Supply chain management in the Internet era: Discussion

Abstract

Procurement over the Internet has made a great difference to the management of the supply chain and the concept of electronic markets is being used by a wide spectrum of Indian companies.The Internet has also facilitated the sharing of information across the supply chain right from suppliers to the end customers.Initial research on the subject has raised questions on price determination,possible dilution of quality consequent to price reduction,the use of e-procurement for strategic products components,the building of trust and long-term relationships with suppliers in the era of reverse auctioning,and the legal angle on these processes.

Bringing in perspectives from different constituencies to answer these questions and to discuss the challenges to supply chain management in the era of the Internet, IIMB Management Review invited a panel representing users of electronic markets,suppliers,applications service providers,experts on technology,academics and researchers for a Round Table discussion on Supply Chain Management in the Internet Era.

TVS Motors is one company that uses IT in all stages of the supply chain:in the identification of new sources,reverse auction processes,ordering and procurement,scheduling through the Web,raw material management,including group buying activities,online design collaboration,a daily 'milk run ', payment management and rating of the vendors on delivery and quality.M N Varadarajan,Vice President, Materials,TVS Motors,shares his experience and details the challenges,the benefits and the pitfalls of e-procurement.One of their biggest learnings in the process,he says,was the importance of creating discontinuity in the cost structure,which the reverse auction accomplishes.Although reverse auctions in general cut time as well as costs,for a few items,where much design effort is involved,the lead time to do a quality audit and implement is very high.TVS Motors also believes that it has to be a win-win for everybody in the value chain.By operating JIT and Kanban,and a milk run and by conducting training programmes for the vendors,they ensure that inventory is not pushed to the vendors.

Anurag Srivastava,Chief Technology Officer and GM Consulting,Wipro Infotech,speaks of the drivers of procurement outsourcing drivers today - material costs,infrastructure costs,process and performance costs.Describing the developments that have taken place in the purchasing and supply management space in the last decade,he urges companies to balance the whole phenomenon together with the three components of strategic sourcing,e-sourcing and global/regional sourcing and see where technology fits in.The exchanges on the chain must lead to efficiency,value addition and appropriation all round - either by volume or by efficiency being passed across.Today enterprises the world over are transitioning suboptimal procurement activities and poorly controlled spend categories to highly specialised providers of procurement services (PSPs) in response to reducing costs and adding value.India needs to think in terms of aligning with global players.

R Sri Kumar ,Chairman &MD,Karnataka State Police Housing Corporation,relates how increased work pressure challenges forced a small state public sector organisation to become a vibrant company on the Net,aspiring to reach world standards.With the services of Wipro 's 01Markets,KSPHC made their first foray into e-tendering to save time on shifting servers for their web based project monitoring system. The experiment being a tremendous success,KSPHC decided to go in for e-tendering of civil construction contracts to build quarters and police offices.The combined system of calling for closed bids as well as reverse auction was followed here in accordance with the Karnataka Transparency in Public Procurement Act (KTPPA),1999.Their list of agencies has grown enormously,allowing play of free market forces,and ensuring the best value for their money.While providing the bidders with several benefits,e-tendering has benefited KSPHC by about 8%, resulting in a move at the policy level to amend the KTPPA act and make e-tendering a standard part of government procurement policy.

L S Murty,Professor,Production and Operations Management,IIMB,spoke about the inter- organisational integration issues that are crucial to the success of the external supply chain.For initiatives like collaborative forecast planning and replenishment systems,vendor management inventory systems,JIT systems and e-commerce systems to work,alliances must be constructive and mutually beneficial.Supply chain partners need to cooperate with each other during both value creation activity and value appropriation.Flows of information, goods,and cash must be reliable,but information sharing alone is not adequate.How information is used is also important.Collaborative planning and the joint configuration of ERP systems of supply chain partners can facilitate co-ordinated use of information.It is also worthwhile financing (at a lower return rate)a partner firm who can improve his efficiency because of this investment and thereby the throughput throughout the chain.

The whole game plan changes after you are initially discovered through the e-auction,says Gautam Maini, Managing Director,Maini Precision Products,a company that exports precision components. Succeeding in the world of e-bids requires a supplier to have good systems and processes and a sound understanding of his cost structure.Backing up all this must definitely be the infrastructure.Given these, e-bids help create extremely strong relationships.E-procurement also helps drop prices by consolidating the buyer 's requirements and giving the supplier the volumes necessary to reduce prices.However,it is hard to make it at the global level:as far as the customer is concerned,it may be JIT,but given the greater political risks and risks of natural disaster,and the fact that sea freight is at present the only viable option,the supplier is forced to hold a fair amount of inventory.

MatexNet is India 's first Material Exchange,focused on optimising the supply chain of organisations.Their areas of expertise include online procurement of products,services,sale of inventory and assets,and establishing efficient connectivity with channel partners and end users.S Jagan Vasan ,MD,MatexNet explains that the key factors in electronic supply chain management are:information,registration and selection,e-commerce,alliances,and relationships. Revenue side solutions include channel connect, campaign manager and online sale of excess finished. Supply side solutions include multi vendor connectivity,online procurement,and online auction of surplus and scrap.By exploiting the power of the Internet,existing systems built around the tendering process can be streamlined to reduce paperwork, time,effort and cost.Once these things are accomplished,the time frame starts coming down, and online supply chain management will lead you into governance by simplifying processes and bringing transparency.

Prof Y Narahari shares some research being done at the Department of Computer Science and Automation,Indian Institute of Science Bangalore. After studying three categories of market places - the procurement market place,the selling market place and the electronic exchange,his team has focused on how to make the transactions or the automated negotiations happening inside these market places more effective from a modelling viewpoint.Collaborating with organisations such as E-Bizchem,the first chemicals e-exchange in India set up in 1999,and the e-biz sections of well-known MNCs,they found that bundling could prove a winning strategy in combinatorial auctions.In the presence of combinatorial bids from vendors,as well as logistics constraints arising from different delivery schedules,it is helpful to have an algorithm which will select the best mix of vendors from whom you can source your materials.Narahari has been able to come up with efficient algorithms,which will select the best set of winners in the case of multi criteria optimisation or multiple attributes procurement type of situations.The quality aspect is also captured by discretising the quality levels,identifying 10 or 15 different quality levels for each domain,and asking the vendors to specify the quality level to which their product would belong.Narahari has been looking not only at procurement but also at selling,exchanges and dynamic pricing and how one can learn from the behaviour of the bidders in ongoing auctions.

What does the industry want out of technology?With any application,the question will be,can it be integrated to my back end?Next,can it enhance security control for physical assets and data?And third,and perhaps most importantly today,what about disaster recovery?According to G V Suresh, Head,ERP Logistics Practice,IT Services,MindTree Consulting,the latest technology that is driving the supply chain is silent commerce - the application of the radio frequency identification devices (RFID), which has uses in manufacturing,transportation, warehousing,retailing and consumer retention.

Technology in supply chain management has helped move suppliers from 'available ' to 'promise ',to 'capable ' to 'commit ',and has actually replaced inventory with information.Virtual enterprises have emerged and technology has freed up time for customer relationship,which has become the core business activity.But the industry has learnt that it is not only technology which brings down the costs,it is also simple process control.

B Mahadevan,Professor,Production and Operations Management,IIMB and Chief Editor,IIMB Management Review,identifies three important values that the Internet brings to business and customers in the domain of e-procurement.These are:increasing the operational velocity of various business processes; the dramatic increase in market liquidity;and the reduction in cost.His question,Is there a chronological list of things that a firm needs to act on when going in for auctions or some other form of e-procurement,elicited interesting answers from buyers and suppliers based on their experience.