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7 Reasons Logistics Managers Are Turning To E-SCM Solutions


From the December 2000 edition of Managing Logistics

Internet-based supply chain management solutions (eSCM) can link many steps in the supply chain over a central hub cheaply and efficiently. The question that remains though is how important is each of the various linkages and what does that mean for logistics managers. For example, how important is it to create tighter and more transparent cost controls? Or for sellers to check customs duties, shipping charges, and taxes? Or for buyers to view catalogs with real-time prices.

To get some answers to these questions, Zona Research, Inc. of Redwood Shores, Calif., recently asked managers to rank the importance of the benefits of virtual logistics to their organizations.

eSCM As Control Method

Overall, 58% of logistics managers felt that tighter and more transparent cost controls were important or extremely important as part of their eSCM solution, 25% were neutral and 17% of users felt it would be of little or no importance (see Figure 1). The survey results indicate that many companies expect that eSCM solutions to provide cost control benefits to their business and that the market for eSCM solutions that are able to fulfill company expectations will continue to grow.

As a result of eSCM, companies will become more sensitive to fluctuations in prices and other costs and will be able to respond much more effectively. The eSCM will help them receive alerts when upstream suppliers raise prices and have the ability to quickly shift to other suppliers through online exchanges.

In addition, organizations were asked to rate the importance of reduced costs through better pricing and purchasing in their electronic supply chain management system. Nearly two-thirds of survey respondents rated these activities as somewhat or extremely important (see Figure 2). This shows that capturing better prices when buying supplies through eSCM systems is a top benefit because of the opportunities for comparative pricing that these solutions offer.

It also has to do with the fact that greater numbers of suppliers can be accessed in less time through such systems. Online suppliers can pass along volume or loyalty discounts through the dynamic pricing regimes that are frequently available on virtual supply chain systems.

Countering Economies of Scale

Achieving economies of scale can increase inventory costs and even contradict just-in-time concepts. An eSCM offers several cost-saving features (such as dynamic pricing and requests for bids) and eliminates lengthy procurement procedures.

Zona asked managers to rate the importance of large economies of scale in an eSCM. Nearly three out of 10 said it was extremely important. The results indicate that companies with large raw material needs, such as heavy manufacturers, tend to benefit from economies of scale whereas firms with minimal procurement needs are not significantly benefited.

Impact on Workflow

When asked to rate the importance of automatically triggered workflow operations in the eSCM, more than four in 10 respondents rate such activity somewhat or extremely important. Less than one in five felt that such activity was not at all important and more than one quarter ware indifferent on the issue. The research shows that only midsize firms, with 501-1,000 workers or very large enterprises with more than 2,500 employees rate automatic workflows important.

Job-wide, middle level managers were among the groups to rate such workflows important, indicating that they are aware how much an eSCM can make workflows more efficient. In terms of annual sales, firms ranked such workflows about equally in terms of importance except for those with $10 million to $99.9 million or over $1 billion in annual sales, which rated them important far more than unimportant.

Reduces Warehouse Inventory

While there are many benefits to eSCM solutions and the cost control they offer, respondents do not believe that these solutions reduce the need to warehouse parts and finished goods. This is surprising given that eSCM solutions can indeed help firms approach build-to-order production strategies that can lead to savings in warehousing costs.

With build-to-order systems made possible by eSCM, firms can be freed from having to warehouse, freed from having to guess about how much to sell, and freed from having to take a potential loss on goods that are not sold and then discounted later in secondary markets.

Reduced Order Fulfillment Cycles

Another potential benefit of eSCM is in reducing order fulfillment cycles, yet less than half of the managers believe it is either somewhat or extremely important when making a decision to purchase an electronic solution (see Figure 6). This could be because the most noticeable speed increases are likely realized in the shift to EDI solutions. A higher response was generated for the increased benefits of customer service, which is a more crucial motivator for purchasing an eSCM.

Optimizes Cross-Border Pricing

When asked to rate the relative importance of using their electronic supply chain management system to help optimize their firm's cross-border pricing, half felt it was of little importance and only one in five said it was very important. This points to the notion that a sizable number of firms are not yet concerned about pricing issues in various parts of the world either because they primarily sell to domestic markets or because pricing issues are not impacted by their supply chain management efforts. Even so, eSCM is a critical tool in facilitating cross-border pricing, concludes Zona Research.

Increased Customer Satisfaction

Logistics bottlenecks and botched deliveries can very quickly remove the shine from any organization's reputation. So Zona asked logistics managers to rate the importance of increased customer satisfaction as a potential benefit from their eSCM system.

More than four out of five say that customer satisfaction is either important or extremely important, while fewer than one in 10 were neutral on the subject. In analyzing the responses, companies with more than 2,500 employees and those with fewer than 250 were among the groups that were neutral about this benefit.

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