Page 274 - Electronic Commerce

Business-to-Business Activities: Improving Efficiency and Reducing Costs

to charge more for the disk drives it does sell to Dell to recover the cost of the unsold
drives).
In exchange for the stability of the closer, long-term relationships, buyers expect
annual price reductions and quality improvements from suppliers at each stage of the
supply chain. However, all supply chain participants share information and work together
to create value. Ideally, the supply chain coordination creates enough value that each
level of supplier can share the benefits of reduced cost and more efficient operations.
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Supply chain management has been gaining momentum during the past decade and is
supported by major purchasing groups such as the Supply Chain Council. By working
together, supply chain members can reduce costs and increase the value of the product or
service to the ultimate consumer.
A key element in the coordination of supply chain activities is the establishment of
a consistent production strategy that is adopted by all supply chain participants.
Production strategy is the way a company achieves competitive advantage in its product
creation activities; the two most common strategies are efficient processing (in which
the company tries to make products as quickly or as inexpensively as possible) or
market-responsive flexibility (in which the company tries to produce the specific
products demanded by the market as it changes). In other words, some companies
structure themselves to be efficient producers, whereas others structure themselves to
be flexible producers. Unfortunately, the kinds of things that allow a firm to be an
efficient, low-cost producer are exactly the things that prevent a firm from being flexible
enough to respond to market changes. For example, the efficient producer invests in
expensive machines that can stamp out large numbers of low-cost items. This
investment drives down the cost of production, but makes it difficult for the producer to
be flexible. A large investment in specialized machinery prevents that producer from
reconfiguring the plant layout. If even one member of the supply chain for a product
that requires flexible production operates as an efficient producer (instead of as a
flexible producer), every other firm in the supply chain suffers. The efficient producer
creates bottlenecks that hamper the best efforts of all other supply chain members.
Clear communication up and down the supply chain can keep each participant informed
of what the ultimate consumer demands. The participants can then plot a strategy to
meet those demands.
Clear communications, and quick responses to those communications, are
key elements of successful supply chain management. Technologies, and especially
the technologies of the Internet and the Web, can be very effective communications
enhancers. For the first time, firms can effectively manage the details of their
own internal processes and the processes of other members of their supply chains.
Software that uses the Internet can help all members of the supply chain review
past performance, monitor current performance, and predict when and how much
of certain products need to be produced. Figure 5-9 lists the advantages of using Internet
technologies in supply chain management. As you can see, the only major disadvantage of
using Internet technologies in supply chain management is the cost of those technologies.
For most companies, however, the advantages provide much greater value than the costs
of implementing and maintaining the technologies.

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