Internet Powers Supply-Chain Innovation
By Lisa H. Towle

oil it down, and the essence of good supply-chain management is offering the right product in the right place at the right time for the right price.

Easy to say, harder to do, because links in the chain - suppliers, distributors, manufacturers, resellers, customers - now stretch from one corner of the planet to another. The answer? Internet technology, says Jayashankar M. Swaminathan, UNC Kenan-Flagler professor and area chair of operations, technology and innovation management. Internet-based infrastructures, the hallmark of Internet Generation Companies (IGCs), have revolutionized the supply chain, allowing for more open communication among the partners and for seamless coordination of ever-complex logistics at relatively low cost.

"The Internet has completely changed how businesses get and use information," says Swaminathan. Indeed, in a hypercompetitive and rather slippery global marketplace, a key issue "is how you use information within the supply chain to make decisions. Those who make the best possible use of information will be the ones who stick, who survive."

Swaminathan's list of superstars, those corporations that have used the Internet's networking ability to effectively manage their supply chains, includes Wal-Mart, Dell, IBM and Best Buy, all of which have traditional brick-and-mortar foundations. And there's also Amazon.com, whose goal not long after opening its virtual doors in 1995 was to be the best customer service company on the Net.

The whole spectrum of the supply chain - design, procurement, production, delivery - gains from Internet-based networking. If you want to understand just how nimble and synergistic the supply-chain process can be, look no further than procurement.

"In any organization, a huge amount of money, roughly one-third, goes to procurement. Internet-based procurement systems allow companies to get goods or services in a more timely fashion and at a better price with a minimum of effort," says Swaminathan.

The Internet provides the mechanism for quick communication with preferred suppliers about product availability and pricing, reduces the complexity of ordering and allows for tracking of inventory, he explains. A second type of procurement, most useful when casting a wide net for product components, is the Internet auction. Online bidding in real time for parts offered by a global set of suppliers gives a company the potential to save as much as 40 to 50 percent on purchase costs.

Swaminathan offers the defining elements of a well-managed supply chain that works smarter and faster thanks to the Internet:

• Visibility. Not only can supply-chain members see changes in the marketplace as they occur and make adjustments swiftly and effectively, they can use Internet technology to communicate real-time demand data and manage inventory.
• Pricing and Distribution. Though companies with e-commerce divisions have struggled with these, they are finding their footing. Retailers are now using a more efficient model: identical pricing in both physical and virtual stores, with occasional Internet-only sales. The immediacy of the Internet allows for dynamic pricing when warranted. Shipping is an entirely different story, however, as it's highly unlikely that truckloads of items will be needed to fill orders that arrive electronically. Internet-networked processes within the supply chain give a company order volume in real time, thus letting it calculate shipping logistics on an hour-by-hour basis.
• Customization. Increasing demands by customers accustomed to an enormous selection of products and services when and how they want them mean supply-chain members must cultivate partnerships that can postpone their products' final configuration until the last moment. Again, it's real-time demand data communicated to suppliers that helps a business manage variety while keeping costs under control.

Successfully put all these together, and you have a supply chain that is not only efficient but responsive. The payback for taking the time to nurture those attributes is great, says Swaminathan.

"The short of it is, when you are good at supply-chain management, and today that includes making wise use of Internet technology, you reduce inventories and increase your productivity. That means supply-chain management has a tremendous impact on a company's return on investment."