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HOWDOES THEINTERNETAFFECTSUPPLYCHAINMANAGEMENT? 375as a commercial instrument. Building on already devel-
oped technologies such as electronic data interchange
(EDI) and satellite communication, the Internet has be-
come a central technology for advancing the revolutionary
changes occurring in the nature and location of produc-
tion.HOW DOES THE INTERNET AFFECT
SUPPLY CHAIN MANAGEMENT?
The management of a supply chain in the era of global-
ization, lean and flexible manufacturing, and mass cus-
tomization presents managers with a formidable set of
tasks. The need for lower costs, greater speed, more flex-
ibility, and increased service generates a series of opti-
mization problems compounded by a complex array of
trade-offs. Because the Internet is a cost-effective and
near-ubiquitous medium of information exchange, it ex-
pands the opportunities for coping with these difficulties.
The most direct effect of the Internet is to create new
opportunities to improve the efficiency and effectiveness
of the operation of the supply chain. This is because of
the cost-effective capacity to generate visibility across all
aspects of the supply chain, including point-of-sale in-
formation, manufacturing schedules, vendor stocks, cus-
tomer inventories, demand patterns, sales/marketing ini-
tiatives, and carrier schedules. However, achieving these
gains requires many management decisions and organi-
zational changes, most of which are focused on recog-
nizing the value of collaboration among members of the
supply chain and designing a system to facilitate this col-
laboration. At the same time, barriers to collaboration
arise from the different interests and needs of the mem-
bers of the supply chain, and because the benefits are not
equally available to all members. Collaboration is also dif-
ficult to achieve because it requires a rethinking of the
nature of the business enterprise and the relationships
among external suppliers, core business operations, and
customers.
The application of the Internet to the management
of supply chains is one of the most important forms of
e-business. Supply chain management is the organiza-
tion, design, optimization, and utilization of the busi-
ness processes and physical and information networks
that link raw materials to the delivery of end products to
customers. The supply chain is a system of production,
assembly, exchange, information flows, financial flows,
transactions, physical movement, and coordination. The
business processes involved include relationships with
customers, fulfillment of orders, payment, management
of demand, procurement of materials and supplies, man-
ufacturing coordination, and the logistics of moving ma-
terials and products (Lambert, 2001).
However, what is e-business? By one definition, it is
the “marketing, buying, selling, delivering, servicing, and
paying for products across (nonproprietary) networks to
link an enterprise with its prospects, customers, agents,
suppliers, competitors, allies, and complementors” (Weill
& Vitale, 2001, p. 5). Others have offered a view emphasiz-
ing e-business applications to the supply chain: “planning
and execution of the front-end and back-end operations ina supply chain using the Internet” (Lee & Whang, 2001a,
p. 2).
The application of the Internet to supply chain man-
agement involves developing the capacity for greater in-
tegration, for new forms of collaboration, and for using
the new information systems to redesign business prac-
tices.
We will approach the question of e-business from the
perspective of the extended, real-time enterprise (Siegele,
2002) and consider not only the internal integration of
the supply chain but also how linking the supply chain to
customers and strategic partners solves problems and ex-
pands opportunities. The extended, real-time enterprise
is a core concept for understanding the operation of
e-business. It involves the development of an integrated
information system linking together customers, the firm
and its operations, strategic partners, and the relevant
supply chains. Information about orders, operations, sup-
pliers, and logistics is available in real-time and permits
new forms of management and relationships with cus-
tomers and suppliers.Opportunities for Gains
The greatest barrier to improvement in the operation of
supply chains is the segmentation and separation of the
various elements of the supply chain. The different units
of a supply chain—suppliers, manufacturers, distributors,
logistics, and retailers—have typically operated without
the information integration, synchronization, and coor-
dination needed to improve operations. Even when firms
in a supply chain have wanted to improve integration,
because information has traditionally been expensive to
generate and distribute, they have been forced to oper-
ate in relative isolation. This contributes to higher inven-
tory levels, difficulties in responding to customers in a
timely manner, ineffective use of resources, problems in
developing new products, limited knowledge of customer
demand, and lower profits. Because the Internet gener-
ates more and better information in real time and shares
that information in a cost-effective way across the supply
chain, it offers efficiency gains from speed, cost, flexibil-
ity, and expanded service. Put another way, these capabil-
ities result in reduced segmentation and separation and
greater integration of the supply chain through informa-
tion sharing.
The Internet, with the capacity to generate and dis-
tribute information at low cost, provides significant op-
portunities for integration of the elements of the sup-
ply chain. As Figure 1 suggests, information flows in an
Internet-enabled supply chain are much more complex
than in a tradition supply chain. To be the most effective,
information flows must be continuous and must link all
parties in the chain, so that each firm can see what is hap-
pening throughout the system. Thus, the potential bene-
fits from the Internet require much greater collaboration,
since information generated at each point of the supply
chain must be shared, and decisions regarding this infor-
mation must be based upon a joint frame of reference.
Thus, integration is achieved by a sequence of actions in
the development and use of information across the supply
chain.