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Chapter 11 • Supply Chain Management 313

distribution activities, reduces paperwork, reduces inventory buildup, shortens sales cycles, and
strengthens partnerships.
The traditional concept of SCM is no longer valid in the digital economy. e-SCM focuses on
globalization and information management tools, which integrate procurement, operations, and
logistics from raw materials to customer satisfaction. With the widespread implementation and
acceptance of e-Business, the traditional methods and rules have changed to improve profitability
and fulfillment. e-SCM can use e-Business concepts and Web technologies to manage inventory
and information beyond the organization, both upstream and downstream. It is the strategic
approach that unites all steps in the business cycle, from initial product design and the procurement
of raw materials, through production, shipping, distribution, and warehousing, until a finished
product is delivered to a customer. Companies with a network of suppliers, vendors, and distribu-
tors need a fast, efficient way to disseminate information and enable two-way communications.
REPLENISHMENT SYSTEMS Supply chain replenishment encompasses the integrated production
and distribution process. CVS, a well-known drug store chain, almost completely relies on its
e-SCM system to reduce inventory levels as well as to eliminate stocking points. CVS has 9 main
warehouse facilities and 15 satellite facilities. These warehouses are placed in central locations
around all of the CVS stores. As a purchase is made at CVS, the register captures the inventory
replenishment needed via a bar code on the product. At the end of each day, the manager reviews
the daily POS report and uses this report as a guide to place the order to replenish the stock that was
purchased that day. All of the CVS stores report the amount of new stock needed for the next day to
their designated warehouse. A delivery will be made the following morning to replace the exact
number of products ordered. If the store needed five bottles of Extra Strength Tylenol Gel tabs, then
the store would be delivered five bottles of Extra Strength Tylenol Gel tabs. The entire process will
happen again at the end of each day. CVS does have the ability to automate this process.
The POS system can send the needed inventory order directly to the warehouse; hence,
eliminating the store manager’s involvement. CVS feels that by having a computer take over the
responsibility of a human, however, customer service may be sacrificed if an issue arises and
aproduct is not ordered. CVS wants the ownership to rest in the hands of the store manager.
If a product is not ordered for a customer, the manager can then apologize and remedy the situa-
tion, as opposed to telling the customer that he or she doesn’t know why the computer did not
order the product. This is just simple depiction of how CVS makes its replenishments. The
marketing, finance, and sales departments forecast each month’s demands using Manugistics’
Demand Planning System and Manugistics’ Supply Chain Planning Suite. The system analyzes
sales trend climates, market conditions, and seasonal promotions. Once the data are reviewed,
the procurement group enters the demands into a Marcam Corp Prism capacity system that
schedules the productions of, say, Tylenol needed and generates an electronic purchase order.
As Tylenol fills the purchase orders, the boxes are sent to the various warehouses, where they are
opened so that individual needs are filled based on each store’s request.

E-Procurement
6
E-procurement is the use of Web-based technology to support the key procurement processes,
including requisitions, sourcing, contracting, ordering, and payment. The use of e-procurement
has many benefits. With the use of e-procurement, companies can monitor and regulate buying

6 Turban. (2005). E-Business Book. New York: John Wiley & Sons.