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Improved Supply Chain Communication Through Electronic Commerce

Author(s):

Richard G. Weissman, C.P.M.
Richard G. Weissman, C.P.M., Commodity Manager, Varian Associates, Inc., Gloucester, MA 01930, 978-282-2000, rich.weissman@iis.varian.com

83rd Annual International Conference Proceedings - 1998 

Abstract. Excellent communication is a critical element of progressive supply chain management. The Internet and other forms of electronic commerce provide many opportunities for enhanced communication throughout the supply chain. This presentation will focus on practical electronic commerce methods and techniques that will improve communication and take the mystery out of electronic commerce.

Introduction. Electronic commerce takes many forms and is made of many elements. The Internet plays a major role in electronic commerce today, and provides the framework for enhanced supply chain communication through such vehicles as e-mail, file transfer protocol (FTP), the World Wide Web, intranets, and extranets. Other technologies such as groupware and facsimile also fit into the electronic commerce puzzle. Effective electronic commerce need not be a confusing array of high priced hardware and complex software.

This paper is in two parts. The first part is an overview of electronic commerce in general, with particular focus on the Internet, and it's effect and use in supply chain management. Included are the various elements of electronic commerce and how effective use of these tools will improve supply chain management initiatives. The second part will focus on the results of the author's masters thesis which researched the effective use of the Internet and electronic commerce in the industrial marketplace as it relates to supply chain management.

Overview of Electronic Commerce. Technology has captured the marketplace. Electronic commerce is having a profound effect on supply chain management as the Internet and related technologies are transforming traditional buyer / seller relationships. Firms are using elements of the technological infrastructure to improve production, sales, procurement, and service processes. Supply chain management, the procurement strategy which links customers and suppliers together is a series of cohesive, interdependent relationships, claims many of the benefits of electronic commerce. These advantages include instantaneous global communications throughout all levels of the supply chain. Excellent communications is the keystone of superior supply chain management.

The key to successful supply management is rapid communication of information throughout the entire value chain, including end users and the entire supply chain. Communication with suppliers and business partners ranks highest among uses of the Internet. Information that must be shared among the supply chain include product specification and requirements, cost and delivery information, manufacturing changes, and customer communications.

Technology has begun to play a key role in changing the environment of the buyer and seller. The explosion of electronic commerce has significantly altered the methods of buyers and sellers, radically changing not only the face of procurement, but also that of marketing and advertising in the industrial environment.

Electronic commerce, a term used for managing and conducting business within a digital-information environment, has become the major means of commerce in the global marketplace. Electronic commerce is an all encompassing term used for electronic based business practices, including electronic data interchange (EDI), bar-coding, interactive computer aided design (CAD), computer aided manufacturing (CAM), computer aided engineering (CAE), imaging smart cards, telephones, cellular communications, groupware, wide and local area networks, interactive video, facsimile, e-mail, the intranet, the extranet, and the Internet.

The Internet is providing a framework for the use of electronic commerce, especially in the supply management area. There are many ways that purchasing and supply management professionals can use the Internet to improve the acquisition of materials and services at each stage of the procurement process. These include source selection and qualification, enhanced communication throughout the supply chain, electronic transactions, file transfers between buyer and seller, newsgroups, bulletin boards, and online business research. Other benefits include shorter procurement cycles by means of online catalogs, rapid ordering and payment, enhanced competition through competitive bidding as customers have access to a larger market, and reduced development cycles and accelerated time to market through collaborative engineering and product development.

Enhanced communications, global sourcing, information retrieval, document exchanges, and the sharing of information up and down the supply chain are no longer viewed as futuristic, but are mandatory in today's global business environment. Purchasing professionals continue to be at the forefront of the electronic commerce revolution. The Internet, as well as new technologies and methods still to come will continue to have a very positive effect on all aspects of supply chain management.

Communication in the Industrial Marketplace. Buyers and sellers are now linked in many organizations by technology, yet the question remains if the technology driven process of electronic commerce is improving the relationship of these two disciplines. Is the Internet an effective method of marketing, advertising, and communicating information to the supply management function in the industrial marketplace? Are supply management professionals communicating back?

Many purchasing departments have shunned the Internet as a business too due to security concerns, technology limitations, and professional paradigms. Marketing organizations have invested substantial amounts of their advertising budget to have Web access, but are customers, or potential customers, using their sites, or even looking at them? The Internet, as the cornerstone of electronic commerce, is certainly efficient. However, is it effective, and does it enhance and promote communication?

The author recently completed a masters thesis entitled " The Effect of the Internet on Marketing to the Supply Management Function in the Industrial Marketplace". The intent of this thesis was to ascertain if the Internet is an effective method for advertising, marketing, and communicating to the industrial marketplace, and if so, how was that success measured. The research focused on marketing and advertising processes by companies attempting to reach supply management professionals in the industrial marketplace, and asked the question if they believed that marketing to these professionals on the Internet was successful. Areas of study included discussion and analysis of the Internet as an advertising medium, the measurement of successful utilization of the Internet by sellers, Internet marketing and advertising methods to reach the industrial marketplace, and changing buyer and seller relationships.

Primary data was generated from an anonymous questionnaire that was distributed to a population of purchasing and supply management professionals. The survey questioned their access to, and understanding of, electronic commerce, available technology, and the use of the Internet as a business tool. Also, questions concerning attitudes toward supply management, supplier marketing methods, and supplier relationships were posed.

The study was intended to provide marketers and buyers with recommendations of how best to utilize the Internet in improving buyer and seller relationships and communication, improve business processes and access to information, and to determine if the Internet is a viable method for reaching the supply management professional. A study analyzing the combined needs of buyers and sellers alike may help to remove some of the barriers and paradigms to electronic commerce that exist today.

Four major research questions were generated. The data generated the answers to these questions.

1.) Is the use of the Internet an effective method for marketing, advertising, and communicating information to supply management personnel in the industrial marketplace?

The Internet is an efficient method for marketing, advertising, and communicating information, but it is not yet effective. Supply management professionals are not accessing the Internet in sufficient numbers to allow marketing organizations to abandon traditional business methods and to concentrate on the Internet as a tool of choice in electronic commerce. There needs to be pressure brought to bear on supply management organizations to embrace the technology of the Internet, and electronic commerce in general. Marketing organizations need to force the technology. Conversely, supply management organizations need to pressure their suppliers to establish good Web sites and other elements of electronic commerce in order to better support their customers. Marketing organizations are ahead of supply management organizations regarding the use of the Internet, but seem to be unsure as to the proper direction to take as the medium becomes more complex.

2.) Are supply management professionals accessing and utilizing the information that is found on the Internet?

There is limited access and utilization of information found on the Internet by supply management professionals. Many have the access, but do not use it. Many use their access on a limited basis, but not constructively. Research showed that almost 100% of the companies responding supported technology in the supply management process and over 60% supported the use of the Internet. The supply management people are not responding.

3.) What primary methods are suppliers using to reach this select market segment, and how can the effectiveness of these efforts be measured?

Suppliers are using traditional print methods to let customers know that they have electronic commerce capabilities. What a paradox! Many suppliers are not even letting customers know that they have a Web site, and continue to stress traditional methods of marketing, advertising, and support. Marketing organizations are moving ever so slowly in this technology, as they feel that customers are not that interested in the medium because they are not using it, nor are they clamoring for better sites or more opportunities for electronic commerce. Research showed that few supply management organizations review suppliers' Web sites for content, most do not feel that they are being forced to use the Internet more, and the majority still rely on traditional print media. Less than 10% of the respondents monitored their amount of electronic commerce activities. Even less give preference to suppliers with an Internet presence. There is no push from either side to maximize the !

use of the Internet.

4.) How has the Internet affected buyer / seller relationships?

There is concern in both marketing and supply management organizations that the use of the Internet will adversely affect buyer / seller relationships. Strong business relationships are very important in the supply management process, and the research showed that one third of the questionnaire respondents felt that the Internet is an impersonal means of communication. The Internet may be an impersonal means of communication if it is the only means of communication. Utilization of the Internet as part of an enhanced electronic commerce strategy that combines personal relationships and technology will prove to be successful.

In summary, the research and data show that companies overwhelmingly support the use of technology in the supply management process, yet supply management professionals are not necessarily embracing the Internet as an effective tool. Industrial marketing organizations, sensing the lack of enthusiasm for the use of the Internet, have held back on their utilization of the medium, not wanting to impact existing or future business.

Conclusion. Supply management organizations need to become more progressive in embracing technology that is available in their profession. There are many excellent electronic commerce tools available that will improve communication, save money, and make their jobs easier. But many individuals are hiding from the technology and making excuses in order not to use it. Many purchasing people feel that the Internet is a toy, something to be "surfed". There is a general perception that time spent on the Internet is wasted time, whereas it can be the most beneficial time spent in one's day. It is an excellent tool for sourcing, communicating, and researching. It is the tool that strategic purchasing professionals need to use.

There are progressive supply management organizations that are forcing suppliers to become more proficient in electronic commerce by establishing a Web site, improving or obtaining e-mail capabilities, and utilizing these tools. There are many suppliers who do not have these tools, and to a progressive supply management organization, it may spell the difference between business and no business. Communication is the key to successful supply chain management. Electronic commerce will continue to play a major role in increasing the levels of communication between all links in that chain.

References

Milne, G. "E-commerce explodes." 

Purchasing Today 7, October 1996, 4.

Moody, P.E., Breakthrough Partnering.

Essex Junction, VT: Oliver Wright Publications, 1993.

National Association of Purchasing Management-Silicon Valley,

The impact of Internet on corporate procurement activity study. http://www.catalog.com/napmsv

Trommer, D., "Internet Charges the Supply Chain."

Electronic Buyers' News, November 13, 1995, 56,58. 


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