Impact of the Internet in Supply Chain Management

Impact of the Internet in the Success of Businesses in America
Student’s Name
Professor’s Name
Business Essay
May 11, 2015
Advancement in technology has played a major role in the success of businesses in the
U.S. The internet in particular has played a major role in increasing the output and returns of
companies selling goods and providing services all across the country. With globalization,
escalating competition, geographical scope and complexity in the business environment has
necessitated the continued improvements in the way technology is incorporated in businesses,
both private and government owned.
Many companies in developed countries have been forced to adapt to the area of supply
chain management has not escaped the proliferation of technological innovation. According to
Cagliano, Caniato and Spina (2005), supply chain management is described as the broadened
focus of management that emphasizes the combined implications of the stakeholders involved in
the production of services and goods, including suppliers, manufacturers, wholesalers, retailers,
and the final consumer. In this understanding of the management of production and logistics
networks, conviction is that all the participants in the process of delivering goods to consumers
form part of a pipeline, network, or a supply chain.
Supply chain management can, therefore, be understood as encompassing everything
needed for customer satisfaction, including the determination of the products that consumer
prefer, how to produce such products, and how to deliver them to the final consumer. The aim
here is to ensure that the consumers receive the right products at the appropriate time, in the
desired location, and at a friendly price. Electronic mail and the internet have revolutionized the
communication and data exchange process, supporting the required flow of information between
firms in the supply chain. The present paper explores the impact of the internet on supply chain
management with particular focus on order processing, customer service, transportation,
managing vendor relations, inventory management, purchasing and procurement, and production
The Benefits of Internet-Enabled Supply Chain Management
An important premise informing the philosophy of supply chain management is the
consideration of the network of processes, facilities, and individuals that procure raw materials,
convert them into finished products, and eventually circulate them to the consumer as an
integrated chain, instead of a collection of separate, but rather interconnected, tasks (Wisner,
Leong & Tan 2005). This integration of the supply chain is important since the links of the chain
are essential in achieving the goal of customer satisfaction. As noted by Barratt and Rosdahl
(2002), though every company may have a supply chain, not every company effectively manages
its supply chain for the attainment of strategic advantage. By enabling and connecting
procurement, inventory management, order processing, transportation, production scheduling,
and customer service, not only reduces costs associated with managing the supply chain, but also
increases the efficiency of the entire process. Streamlining the entire process of supply chain
management with internet technology requires a good understanding of the vital business
processes involved in supply chain management and the appropriate technological solution for
handling the complex flow of information, human resource management and material flow.
Purchasing and Procurement
The application of internet technology in the management of procurement is gradually
developed in the recent past, with various studies indicating various applications of the internet
in procurement processes, including communication with vendors, confirmation and comparison
of vendor price quotes, and conducting purchases from the catalogs of the vendor (Croom 2000).
An example of a company that uses the internet is General Electric, which reported reduced costs
of procurement due online purchasing from vendor catalogs (Auramo, Kauremaa & Tanskanen
2005). By enabling purchases and negotiation from the vendor’s website at any time, the internet
helps the company transcend the geographical restrictions that often characterized traditional
procurement. As shown by Gunasekaran and Ngai (2004), one of the benefits of using the
internet in procurement is the reduced paperwork flows, and reduced time taken from the time
the order is placed to the time the products are delivered to the company.
In addition, the internet also streamlines the process of vendor negotiation by introducing
and online form of negotiation that is more effective and efficient than face to face negotiation.
Such negotiations include bargaining, price agreements, renegotiation, and term agreements.
Price negotiation is particularly improved by the internet since there is room for comparing
different offers from vendors (Croxton et al. 2001). Another area where the internet supports
procurement is by lowering the costs associated with handling returned or damaged goods
enhancing the tracking of goods and by enabling notification by vendors before damaged goods
can be shipped (Barratt & Rosdahl 2002; Gunasekaran & Ngai 2004). Other procurement issues
handled through the internet include warranty issues and credits posted by vendors.
Despite the improved efficiency, competitive sourcing opportunities and inter-
organizational coordination of the procurement process due to the use of the internet, it is
important to note that the adoption of an e-procurement strategy is considerably complicated.
Consequently, Boyer and Olson (2002) advise that the challenges in implementing e-
procurement can be mitigated through the adoption of an effective e-procurement strategy,
setting and managing realistic managing expectations, and engineering procurement processes.
Another problem in the e-procurement process concerns the verification of the credibility of the
vendor. As shown by Auramo, Kauremaa and Tanskanen (2005), it can be challenging to
determining the credibility of a company over the internet, leaving room for fraud and cons.
Measures should be taken, therefore, to determine the credibility of a company before any
business can be conducted over the internet.
Inventory Management
One of the most essential and significantly costly elements of the supply chain involves
the management of inventory (Wisner, Leong & Tan 2005). Studies have also shown that lack of
proper information flow in the process of inventory management can cause inventory buffers and
inefficiencies in the management of the supply chain. Consequently, to keep inventory levels low
and lower the overall costs of holding, while still offering high quality service to the customers is
a significant challenge in strategic inventory management. To mitigate such challenges, internet-
enabled inventory management enables processes that can be used to reduce costs without
compromising the quality of customer service (Kevin Chiang & Monahan 2005; Cagliano,
Caniato & Spina 2005). For instance, the internet can be used in inventory management for the
notification of stock-outs offered by companies to their clients, or even the communication of
stock-outs made by clients to vendors.
The internet also enables companies to quickly implement electronic data interchange
(EDI) information systems with their customers throughout the world. In inventory management,
EDI is understood as the electronic exchange of information between the information technology
systems of two or more organizations (Boyer & Olson 2002). With the help of the internet, EDI
technology can be used to process order entry, order changes, order confirmation, pre-shipment
notices, and invoicing. Through internet-based EDI, companies like Wal-Mart and Target realize
success in the retail industry by quickly exchanging information with their suppliers, which
would normally take long periods of data entry.
The internet also positively influences the ability of companies to proactively manage
their inventory systems. For instance, using the internet, a company can track out-of-stock
inventory items and ensure that customers are notified in case of order shipping delays and any
inventory emergencies. The improved inventory management also enables the company to
replenish the inventory without delays. Tracking of items in an efficient and timely manner is
also enabled by the internet by integrating various technological applications such as
communication technologies, radio frequency technology and the internet. Identification In
addition, inventory information needed for informed decision-making can also be made available
to the decision-makers in good time.
Order Processing and Customer Service
Other areas of importance of internet technology in strategic supply chain management
are in customer service and order processing. For instance, using the internet to place orders has
been found to streamline the process of quotation and result in reduced overall costs by enabling
order placement and checking of order status as well as improved speed of processing. In this
regard, reduced paperwork in the order processing not only saves time, but also lowers costs.
With regards to customer service, the internet enables improved communication between
the customer and the vendor, thereby improving awareness of customer needs and preferences,
and enabling the tailoring of products to meet customer needs. It also offers a platform for the
customer to communicate concerns and suggestions. Ultimately, through improved customer
service, the internet enables the company to build a strong customer loyalty for its products and
Implications on Management
With the rapidly increasing use of the internet in supply chain management, it is
increasingly important for managers to leverage the benefits of the internet for competitive edge.
It is important for the supply chain manager to react quickly to information and adjust inventory,
transportation and production to ensure cost efficiency and quality of service. It is important to
note that the information provided over the internet is only useful if it is delivered in a timely and
comprehensible manner.
One implication on management concerns the dynamic pricing strategies enabled by the
internet. As indicate by Keskinocak and Tayur 2001, the internet has altered the way goods are
marketed and sold, and influences pricing. Supply chain managers can leverage the ability of the
internet to offer flexible and dynamic pricing through online auctions and negotiation (Bapna,
Goes & Gupta 2003). In addition, the internet offers collaboration of different components of the
supply chain which can be leveraged to smooth the flow of products and information. This is
important since collaboration between enterprises has been shown to be a considerable challenge
to effective supply chain management (Lewis & Talalayevsky 2004). Leveraging the potential of
the internet offers the supply chain management accessibility and standards that enable the
integration and transmission of data across the supply chain components (Bartezzaghi & Ronchi
2004). An important consideration for management is that the supply chain collaboration is
enabled through information sharing, creation of supply chain communities, and coordinating
plans. These must be invested in and effectively implemented for an effective supply chain.
Another important managerial factor concerning the internet and supply chain
management is supply chain visibility, which is linked to reduction of the bullwhip effect.
According to Jap and Mohr (2002), supply chain visibility implies to offering each level of the
supply chain with accurate and complete information on customer needs and inventory levels,
production levels, fulfillment needs, and shipment status. Managers need to understand that
visibility reduces the bullwhip effect since if information on demand is shared, the actual
customer demand data can be used to generate accurate forecast instead of depending on orders
obtained from the previous stage. In addition, visibility of the supply chain enables the various
components of the supply chain to coordinate production and distribution more effectively,
subsequently reducing costs and lead times (Bartezzaghi & Ronchi 2004). The important
implication here is to ensure that the information is accessible to all partners in the supply chain
and in a format that can enable business decision-making. Managers also need to invest in tools
that enable the visualization, plan and make decisions based on large databases. Essentially, the
proliferation of technology and the internet in business cannot be avoided. Ultimately, there is
need to protect the data obtained and transmitted over the internet from fraudsters and identity
thieves (Ngai & Gunasekaran 2004). Given the numerous benefits linked to the use of the
internet in supply chain management, proper structures need to be developed for companies to
leverage the potential of the internet.
The present analysis examined the role of the internet in effective supply chain
management. From the analysis it is evident that the internet can offer supply chain management
the benefits of reduced costs, improved customer service, enhanced procurement and order
processing, as well as collaboration and visibility throughout the supply chain. It is also apparent
that the internet enables partners in the supply chain to collaborate in order to improve planning
and forecasting. Other benefits include improved customer service, data sharing, and product
flow. However, information sharing has various technological, legal and commitment
implications, requiring observation of certain principles and goodwill from organizations. It is
also important for organizations to adopt measures to protect the information obtained and
shared over the internet. Ultimately, though the internet offers an important tool for improving
the effectiveness of supply chains, security and management concerns must be addressed for the
optimal benefits to be realized.
Auramo, J, Kauremaa, J & Tanskanen, K 2005, "Benefits of IT in supply chain management: An
explorative study of progressive companies", International Journal of Physical
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Bapna, R, Goes, P & Gupta, A 2003, "Analysis and design of business-to-consumer online
auctions", Management Science, vol. 49, no. 1, pp. 85-101.
Barratt, M & Rosdahl, K 2002, "Exploring business-to-business market sites", European Journal
of Purchasing & Supply Management, vol. 8, no. 2, pp. 111-122.
Bartezzaghi, E & Ronchi, S 2004, "A portfolio approach in the e-purchasing of materials",
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Boyer, K & Olson, J 2002, "Drivers of Internet purchasing success", Production and Operations
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Gunasekaran, A & Ngai, E 2004, "Virtual Supply-Chain Management." Production Planning &
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Jap, S & Mohr, J 2002, "Leveraging internet technologies in B2B relationships," California
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Kehoe, D & Boughton, N 2001, "Internet based supply chain management: A Classification of
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Lewis, I & Talalayevsky, A 2004, "Improving the inter-organizational supply chain through
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17, no. 3, pp. 229 - 237.
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management," European Journal of Operational Research, vol. 159, no. 2, pp. 269-295.
Wisner, J, Leong, K & Tan, K 2005, Principles of supply chain management: A balanced
approach. Thomson South-Western, Mason, OH.

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