Advances in Technology
Technology continues to have a significant impact on the supply chain-E.UL(.electronif data interchange e) provides a direct link between a manufacturer's database and that of its vendors. In addition, the increased use of personal computers allows customers to communicate directly with their vendors' systems. For example, FedEx customers can order a pickup and track the delivery of their packages through their PCs. . Business-to-business (B2B) has been one of the fastest growing segments on the Internet.One of the reasons for its high rate of growth has been the creation of electronic or B2B marketplaces. B2B marketplaces are virtual markets that bring buyers and sellers together. Usually these B~B marketplaces focus on a specific industry or product category, and the items being bought and sold are typically common off-the-shelf products. Companies such as General Electric who have embraced the Internet as a purchasing tool have saved millions of dollars in the cost of their purchased goods and services. These electronic marketplaces provide an opportunity for reverse auctions to take place.Reverse auctions occur when a firm requests bids for an item in an electronic marketplace, and potential suppliers keep submitting lower bids until either the bid closing deadline is reached or there is only one supplier left. As with a regular auction, the lowest bid price at any time is always available to all interested parties. The contract is then awarded to the supplier with the lowest bid. A major concern with reverse auctions is that it tends to be counterproductive. in terms f creating long-term supplier relationships.At the same time. the use of technology, in many cases, can provide suppliers with a barrier against competitors. A customer typically will establish an ED! link with only a few vendors. Potential new vendors have to demonstrate significant improvement in price and/or quality to warrant the additional costs of an added EDI link. Similarly, Felix customers would be reluctant to change vendors because it would require an investment in time to learn, a new computer system with little or no added benefit.In addition to ED!. a number of other systems have been developed such as quick response QR) and efficient consumer res one (ECR . In all cases these terms refer to the -communication throughout a supply or distribution pipeline. This is a paperless communication between customers and vendors. For several years prior to this, there already had been some improvement in communication through the use of open computer systems using UNIX or -type software. but ED!, QR, and ECR go far beyond that. Quick response (QR) programs have grown rapidly. A survey by Delete & Touche showed that 68 percent of retailers either have implemented or plan to implement QR within two years." Quick response is based on bar-code scanning and EDI. Its intent is 10 create a just-in-time replenishment system between vendors and retailers. Virtually all medium and large retail stores use Universal Product Code (UPC) barcode scanning. Point-of-sale (POS) scanning at the register also uses price-look-lip (PLU), as reported by 90 percent of the respondents. Efficient consumer response (ECR) is a variation of QR and EDI adopted by the supermarket industry as a bovines strategy where distributors, suppliers. and grocers work closely together to bring product to consumers. They can use bar-code scanning and ED!. Savings come from reduced supply chain costs and reduced inventory. A study by Kurt Salmon Associations estimated a potential savings of more than$30 billion .:' In the dry grocery segment this could cut supply-chain inventory Irom 104 days to 61 days. Another study by McKinsey estimated that dry grocery consumer
prices could be reduced an average of 10.8 percent through industrywide adoption of ECR.without ECR. manufacturers push products on the markets by offering low prices on large quantities: A few ties a year the manufacturer offers the grocer a low price on a large quantity of product. This is forward buying. The manufacturer then works with the supermarket to offer coupons and incentives to entice customers to buy the product during a promotion. Products not sold during the promotion are then stored in inventory to carry that supermarket until the next manufacturer's promotional deal. ECR focuses on the customers to drive the system, not the manufacturers' deals. Customers pull goods through the store and through the pipeline by their purchases. This per- I11it~less inventory throughout the system. Cooke cites a study that estimated that distributors purchase 80 percent of their merchandise during manufacturers' sales or "deals.' They may buy four times per year and fill their warehouses. Until the industry frees itself from this addiction to deal buying. all the great replenishment techniques will be worthless.l Wal-Mart Satellite network. first installed in 1987 in Bentonville. Arkan as. provide-, another, good example of how technology has iimpactedthe structure of the supply chain. This netw ork support data, voice, and video and allows real-time : ales and iTI\entory information.Wal-Marts EDL shown in the photo on the next page, installed in 1990, issues electronic purchase order- and receives electronic invoices from virtually all of Wal-Marts vendors.
Shared or Reduced Risk
The cost of developing new products is increasing. With product life cycles becoming shorter. the risk associated with these new products also increases. To reduce their own financial exposure. many companies are requesting that vendors take on an increasing percentage of this risk. Volkswagen's new automotive plant in Brazil epitomizes this sharing of risk with vendors. (See OM in Practice box.