Business Logistics and Supply Chain Management in E-Business

Introduction: E-Business and the Supply Chain

For manufacturing companies to succeed in the emerging e-business environment, they must establish strong relationships within their supply chain. A significant part of this process is improved information sharing at all levels of the chain. The Internet enables the integration of communication and information technologies from the factory floor to the executive office, including the company's vendors and suppliers.

Online purchasing has provided the impetus for many manufacturing firms to move from a build-to-stock to a build-to-order business model.^[1] In addition to upgrading technology, companies must work with their vendors to create win-win relationships with a special emphasis on information sharing. This requires a drastic change in manufacturer/vendor relations, which generally tends to be antagonistic and competitive rather than cooperative. In the current business environment, manufacturers tend to dictate the terms of their supply needs and leave it to the vendors to meet those needs, which often incurs unnecessary costs such as premium shipping.^[2]

Implementing supply chain collaboration provides a great opportunity to remove empty costs from the supply chain. Collaboration of this nature must involve real two-way communication between supply chain partners. An example of this idea in practice is joint capacity planning, where supply chain partners share in calculating capacities across multiple suppliers and tiers.^[3]

Building Collaborative Vendor Relationships

Some companies try to push inventory up or down the supply chain, which minimizes local costs in the short term but has the long-term effect of destabilizing the supply chain. In effect, the benefit of this practice lies only with the partner firm doing the pushing, while costs of storage and shipping begin to accrue and affect the bottom line for all business partners involved.^[4]

Manufacturers must therefore begin developing trusting relationships with their vendors. Trust can be built by initiating programs that treat suppliers as partners in a cooperative relationship. Supply chain partners must share information in a collaborative fashion and encourage individuals to act on that information from both sides of the supply chain.^[5]

The importance of these supply chain relationships cannot be overestimated. Industry leaders predict that the top companies of the future will succeed or fail based on the relationships they foster within their supply chain. These relationships will allow manufacturers to produce customizable, made-to-order products at a competitive cost, delivered on time consistently.^[6]

Lean Manufacturing and Inventory Management

Experts stress the importance of working with suppliers rather than trying to squeeze them for lower prices. The long-term benefits of an equitable relationship outweigh the short-term gains of forcing a lower price from suppliers.^[7] In addition to saving soft dollars, this approach also allows manufacturers to apply lean business techniques with regard to inventory.

Lean manufacturing has at its core the principles of increasing speed, removing waste, and serving the customer better.^[8] Lean business practices do not literally apply to inventory in all cases, but to business operations and processes. For instance, instead of fighting change and trying to create a steady-state supply chain, companies should develop ways to respond to change faster and more efficiently — even if that means building up inventory.^[9] In this way, the manufacturer maintains flexibility and is more resilient in the face of setbacks and unforeseen problems.

Manufacturing companies accumulate inventory for two main reasons: a lack of information from elsewhere in the supply chain, and the variability of demand. If a company is unaware of what its suppliers and clients are going to do, it will build up inventory to ensure it has the product needed to continue manufacturing. The variability of demand is influenced by factors such as spikes driven by customer orders, manufacturing processes, and logistical disruptions that interrupt the flow of commerce — such as blackouts.^[10] Projected demand can fluctuate greatly from day to day. One reason for such high variance is the proliferation of product options, as seen in automotive manufacturing. Limiting available options allows a company to improve its ability to forecast accurately. Better market analysis also enables the company to more clearly establish customers' wants and needs.^[11]

Over the years, companies have employed a variety of techniques to apply lean business practices to inventory. Some companies manage inventory through what is called VMI (vendor managed inventory). This method applies service-parts technology to the inbound supply side, with all inbound supply inventory maintained by the vendors. The computer manufacturer Dell is a well-known example of a company that uses this method.^[12]

Conclusion

It is apparent that e-business is making its mark on the business world. In the wake of these changes, it is up to manufacturers to take steps to ensure their own future viability. This can be done through lean business practices, better relationships throughout the supply chain, and the integration of the Internet at all levels of the business process. Although it has its flaws, JIT fits the bill — it accomplishes all three of these objectives when implemented properly.