August 1999
E-Business: Old Wine in New E-Bottles?
By ManMohan S. Sodhi
When things change, how much do they remain the same? Two recent experiences inspired me to look at what is the same between business and e-business.
First, I read a book on e-business and saw the usual supply chain topics unrelated to the Internet — ERP, supply chain planning, procurement — interspersed with a paragraph here and there about the Web. Second, I attended a talk on e-business, and the speaker simply put an "e" in front of every supply chain term. There are enough terms in supply chain management already; we do not need to compound the problem by adding an "e" in front of every word. Is that UPS truck making a delivery or making an e-delivery? Let us take a closer look at this "new" world and focus on the familiar.
Supply chain planning
This whole e-business business sometimes reminds me of an old Danziger cartoon from the Christian Science Monitor. The cartoon depicts an operations management professor trying to teach his MBA students "about making things, actual things," whereupon the students in the back row feel cheated as they had come to business school to learn about making money, not things. (When I was teaching at the University of Michigan's Business School, my experience with many Wall Street-crazed undergraduate students was not very different.) Now, even money is threatened by e-money!
Get real; someone needs to make things and someone needs to plan and actually move them around. The Internet may shrink lead time, uncertainty and lot sizes, but it will not cause these to disappear. If you and your suppliers have a real-time view of customer demand, does it mean you do not have to forecast? Schedule your plants? Plan your inventories?
Warehousing. Behind e-commerce and Internet-enabled supply chains like that of Dell or Amazon, there needs to be places to store physical goods. "People look at Amazon buying warehouses and realize it does make sense to have a warehouse," says Peter Baltaxe, President of 911Gifts.com in the New York Times (June 28, 1999).
Customer Service. Someone has to answer the phones to handle irate customers whose experience with your pretty little Web site has not gone so well. And you will need a culture of customer service in your firm that is different from the "we don't care, we don't have to" attitude one gets so often these days. Having more humans is a start, and Eddie Bauer will be increasing the number of its customer service representatives fivefold this fall to support its Web-based sales.
Size does matter
With startups having had more than 15 minutes of fame, it may still be worthwhile to compare them with some of the established players. IBM's e-business-related revenues of $20 billion are more than the $5 billion combined revenues of the top 25 Internet companies. And though there are high-flying Internet consulting companies like Scient, these are dwarfed by industry leader Andersen Consulting with its approximately $500 million e-commerce related revenues last year!
The need for ERP
First it was the supply chain planning technologies vendors who started questioning whether companies really needed enterprise resource planning (ERP). Now there is a notion that an intranet can "hook" things up, and companies do not really need ERP software such as R/3 from SAP. Think about what ERP really does: automate processes internal to your firm and hook up different divisions and computer systems in the company. If you are a virtual company — Virgin Cola in the UK reportedly outsources almost all operations and has only five employees — you do not need ERP, but any "real" company is bound to have operations and business processes that will need automation. Not all companies can be virtual and those that are not will need that ERP backbone.
Trust
Web-based collaboration (see my article in the June 1998 issue of OR/MS Today) amongst supply chain partners is a wonderful idea, and we have the technology from companies like i2, Logility, Manugistics, SAP and even Shell Chemicals; but as with any partnership, you will still need to develop trust. Having more suppliers easily available on the Web may cause temptation in looking for the lowest price, but even e-businesses like Cisco work closely with their suppliers and not go by price alone. Can't you start deepening your relations with your suppliers without the Internet?
What's next
Still, the Internet is radically changing the business world and even larger changes will come as large businesses become e-businesses and take their supply chain partners to the Internet. To prepare for this world, you will need to become even more efficient in your business processes. In my previous article (June 1999 issue) I wrote, "The Internet does not actually produce material things or deliver them." But it can make your inefficiencies highly visible to the world. And, to be more efficient, you still have to deal with the usual suspects: hard work, trust, business process redesign and core competence!
Dr. ManMohan S. Sodhi is president of the Logistics Section of INFORMS and an experienced consultant in supply chain planning with Andersen Consulting in Chicago. He is the founder of the OR news group, sci.op-research, and helped design and create INFORMS Online. He welcomes your comments at MohanSodhi@AOL.com.
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