout the entire supply chain and to shorten cycle time from suppliers to end customers. American Software has developed the Software Supply Chain Planning™ platform, which includes models for Demand Planning, Replenishment Planning, and Manufacturing Planning ("Internet-enabled supply chain management").
"Home shopping, POS data, and demand communication"
"RFID tags track products across entire food chain"
"Strategy, internal processes, and measurable outcomes"
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