Magazine Article | December 1, 2002

The Internet-Enabled Supply Chain

Source: Innovative Retail Technologies

Connecting buyers and sellers electronically has never been easier. The Internet is driving the retail supply chain toward automation.

Integrated Solutions For Retailers, December 2002

Admit it. Your desire for a better supply chain is about control. You want control of shipments from your vendors - each and every one of them. You know that the better managed your supply chain is, the more control you have of your inventory. Well, thanks to the Internet, you can have it all.

Chris Pfister, marketing and alliances manager at Avery Dennison InfoChain Express (Framingham, MA), says it's never been more possible to streamline a supply chain than it is today. "The Internet harnesses the ability to connect buyers and suppliers, regardless of location," he says. "Retailers, vendors, and manufacturers are realizing the economic benefits of enhanced connectivity, which makes it easy to share large amounts of data."

Today, companies are differentiated not by product, but by the effectiveness of their supply chains. "Even Wall Street recognizes efficient supply chain management as a strong indicator of a company's overall well-being," Pfister says. Dr. Hau Lee, a professor at Stanford's Graduate School of Business and chairman of NONSTOP Solutions' (San Francisco) Scientific Advisory Board, shares this opinion. "Competition now occurs at the supply chain level, not just company versus company," he says.

Retailers who want to win the supply chain showdown must integrate software both within the store's walls and outside them. The Internet is the great enabler. "A retailer's internal inventory management system, which includes POS and WMS [warehouse management system], must be integrated with its external order management system. Integration at these three levels will enable a retailer to better optimize supply chain performance," says Pfister. But in addition to that, "software must communicate beyond company boundaries," says Lee. "With collaborative efforts, we need visibility of key information across organizations, and we need supply chains to be synchronized." What better tool to accomplish these things than the Internet?

Integration Via Internet
In an integrated, efficient supply chain, inventory is maintained at the lowest possible adequate level. Automation is a key to achieving efficiency. "When the supply chain is integrated and automated over the Internet, order management becomes a simple task of placing and reviewing the status of orders online, eliminating time-consuming and expensive phone calls," says Pfister. Advanced shipment notices from suppliers, for instance, can be automatically forwarded to the retailer for verification and revision. This enables the retailer to implement cross-docking practices at its DC, replacing the need to receive and store product with the ability to receive and ship it. "The effective flow of data between buyers and sellers also minimizes chargebacks," says Pfister.

Integrated supply chains make data accessible, but accessibility of data is useless without intelligence. A supply chain management program should include tools for processing data and exchanging extracted knowledge. "Lower operating costs are achieved when a supply chain can utilize common demand signals [eliminating information distortion], cleanse the data, identify trends, and synchronize multiple supply chain levels," says Lee. The low cost and universality of the Internet makes it a medium well suited to accommodating such demands.

With so many links necessary for a good supply chain solution, it's not easy for a retailer to know just how to go about managing a supply chain well. "Retailers often invest in ERP [enterprise resource planning] and similar data systems, thinking that will be sufficient," says Lee. "An ERP is simply a foundation." Lee also advises that retailers have a different mindset when considering the workings of a supply chain and realize that every decision is interrelated. "You want to cut inventory, but customer service may suffer. You want to save procurement costs, but that could lead to higher transportation expenses. One should not be myopic, but should take an integrated view," says Lee.

An SCM System For Every Retailer
The Internet and EDI (electronic data interchange) will continue to open doors for retailers who want to connect with suppliers. As supply chain software becomes more accessible and easier to use, smaller suppliers, in particular, will benefit from SCM (supply chain management) solutions that allow them to transition into electronic relationships with retailers. "As SCM continues to evolve, less expensive information will replace more costly inventory, and this information will provide a retailer with the ability to work in greater partnership with its supply network," says Pfister.

The end result of an Internet-enabled supply chain, of course, is near and dear to every retailer's heart: the benefit enjoyed by the customer. Lower operating costs, fewer assets, and faster response to customer service issues result in lower product costs, fully-stocked shelves, and happy customers.