introduction
Objective
While this Paper outlines the growing importance of Internet trading in e-Business, the objective of this paper is not to detail the reasons why a business should move to Internet trading. The objective of this Paper is to highlight the need for Logisticians to identify the changes that could be required in their warehousing operations to support their Company, if their Company decides to commence trading through the Internet. In other words, this paper provides information needed by Logisticians to exercise the first principle of Logistics, Foresight!
If your business moves to Internet trading, significant changes will be required for your warehouse operations. The changes discussed below will apply regardless of the type of Internet trading involved, i.e.:
Business-to-Business (B2B),
Business-to-Consumer (B2C), or
A combination of B2B and B2C Trading.
General Outline
The discussion points of this paper are grouped under the following headings:
Definitions,
Forecasts for Internet Sales Growth,
Potential Business Gains
Supply Chain 每 The Key Links
Potential Areas of Change For Warehousing,
EDI v Internet
MOR Supplies
Conclusion
Definitions and Abbreviations
Every new business development seems to bring with it a new ※language§ or group of ※terms§. Consultants and business / Industry groups seem to find the need to ＆personalize＊ the terms and conditions. While the wording and abbreviations may change, the basic meaning should remain constant. We should focus on the ＆meanings＊ rather than the terms or wording of the definitions.
Along with the new terms comes a range of new abbreviations. The first time that the abbreviation is used in this Paper it will be shown in full and followed by the abbreviation.
Terms used in this paper that may not be in common use are defined at Annex A to this Paper 每 but remember that every term can be changes within a business to mean whatever the business wants it to mean. For example, a business may receive all their orders by Fax and call that e-Business. Within their definition they are correct, but within the scope of this paper they are not a real e-Business player.
The more important terms used in this paper include: ※e-Business§ and ※e-Commerce§. These are commonly used interchangeably, but I see the difference as:
e-Commerce is the use electronic means such as the internet, telephone or fax, to carryout commercial transactions, typically associated with order fulfillment and customer service activities.
Note: In my opinion this term implies that the Company sales and marketing functions are probably making use of electronic means, but because the electronic means is not ＆business wide＊ (e.g. Buying or Supplier links may not be in place) there may not be total pipeline visibility.
e-Business encompasses e-Commerce plus other aspects of business that supports the online transactions, including calculating and sending / receiving / confirming / progressing sales and purchase orders, advertising, customer support, detailed product information, and electronic linking to strategic partners and key elements of the logistics channels to create total pipeline visibility.
Almost any term can have the addition of ※e-※ added to it and the standard definition of the term would apply with the addition that the process or task is carried out by, or supported by, new technology electronic means. ※Electronic§ could equally mean the use of EDI or the Internet. However, support of Internet Trading normally involves shorter order and fulfillment cycles so this Paper assumes that we are preparing to support Internet trading. Examples of made up ※e-Words§ where the original definition remains valid (with abbreviated meanings) could include:
e-Procurement - Business purchasing by electronic means
e-Communities / eConsortiums - Buying groups using eProcurement, eCommerce or other electronic trading processes
e-Systems - Specialised systems with seamless links designed to support eBusiness processes
Logistics. The USA Council of Logistics Management (CLM) defines Logistics as ※ that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers＊ requirements§. I think that we can safely add our electronic ※e-※ to create a new term ※e-Logistics§ and use the CLM definition with the addition of ※using electronic means to integrate internal functions and the links of the supply chain to deliver total supply chain visibility§.
Forecasts for Internet Sales Growth
Why are USA or Global Internet sales forecasts important to a Logistician in Australia? ※Good§ business trends that get started in USA seem to get implemented Australia about 18 months later, and the e-Business ※main wave§ is on the way in Australia.
While a number of businesses have been running successful Direct Marketing operations in Australia for some years, the scale of operations is small compared to the e-Business operations we will see established in Australia in the next few years. Australia is well positioned (talented and stable infrastructures) to provide major Fulfillment Centres for the Australasian and South East Asia Regions.
You will see a range of sales forecasts for Internet Trading from ＆experts＊ and they will all be different. I do not believe that the exact ＆numbers＊ are of vital importance so it does not worry me that they are different. But the ＆growth pattern＊, and the ＆indicative level＊ of sales are important.
Charts 1 and 2 are offered below as an indication of how quickly the estimates are changing, and how fast the sales are expected to grow for Companies who embrace Internet trading.
The major reason for the dramatic change between the estimates made in mid 1997 v the late 1998 estimate shown in Chart 1 is that in early 1997 it was still widely believed that EDI would be the preferred method of B2B e-Business trading. This belief started to change in 1998 and it is now widely accepted that B2B trading will be made through Internet connections. We will discuss why B2B trading is moving to the Internet rather than EDI later in this Paper.
Chart 2 highlights that, while B2C trading continues to be significant, the major growth in ※Global§ Internet sales will be in B2B trading area as we move towards the year 2003.
The purpose of Charts 1 and 2 is to show where our business focus should be if we plan to commence trading on the Internet. Retail Internet or B2C sales are becoming very significant, and they have received most of the media attention in recent years. However, the B2B e-Business currently provides, and will continue to provide, the greatest opportunity for business growth within an Internet trading environment 每 so this will become the major focus area for logistics.
By 2003 it is estimated that B2B sales are likely to account for some 90% of e-Business. Maintenance, Repair and Operating Supplies and Services (MRO) is a significant part of the forecast B2B sales increase; possibly as much as 30% to 50% of the sales. MRO sales are further discussed in Section 8 of this Paper.
To claim a share of this growth in B2B sales, businesses need to be developing their strategic plans now 每 being first into the Web marketplace is more important today than ever. To claim their share, a business will need to employ efficient internal e-Business processes and they need to be working with ＆strategic partners＊ who share a high technology based strategic plan that employs state of the art e-Business systems. These systems will be employed to:
Introduce efficient and disciplined e-Procurement processes,
Provide the basis for fast access to the extensive information needed to make timely and accurate (perhaps even automated) purchasing decisions.
Provide Total Supply Chain visibility for all stakeholders, including suppliers, customers and transport links as well as internal operations, and
Provide the Fulfillment Centre with the support they need to meet business and customer expectations and standards for the orders to be picked packed and delivered.
As identified in first paragraph of this paper, the objective of this paper is not to discuss the reasons why a business should move to B2B e-Business, the purpose is to highlight the need for Logisticians to identify the changes that could be required in their warehousing operations to support their Company if they decide to commence trading through the Internet. Businesses are likely to move to Internet trading because of potential business gains that can become available to them.
Potential Business GainsEvery industry and every business is different. Consequently, the impact of introducing Internet trading will vary for each industry and each business. However, the reductions shown below are typical of the types of activity that will be improved and provides an indication of the type of impact than can be expected from a successful implementation of a move to Internet trading.
Cost of Goods and Services = 5% to 10% Reduction
Procurement & Fulfillment Cycle = Down from 7+ days to 2 days
Administrative Costs = Down from $100+ to $30 per order
Inventory Levels = 25% to 50% reductions
Cost of Goods & Services
The more links of the supply chain that can be ＆eliminated＊ or ＆by-passed＊, the greater the potential for price reductions. Where a link is not eliminated or bypassed, it is essential that the ＆link＊ become Internet enabled. While the elimination of supply chain links (including warehouses) in the supply chain is a major source of cost savings, administrative costs are another major source of potential savings through the establishment of more disciplined e-Business processes and Decision Support Systems.
Some processes (such as initiating credits for returns), which are handled by administration in a traditional business, may be transferred to Fulfillment Centre operations in an e-Business company.
Procurement & Fulfillment Cycles
The procurement and fulfillment ＆cycle time＊ is the elapsed time from the start of the procurement process at the ＆Buying＊ Company until the goods have been supplied and received; and all records have been updated. The items identified above that produce cost savings also result in reduced cycle times.
Most of the time involved in the procurement and fulfillment cycle in a traditional company is for ＆administrative＊ processes and the goods are actually ＆moving＊ for only some 10% of the elapsed time of the procurement and fulfillment cycles. Because of the high level of automation in the order taking and administrative processes of an e-Business company, the goods are moving for 80 to 90% of the elapsed time of the procurement and fulfillment cycle.
The reduction of time spent on the ＆processes＊ is a key factor in improving service levels and inventory levels. Until recently, a procurement and fulfillment cycle of 3 to 5 days was considered close to ＆best practice＊. Now, procurement and fulfillment cycles of 2 to 3 days is considered as a marginal service and with internet trading the procurement and fulfillment cycles needs to be measured in ＆hours＊ not days.
Same day despatch of ordered goods and same or next day receipt of goods is the expected standard. The only acceptable reason for a longer delay before delivery is the distance to be traveled to complete the delivery.
Administration Costs.
The ability to automate many of the processes and the disciplines imposed through e-Procurement / Internet processes will be reduce Administration costs. Administration efficiency is outside the scope of this Paper but is a major reason why businesses will adopt e-Business processes.
Summary
The potential business gains outlined above are linked to the creation of an integrated supply chain that delivers total supply chain visibility (also called total pipeline visibility). Supply Chain 每 The Key Links
The supply chain links will vary for each of our Companies, but there will be a number of similar ※Key§ links in each of our traditional supply chains. The ※Key Links§ that are common in most traditional supply chains are shown in Chart 3.
To illustrate how the roles of supply chain ＆links＊ or Companies are changing with the introduction of e-Business processes, and the potential impact these changes can have on the warehousing function, we will focus on the relationship changes that could occur in the following supply chain links:
Retailer
Wholesaler, and
Manufacturer
In the Traditional Supply Chain a separate ＆Company＊ normally performed the role of each link. While the same range of ＆link＊ titles are used in the e-Business supply chain is important to understand that the roles of all of the above 4 links (or any combination of links) can be (and are being) provided by a single Company when a manufacturer / supplier decides to become an Internet retailer. This is an important potential area of change for warehousing. Only ＆best practice＊ warehouses capable of delivering all the expectations of a Fulfillment Centre will survive the potential distribution channel conflicts that arise when Retailers, Wholesalers (or Distributors), or Manufacturers decide to become Virtual Retailer or Wholesale traders on the Internet.
What Distribution Channel should you use to service Internet Customers? Your answer will depend on where you are standing in the supply chain - Manufacturers, Distributors and Retailers will each provide a different answer because the view is different for each of them.
Every internet trader becomes a ＆retailer＊ (and some will be wholesalers / distributors as well) and once you have overcome the challenges of designing and delivering a Website that will bring customers flocking to your site the critical factor for repeat business is an efficient and reliable distribution channel. It is not important that a ＆Virtual Store＊ own or operate their own Fulfillment Centre. It is only important that it be efficient and meet or exceed the customer expectations,
The Conflict or Challenge
If you are a Manufacturer, you have to decide if you want to become an Internet retailer, and if you do, what will become of your business with existing distributors and retailers?
If you are a Distributor and decide to become an Internet retailer, what is the impact on existing customers who are probably retailers of the same product line?
If you are a Retailer it is an easier decision to make - but will your existing suppliers decide to become Internet retailers and therefore become competitors? Will the suppliers who become retailers continue to supply retail ※competitors§?
Some Potential Answers
The answer to all these questions will be different for each Company. If you are a manufacturer and plan to ＆do it all yourself＊ then the decisions are less complicated; but implementation will need careful management to protect your business from the potential after effects of the decision (from your existing customers, and your customers customers).
But, if you are not a manufacturer who wants to be a Virtual retailer, the way to secure your role in the future internet business is to be the initiator and show the other elements of the supply chain how you are perfectly positioned to fill the position that you have chosen for your Company, and show your strategic partners how they can benefit from your plan. For example:
If I was a Retailer, I could show the Manufacturer / Wholesaler / Distributor that they should be changing their business to be the Fulfillment Centre to support sales of their products through my ※Virtual Store§ which would be created to capitalize on my existing reputation as a successful retailer.
If I was a Wholesaler / Distributor I could offer to become the Fulfillment Centre for a number of existing and potential Virtual Stores to secure my place in the supply chain. I would also be extending my role to support Suppliers in their B2B e-Procurement ventures to deliver the visibility and response times to meet their needs.
If I was a Manufacturer I could examine a range of options including:
∫ The potential costs, risks and returns that would be involved in becoming a Virtual Retailer myself, with the Fulfillment Centre being operated internally or outsourced, possibly to an existing Distributor who needs to protect their existing business.
∫ The potential costs, risks and returns that would be involved in working with a number of existing innovative retailers (existing customers or not), and existing Virtual Retailers that are not currently customers and have them market my products in their Virtual Stores. I would also work with them to develop the mutually acceptable solution for the provision of a Fulfillment Centre, with the Fulfillment Centre being operated internally or outsourced.
Whatever option I was considering for B2C Internet Trading I would ensure that the Fulfillment Centre was also a workable option for my B2B orders. The Virtual Store for B2B can be the same as for B2C orders, or I could establish a Virtual Store dedicated to my B2B operations that is operated ＆In House＊ or by a 3rd Party Operator.
※DO What You Do Best - and Outsource The Rest§ is being said more often every day in business. If your warehouse or Fulfillment Centre can not deliver the required service levels you must expect the function to be outsourced to professionals who can deliver the required standards that will ensure the success of your e-Business venture. Outsourcing could be to 3rd Party Operators or existing supply chain links, which are seeking to change their role in the ※e-Supply Chain§.Total Supply Chain Visibility
Stock must be held ＆somewhere＊ in the supply pipeline for most products. The further up the supply pipeline this occurs, the closer the relationship that can be developed with the Suppliers. Close relationships, with a high level of (2 way) information sharing further reduces pipeline ＆flutter＊ or fluctuations due to inaccurate Forecasts (Guesses). The concept of pipeline flutter increasing with number of links between the customer and supply is illustrated in Chart 4.
One of the most important features of e-Businesses with Internet based supply pipelines and specialised supply chain software is the creation of total supply chain / pipeline visibility. This visibility creates the opportunity to identify potential problems before, or as soon as they occur. This early identification allows an e-Business to be proactive and arrange alternative supply sources where required and to keep the customer informed of the changes - before the Customer has to call to find out where there order is! The concept of total supply chain / pipeline visibility is shown in Chart 5.
Quantum sales leaps of 2, 5 or even 10 times the existing sales levels are not impossible for companies who put the resources in place to deliver total supply chain / pipeline visibility. Sales growth of this magnitude will require world best practice Fulfillment Centres to provide the required service levels.
Although visibility is important for ＆Human＊ reviews, it is vital to allow ＆automatic＊ reviews to occur ＆between＊ systems at every point in the supply pipeline. The automated reviews will initiate automatic ＆exception＊ messages (by Email normally) as directed, e.g.:
Advise the Inventory Manager by Email when stock levels fall below X days stock based on sales for the last Y days - and provide details of Global holdings with the message.
Advise the Client Manager when an order for a specified Client is not going to be delivered in full or on time - and provide details of the full order and the problem item and global holdings of the problem item (so they can be proactive and fix a potential problem before it occurs).
Inventory Levels
All of the issues discussed above, and the Total Supply Chain Visibility illustrated in Chart 5 provide opportunities for reduced inventory levels in a number of areas. When we do not know where our stock is, and therefore we cannot count on an arrival date, we all tend to carry extra inventory ※just-in-case§. With total pipeline visibility businesses will feel more comfortable with the concept of on ＆just-in-time＊ deliveries.
Conclusion
The wide range of internal changes to create an e-Business, the extensive external changes to supply chain partnerships, and the higher service standard expectations of e-Customers operating on the internet will result in major changes for warehousing to create a Fulfillment Centre to support the e-Business.
Areas of Change For Warehousing
Introduction
The design, layout and operations for an Internet Fulfillment Centre is significantly different to a traditional wholesale or supplier＊s warehouse, and it is different to a traditional retailer＊s warehouse.
If your Company becomes an e-Business company one of the first changes will be to change the name of the ※Warehouse§ or ※Distribution Centre§. It will be called a ※Fulfillment Centre§ and this will mean much more than just a name change 每 it will mean changes in a wide range of logistics areas, including:
People,
Design and Layout
Strategic Partnering or Alliances.
IT and Systems,
Need to change storage methods and equipment, physical layout, and picking and packing techniques are discussed in outline in this Paper and in detail in other papers in this series. This Paper also addresses the ＆other＊ areas of change that will need to occur for a ※Warehouse§ to be changed into an e-Business ＆Fulfillment Centre＊.
People
The management of culture change for management staff will be a major challenge for the Company 每 in all functional areas, not just the warehouse. The culture must be changed from one that is comfortable with traditional ＆predictable＊ processes; to one that readily accepts new age ＆unpredictable＊ processes and readily supports projects that cannot be judged with traditional measurements.
e-Business staff must be flexible and customer focused, no matter what position they hold. This is particularly important for the warehouse or Fulfillment Centre staff, as they are the key interface between the e-Business and their customer.
Some of our Staff selection criteria may need review. The well dressed clean cut image was important for the traditional warehouse where staff could have physical contact with the customers during a ＆pick-up＊ from the warehouse, or where the staff visited ※Street Front§ retails store customers. In the Fulfillment Centre, particularly in Customer Service roles, age and appearance is unimportant; but energy, enthusiasm, attitude and aptitude for the e-Business electronic processes are vital.
Senior Management and Fulfillment Centre Management Teams must be passionate about e-Business processes. Staff will quickly detect the absence of passion for the e-Business processes in the Management Team if it does not exist, and they will question or reject the processes instead of actively supporting the processes.
Examples of skill set changes that need to be examined include:
Technology. Business emphasis will be on provision, access, and action of information electronically, rather than verbally, communicated. Additional Company training on learning how to use and leverage new technologies and the Internet.
Communication Skills. e-Mail will become the most common form of communication with customers and other functional areas of the e-Business. Consequently, in addition to verbal skills, written communication skills will become of increased importance.
Customer Focus. It may be thought that there is an existing customer focus within the Company. However Internet trading involves an even stronger customer focus that traditional retailing. Speed of delivery of the customer service and the promptness of follow-up action takes on a new importance with Internet Trading.Design and Layout
In a ※Traditional Warehouse§ the design, layout and operations are based on the need to:
Receive and store large quantities of a limited range of products, often pattetised for receipt and storage.
Efficiently ＆pick＊ wholesale or retail pack quantities.
Pick and pack individual customer orders as the exception and not the rule.
Meet processing or throughput time for orders based on existing ＆traditional＊ business and customer expectations.
Outbound transport is normally based on ※pallet loads§ or ※truck loads§. Small parcel deliveries and direct to customer home deliveries are very much the exception and not the rule. and
Accept limited (or no) pipeline visibility.
An Internet ※Fulfillment Centre§ must be designed to provide fast and accurate picking and packing of individual customer orders. Although this particularly applies to B2C orders, B2B internet orders are normally smaller than conventional B2B orders and, because the business customers will be operating with lower stock levels, faster response times will be demanded from the Fulfillment Centres. Small order picking is a labour intensive task and Internet orders demand a higher level of accuracy than is acceptable for traditional orders, i.e.:
Accuracy levels of 95% to 98% are the commonly achieved level in ※Good§ Traditional Warehouses.
Accuracy levels of 99.9%+ are required from a Fulfillment Centre supporting e-Business operations.
To achieve the required level of accuracy, throughput times, freight tracking and total pipeline visibility a modern ※Best of Breed§ Warehouse Management System (WMS) is essential. It must be linked to the strategic Internet systems to give customers visibility of the progress and status of their order within the warehouse. There must be no compromise in the selection of the WMS! In addition, automated picking and sortation techniques may be required (and easily cost justified) for high volume operations.
Strategic Partnering or Alliances
Many Companies have allowed the number of suppliers and transport companies supporting them to increase over time. New buyers introduce new suppliers and new warehouse managers introduce new transport companies - and they seldom ＆clean out the old＊ suppliers and transport companies. Large numbers of suppliers of goods and services reduces your purchasing power with each of them. Reduction of supplier / transport company numbers increases purchasing power with each of the remaining suppliers / transport companies.
When negotiations commence with existing suppliers / transport companies it will become obvious that many will not be ready or willing to introduce the systems and disciplines required to support your eBusiness Plan. This filtering process will allow you to form stronger trading relationships with the remaining suppliers and probably with increased discounts due the increased business you will be doing with these suppliers.
IT and Systems
e-Mail. The Company will need to identify all the individuals and departments that will require unique e-mail addresses and the warehouse requirement can be underestimated unless you are proactive. You will need to review warehouse operations and identify the positions that can and should ＆action＊ e-mail messages from Suppliers, Customers and internal functional areas. The speed of operations in a Fulfillment Centre cannot afford the time required for managers to ＆filter and review＊ messages, they need to go directly to an action address. Some of the e-mail addresses can be a ＆generic＊, i.e. a number of positions can regularly access one e-mail address to initiate action.
The existing IT resources were recruited to meet the existing IT ※traditional§ requirements of the business. A different range of IT skills may be required to become the Technical Advisors on the specification and selection processes the range of new technology e-Commerce, supply chain planning and execution systems, decision support systems (DSS), and warehouse management systems (WMS) for the decision makers.Remember, that while IT specialists need to identify and evaluate the systems alternatives, the decision makers need to acquire enough knowledge to understand the recommendations and make valid decisions. If the existing Warehouse Management Team cannot acquire the skills needed to assist in the evaluation of specialist warehouse systems you need to question their ability to use the systems to meet the needs of an e-Business operation.
The warehouse systems selection process needs input from operational line managers to ensure that operational efficiency does not get overlooked or down-played. In particular, the Warehouse Management Team needs to be involved in the decision process for the selection of the WMS and the related DSS (which may be different to the DSS requirements of other functional areas). The Warehouse Management Team has to make the systems work in the warehouse and meet the required service standards. If they are involved in the decision making process they are more likely to take ownership and produce the commitment required to persevere with new systems through the inevitable teething problems with new software and hardware! Globalization. The supply chain integration needs to be as wide and as deep as required to cover your business, the location of your supply pipeline partners, and your customers. If this means a truly ※Global§ network, then that is what you need to fully track and control transactions. With the new technology eSystems that are available to you, used in conjunction with the Internet, communications ※across the World§ are almost as straight forward as ※across the street§.
Inventory Control. The tighter inventory controls and improved response times that are available with eSystems provide a higher in stock position with lower inventory levels. In addition, if there is a stock out for any reason the problem is resolved more quickly due to the immediate eSystems identification of the problem and the improved response times. These improvements result in improved ※up time§ for the equipment being supported.
Inventory Levels. With the lower inventory levels achieved through the employment of new technology systems and related disciplines savings become available in a range of areas including staffing of the Fulfillment Centre as well as Purchasing, Accounting and Sales.
Automated Checking and Payments. A wide variety of administrative procedures for checking and approving transactions can be automated to reduce administrative time and improve accuracy. These approvals can be subjected to a wide variety of controls to ensure that the responsible Executives retain effective control of the Business. Where Executive confirmation or approval is required it is done ＆on screen＊ and the supporting information needed to make the decision / give approval needs to be automatically provided with the computer generated ※eRequest§.
Systems Interfaces. Physical interfaces with a variety of systems were always a problem. The use of 3rd Party Internet Service Providers makes the interface to a variety of systems much simpler. This provides the opportunity to create interfaces to a variety of systems used by potential Buyers, such as MRO or Maintenance Systems.
System Testing. One of the key IT issues is the design and implementation of ※user testing§ plans for new software and hardware. Do not leave all the testing to the I.T. Department! The IT specialists need to carry out the initial tests to ensure interfaces are working and that the software and hardware ＆works＊ in a technical sense. However, ※user testing＊ and ＆acceptance testing＊ (which is usually a milestone in the project which involves major payments when the software or hardware passes these tests) must be designed and performed by the operations team that will be using the software and hardware to meet their performance standards. Test, test, test, test, then test again! Do not give in to any internal or external pressures to accept software or hardware until they have passed your operational tests that replicate multi user activities on the busiest day that you are likely to expect over the next 2 years.EDI V Internet
The initial rejection of Internet as a business communications tool in favour of EDI is a classic example that shows the biggest and best businesses in the world can misjudge a newly developed concept. If we decide to use the Internet for business we will need to review a wide range of new technology tools that will be offered to ＆assist＊ us in implementing the decision. We have to decide what we want to do, than review the available software and hardware with an open mind (and with an expert guide 每 but not the software supplier).
By 1997 there was some small movement of B2B e-Business to the Internet, but most businesses were fully convinced that EDI was the only suitable tool for B2B transactions. Large businesses in particular were investing heavily in the EDI technology by 1997. They were also making strong attempts to have their supply pipeline partners, large and small, join them with EDI connections. It was believed that the Internet could be a useful tool for B2C sales but lacked the security and disciplines need for B2B applications.
As shown in Chart 6, by 1998 the level of B2B e-Business in USA had grown to US$671 billion. However, only US$92 billion was transacted in Internet-based transactions and the bulk of the transactions (US$579 billion) were made through Electronic Data Interchange (EDI), mostly over private EDI networks (Extranets).
The availability of new Internet technology for Firewalls, Security Systems, plus the ※translation§ systems that allow each user to continue with their existing strategic applications and yet achieve a seamless interface with pipeline partners has lead to a dramatic change in e-direction for many businesses. Chart 6 also shows the dramatic change in the forecast mix of EDI v Internet for B2B transactions by 2003.
I believe that the reason for the change in direction is contained in the (underlined) phrases of the definition of EDI, i.e.:
＆Transfer of structured data by agreed message standards from one computer to another by electronic means with a minimum of human intervention＊.
The requirement for both the EDI sender and the receiver to employ the same data structure and to use the same message standards, which are not able to be changed by the Companies using them, and which are very slow to change internationally to meet user requirements, make EDI quite inflexible. The Internet has all the advantages of EDI, without the inflexible disadvantages, and it is normally less expensive to implement. That is why Internet use for B2B is growing so rapidly!
It is forecast that by 2003 over 65 percent of all B2B e-Business purchases in the USA will be made by 6 industry groups; retail, motor vehicles, shipping, industrial equipment, high tech, and government. A major portion of these B2B purchases will be for Maintenance, Repair and Operating Supplies (MRO)
MRO Supplies
Maintenance, Repair and Operating Supplies and Services (MRO), including capital purchases, travel expenses, personnel services, machine tools, I.T. and office equipment, services and supplies, travel expenses, and other general operating expenses are often group under a range of generic titles such as ※MRO§, ※ORM§ (Operating Resource Management) or ※Operating Resources§. MRO includes all non-production goods and services other than raw materials and labour used in the creation of products in day-to-day operations.
Most purchasing involving B2B transactions will be ordered as part of a MOR programme. Consequently interfaces to / integration with these programs creates sales opportunities for spare parts suppliers and opportunities for reduced costs and reduced inventory levels for companies employing MOR programs. Typically MRO consumes 30% to 40% of total costs for a manufacturer, and 50%+ of costs for service based groups such as government departments.
MOR is raised in this Paper to highlight the need for considering an interface to service based groups such as Government Departments to improve the e-Business sales potential and the need for the Fulfillment Centre to be aware of the needs of this market segment. The fast response times available from e-Business companies will allow customer companies to achieve more equipment ＆up time＊ with less inventory needed to support them.
conclusion
Accelerated Cycle Time
Charts 1 and 2 show how quickly new technology can be introduced. The cycle time to bring a new product or a new concept to market is reducing as the rate of change continues to increase in business. For example:
It took 100 years to sell the first 60 million automobiles, and
It only took 60 years to sell the first 60 million telephones, but
It only took a bare 6 years to sell 60 million personal computers!
The Pace of Change to Cycle Time and Business is accelerating ＃＃At Web speed!! The development time for new logistics facilities can exceed the implementation time for concepts that can deliver significant sales increases. Consequently, Logistics need to anticipate the needs of the business. For the Logistics function to exercise the foresight needed to be ready for any change in direction required to continue to grow the business, Logistics Executives need to continuously update themselves in the latest developments in their professional fields.Efficient Use of Time.
The automated and integrated ＆end-to-end＊ processes, including approval process processes that provide the information needed to make a prompt decision / approval at the same time that the decision / approval is requested makes more efficient use of the valuable time of Purchasing, Administrative and Logistics professionals.
Fulfillment & Purchasing Cycle Time
Successful Internet trading depends on the delivery of significantly reduced cycle times for Purchasing and Fulfillment Centre Operations. The reduced cycle times for these operations provides the basis to deliver:
• Increased customer service standards, and
• Increased user satisfaction for internal operatorsDelivery of many of the e-Business features and benefits discussed in this Paper, which deliver additional sales and profit for the company, will depend on the ability of the Logistics / Warehouse management and staff to respond to the challenge of successfully converting traditional warehousing operations to efficient Fulfillment Centre operations 每 and be ready before the Company needs them to support the e-Business initiatives!
Where To From Here?
e-Business is not the goal, it is an enabler or a Path to business growth and should be thought of in terms of both selling and procurement processes. e-Business opportunities span the range from improving functional capabilities and reducing costs to enabling new business designs. Continue down the Path!
