《电子商务 E-business》阅读文献：Models for supply chains in e-business

Models for Supply chains in e-Business Jayashankar M. Swaminathan Sridhar R Tay Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599 Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213 Sups ya ceai management is likely to play an important role in the digital economy. In we first describe major issues in traditional supply chain management. Next, we focus our attention on the supply chain issues of visibility, supplier relationships, dis- tribution and pricing, customization, and real-time decision technologies that have risen to mportance with the prevalence of e-business. We present an overview of relevant analytical research models that have been developed in these areas discuss their contributions and conclude with a discussion on future modeling opportunities in this area (Supply Chain Management; Electronic Business; Collaboration; Information Sharing; Decision Support; Supplier Relations; Procurement; Distribution; Customization; Literature Survey) 1. Introduction by coordinating with customers over the Internet It is estimated that e-commerce in the United States (Bylinski 2001); and Autoliv reduced the plant inven will grow from $72 billion in 2002 to approximately tory by 37% by coordinating orders online with sup- $217 billion by 2007, according to a recent Forrester pliers(lundegaard 2001). The large potential impact research report (ohnson et al. 2002). While the Pre- of the Internet on supply chain management makes dicted numbers may not be exact, there is no doubt the study of supply chain models in e-business timely that the rapid growth and adoption of the Internet and important has already had a great impact on all aspects of Supply chain management is a vast topr business, including customer acquisition, marketing, first provide a comprehensive definition of supply human resource management, finance, information hain management and then discuss opportunities systems(IS), and operations. Supply chain manage- and changes created as a result of Internet usage ment that has played an important role in traditional 1.1. Supply Chain Management businesses is likely to be crucial in the digital econ- omy as well(Geoffrion and Krishnan 2001). Keenan the design of new products and services, procuring and Ante(2002)note that during the next five years, raw materials, transforming them into semifinished collaboration by supply chain partners over the Inter- and finished products, and delivering them to the net can potentially save $223 billion with the reduc- end customer. This definition or a modified ver tion in transaction, production, and inventory costs. sion of it, has been used by several researchers(see This could be one of the largest benefits of Internet Lee and Billington 1993, Swaminathan et al. 1998, technology and many firms have already begun Swaminathan 2001a, Keskinocak and Tayur 2001) realize these benefits. For example, Microsoft used Supply chain management is the efficient manage- a Web collaboration tool to bring the Xbox video ment of the end-to-end process, which starts with game console to market two months ahead of sched- the design of the product or service and ends with ule( Keenan and ante 2002); Cutler-Hammer has dou- the time when it has been sold, consumed, and bled profits and increased productivity by 35% for its finally, discarded by the consumer. This complete pro- onfigured motor control centers and control panels cess includes product design, procurement, Planning 025-1909/03/4910/1387 MANAGEMENT SCIENCE C 2003 INFORMS 1526-5501 electronic ISSN ol.49,No.10, October2003,pp.1387-1406

Models for Supply Chains in E-Business Jayashankar M. Swaminathan • Sridhar R. Tayur Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599 Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213 Supply chain management is likely to play an important role in the digital economy. In this paper, we first describe major issues in traditional supply chain management. Next, we focus our attention on the supply chain issues of visibility, supplier relationships, dis￾tribution and pricing, customization, and real-time decision technologies that have risen to importance with the prevalence of e-business. We present an overview of relevant analytical research models that have been developed in these areas, discuss their contributions, and conclude with a discussion on future modeling opportunities in this area. (Supply Chain Management; Electronic Business; Collaboration; Information Sharing; Decision Support; Supplier Relations; Procurement; Distribution; Customization; Literature Survey) 1. Introduction It is estimated that e-commerce in the United States will grow from $72 billion in 2002 to approximately $217 billion by 2007, according to a recent Forrester research report (Johnson et al. 2002). While the pre￾dicted numbers may not be exact, there is no doubt that the rapid growth and adoption of the Internet has already had a great impact on all aspects of business, including customer acquisition, marketing, human resource management, finance, information systems (IS), and operations. Supply chain manage￾ment that has played an important role in traditional businesses is likely to be crucial in the digital econ￾omy as well (Geoffrion and Krishnan 2001). Keenan and Ante (2002) note that during the next five years, collaboration by supply chain partners over the Inter￾net can potentially save $223 billion with the reduc￾tion in transaction, production, and inventory costs. This could be one of the largest benefits of Internet technology and many firms have already begun to realize these benefits. For example, Microsoft used a Web collaboration tool to bring the Xbox video game console to market two months ahead of sched￾ule (Keenan and Ante 2002); Cutler-Hammer has dou￾bled profits and increased productivity by 35% for its configured motor control centers and control panels by coordinating with customers over the Internet (Bylinski 2001); and Autoliv reduced the plant inven￾tory by 37% by coordinating orders online with sup￾pliers (Lundegaard 2001). The large potential impact of the Internet on supply chain management makes the study of supply chain models in e-business timely and important. Supply chain management is a vast topic. We first provide a comprehensive definition of supply chain management and then discuss opportunities and changes created as a result of Internet usage. 1.1. Supply Chain Management A supply chain is the set of entities involved in the design of new products and services, procuring raw materials, transforming them into semifinished and finished products, and delivering them to the end customer. This definition, or a modified ver￾sion of it, has been used by several researchers (see Lee and Billington 1993, Swaminathan et al. 1998, Swaminathan 2001a, Keskinocak and Tayur 2001). Supply chain management is the efficient manage￾ment of the end-to-end process, which starts with the design of the product or service and ends with the time when it has been sold, consumed, and finally, discarded by the consumer. This complete pro￾cess includes product design, procurement, planning 0025-1909/03/4910/1387 1526-5501 electronic ISSN Management Science © 2003 INFORMS Vol. 49, No. 10, October 2003, pp. 1387–1406

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business and forecasting, production, distribution, fulfillment, Information flow Decisions. In what form is after-sales support, and end-of-life disposal. Supply information shared between different entities in the chain management issues can be classified into supply chain: paper, voice via telephone, electronic two broad categories: configuration(design-oriented) data interchange (EDI)? How much collaboration issues that relate to the basic infrastructure occurs among the supply chain partners during new execution of the supply chai es, and coordination product development? which the supply chain execute (execution-oriented)issues that relate to the actual Cash Flow Decisions. When do suppliers get paid os Configuration-level issues include the following for their deliveries? What prices should be charged for products? What kinds of cost reduction efforts are taken across the supply chain (or expected of Procurement and Supplier Decisions. How many suppliers)? In a global firm, in which currency will a and what kinds of suppliers are necessary? Which supplier be paid? parts should be outsourced and which should be kept It is clear that supply chain management spans sev in house? How can procurement practices be stream- eral functional and geographical areas, introducing lined and standardized? How should long-term and complexities both in terms of design and execution short-term contracts be used with suppliers? Some of the pertinent factors that complicate supply Production Decisions. In a global production net- chain management decisions include the pre of work, where and how many manufacturing sites multiple agents and their sometimes conflicting incen- should be operational? How much capacity should be tives; uncertainty in demand, supply and produc- installed at each of these sites? What kinds of prod tion distribution process; asymmetry of information ucts and services are going to be supported through related to product design, inventory, costs, demand the supply chain? How much variety should be pro- and capacity across the supply chain between the vided to customers? What degree of commonality is various parties in the supply chain; and lead time es in the supply chair Distribution Decisions. What kind of distribu- all these complexities lead to several types of inef tion channels should a firm have? How many and ficiencies in the supply chain: poor utilization of where should the distribution and retail outlets be inventory assets (Lee and Billington 1992);distor- located? What kinds of transportation modes and tion of information such as the bullwhip effect(Lee routes should be used? How should a firm exploit et al. 1997); high stock-outs and nonresponsive sup- ply chains(Fisher et al. 1994); poor customer ser- vice due to customization-responsiveness challenges Information Support Decisions. Should enterprise (Swaminathan and Tayur 1998); and double marginal resource planning software be standardized across ization that leads to lower profits for the supply chain the functional units of a firm? Should the supply (Cachon 2003) chain work on standard protocols or on proprietary The science related to supply chain management standards? traces its history back to the early 1950s when sev Coordination level issues include the following eral researchers were interested in understanding the optimal policies related to inventory manage- Material Flow Decisions. How much inventory of ment. In one of the first works, Clark and Scarf different product types should be stored to realize the (1960) developed models for managing inventories at expected service levels? Should inventory be carried multiple echelons. Numerous researchers have stud in finished form or semifinished form? How often ied related inventory problems under stochastic and should inventory be replenished? Should a firm make deterministic environments over the last 50 years inventory decisions or is it better to have the vendor This stream of research(mostly from a centralized manage the inventory? Should suppliers be required perspective)is concisely captured in the research to deliver goods just in time? handbook edited by Graves et al.(1993). Over the MANAGEMENT SCIENCE/VoL 49, No 10, October 2003

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business and forecasting, production, distribution, fulfillment, after-sales support, and end-of-life disposal. Supply chain management issues can be classified into two broad categories: configuration (design-oriented) issues that relate to the basic infrastructure on which the supply chain executes, and coordination (execution-oriented) issues that relate to the actual execution of the supply chain. Configuration-level issues include the following topics. Procurement and Supplier Decisions. How many and what kinds of suppliers are necessary? Which parts should be outsourced and which should be kept in house? How can procurement practices be stream￾lined and standardized? How should long-term and short-term contracts be used with suppliers? Production Decisions. In a global production net￾work, where and how many manufacturing sites should be operational? How much capacity should be installed at each of these sites? What kinds of prod￾ucts and services are going to be supported through the supply chain? How much variety should be pro￾vided to customers? What degree of commonality is required across the product portfolio? Distribution Decisions. What kind of distribu￾tion channels should a firm have? How many and where should the distribution and retail outlets be located? What kinds of transportation modes and routes should be used? How should a firm exploit risk-pooling opportunities? Information Support Decisions. Should enterprise resource planning software be standardized across the functional units of a firm? Should the supply chain work on standard protocols or on proprietary standards? Coordination level issues include the following topics. Material Flow Decisions. How much inventory of different product types should be stored to realize the expected service levels? Should inventory be carried in finished form or semifinished form? How often should inventory be replenished? Should a firm make inventory decisions or is it better to have the vendor manage the inventory? Should suppliers be required to deliver goods just in time? Information Flow Decisions. In what form is information shared between different entities in the supply chain: paper, voice via telephone, electronic data interchange (EDI)? How much collaboration occurs among the supply chain partners during new product development? Cash Flow Decisions. When do suppliers get paid for their deliveries? What prices should be charged for products? What kinds of cost reduction efforts are taken across the supply chain (or expected of suppliers)? In a global firm, in which currency will a supplier be paid? It is clear that supply chain management spans sev￾eral functional and geographical areas, introducing complexities both in terms of design and execution. Some of the pertinent factors that complicate supply chain management decisions include the presence of multiple agents and their sometimes conflicting incen￾tives; uncertainty in demand, supply and produc￾tion distribution process; asymmetry of information related to product design, inventory, costs, demand and capacity across the supply chain between the various parties in the supply chain; and lead time between the different entities in the supply chain. All these complexities lead to several types of inef- ficiencies in the supply chain: poor utilization of inventory assets (Lee and Billington 1992); distor￾tion of information such as the bullwhip effect (Lee et al. 1997); high stock-outs and nonresponsive sup￾ply chains (Fisher et al. 1994); poor customer ser￾vice due to customization-responsiveness challenges (Swaminathan and Tayur 1998); and double marginal￾ization that leads to lower profits for the supply chain (Cachon 2003). The science related to supply chain management traces its history back to the early 1950s when sev￾eral researchers were interested in understanding the optimal policies related to inventory manage￾ment. In one of the first works, Clark and Scarf (1960) developed models for managing inventories at multiple echelons. Numerous researchers have stud￾ied related inventory problems under stochastic and deterministic environments over the last 50 years. This stream of research (mostly from a centralized perspective) is concisely captured in the research handbook edited by Graves et al. (1993). Over the 1388 Management Science/Vol. 49, No. 10, October 2003

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business last decade, researchers have studied several other enterprise. This has elevated the role of supply chain issues related to supply chain management that models from being decision-making enablers for a include decentralized multiagent models to analyze single business unit to being enablers for driving cor supply chain coordination problems, models that inte- porate strategy. Thus, the Internet has greatly elevated grate information availability across the supply chain the role of supply chain modeling and analysis within with logistics decisions, models for supply contracts a firm. and demand forecasting, and models that integrate The advent of e-business has also created sev- product design with supply chain management. A eral challenges and opportunities in the supply chain collection of prominent research in this area is con- environment. First and foremost, the Internet has tained in Tayur et al. (1999)and Graves and de Kok increased the opportunity for consumers to buy prod (2003) ucts and services without going to a store. Though the practice of direct selling through catalogs and 1. 2. E-Business and Supply Chain phone was in use earlier by a few firms, the Inter- E-business can be loosely defined as a business pro- net has made this form of sales more significant cess that uses the Internet or other electronic medium In a direct sales environment, the fulfillment process as a channel to complete business transactions. determines how long customers will wait between As classified by Geoffrion and Krishnan (2001), sale and delivery. This has made the back-end ful- e-business consists of three areas: (1)consumer- fillment process-which mostly depends on supply oriented activity and(2) business-oriented activity chain management--extremely important Further, in supported by(3)the e-business technology infras- the electronic environment, customer expectations tructure. The consumer-oriented activities consist in terms of quick and timely delivery have also of business-to-consumer, consumer-to-consumer, and increased. At the same time, the Internet has opened government-to-consumer activities. The business- up opportunities for firms to share information and oriented activities comprise business-to-business, efficiently coordinate their activities with other enti- business-to-government, and government-to-business ties in the supply chain. This has created several activities. The technology infrastructure relates to net- new avenues in traditional supply chain areas. For work infrastructure, network applications, decision example, in supplier selection and procurement, firms technologies, and software tools and applications. have to decide if they should join private or pub- Within this broad definition of e-business activities, lic exchanges or develop highly-integrated supply we will restrict our attention mainly to consumer- partnerships. They need to determine if they should oriented and business-oriented activities, as well as use auction and bidding for contracts and, if so, decision technologies that are employed for supply which type would be most beneficial. In distribu- chain management tion, they need to decide if the firm will offer prod- The Internet has influenced the usage of supply ucts through the Internet channel and, if so, how this chain models in three ways. First, the Internet has method would differ from the traditional channel facilitated increased use of enterprise resource plan- This raises the question of how the synergies would solutions(APS). Secondtlanning and optimization ning(ERP) and advanced be realized in terms of inventory, transportation, and the ability to obtain real- distribution. Similarly, the availability of real-time time information and the access to large computer information has raised important questions such as systems is enabling firms to develop detailed(high- the degree to which information sharing protocol granularity) supply chain models that can be uti- should be standard or proprietary; the amount and lized to make real-time decisions. Last, the Internet type of information that should be shared with the has created opportunities to integrate information rest of the supply chain partners; and the types of and decision making across different functional units, collaborative processes that may be beneficial. The hereby creating a need for supply chain models that degree of change in issues related to the supply chain go beyond a business unit to study the extended spans a huge spectrum from concepts and issues that MANAGEMENT SCIENCE/VoL 49, No. 10, October 2003 1389

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business last decade, researchers have studied several other issues related to supply chain management that include decentralized multiagent models to analyze supply chain coordination problems, models that inte￾grate information availability across the supply chain with logistics decisions, models for supply contracts and demand forecasting, and models that integrate product design with supply chain management. A collection of prominent research in this area is con￾tained in Tayur et al. (1999) and Graves and de Kok (2003). 1.2. E-Business and Supply Chain E-business can be loosely defined as a business pro￾cess that uses the Internet or other electronic medium as a channel to complete business transactions. As classified by Geoffrion and Krishnan (2001), e-business consists of three areas: (1) consumer￾oriented activity and (2) business-oriented activity supported by (3) the e-business technology infras￾tructure. The consumer-oriented activities consist of business-to-consumer, consumer-to-consumer, and government-to-consumer activities. The business￾oriented activities comprise business-to-business, business-to-government, and government-to-business activities. The technology infrastructure relates to net￾work infrastructure, network applications, decision technologies, and software tools and applications. Within this broad definition of e-business activities, we will restrict our attention mainly to consumer￾oriented and business-oriented activities, as well as decision technologies that are employed for supply chain management. The Internet has influenced the usage of supply chain models in three ways. First, the Internet has facilitated increased use of enterprise resource plan￾ning (ERP) and advanced planning and optimization solutions (APS). Second, the ability to obtain real￾time information and the access to large computer systems is enabling firms to develop detailed (high￾granularity) supply chain models that can be uti￾lized to make real-time decisions. Last, the Internet has created opportunities to integrate information and decision making across different functional units, thereby creating a need for supply chain models that go beyond a business unit to study the extended enterprise. This has elevated the role of supply chain models from being decision-making enablers for a single business unit to being enablers for driving cor￾porate strategy. Thus, the Internet has greatly elevated the role of supply chain modeling and analysis within a firm. The advent of e-business has also created sev￾eral challenges and opportunities in the supply chain environment. First and foremost, the Internet has increased the opportunity for consumers to buy prod￾ucts and services without going to a store. Though the practice of direct selling through catalogs and phone was in use earlier by a few firms, the Inter￾net has made this form of sales more significant. In a direct sales environment, the fulfillment process determines how long customers will wait between sale and delivery. This has made the back-end ful- fillment process—which mostly depends on supply chain management—extremely important. Further, in the electronic environment, customer expectations in terms of quick and timely delivery have also increased. At the same time, the Internet has opened up opportunities for firms to share information and efficiently coordinate their activities with other enti￾ties in the supply chain. This has created several new avenues in traditional supply chain areas. For example, in supplier selection and procurement, firms have to decide if they should join private or pub￾lic exchanges or develop highly-integrated supply partnerships. They need to determine if they should use auction and bidding for contracts and, if so, which type would be most beneficial. In distribu￾tion, they need to decide if the firm will offer prod￾ucts through the Internet channel and, if so, how this method would differ from the traditional channel. This raises the question of how the synergies would be realized in terms of inventory, transportation, and distribution. Similarly, the availability of real-time information has raised important questions such as the degree to which information sharing protocol should be standard or proprietary; the amount and type of information that should be shared with the rest of the supply chain partners; and the types of collaborative processes that may be beneficial. The degree of change in issues related to the supply chain spans a huge spectrum from concepts and issues that Management Science/Vol. 49, No. 10, October 2003 1389

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business have been marginally affected to a whole set of new have increased in importance with the Internet, and issues that have emerged as a result of e-business (2) those that are new issues in the e-business envi First, several issues related to supply chain man- ronment. This paper is not intended to be exhaustive agement have not necessarily changed in principle, in coverage, rather our aim is to concentrate on spe although e-business may have had an impact on some cific areas related to supply chain and e-business and of their parameters. For example, to maintain given highlight papers that, in our opinion, have tackled levels of service, a firm still needs buffer inventory important issues. For a more exhaustive coverage, the or buffer capacity. This has not changed as a result reader is referred to the research handbook by Simchi of the Internet, although the uncertainty involved in Levi et al.(2003). In particular, our focus will be on the decision making may have decreased with the papers that utilize analytical modeling and operations availability of more information. Similarly, a firm still research methodology in supply chain planning and needs to take into account the interplay between fixed execution. This is a relatively new area, thus, many and variable costs, while making decisions related to of the research papers discussed in this article are procurement or setting up additional capacity. With unpublished the prevalence of the Internet, the firm might more 1.3.1. Procurement and Supplier easily be able to obtain a lower procurement price or The e-business paradigm has created an immense alvage excess capacity through market mechanisms. opportunity for firms to consolidate their buyin Next are existing supply chain issues that have processes(also called e-procurement). The first suc- become important as a result of e-business. For exam- cess stories in the area of e-procurement came from ple,leveragingrisk-poolingconceptscangreatlyben-softwarefirmsarIba(http://www.ariba.com)and P at fewer locations as compared to a traditional dis- which primarily dealt with indirect goods and tribution channel. Amazon. com can store all inver services. The initial idea in these systems was that tory for the entire U.S. market in five warehouses when procurement is consolidated under a single as opposed to several hundred retail outlets(hence, roof, the firm benefits from price reductions(a direct stocking points)that would be needed for similar cov- result of quantity discount). E-procurement systems erage in the traditional channel. Similarly, mass cus- enable individual employees to become aware of tomization has gained a lot of momentum with the all qualified suppliers and to complete the procure Internet because firms can allow customers to interac- ment process quickly and easily. Subsequently, more ively specify customizations of their offerings. It has advanced models for procurement have evolved that ecome more important for firms to understand how use auctions to determine which firm wins a pro- to cope with customization in an effective manner curement contract. Each contract is open to bids in Finally, in the last few years, a third category of an electronic auction house and qualified suppliers issues new to supply chain management has emerged. are allowed to participate. Although auctions have One example is linking the dynamic pricing of prod- been used for industrial contracts before, execution ucts to the inventory and capacity decisions. Another was rather cumbersome and, thus, were used only is coordinating Internet and traditional distribution for large and important contracts. E-business firms channelsintermsofpricesaswellasinformationsuchasFreemarkeTs(http://www.freemarkets.com,a Grom, product flows. Additionally, the advent of elec- business-to-business, third-party auctions firm)have tronic marketplaces and auctions has opened a whole made it much easier to conduct these auctions and new set of es related to procurement and supplier as a result, firms are beginning to use these auctions relationships more frequently for procurement. This poses new research issues such as whether a firm should use 1.3. Focus of this Paper such auctions for all its components and suppliers this paper, we focus on the last two types of sup- what the long-term effect of such auctions on supplier ply chain issues previously discussed: (1)those that relationship is; how firms can use both traditional MANAGEMENT SCIENCE/VoL 49, No 10, October 2003

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business have been marginally affected to a whole set of new issues that have emerged as a result of e-business. First, several issues related to supply chain man￾agement have not necessarily changed in principle, although e-business may have had an impact on some of their parameters. For example, to maintain given levels of service, a firm still needs buffer inventory or buffer capacity. This has not changed as a result of the Internet, although the uncertainty involved in the decision making may have decreased with the availability of more information. Similarly, a firm still needs to take into account the interplay between fixed and variable costs, while making decisions related to procurement or setting up additional capacity. With the prevalence of the Internet, the firm might more easily be able to obtain a lower procurement price or salvage excess capacity through market mechanisms. Next are existing supply chain issues that have become important as a result of e-business. For exam￾ple, leveraging risk-pooling concepts can greatly ben￾efit Internet channels because products may be stored at fewer locations as compared to a traditional dis￾tribution channel. Amazon.com can store all inven￾tory for the entire U.S. market in five warehouses as opposed to several hundred retail outlets (hence, stocking points) that would be needed for similar cov￾erage in the traditional channel. Similarly, mass cus￾tomization has gained a lot of momentum with the Internet because firms can allow customers to interac￾tively specify customizations of their offerings. It has become more important for firms to understand how to cope with customization in an effective manner. Finally, in the last few years, a third category of issues new to supply chain management has emerged. One example is linking the dynamic pricing of prod￾ucts to the inventory and capacity decisions. Another is coordinating Internet and traditional distribution channels in terms of prices as well as information and product flows. Additionally, the advent of elec￾tronic marketplaces and auctions has opened a whole new set of issues related to procurement and supplier relationships. 1.3. Focus of this Paper In this paper, we focus on the last two types of sup￾ply chain issues previously discussed: (1) those that have increased in importance with the Internet, and (2) those that are new issues in the e-business envi￾ronment. This paper is not intended to be exhaustive in coverage, rather our aim is to concentrate on spe￾cific areas related to supply chain and e-business and highlight papers that, in our opinion, have tackled important issues. For a more exhaustive coverage, the reader is referred to the research handbook by Simchi￾Levi et al. (2003). In particular, our focus will be on papers that utilize analytical modeling and operations research methodology in supply chain planning and execution. This is a relatively new area, thus, many of the research papers discussed in this article are unpublished. 1.3.1. Procurement and Supplier Management. The e-business paradigm has created an immense opportunity for firms to consolidate their buying processes (also called e-procurement). The first suc￾cess stories in the area of e-procurement came from software firms Ariba (http://www.ariba.com) and Commerce One (http://www.commerceone.com), which primarily dealt with indirect goods and services. The initial idea in these systems was that when procurement is consolidated under a single roof, the firm benefits from price reductions (a direct result of quantity discount). E-procurement systems enable individual employees to become aware of all qualified suppliers and to complete the procure￾ment process quickly and easily. Subsequently, more advanced models for procurement have evolved that use auctions to determine which firm wins a pro￾curement contract. Each contract is open to bids in an electronic auction house and qualified suppliers are allowed to participate. Although auctions have been used for industrial contracts before, execution was rather cumbersome and, thus, were used only for large and important contracts. E-business firms such as FreeMarkets (http://www.freemarkets.com, a business-to-business, third-party auctions firm) have made it much easier to conduct these auctions and, as a result, firms are beginning to use these auctions more frequently for procurement. This poses new research issues such as whether a firm should use such auctions for all its components and suppliers; what the long-term effect of such auctions on supplier relationship is; how firms can use both traditional 1390 Management Science/Vol. 49, No. 10, October 2003

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business and auction mechanisms to hedge against risks in a The ability to access information across the supply more efficient manner; and how a third party such as chain and use it in real time provides various oppor- FreeMarkets can ensure that capacities of suppliers tunities. Inventory requirements for buffer stocks are are taken into account in these auctions so that the likely to be lower, because the uncertainty in forecasts contract is executable and demand can be reduced across the supply chain. A related phenomenon in the supplier management Allocation of inventory to different retail outlets or area is the formation of industry-wide supply chain customers as part of order fulfillment can be done consortia such as e2open(high tech) and Covisint more effectively when there is visibility about the (automobile). The motivation behind the formation number and type of inventory located at the different of these consortia (also sometimes called market- sites in the supply chain. As more supply chain exe- places)is their ability to provide liquidity to inventory cution information becomes available, firms can plan and capacity present in the extended supply chain for future operations using advanced planning and and make it possible for the supply chain partners optimization tools. The ability to share information to get involved in long-term collaborative planning creates an opportunity for firms to have collaborative nd design efforts. For example, a manufacturer with planning and design, which removes the inefficien- excess inventory could salvage it in the marketplace. cies in these processes. This has opened up several Similarly, buyers may have the ability to conduct es for rese tions for industrial parts and procure capacity options are shared more often than before, how should they from the supply base. There are a number of new be used more effectively; how can collaborative fore- research issues that have evolved as a result of the casts be generated and used across the channel; how above changes. For example, how could one quan can a firm use the demand, inventory, or supply infor- tify the benefits of joining such a consortium for mation from other partners more effectively. We will firm; how many firms of the same type are likely to discuss research on these issues in $3 in a consortium how could the different firm 1.3.3. Pricing and Distribution. Physical retail use the liquidity and options in the marketplace to stores have traditionally been the most common mode improve their operational performance. We will dis- of distribution. Catalog firms have traditionally been cuss research on the issues of procurement and sup- considered a rather niche market for only certain type plier management in§2. of products. E-business has opened up a completely new dimension to distribution by enabling firms to 1.3.2. Visibility and Information Sharing. The use alternative distribution channels in addition to prevalence of ERP allows firms to have access to brick-and-mortar stores. Also, the ability to share data across their supply chains, which could be used information across the supply chain has made it eas- or gaining better efficiency and effectiveness (Sodhi ier for firms to try to coordinate the flow of materi 2001). The ability to access information from various als across multiple channels. In a rush to exploit this parts of the organization has helped firms to stream- opportunity, several firms during the last few years line their business processes and reduce inefficient- have set up Internet stores and created new busi- cies. Although ERP systems were implemented before nesses(such as online grocery).However, many of the boom in e-business, their potential could not be them paid little or no attention to logistics associated explored and expanded due to lack of common stan vith those operations and, as a result, did not go far. dards and cost of access. The growth of e-business For example, online grocers grossly underestimated allows and requires that the information made avail- the transportation costs associated with the"last able from the ERP systems be shared with other firms mile"delivery and the effect of capacity utilization on in the extended supply chain through the Internet. economies of scale(reinhardt 2001 ). Traditional firms This enables firms to coordinate and collaborate with such as ibm, barnes Noble, and Wal-Mart also their suppliers and customers as well as synchronize faced challenging issues during this period when they their in-house operations created their own Internet operations. These questions MANAGEMENT SCIENCE/VoL 49, No. 10, October 2003

SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business and auction mechanisms to hedge against risks in a more efficient manner; and how a third party such as FreeMarkets can ensure that capacities of suppliers are taken into account in these auctions so that the contract is executable. A related phenomenon in the supplier management area is the formation of industry-wide supply chain consortia such as e2open (high tech) and Covisint (automobile). The motivation behind the formation of these consortia (also sometimes called market￾places) is their ability to provide liquidity to inventory and capacity present in the extended supply chain and make it possible for the supply chain partners to get involved in long-term collaborative planning and design efforts. For example, a manufacturer with excess inventory could salvage it in the marketplace. Similarly, buyers may have the ability to conduct auc￾tions for industrial parts and procure capacity options from the supply base. There are a number of new research issues that have evolved as a result of the above changes. For example, how could one quan￾tify the benefits of joining such a consortium for a firm; how many firms of the same type are likely to stay in a consortium; how could the different firms use the liquidity and options in the marketplace to improve their operational performance. We will dis￾cuss research on the issues of procurement and sup￾plier management in §2. 1.3.2. Visibility and Information Sharing. The prevalence of ERP allows firms to have access to data across their supply chains, which could be used for gaining better efficiency and effectiveness (Sodhi 2001). The ability to access information from various parts of the organization has helped firms to stream￾line their business processes and reduce inefficien￾cies. Although ERP systems were implemented before the boom in e-business, their potential could not be explored and expanded due to lack of common stan￾dards and cost of access. The growth of e-business allows and requires that the information made avail￾able from the ERP systems be shared with other firms in the extended supply chain through the Internet. This enables firms to coordinate and collaborate with their suppliers and customers as well as synchronize their in-house operations. The ability to access information across the supply chain and use it in real time provides various oppor￾tunities. Inventory requirements for buffer stocks are likely to be lower, because the uncertainty in forecasts and demand can be reduced across the supply chain. Allocation of inventory to different retail outlets or customers as part of order fulfillment can be done more effectively when there is visibility about the number and type of inventory located at the different sites in the supply chain. As more supply chain exe￾cution information becomes available, firms can plan for future operations using advanced planning and optimization tools. The ability to share information creates an opportunity for firms to have collaborative planning and design, which removes the inefficien￾cies in these processes. This has opened up several new issues for researchers. For example, if forecasts are shared more often than before, how should they be used more effectively; how can collaborative fore￾casts be generated and used across the channel; how can a firm use the demand, inventory, or supply infor￾mation from other partners more effectively. We will discuss research on these issues in §3. 1.3.3. Pricing and Distribution. Physical retail stores have traditionally been the most common mode of distribution. Catalog firms have traditionally been considered a rather niche market for only certain types of products. E-business has opened up a completely new dimension to distribution by enabling firms to use alternative distribution channels in addition to brick-and-mortar stores. Also, the ability to share information across the supply chain has made it eas￾ier for firms to try to coordinate the flow of materi￾als across multiple channels. In a rush to exploit this opportunity, several firms during the last few years have set up Internet stores and created new busi￾nesses (such as online grocery). However, many of them paid little or no attention to logistics associated with those operations and, as a result, did not go far. For example, online grocers grossly underestimated the transportation costs associated with the “last mile” delivery and the effect of capacity utilization on economies of scale (Reinhardt 2001). Traditional firms such as IBM, Barnes & Noble, and Wal-Mart also faced challenging issues during this period when they created their own Internet operations. These questions Management Science/Vol. 49, No. 10, October 2003 1391