The Impact of ECommerce on Supply Chain Improvement

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The Impact of E-Commerce on Supply Chain
Improvement

• University of Chicago
• E-Business Alumni Roundtable
• September 5, 2002
• Charles C. Poirier cpoirier_at_csc.com

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Thesis

• While knowledge varies by industry, most people
  still dont understand the ramifications of the
  Internet, World Wide Web, e-Commerce, and
  e-Business
• E-Commerce, Advanced Supply Chain Management,
  Virtual Logistics, and other modern practices are
  converging into new business models that lead to
  success
• These models demand a new role for those in
  various functions throughout a business
• Applications can lead to dramatic improvement to
  costs, asset utilization, and increases in new
  revenues and customer satisfaction

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Throughout Industry

• Its not a question of Should we embrace digital
  commerce with business partners? Its a
  question of When?
• Why?
• To better use external partners to find hidden
  savings, cut cycle times, and find new revenues
• To optimize across a total system of interaction,
• Versus continuing to make piece-meal improvements
• Make more money through better and quicker
  product and service introductions

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A Key Requirement

• The data is there, hidden in data bases
• The secret is gathering the right information,
  from under your nose
• Then analyzing it, with others, for mutual
  business benefit
• Case Example Procter Gamble and Wal-Mart

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Overview of Supply Chain Solutions Practice
CSC has authored leading-edge thinking on Supply
Chain excellence and e-business

• Introduced leading- edge thinking around intra-
  and inter-enterprise supply chain optimization
• Pioneered application of internet enabled supply
  chain solutions
• Present at leading industry and professional
  conferences

Chuck Poiriers latest book, The Supply Chain
Managers Problem Solver, Maximizing the Value of
Collaboration and Technology was published July
2002
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The signs continue to point to an evolution into
industry networks and collaborative commerce
Our Point of View
The Innovators are Poking Through or Jumping
over the wall to III and IV (tomorrows market)
V Full Network Agility
IV Value Chain Constellation
Collaborative Commerce is about the ways in which
enterprises interact electronically to plan,
design, build, buy, sell, distribute, and support
goods and services
Most are working toward Level II improvement
(todays market)
III Network Formation
II InternalExcellence
Collaborative Commerce
I Enterprise Integration
Intra- Enterprise
Inter Enterprise
External
Total Business System
Functional/ Process
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Moving to a New Level for Sales, Marketing, and
Customer Service

• Level 2 Internal excellence pretend to like
  customers, seek process improvement, pay for
  productivity
• Level 3 Network formation Start with a few
  strategic accounts begin sharing practices
  study data-based initiatives introduce customer
  metrics
• Level 4 Value Chain Constellation Collaborate
  with strategic accounts and suppliers develop
  new business model target new revenues
• Level 5 Full Network Connectivity Use
  technology to enhance the network build a
  consumer response system across the value chain

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Overall Benefits of Collaboration
Research Hypothesis
10.0
8.0
6.0
Percent of Revenue
4.0
2.0
0.0
Inventory reduction
Reduced logistics costs
Efficiencies in direct spend
Efficiencies in indirect spend
Savings in sales expenses
Savings in RD
Total cost savings
Margin increase
Sales increase
Total benefits
Saving due to design/eng efficiencies
Benefits can (and will) impact all parts of a
business
Source CSC projections based on benchmarked
performance of comparable solution offerings
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Learning from Level 3 Firms

• Consumers will use the Internet in ever
  increasing numbers Securing consumers is still
  an end game for any supply chain
• Use of the Internet can bring new efficiency to
  the business networks behind B2C
• Greatest benefits will be in B2B end-to-end value
  chain networks
• New e-Business models will define future success
• New selling techniques will be crucial

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Adding Detail to Collaborative Commerce
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Changing Roles for Selling

• From information provider, order seeker,
  negotiator, sales counselor, order processor, to
• Voice of the customer/consumer, operating as an
  advocate, bringing information on what needs
  solved or improved
• Initiator of critical responses, provider of
  consultative advice, solutions and potential
  supply chain improvements
• Source of resources to enhance total network
  response and build new revenue
• Mechanism to shorten cycle times, reduce
  inventory, better utilize assets, and provide
  e-commerce recommendations
• Someone intimate with the customer, who adds
  value at numerous points in the supply chain,
  through an extranet he or she helped create

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Sales Example Office Depot

• Concept Extend your supply chain and use a new
  e-commerce tool to generate new revenue
• Application Office Depot showed Bank of America
  how to plug into O-Ds online store.
• B of A now orders 85 of its office supplies
  through the web site, and save millions per year.
• Today, 40 of ODs major customers use online
  network online unit booked 982 MM in 2000.
• Companys Internet sales grew 143 versus 12
  overall expected to increase to 1.3 B in 2001.

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Changing Roles for Marketing

• From doing research and planning systems that
  build demand to
• Collaboratively analyzing data and trends with
  customers to develop joint revenues
• Proactively working with sales personnel and
  strategic accounts on promotional, advertising
  and other support mechanisms
• Develop working sessions with strategic customers
  identified by sales group, willing to make joint
  investments in solutions new machinery, focused
  consumer efforts, etc.
• Create multi-channel response systems

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Marketing Examples

• Briggs Stratton builds a collaborative extranet
  BriggsNetwork.com for partners and suppliers.
• Eight-language site lets suppliers and key
  customers log in and check specs, view sales
  promotions, and receive parts and warranty
  information.
• Diesel-engine maker Cummins Inc. built an
  extranet that strategic accounts Peterbilt Motors
  and Kenworth Trucks can access for updates and
  tracking on engine orders.
• Truck makers can also log on and view early
  prototypes and make suggestions for 2003 engines
• Whirlpool forms extranet to draw large retailers
  away from costly EDI systems
• Customers easily learn system and save
  transaction costs
• Whirlpool shares order management and product
  information
• Virtually reality demonstrations are possible on
  site

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Changing Roles for Customer Service

• From being the repository of complaints and
  anguish to
• Being a pro-active partner in planning
• These front-line connections with customers use
  data on issues, problems and opportunities to
  build new marketing and sales efforts.
• They know what needs fixed, know the most common
  problems, and what electronic features the
  customers are seeking
• Most need customer training with input from
  strategic sales personnel

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Customer Service Example Cisco Connection Online

• Installation and configuration documentation
• Operation support library
• Problem detection Cisco Works
• Problem Navigator
• Problem Notification Bug alerts
• Problem resolution Open forum
• Troubleshooting engine

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Partner Diagnostic Lab (PDL) Overview

• What is it
• a focused, facilitated, fact supported 2 day
  session between customer and supplier to resolve
  how to improve their inter-company Supply Chain
• Who participates
• Appropriate representatives from both supplier
  and customer, e.g.
• Supplier Sales/Marketing, IT, RD
• Customer Purchasing, Manufacturing, Planning,
  IT, RD
• When is it held
• After preliminary discussions with both parties
  to
• Identify opportunity areas
• Define appropriate processes
• Gather supporting data
• Where is it held
• At the customers offices or plant

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New Tool Partnering Diagnostic Laboratory - PDL

• One-day preliminary meeting with sponsor/partner
• Draw process map Identify areas of opportunity
  make list of benefits identify partner
• Repeat process with partner mutual benefits list
  drives action
• Two-day PDL verifies opportunities
• Enlarge audience to include non-buyers and
  sellers IT, Operations, Logistics, Engineering,
  etc.
• Review both process maps Find hidden savings
• Typical results 30 to 50 ideas 5 to 10 specific
  actions to help both parties

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Why Do a PDL...?
...Not to sing Kumbiabut...
...to charter supplier/customer action teams to
attack jointly identified, resolvable issues with
potentially significant cost savings and ROI
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PDL Objectives

• Examine all aspects of the Customer/Supplier
  Relationship
• Technical, transactional, procurement, and
  logistics
• Product, information and cash flows
• Find the hidden values across the full Supply
  Chain network connecting the Customer and its
  supplier to the final consumers
• Create win-win solutions that make more money for
  both firms
• Define specific opportunities for action
• Chartering improvement teams
• Defining success for them
• Developing performance measures to track teams
  performance

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Generalized Approach for 2-Day Workshop
Straw man ideas Generalized Agenda
Action Plan and Summary
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Path to Success
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Net Markets and Exchanges Still Evolving

• Spheres of confluence are appearing
• Reality and actuality have not yet converged 12
  to 36 month time frames
• Old enemies are expecting to collaborate to make
  savings, gain next level of improvement
• New models are needed, have to be tested and
  implemented
• Theres still time to dominate an industry

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Private Exchanges B2B Commerce

• Private Exchanges, a.k.a. private marketplaces,
  e-trading hubs, company portals, or corporate
  marketplaces, balance cost efficiencies with
  personal need for relationships.
• Private exchanges link a nucleus firm with a
  specially invited group of suppliers and partners
  over the Internet.
• The system allows the nucleus firm to automate
  selected buy categories and collaborate in real
  time with trusted suppliers and distributors.

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Private Exchange Example - GXS

• General Electric Information Services 30 years
  in existence, as an EDI-based value-added network
  provider known as GEIS
• Year 2000 Splits into two units
• GE Global eXchange Services (GXS) is created to
  embrace B2B Internet-based marketplaces and sell
  e-commerce software and services.
• First year sales are 1 billion.

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Private Exchange Example Ace Hardware Company

• Private, Internet-based network allows nucleus
  firm, Ace Hardware, to have direct link with top
  suppliers
• Ace is able to view an accurate, real-time
  listing of all products in its inventory while
  watching what its suppliers have in stock
• Ace, a retail cooperative, used SCM software from
  E3 Corporation, to link Ace Distribution Centers
  to 9 suppliers
• 7 to 10 day order processing is done in less than
  24 hours
• Supplier Manco, Inc. specialty adhesives maker,
  manages 200 product system, from duct tape to
  shelf liners. Manco cut distribution cost by 28
  and reduced freight costs by 18

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Collaborative Commerce Premises

• Supply chain, logistics, order visibility, and
  e-fulfillment must converge into a focus on an
  end-to-end value chain, resulting in the
  satisfaction of a targeted consumer group within
  a specific market segment
• The value chain must be supported by a
  technically enhanced business network - the value
  chain constellation
• Firms can hold membership in multiple value chain
  constellations
• A nucleus firm will be found at the center of the
  successful value chain constellations

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The New Electronic Model

• Find a market segment with a group willing to pay
  extra for a solution to a problem
• Define the problem and offer an electronic
  solution for that group
• Introduce elements of customization
• Charge accordingly

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New Model An example Lands End

• Market segment Women looking for new beach ware
  
• Problem They dont want to try suits on in a
  store.
• Electronic solution Swim Suit Finder!
• Detail Site allows the shopper to use virtual
  reality to insert hair, face, body shape, skin
  tone and then choose from hundreds of styles to
  select the suit (s) of choice
• Each custom made suit is delivered to the home
• First year sales - 60 million
• Returns zilch

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Collaboration A Successful B2B Example

• Ford Motor Company Midsize Mondeo
• first car that will be 100 designed and
  developed over the Internet European model
• normal 48-month cycle from concept to market
  introduction reduced to 16 months
• Collaboration between designers, suppliers and
  manufacturing
• Ford plans to duplicate with launch of 2001
  Mountaineer and 2002 Thunderbird

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CollaborationExample Boeing

• Model 777 designed in virtual cyber space
• Electronic sharing of design tools and processing
  techniques with engineers, customers, maintenance
  personnel, project managers, and key suppliers of
  components and sub-assemblies
• No paper blueprints
• Work done interactively over the Web Boeings
  extranet
• 3-year delivery cut to 8 to 12 months
• Capacity increases to 2x airplanes each year

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A New Logistics Model

• Logistics consortium Agilent Technologies,
  Coca-Cola, Con Agra, Envera, Fort James Paper,
  General Mills, Graphics Packaging, Hormel Foods,
  International Multifoods, Ivex Packaging,
  Kellogg, Land OLakes, McCormick, Monsanto,
  Nabisco, Niagara, Nestle USA, and Pillsbury
• Optimized transportation routing is online,
  carriage by Dart and others, software by Nistevo,
  from manual routing to e-tool
• Alliance is working on 15 routes in North America
• Goal is transportation optimization. Deadhead
  mileage lt5
• Last company to use the truck picks up
  responsibility

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Case Study Owens Minor

• 119-year old medical and surgical supplies
  distributor develops strategy to use critical
  info from data warehouse.
• Concept Use IT technology to bolster efficiency
  of business. Provide manufacturers with data on
  usage of their products provide healthcare
  providers with data to better manage time and
  costs.
• O M has become a supply chain intermediary
  sharing data between constituents that rarely
  talked to each other.

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Owens Minor - Continued

• O M develops a system dubbed Wisdom analyzing
  information on both sides, and relaying important
  data to both partners.
• Manufacturers learn about product penetration,
  contract compliance, drop-ship activity,
  inventories at specific D/Cs, and historical use
  of products.
• Customers have real-time access to purchase order
  data and most efficient transportation of goods.
• Next iteration will provide decision support
  information, with purchase histories for all
  supplies bought by healthcare companies
  including products O M doesnt distribute.
• Also coming a mobile version of Wisdom that will
  let customers and field sales access data through
  wireless, hand-held devices.

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Summary of Implications

• The Internet is here to stay, but a lot of
  executives still dont get it!
• New business models will be required to take
  advantage of the learning
• Market and channel strategies will change,
  reflecting importance of segmentation and
  customization
• Virtual integration will replace vertical
  integration
• Winners will use collaborative commerce to
  develop a value proposition that makes sense and
  is supported by an end-to-end network
• The game is B2B2C, to satisfy the customer and
  consumer
• Its requiring new roles for those in sales,
  marketing and customer service.
• Best of luck with your effort!