Supply Chain Management & Introduction to SAP – 21ME641 Module-4

MODULE 4
Supply Chain Integration - Building partnership and trust in Supply chain Value of Information:
Bullwhip Effect - Effective forecasting - Coordinating the supply chain. Supply Chain restructuring,
Supply Chain Mapping - Supply Chain process restructuring, Postpone the point of differentiation – IT
in Supply Chain - Agile Supply Chains -Reverse Supply chain. Future of IT in supply chain - E Business
in supply chain.

SUPPLY CHAIN INTEGRATION

A typical firm is functionally organized, and material and information have to go through multiple
departments across the internal supply chain. As each function is myopic in nature and is focusing on a
narrowly defined local performance, there are many inefficiencies and buffers at departmental
boundaries. This is illustrated using two examples.
EXAMPLE 1
An electric machinery firm, which has a manufacturing plant in Mumbai, serves the southern market
through a stock point in Chennai. The Mumbai plant ships goods to the Chennai stock point once a
month because monthly demand amounts to approximately a full truckload. Obviously by shipping
goods using full truckloads, the plant is able to minimize transportation costs. As it receives goods only
once a month, the Chennai stock point has to keep high safety stocks to ensure a reasonable level of
service to its customers. Thus, both the Mumbai plant and the Chennai regional stock point have made
so-called locally optimal decisions A detailed analysis shows that it will be optimal (total transportation
and inventory cost will be lowest) for the firm to ship goods to Chennai from Mumbai once a week.
There is a trade-off between transportation and inventory costs, individual departments chose to ignore
this trade-off to make locally optimal decisions, resulting in a substantial increase in the overall cost in
the system.
EXAMPLE 2
A split pump manufacturer used to offer about 30-odd varieties of pumps in the marketplace. As
per the product design, the pump housing consisted of a top housing and a bottom housing and the exact
size of the pump housing varied with each model. The machining of housings was one of the most
critical tasks, involving expensive equipment and a significant amount of time. One of the critical
operations in the machining of housing involved joint machining of both the housing castings (top and
bottom of same model) in one setup. However, the firm found that though it had a huge inventory of

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housing castings, it rarely had matching pairs of top and bottom housing castings, resulting in serious
difficulties in scheduling machining operations, upsetting promised customer delivery schedules. The
purchase department had placed orders for top housings with one vendor and bottom housings with
another. Since one vendor had quoted lowest for top housing castings and another had quoted lowest for
bottom housing castings, the purchase department had placed orders accordingly.

While the purchase department had substantially minimized the buying cost at the purchase stage, this
kind of ordering resulted in uncoordinated supply by each vendor leading to constant problems for
manufacturing. The manufacturing team faces serious problems in scheduling its operations. Even with
a huge inventory of individual top and bottom housing castings, operations find it difficult to match
pairs for manufacturing. Hence, the company had a typical problem of high inventory and low customer
service. A simple solution therefore will be an order of top and bottom housing casting with the same
vendor with clear instructions to supply both castings of the same model in one shipment. The purchase
department had tried to similarly cut costs by splitting “C” category hardware items’ orders to several
suppliers and found eventually that many times crucial shipments could not be made because of non-
availability of some of these items.

STEPS IN BUILDING SUCCESSFUL RELATIONSHIPS

Though importance of trust in the supply chain context is understood, it is very hard to build and sustain
a trust-based relationship. Most supply chain relationships have historical baggage so one cannot switch
to a trust-based relationship overnight. Even in a new relationship, both sides will look at each other
with apprehension, so a process is needed through which trust based relationships can be built over time.
Such relationships are built as a result of a series of interactions between the parties involved.

It has been found that successful relationship building involves the following three elements

 Design relationship with cooperation and trust.

 Manage and nurture relationships

 Redesign relationship with change in environment

1. Design relationship with cooperation and trust.

 At the design stage, one has to ensure that the relationship is win-win in nature and assess the
value of the relationship for both partners.

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 In the initial stages of the relationship both parties may worry that the other may take
advantage of the relationship, so formal contracts must be signed specifying performance
measures and design conflict resolution mechanisms.
 This helps in establishing ground rules for the relationship.
2. Manage and nurture relationships
 Once the relationship is designed, during the operations phase both partners begin to
understand the finer details about the environment and the tasks involved.
 At this stage, both sides are in a better position to evaluate the costs and benefits of the
relationship. This helps parties to revise the conditions of partnership so that it is a fair
partnership. It is important that the initial contract be designed with sufficient flexibility to
facilitate such changes.
 If both parties work within the spirit of partnership, trust gets built over a period of time and
the relationship moves on an upward spiral where each interaction helps in carrying the
partnership further.
3. Redesign relationship with change in environment
 It should be realized that any relationship operates in a larger economical environment.
 One cannot expect the environment to remain stable, and with changes in environment,
technology and competition, one has to redesign the relationship.

BULLWHIP EFFECT
 The bullwhip effect is a supply chain phenomenon describing how small fluctuations in demand
at the retail level can cause progressively larger fluctuations in demand at the wholesale,
distributor, Manufacturer and raw material supplier levels.
 In supply chain management, customers, suppliers, manufacturers and sales people all have only
partial understanding of demand and direct control over only part of the supply chain, but each
influences the entire chain with their forecasting inaccuracies (ordering too much or too little).
 A retailer typically keeps 100 six-packs of one soda brand in stock. If it normally sells 20 six-
packs a day, it would order that replacement amount from the distributor. But one day, the
retailer sells 70 six-packs and assumes customers will start buying more product, and responds
by ordering 100 six-packs to meet this higher forecasted demand

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 The distributor may then respond by ordering double, or 200 six-packs, from the manufacturer to
ensure they do not run out. The manufacturer then produces 250 six-packs to be on the safe side.
In the end, the increased demand has been amplified up the supply chain from to 100 six-packs at
the customer level to 250 at the manufacturer.
 This example is highly simplified but conveys the sense of exponentially increasing
misalignment as actions and reactions continue up and down the chain. The bullwhip effect also
occurs as a result of lowered demand at the customer level (which causes shortages when
inaccurate) and can be caused at other places along the chain.
CAUSES FOR BULLWHIP EFFECT
1. Forecast updating. Multiple forecast updates by each entity in the chain leads to significant
distortions. Each member of the chain updates forecast based on orders received at his end and
not based on the demand raised by the end customer.
2. Order batching. Each member of the chain has his own economies of scale in production and
transportation resulting in planning practices leading to order batching. Sometimes order
bunching also takes place because of the planning practices of the firm.
3. Price fluctuations. Discounts or price promotions result in forward buying, causing much
distortion. Further, frequent price changes affect the ordering pattern of the buyer.

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4. Shortage gaming. In a situation of shortages the supplier usually resorts to rationing, which in
turn provides incentives to buyers to inflate orders.
5. Long lead time. Long lead times increase the planning horizon of other partners in the chain.
Further, each partner is forced to keep large amounts of safety stock, resulting in an overall
distortion increase in the chain.
EFFECTIVE FORECASTING
The following basic, six-step approach helps an organization perform effective forecasting.

 Understand the objective of forecasting.

 Integrate demand planning and forecasting throughout the supply chain.

 Understand and identify customer segments.

 Identify the major factors that influence the demand forecast.

 Determine the appropriate forecasting technique.

 Establish performance and error measures for the forecast.

SUPPLY CHAIN RESTRUCTURING:

 In the era of globalization, firms are under relentless pressure to continuously improve their
supply chain performance so as to minimize cost and maintain high levels of customer service.
 In the last decade, several leading firms have reaped substantial benefits by working on
initiatives involving supply chain integration and supply chain optimization. These initiatives
have helped these firms in ensuring above-average business performance in their respective
industry sectors.
 But in the last few years, leading firms have realized that initiatives involving supply chain
integration and supply chain optimization are not enough for ensuring above-average business
performance. These initiatives are necessary for the very survival of a firm. These do not ensure
an above-average performance.
 Supply chain integration and related best practices have received adequate attention in the
industry. These practices have percolated down from the best firms to emerge as necessary but
insufficient conditions for firms to establish themselves as market leaders.
 Industries have realized that if they want to retain their leadership, they will have to go beyond
these initiatives and look at ways in which they can restructure supply chain architecture and

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processes. Supply chain restructuring focuses on these innovative practices that separate leaders
from the “also-ran” companies.
 Unlike supply chain integration and supply chain optimization, supply chain restructuring goes
beyond supply chain function and requires integrating product and process engineering with
supply chain function. Similarly, it may also involve closer integration between marketing and
supply chain function.
SUPPLY CHAIN MAPPING:
 Before a firm sets out to restructure its supply chain, it has to find a method to successfully
capture and evaluate the existing supply chain processes. The method used to capture current
supply chain processes is termed supply chain mapping.

 Existing supply chain processes can be characterized on the basis of the following dimensions:

• Shape of the value-addition curve

• Point of differentiation

• Customer entry point in the supply chain.

 Restructuring of the supply chain process involves altering the supply chain on at least one the
three dimensions. It may also involve altering more than one dimension of the supply chain
process. We initially take one dimension at a time and later on discuss a specific innovation,
which involves altering two dimensions in the process.

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1. VALUE-ADDITION CURVE
 The supply chain encompasses all the activities/processes associated with the transformation of
goods from the raw material stage to the final stage when the goods and services reach the end
customer.
 A typical supply chain starts with some input material and information, which are transformed
into the end product and delivered to the customer. This transformation involves a number of
activities, with each activity taking time, incurring cost and adding value.
 One can debate on whether all activities add value or if there some activities that are non-value-
added activities. At this stage, we assume that the firm has removed all non-value added
activities from the supply chain processes.
 On the x-axis we have the total time in a chain or the average flow time in the chain and on the
y-axis we have the total cost (cumulative) in the chain.
2. POINT OF DIFFERENTIATION
 The concept of the point of differentiation is valid for any organization that is offering a variety
of end products to customers. Products are made in a supply chain consisting of multiple stages.
As the product moves in the chain, progressively, the product assumes an identity that is closer to
the end product.
 The point of differentiation is a stage where the product gets identified as a specific variant of the
end product. We will illustrate the concept using a toothpaste manufacturing firm. Let us assume
that the firm offers variety only in pack sizes.
 In such a firm, the packing stage is a point of differentiation. At a packing station the same basic
material, that is, toothpaste, is packed in sizes of varying dimensions. So till the packing station
one has been working with the generic material, but at the packing station the firm has to make
an irreversible decision in terms of committing the generic material to a specific product variant.
Similarly, at a garment manufacturing firm, at the stitching stage the firm is committing the
fabric to different sizes and styles of garment.
3. CUSTOMER ENTRY POINT IN THE SUPPLY CHAIN
 The point at which a customer places an order is shown as a dotted line in Figure . In several
industries customers expect material off the shelf in the neighborhood retail store.
 In such a case, the customer entry point is at the end of chain and is the same as the delivery
time. But in several industries it is not uncommon for customers to give some amount of delivery

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lead time and in such a case obviously the customer entry point will be ahead of the delivery
time. This is similar to build-to-order or configure-to-order supply chain situations.
 Essentially, the customer entry point captures the order to delivery lead time. This dimension is
important because all the operations before the customer order has to be done based on forecast,
whereas after the customer order one will be working with actual orders.
 In other words, before the customer entry point all the activities are carried out based on forecast
while subsequent activities are done based on order.
 So if bulk of the activities can be carried out based on order rather than forecast
POSTPONE THE POINT OF DIFFERENTIATION

Delaying an operational process that results in variety explosion or customization to a later point in the
supply chain postpones the point of product differentiation. Delaying the differentiating operations, apart
from reducing inventories, also reduces the time period for which one has to carry out forecasting at the
variant level and thereby reduces inventory and improves customer service and reduces product
obsolescence.
POSTPONEMENT FOR REDUCING TRANSPORTATION COST

Usually, postponing of the assembly process is carried out for shifting the point of differentiation to a
later stage. But there have also been cases where firms have used the postponement strategy for delaying
an operational process to a later point in the supply chain in order to reduce transportation costs.
Transportation cost is reduced in the case of bulky finished products by shifting the assembly operations
to the customer end as transporting parts as kits is cheaper than transporting a finished product.

PROBLEMS WITH IMPLEMENTING THE POSTPONEMENT STRATEGY

Postponement strategy is likely to be advantageous in the following situations:

• High level of product customization

• Existence of modularity in product design
• High uncertainty in demand
• Long transport lead time
• Short lead time of postponed operation
• Low value addition in transportation
• High value addition in postponed operation
• Difference in tariff rates for components and finished goods in different markets.

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From the above list modular product design and high uncertainty deserve special attention. However, the
benefits achieved due to quick response to customers, reduction of inventory carrying costs and
transportation costs have to be measured against the possible disadvantages:
• Loss in scale economies of the operations postponed.
• In certain cases, the loss of control on the postponed operations may also be highly
detrimental to the firm’s interests. Transferring critical operations from the central factory to
the dealer point may result in dilution of the product quality.
An intangible issue a firm has to consider while evaluating the postponement strategy is the impact on
relationships with other members in the supply chain. Because of globalization, companies are serving
large geographical markets and as a result have to carry large amount of FG inventory. Apart from these
issues firms also have to grapple with the recent trend towards greater customization. Firms in many
industries are introducing new products more regularly than ever before. They are also striving to reduce
costs and delivery times and increase flexibility.
IT IN SUPPLY CHAIN
IT in an organization has multiple roles: (a) it increases scale efficiencies of the firm’s operations; (b) it
processes basic business transactions; (c) it collects and provides information relevant to managerial
decisions and even makes decisions; (d) it monitors and records the performance of employees and
function units; (e) it maintains records of status and change in the fundamental business functions within
the organization and maintains communication channels.

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Although the above-mentioned roles are in the context of an organization, it is expected that IT will have
similar effects also in supply chain. IT can link all activities in a supply chain into an integrated and
coordinated system that is fast, responsive, flexible and able to produce a high volume of customized
products at low costs. IT plays the following functional roles in supply chain management.
 IT supports frictionless transaction execution through supply chain execution systems. This
forms the core of supply chain management. Processes related to the subject of order
management, manufacturing execution, inventory management, procurement, transportation
execution and warehouse management are mapped.
 IT is a means for enhancing collaboration and coordination in supply chains through supply
chain collaboration systems. The collaborative part focuses primarily on cooperation with
partners and customers via the Internet.
 IT-based decision support systems (DSS) can be used to aid better decisions through supply
chain planning systems. This provides capability to supply chain management to process and
evaluate decisions related to supply chain management using different optimization techniques.
 It is important for companies to measure their supply chain performance to know if they are
improving. IT-based business intelligence (BI) includes a technology stack with layers for
reporting and analysis tools, data warehouse platforms and data integration tools.
All four functional roles are essential for each stage in a supply chain. Each stage should know what is
to be done in collaboration with upstream and downstream stages. And it must execute the plan to
achieve the performance targets it wants to meet. There are numerous supply chain systems in existence.
These can be categorized according to the stages in the supply chain on which they focus and the
functional role for which they are used.
SUPPLY CHAIN IT IN PRACTICE
1. Select an IT system that addresses the company's key success factors. Every industry and even
companies within an industry can have very different key success factors. By key success
factors, we mean the two or three elements that really determine whether or not a company is
going to be successful. It is important to select supply chain IT systems that are able to give a
company an advantage in the areas most crucial to the success of the business. For instance, the
ability to set inventory levels optimally is crucial in the PC business, where product life cycles
are short and inventory becomes obsolete very quickly. However, inventory levels are not nearly
as crucial for a chemical company, where demand is fairly stable and the product has a very long

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life cycle. For the chemical company, the key to success depends more on utilization of the
production facility.
Given these success factors, a PC company might pick a package that is strong in setting inventory
levels even if it is weak in maximizing utilization of production capacity. However, the chemical
company should choose a different product, one that excels at maximizing utilization even if its
inventory components are not especially strong.
2. Take incremental steps and measure value. Some of the worst IT disasters are due to the fact that
companies try to implement IT systems in a wide variety of processes at the same time and end
up with their projects being failures (often called the "big bang" approach). The impact of these
failures is amplified by the fact that many of a company's processes are tied up in the same
debugging cycle all at once, causing productivity to come to a standstill. One way to help ensure
success of IT projects is to design them so that they have incremental steps. For instance, instead
of installing a complete supply chain system across your company all at once, start first by
getting your demand planning up and running and then move on to supply planning. Along the
way, make sure each step is adding value through increases in the performance of the three
macro processes. This incremental approach does not mean that one should not take a big picture
perspective (in fact, one must take a big-picture perspective) but rather that the big-picture
perspective should be implemented in digestible pieces.
3. Align the level of sophistication with the need for sophistication. Management must consider the
depth to which an IT system deals with the firm's key success factors. There is a trade-off
between the ease of implementing a system and the system's level of complexity. Therefore, it is
important to consider just how much sophistication a company needs to achieve its goals and
then ensure that the system chosen matches that level. This is important because erring on the
less sophisticated side leaves the firm with a competitive weakness, whereas trying to be too
sophisticated leads to a higher possibility of the entire system failing.
4. Use IT systems to support decision making, not to make decisions. Although the software
available today can make many supply chain decisions for management, this does not mean that
IT applications can make all of the decisions. A mistake companies can make is installing a
supply chain system and then reducing the amount of managerial effort it spends on supply chain
issues. Management must keep its focus on the supply chain because as the competitive and
customer landscape changes, there needs to be a corresponding change in the supply chain.

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5. Think about the future. Although it is more difficult to make a decision about an IT system with
the future in mind than the present, it is very important that managers include the future state of
the business in the decision process. If there are trends in a company's industry indicating that
insignificant characteristics will become crucial in the future, managers need to make sure their
IT choices take these trends into account. As IT systems often last for many more years than was
originally planned, managers need to spend time exploring how flexible the systems will be if, or
rather when, changes are required in the future. This exploration can go so far as to include the
viability of the supply chain software developer itself. If it is unclear whether a company will be
able to get support from a software company in the future, management needs to be sure that the
other advantages of this product outweigh this disadvantage. The key here is to ensure that the
software not only fits a company's current needs but also, and even more important, that it will
meet the company's future needs.
AGILE SUPPLY CHAINS
Operating in a global environment has resulted in an increased velocity of change on all parts of
business. On the one hand, customers are demanding lower cost and higher service while on the other
hand firms have to grapple with higher velocity of change on both demand and supply fronts.
Progressive firms ensure that their supply chain design and operations reflect the three factors identified
in Fig. For attaining a high level of supply chain performance, a firm not only has to ensure that the
supply chain configuration is aligned with the business strategy but also that its supply chain is robust
enough to handle demand as well as supply uncertainty. In this chapter, we focus on the robustness of a
chain, and those supply chains that can handle a high level of demand uncertainty and supply
uncertainty are termed agile chains.

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Firms that have configured their supply chain design and operations to handle high-level demand
uncertainty effectively are known as responsive supply chains. Firms that have configured their supply
chain design and operations to handle high levels of demand uncertainty and supply chain disruptions
effectively are known as agile supply chains.
Agile supply chains combine practices of responsive chains and will have practices in place that can
handle supply chain irregularities. To develop a better understanding of the characteristics of agile
supply chains, we discuss demand side responsiveness and supply chain disruption in separate sections.
Across industries, companies are struggling to manage inventory in complex global supply networks,
trying their best to match smooth uninterrupted supply with increasingly volatile customer demand.
Inventory shortages often freeze operations and sometimes cause shutdowns, costing companies their
profits and public image. To avoid potential shortages, enterprises often over-stock, effectively stalling
functional capital and hurting the returns on equity and assets.
In a volatile supplier market driven by uncertainties and risks, many companies are opting for agile
processes and systems for more effective supply chain management.
The key characteristics of an agile supply chain are its flexibility and resiliency. It’s important to
differentiate this concept from the ethos of lean supply chains and lean manufacturing, which focuses
primarily on trimming “fat” (e.g. inventory, cost) wherever possible.
Agile Advantage:
Agility is defined as the ability to respond rapidly to unexpected changes and events while maintaining
consistent customer service levels, service level agreements, liquidity, and cost structures (The Agile
Supply Chain, n.d.).
Research by McKinsey & Company indicates 94% of companies implementing agile supply chain
practices could deliver, on-time and in-full, while maintaining inventories of no more than 85 days.
Companies that failed to follow agile practices maintained 108 or more days of inventory and managed
87% on-time deliveries.
Developing Agile Systems:
Agile systems are dynamic and market sensitive. Responding to real demand efficiently, they equip
enterprises to be resilient in the face of demand fluctuations and supplier disruptions by allocating and
reallocating inventory where and when needed by reading and responding to real demand efficiently.
Thus, the ability to swiftly react to and mitigate supplier continuity risks (e.g. extreme weather, factory
fires, labor strikes, and geo-political, market, and financial crisis), is also key to achieving supply chain
agility. Here are some important design principles when developing agile processes and systems:

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 Demand Management and Forecasting. Rather than focusing on traditional ‘push’ models for
supply chain demand management that are driven by a view of orders, shipments, and inventory,
invest in more dynamic agile ‘pull’ models that are consumer centric and driven by real market
trends and point-of-sale demand data. This will facilitate precision in forecasting and responsiveness
(Johnston, n.d.). The goal is to manage virtual supply chains that are information based rather than
inventory based.
 End-to-end Collaboration. Collaborate with carriers, suppliers, and logistics providers to
understand better opportunities to improve business term flexibility, operational savings, and
demand, capacity, and business continuity planning. Specifically, leverage customer relationships
efficiently to improve demand visibility and supplier relationships to improve disruption visibility
and time-to-recovery. Advanced forms of collaboration incorporate process integration using
automated systems, e-business solutions, etc.
 Responsive Systems and Analytics. Develop responsive sales and operating plans to incorporate
supply, demand, financial results, inventory, and customer service, based on a robust analytic
capability.
 Resilience and Risk Management. Incorporate capabilities for proactive supply and demand chain
risk identification, quantification, and prioritization, as well rapid incident and crises response (e.g.
24/7 supply chain event detection, monitoring, and impact analysis).
 Design for Agility. Leverage “design for agility” or “design for resiliency” concepts which identify
and remediate product design decisions which can negatively impact product availability, such as
choosing non-standard components requiring single or sole sources.
 Process Ownership. While defining the S&OP policies (The Agile Supply Chain, n.d.) ensure that
accountable authorities are assigned to drive process changes and on-going change management.

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REVERSE SUPPLY CHAIN

The reverse supply chain is a process that is almost opposite of a traditional supply chain, meaning the
product moves from a customer back to a vendor/supplier/retailer. Reverse supply chain management
includes pickups, disposing or cleaning, sorting, repackaging, restoring, and finally reshipping. By
focusing on reverse logistics processes, a business is more robust to the complete customer lifecycle –
which comes with serious benefits.

BENEFITS OF A REVERSE SUPPLY CHAIN SYSTEM

1. Less resource waste

Your reverse supply chain can be used in the same operations as your regular supply chain, meaning you
can do multiple tasks with the same resources you had before. Having both pickups and deliveries on the
same route will reduce mileage, and mean that you are fitting in more work into the regular work day.
And, incorporating returns of reusable packaging (such as crates, if you deliver beer) is great for your
business in a number of ways.
You spend less money on packaging, less time and manpower is spent on ordering packaging, and the
environmentally friendly approach will score you brownie points with customers and help build loyalty.
2. Better customer service
According to Supply Chain Quarterly, 1 in 5 of all items purchased is returned to the manufacturer. That
means there’s a good chance that your customer will request a refund or exchange. How fast can you
receive the original product and give the customer what they’ve asked for: an easy returns process? The
faster that you can make this happen, the more likely a customer will have a positive experience.
Dynamic Replanning means you can take a customer request for an exchange, see where your drivers
are and quickly organize product returns to your depot or store and get to the customer on the same day!
With OptimoRoute taking care of your daily routing and scheduling, you’ll be able to insert jobs into
existing schedules and seamlessly handle returns management. Being able to offer this sort of service
will give you an edge over competitors too.
3. New avenues of revenue
By having the capability run an efficient supply chain at the same time as a reverse supply chain – or
swap between the two based on the season – you’re empowering your business to be incredibly flexible,
and ultimately profitable all year long.
Like the ice cream delivery company King of Pops that, come winter, introduces a Christmas tree
delivery and pick up service.
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There’s no point having an optimized and efficient reverse logistics process if your customers can’t
experience the convenience that it offers. And, increasing the amount of high-quality face-to-face
interactions with your customers gives you more opportunity to impress!
Here are some ways of encouraging customers to be a part of the reverse supply chain:
1. Instead of mail-in returns/exchanges – offer to pick up goods
When customers want to return or exchange a product, offer free pickup instead of paying for mail
service. This expedited asset recovery allows your team to find an optimal time to come and pick up an
order along their way, and OptimoRoute’s route optimization software slots these jobs without
compromising the efficiency of the entire route. Not to mention that customers will LOVE not having to
head off to the post office to return their item.
2. Go for reusable/refillable products
Many services, such as food delivery and water bottle refills can use reusable/refillable packaging. Why
not integrate the pick up process into your overall supply chain? It’s one more touch point with a
customer to drive loyalty through great service.
Scheduling is simple, because it’s easy to indicate whether a job is a delivery or pickup. If the items you
are collecting are large or heavy, OptimoRoute also lets you plan in accordance with the capacity of
each vehicle.
3. Offer a collection service of old and bulky items
If you are already delivering new products such as appliances, furniture, mattresses or any other bulky
items, offer to take the item that the customer is replacing. The added customer service could be your
differentiator in a competitive market.
And the potential is there – just consider the fact that in 2007 only 18% of all computers were recycled,
but thanks to reverse supply chains the amount went up to 40% within six years. However, trying to
control this process with manual planning would give you a confusing mess. But, with OptimoRoute this
reverse supply chain would be easy to manage and wouldn’t be a burden on your resources.

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THE FUTURE OF IT IN THE SUPPLY CHAIN

At the highest level, we believe that the three SCM macro processes will continue to drive the evolution
of enterprise software. To this end, we expect to see software focused on the macro processes become a
larger and larger share of the total enterprise software landscape and software firms that focus on the
macro processes to be much more successful than those that focus elsewhere. For firms targeting a
macro process, we see functionality, the ability to integrate across macro processes, and the strength of
their ecosystems as the keys to success.
This conclusion has important implications for companies that are users of software. As we mentioned
earlier, the criteria for successful software companies were chosen precisely because they are the
characteristics of software that improve the performance of its users. Thus, a user of supply chain
software should first identify areas within the three macro processes where improvement will provide
the maximum leverage. Software and IT decisions should then support the goal of improving
performance along these processes.
There is one final note worth mentioning with regard to the future of new software players in this area.
One might conclude from our analysis that it will be very difficult for a new company to break into the
ranks of successful enterprise software companies, given the lead in functionality, integration, and
ecosystems that existing firms already have. We believe, however, that there are two potential paths for
a company to enter the market. The first is through superior functionality, whether it be specific
functionality needed by a particular industry or an application with vastly improved ease of use. In this
area, we see start-ups adding value to enterprise software, although it is a very difficult path to take
given the advantages the ERP players hold today.
The other path consists of providing an integrated product that increases the linkages between the macro
processes. Certainly, it will be difficult for a start-up to garner the resources to build an integrated
product across CRM, ISCM, and SRM. However, a large software company with tremendous resources
and a history of pulling disparate products into an integrated package could take this path. The one
obvious company here is Microsoft. Microsoft has certainly noticed the growth and size of the enterprise
software market and has begun to make a significant effort to enter this space. It has made two
acquisitions of over $1B and is showing more signs that this will be a focus in the future. Even with
these acquisitions, Microsoft is not yet a significant player in supply chain software and has targeted
only small companies as its customers, leaving the large customers and the large revenues to the existing
players. Given Microsoft's tried and true strategy of going in on the low end and expanding upward,
however, it is certainly a company to watch for on the enterprise software landscape.
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E –BUSINESSIN SUPPLY CHAIN

IMPACT OF E-BUSINESS ON CUSTOMER SERVICE
As with distribution networks considered earlier, we start by studying how e-business affects customer
service elements such as response time, product variety, availability, customer experience, time to
market, visibility, and returnability. We also look at factors such as direct sales and the ability to offer
flexible pricing that help e-business.
1. Response Time to Customers
In selling physical products that cannot be downloaded, an e-business without a physical retail outlet
takes longer to fulfill a customer request than a retail store because of the shipping time involved. Thus,
customers who require a short response time may not use the Internet to order a product. There is no
such delay, however, for products that can be downloaded. Going online may offer a time advantage in
many cases. For example, a mutual fund prospectus or music can be downloaded from the Web. A
physical mailing of these products or even making a trip to a music store takes much longer.
2. Product Variety
An e-business finds it easier to offer a large selection of products than a bricks and-mortar store. For
example, Amazon.com offers a much larger selection of books than a typical bookstore. Offering the
same selection at a retail store would require a huge location with a correspondingly large amount of
inventory.
3. Product Availability
An e-business can greatly increase the speed with which information on customer demand is
disseminated throughout the supply chain, giving rise to more accurate forecasts. These improved
forecasts and the more accurate view of customer demand leads to a better match between supply and
demand. On the inventory front, this translates into having more of the inventory that customers dell\and
and less of the inventory they do not. An e-business also allows for aggregation of inventory that
improves product availability.
4. Customer Experience
An e-business affects customer experience in terms of access, customization, and convenience. Unlike
most retail stores that are open only during business hours, an e-business allows access to customers
who may not be able to place orders during regular business hours

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5. Faster Time to Market

A firm can use e-business to introduce new products much more quickly than a firm that uses physical
channels. A firm that sells PCs through physical channels must produce enough units to stock the
shelves at its distributors and retailers before it starts to see revenue from the new product. An e-
business, in contrast, introduces a new product by making it available on the Web site-a distribution lag
to fill the physical channels is not present. A new product can be made available as soon as the first unit
is ready to be produced. This is evident in the computer industry, in which Dell often introduces new
products earlier than its competitors that use traditional channels.
6. Order Visibility
The Internet makes it possible to provide visibility of order status. From a customer's perspective, it is
crucial to provide this visibility because an online order has no physical equivalent to a customer
shopping for an item at a retail store.
7. Returnability
Returnability is harder with online orders, which typically arrive from a centralized location. It is much
easier to return a product purchased at a retail store. The proportion of returns is also likely to be much
higher for online orders because customers are unable to touch and feel the product before their
purchase. Going online thus increases the cost of reverse flows.
8. Direct Sales to Customers
An e-business allows manufacturers and other members of the supply chain that do not have direct
contact with customers in traditional channels to enhance revenues by bypassing intermediaries and
selling directly to customers, thereby collecting the intermediary's incremental revenue. For example,
Dell sells PCs online direct to customers. As a result, Dell is able to increase revenue and enhance
margins because it shares no part of the revenue with a distributor or retailer. In contrast, HP, which
sells through retailers, must share some of the product revenue with the distributor and retailer, resulting
in lower revenue and margins for HP.
9. Flexible Pricing, Product Portfolio, and Promotions
An e-business can easily alter prices by changing one entry in the database linked to its Web site. This
ability allows an e-business to maximize revenues by setting prices based on current inventories and
demand. The airlines provide a good example of this ability-they make last-minute, low-cost fares
available on the Web on routes with unsold seats. Dell also changes prices for different PC
configurations regularly, based on demand and component availability. Firms can change prices at an e-

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business much more easily than most traditional channels can. If Dell or L.L.Bean were to use paper
catalogs to convey a discount in prices, they would have to print new catalogs and mail them to potential
customers. With an e-business, however, they only have to update the price on their Web site. Similarly,
an e-business can easily alter the product portfolio that it offers as well as the promotions it is running.
10. Efficient Funds Transfer
An e-business can enhance revenues by speeding up collection. As each and every people in chain try to
transfer funds online it will reach the center quicker.
IMPACT OF E-BUSINESS ON COST
On the cost side, e-business affects inventory, facilities, transportation, and information costs. It is
important to observe that the impact in each case is not necessarily positive.
1. Inventory
An e-business can lower inventory levels and inventory cost by improving supply chain coordination
and creating a better match between supply and demand. Additionally, e-business enables a firm to
aggregate inventories far from customers if most customers are willing to wait for delivery of online
orders. As a result of geographic aggregation, an e-business requires less inventory.
2. Facilities
Two basic types of facilities costs must be included in the analysis: costs related to the number and
location of facilities in a network, and costs associated with the operations that take place in these
facilities. An e-business can reduce network facility costs by centralizing operations, thereby decreasing
the number of facilities required.
3. Transportation
If a firm can put its product in a form that' can be downloaded, the Internet will allow it to save on the
cost and time for delivery.
4. Information
An e-business can share demand information throughout its supply chain to improve visibility. The
Internet may also be used to share planning and forecasting information within the supply chain, further
improving coordination. This helps reduce overall supply chain costs and better match supply and
demand.

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