Consulting

1. Consulting Group

2. E-Commerce in Supply Chain (?) Management:“Over-hyped, over-sold and over here” Kostas Kutsikos Kostas.Kutsikos@pa-consulting.com

3. Agenda • Definitions • Goals of Supply Chain Management • The E-commerce revolution • Effects of E-commerce in Supply Chain Management • Realising the positive effects: from chains to stars • US vs. Europe • Final thoughts

4. Definitions • Supply Chain Management: value delivery to customers through co-ordination: • Order generation; order taking • Order fulfilment; distribution of products, services, information • Electronic Commerce: value delivery to customers through co-ordination/integration: • Electronic exchange of goods (products, services, information) • Supporting functions (banking, insurance, etc.)

5. E-Commerce Background • Various supporting technologies are old (EDI, Internet) • New business thinking: Internet/Web-based commerce • 4 years old; global; fast growing • Forecasted revenues (2002; Forrester) US: $207 Bn Europe: $65 Bn • European businesses significantly lag in adopting e-commerce

6. Supply Chain Management aims to satisfy ... • Supplier Demands • Payment options • Forecasting • Timeliness • Inventory management • Tracking • Sales performance • Feedback • Customer Demands • Quality and consistency of service • Customisation / convenience • Selection options • Payment options • Availability information • Distribution information • Interaction • Internal Demands • Reduced costs • Increased revenues • Branding / customer loyalty Requires a more responsive organisation

7. Can E-Commerce Help ? • Inventory Management / Customisation (Staples Co.) • Provides customised supply catalogues on customers’ intranets • Customers save from purchase-order processing costs • Staples can offer add-on and customised services • Selection Options (General Electric) • Deal directly with suppliers to receive multiple bids for parts • Save $500 - $700 M off purchasing costs over 3 years • Cut purchasing cycle times by 50%

8. E-Commerce Is About Change in SCM: From Strategy to Implementation • E-commerce link between the firm and its customers has upstream effects in the supply chain • New market segments and new competitors • New strategies • Reshape supply chain; on-line alliances; ‘invade’ other value chains • Make to order, customise to order • New implementations • Supply with minimum inventories; rapid product delivery; rapid manufacturing process reconfiguration

9. Effect of E-Commerce: Supply Star Management Suppliers Your organisation Customers

10. From Chain to Star • Many-to-many mapping • Companies as match-makers between customers and suppliers • Re-intermediation • Intermediation as the dominant model, contrary to current beliefs • Certain intermediaries in supply chain may disappear (e.g. music retailers) • New intermediaries will arise (e.g. electronic auctioneers) • Amazon.com

11. Business Processes Business Processes Organisational Design Information Technology Organisational Design Information Technology Achieving Change: Internal Alignment Through Better Integration

12. Achieving Integration • Clear understanding of strategic implications of an e-commerce solution • Board sponsorship • Cultural changes • From transaction workers to knowledge-processing workers • IT as a strategic weapon and source of competitive advantage • Real-time and 24-hour access to satisfy global customers • Data security becomes imperative in data-rich e-commerce environments • Need for interlinked systems (intranets, extranets)

13. And the Benefits Will Be ... • Reductions • Order processing overhead • Delivery lifecycles • Time-to-market • Billing lifecycles • Other improvements • Procurement activities • Partner relationships

14. A Case in Point: Cisco Systems • Global leader in networking equipment (routers, switches) • 80% of all Internet hardware • E-commerce-based revenue: • $1.3 Bn this quarter (57% of sales) • E-commerce-based cost savings: • $250 M per year; 10 of its largest customers tie in their inventory systems • Company value: • Before adopting e-commerce (1995): $15 Bn • After adopting e-commerce (1998): $100 Bn

15. Evaluation of E-Commerce Benefits • Inventory (days/week) • Forecast accuracy (%) • Change in distribution costs (%) • Change in manufacturing costs (%) • Change in sales revenue (%) • Change in margins (%)

16. Strategic Benefits of E-Commerce May Be Far More Important than Short-Term Gains • “ What’s my ROI on e-commerce ? ARE YOU CRAZY ? This is Columbus in the New World. What was his ROI ?” • Andy Grove, • Chairman & former CEO of Intel, • The Economist, May 1997

17. USA vs. Europe • Forecasted e-commerce revenues (2002; Forrester Research) • US: $207 Bn • Europe: $65 Bn • “70% of European firms involved in e-commerce believe that Europe is behind by 1-3 years”, Forrester Research • US firms already realise strategic benefits of e-commerce • Microsoft’s “invasion” in travel industry supply chain (Expedia) • Revenues: $2 M per week (November 1997) • US firms use e-commerce strategic advantages to “invade” supply chains of European firms (Travelocity, Amazon.com)

18. Final Thoughts • E-commerce is about change in SCM: from strategy to implementation • Get involved in E-commerce NOW • Implement it • Keep improving it (an iterative process) • Early starters will become established players • Make only new mistakes • Investments are necessary • Unique opportunity to shape industries and increase value

19. Consulting Group Dr. Kostas Kutsikos PA Consulting Group, 123 Buckingham Palace Road, London, SW1W 9SR United Kingdom Tel: +44-171-312-4747 Fax: +44-171-333-5457 E-M: Kostas.Kutsikos@pa-consulting.com