The Impact of E-Commerce Developments on Supply Chain

Ñ"Ь Introduction

In recent years, the impact of E-Commerce (EC) on supply chain (SC) has caught considerable attention. Many companies in the supply chain engage themselves in the field of EC to pursue benefits.

This report is authorized by the CEO and focuses on the improvements brought in by EC in SC. In the first section, it gives a brief overview of the supply chain management (SCM) and EC concepts; in the second section, it discusses the benefits offered by EC such as convenient information interchange; lower inventory level, less management time, value-added relationship and cost effectiveness; the security and legal problems with EC are also mentioned in the third section; in the last section, the report gives out the authorÐŽ¦s suggestion for the Chinese companies.

The report is based on a survey of available literature. Due to time limited, the information collected is not very completed.

Ñ"Ь SCM and EC Concepts

Simchi-Levi, et al. (2000) define SCM as ÐŽ§a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirementsЎЁ.

Kalakota and Whinston, (1996) summarized EC as ÐŽ§the buying and selling activities of information, products, and services via computer networksЎЁ.

The report only focuses on two types of EC ÐŽX Business to Business (B2B) and Business to Customer(B2C).While B2B still captures 80 percent at least of total EC activity and dates back to the pre-internet era of electronic data interchange (EDI) based solutions, B2C is linked inextricably to the development of Internet as a new channel for the communication of a firm with the consumer (Angeliki &Loukas, 2003).

While EC focuses on the process improvement of inter-organizational transactions, SCM concerns more about the material and information flow coordination. An analysis of EC and SCM reveals a complementary relationship with some overlapping ÐŽX EC concentrates on shaping information and contracting activities, and SCM primarily focuses on planning process and the organization of various flows (Alt et al., 2000).

Ñ"Ь Improvements of the SC Offered by EC

The advent of EC makes SCM much different from past. Members in the SC could utilize EC from the fast information interchange and just-in-time (JIT) operations to achieve a ЎҐpullÐŽ¦ strategy providing products and services in exact quantities on a continuous basis with minimum lead times. In this way, the inventory level could be reduced, the system coordination could be improved, better partner and customer relationships could be achieved and thus, the final aimÐŽX minimize the costs could be reached.

In the following part, I will discuss the improvements offered by EC in details through the following five aspects: information, inventory, time, partnership and cost.

Ñ"Ь Information

Information processing is an important component for effective SC. Members of the SC could improve performance with an increasing level of information sharing.

Uncertainty rise when members of the SC only have accurate data about themselves. To reduce uncertainty, information of the whole SC should be shared. Most research suggests that centralized information can improve a decentralized supply chainÐŽ¦s performance (Yu et al, 2001).

An advantage of EC technology is that it could provide information visibility throughout the supply chain. With the help of EC, members of SC could benefit a lot from the relevancy, accuracy and timeless of centralized information.

In the past, partners in the SC mainly use the method of EDI to realize information flow. Nowadays, Internet is used as another major method of information transferring. Information could be transferred to both partners and customers in real time with least transaction cost and global reach. The point-of-sales (POS) data could be transferred back to suppliers in order to achieve better coordination such as reduce lead time, lower inventory level, etc. Suppliers could also enhance communication with customers and realize customization, because they could communicate with customers directly through Internet.

After information is transferred and collected, EC could also make it possible to analyze data conveniently simply through a computer.

Fraser et al., (2000) presents that improved information gathering and processing could be realized by EC.

Srinivasan, et al. (1994) recognize that increasing vertical information sharing using EDI technology can enhance shipment performance of suppliers and greatly improve the performance of the supply chain system.

Benjamin and Elsie, (2003) illustrate that EC provides the channel for each party to get the required information to avoid information scarcity or information overload, improves the accuracy of data entry and transmission, and realize the in-time communication.

Angeliki and Loukas, (2003) also gives following opinion about information flow in the EC environment:

Effectively EC streamlines the flow of information across and within organizations with significant value adding potential. The end result of a full scale EC supply chain adoption is the seamless information flow integration from the producer to the end customer. The compactness, timeliness, and reliability achieved for the information items that flow across an EC enabled supply chain is unbeatable by traditional supply chain management strategies.

Ñ"Ь Inventory

In a traditional SC, every member of the chain only make a forecast for its own production planning, inventory control and material requirement planning. The result is that the variance of production always exceeds the variance of sales, which is the famous ЎҐbullwhip effectÐŽ¦.

Nowadays, all parts of the SC could get point of sales data and inventory level through EC, establish more accurate order forecast, gain better coordination and thus, minimize the bullwhip effect. As Lee, et al. (1997) has illustrated, ÐŽ§Inventory can be reduced mainly by minimizing the bullwhip effectЎЁ, the inventory level can be minimized