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Electronic Business & Supply Chain Management

Hans Lehmann 1

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More understanding of EB & SCM

Definition Wh t is What i the th problem? bl ? Demonstration of a simple case Example of the power of IT in SCM: WALMART and what about E-tailing?
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The horizontal part is the

Supply Chain

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Whats the problem?

In traditional supply chains, inventories build up at the interface between functions within an organization:

Purchasing

Production

Sales

and between organizations: g

Suppliers
Hans Lehmann

Firm

Customers
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What are the $$$?

Two types of Costs: Obvious Carrying Costs Not Not-so-obvious so obvious Carrying Costs
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Supply Chain Strategies

Traditionally, firms manage internal supply chain and focus on immediate suppliers l and d customers. Now increasing focus further downstream and upstream in the supply chain.

Why?
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Demand distortions
Empirical fact: demand variations amplify upstream p in the supply pp y chain. Manf. Wholesaler Distributor
Information flow (through orders)

Retailer

Product flow

Demand information is distorted: hence, every entity in the supply chain stockpiles too much product.

enter:
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The Bullwhip Effect

Demand swings/ variations amplify upstream in the supply chain.

Demand at the Factory Warehouse Demand at the Distribution Centre level Demand at the Retail level
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The Need for Supply Chain Management stems from the Realisation that

Businesses do not compete; their Supply Chains do.

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MMBA507 T1/11 INFO101

Lets look at an actual p of an example extraordinarily effective and successful S Supply l Chain Ch i Strategy:
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Wal-Mart W l M t Stores, St I Inc. i is th the worlds ld l largest t retailer, t il with ith (USbn)$419 in sales in 2011. The company employs 2.25 million associates worldwide through nearly 9000 stores in the United States and in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan Mexico, Japan, Mexico Nicaragua, Nicaragua Puerto Rico, Rico South Korea, Korea the United Kingdom and Continental and Eastern Europe. More than 200 million customers per week visit Wal-Mart stores worldwide.
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Lets look at the $$$...

Hans Lehmann

Source: Walmart 2011Annual Report

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Consistently 1% better than UK SMs

Hans Lehmann Source: Walmart 2011Annual Report; Thanassoulis, UK Supermarket profitability, 2009 13

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Stock Turn

11.5 p.a.

Store Turnover

46.7$m
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Source: Walmart 2011Annual Report

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WALMARTs Core Competence:

Right Merchandise Negative Working Capital Shop Operations Good Discount Retailing;

...what else??
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WALMARTs Core Capabilities

Network of Distribution Centers & g Cross Docking Dedicated Truck Fleet Decentralised, Pull-type merchandising management p y Motivation Employee

Enabled Processes
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...how do you enable bl processes???

Crossdocking
Mapping Capabilities: Inventory replenishment at WALMART Stalk et al. HBR 3-4, 1992

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WALMART before major EB process enabling initiatives:

Demand flow
WALMART Value Chain

Supplier

Distributor Retail store 40 days Product flow

Consumer household

38 days

26 days

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WALMARTs enabling results:

Timely, accurate, paperless information flow Consumer household

Supplier
Before

Distributor Retail store

40 days

38 days

26 days

After 27 days

12 days

22 days

Savings 11 days

28 days

4 days

Smooth, continual, largely automated product flow matched to consumption

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So whats that inventory reduction worth?

The eW Walmart Supply Supp y C Chain wou would d save because they would have to buy less stock. Lets assume that they buy their stuff with a bank loan Lets further assume they manage to get an overdraft interest of 10%: How much would they save?
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Using 2011 figures:

Gross profit margin: 24.7% ergo: cost of sales: $315,471m Inventories: $36,318m Sales/day: $419bn/365=$1.15bn ergo: 31.6 31 6 days d worth h of f inventory
Source: Walmart 2011Annual Report
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So whats that worth in $$$s?

Cost of Sales $315,471m Cost of Sales p.d. $864m Interest p.d. @ 10% $86.4m

Suppliers saved Distr.Centre saved Stores saved

11 days 28 days 4 days

$951m $2,420m $346m

WalMart saved
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$2,766bn
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So whats that worth in $$$s?

Cost of Sales $307,024m Cost of Sales p.d. $841.16m Interest p.d. @ 10% $84.1m

Suppliers saved Distr.Centre saved Stores saved

11 days 28 days 4 days

$925m $2,355m $336m

WalMart saved
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$2,691bn
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Role of Information Technology? Obvious glue for the enabled processes but will develop into much more : Enabling closer co-operation Transform collaboration In manufacturing and logistics

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And what about the SC for E-tailers?

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So: how has AMAZON been b doing since its IPO in 1997?
http://finance.yahoo.com/q?s=AMZN http://www.wikinvest.com/stock/Amazon.com_%28AMZN%29/Data/Market_Capitalization/2012/Q1
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How Amazon Fulfills Orders

The Problem When Amazon.com was launched in 1995, the business model was virtual retailingno warehouse, no inventory, no shipments The idea was to take orders and receive payments electronically and then let others fill the orders However, it soon became clear, that while this model may be appropriate for a small company, it does not work for The earths Largest E-tailer
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How Amazon Fulfills Orders

The Solution Amazon.com decided to change its business model and h dl it handle its own inventory; i t but b t Maintaining inventory and shipping costs money and takes time: The company spent $3.5 billion to build world-class warehouses around the US and the world to become a l d in leader i warehouse h management, t warehouse h automation, packaging, and inventory management The actual shipment of products to customers is outsourced to UPS and/or the local Postal Service
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Materials Handling - Generation 1

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still unchanged!

Hans Lehmann

http://www.buzzfeed.com/mjs538/what-it-looks-like-inside-amazoncom

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The stuff to remember: B2B-EB technology is the glue in the Supply Chain; and Its Supply Chains that compete not single companies; also: Web-enabled organisation and processes, connected with IT, are fast becoming standard operating practice for businesses; but Learning curve is still steep
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