Supply Chain Management

Supply chain management is the practice of using the Web and other information technologies to coordinate and keep track of supplies as they move through a business's supply networks. The simultaneous goals of supply chain management are to quickly meet customer demand—by, for instance, fulfilling their orders in a timely fashion and offering them accurate projections—and to minimize costs by reducing inventories and making supply chains optimally efficient. In an age of increased outsourcing and larger webs of business relationships in the global economy, supply chains have become particularly complex, making them increasingly difficult for individual firms to control. The proliferation of electronic business relationships, in the forms of extranets and online business-to-business exchanges, made supply chain management both tempting and technically feasible. Supply chain management was thus a quickly emerging, if still problematic, element of business-to-business e-commerce in the late 1990s and early 2000s.

Electronic management of business supply chains coordinates all business partners in the supply chain over electronic networks and gives all parties an up-to-the-minute overview of all available inventories. Technically, supply chain management "Web-enables" existing enterprise resource planning (ERP) systems, which include everything from product catalogs to order files to inventory databases. Companies take their back-end databases and other systems and integrate them into a Web portal shared across the entire supply chain network. In this way, companies can feed all essential information across the entire supply chain. Most such systems closely detail all components as they move through the system—including the quantity and precise time of parts shipped through the supply chain. In this way, suppliers can log onto secure Web sites and determine exactly how many components to send to the factory, and the companies are aware of exactly what they need to complete projected orders in the most efficient fashion.

Supply chain management systems can take many forms. The most basic route is to simply coordinate existing databases over supply networks using extranets. More sophisticated systems, however, are the specialty of a new breed of service providers that specialize in software and systems management geared specifically toward supply chain management. These companies, such as the Santa Barbara, California-based SupplySolution Inc., one of the most prominent names in the field, simply contract with companies to receive their inventory data and organize it for optimal management across networks.

The layers of potentially useful information are many. By implementing comprehensive databases of components and integrating them into the supply chain management system, companies have the opportunity to cut costs at almost every corner. For instance, by detailing all the components that go into a completed product, firms can monitor each individual component to determine its optimal production and shipping level, determine which components are moving below peak efficiency, and coordinate their entire supply lines to bring them into equilibrium at the greatest level of efficiency. From there, the savings can spread through their operations, as, for instance, firms that have successfully cut down inventories can cease renting warehouse space to store excess components.

Supply chain management, in addition, provides all companies connected in a supply partnership with the greatest level of transparency. That is, all orders and requests are readily accessible to all connected parties, which not only facilitates the transaction process by providing all companies with information, but also increases accountability, as all companies are made aware of each movement through the supply chain and can spot shortcomings. In this way, business partnerships are forced to become more honest, and there is less room for laziness or skimming off the top.

There was a defensive logic to building supply chain management systems as well. By the mid-2000s, e-commerce was expected to reach some $6.8 trillion, and there was concern that existing supply chains would be unable to accommodate such volume. In order to fully take advantage of e-business opportunities, businesses will feel pressured to upgrade their internal and external systems architecture to keep their supply chains in pace with e-commerce as a whole. And evidence into the early 2000s lent credence to the view that existing supply chains were a drag on e-commerce. While companies were competent at taking orders online, order fulfillment left a great deal to be desired. The convenience of e-commerce adds pressure for more sophisticated supply chains as well. Since sales procured over the Internet are more difficult to project, companies are harder pressed to order adequate supplies far in advance.

One of the barriers to supply chain management is that, for the system to live up to its potential, all connected parties need to operate on a common platform. The investment into new systems is substantial enough, and becomes more complex when all players need to coordinate those investments and convert their existing systems to compatibility with the new platform.

A number of dangers lurk in adopting supply chain management. For instance, companies may be reluctant to align themselves too closely to any particular firm if it means closing off their options to shop for supplies elsewhere. Since setting up an efficient and worthwhile supply chain management system calls for a major investment, companies need to be sure that those firms with whom they establish such a relationship are solid and will prove compatible partners over the long term. Relatedly, companies may be uneasy about tying their own strategies too closely to those of other companies since such an arrangement could impede the firms' autonomy and limit their ability to shift direction should the need arise. Businesses also need to be wary of over-extending the supply chain management relationship with those firms that also act as competitors in other fields or that may one day become competitors. Sharing intimate company details could give such a competitor an unfair advantage.