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380 SUPPLYCHAINMANAGEMENT AND THEINTERNETwith short product cycles and a high premium on flexibil-
ity and customization, this capability provides enormous
competitive advantage.
The ability to integrate product development, process,
and supply chain design alters the choices to either make
or buy an element of the product (Fine, Vardan, Pethick,
& El-Hout 2002). As always, firms must decide where the
greatest value is generated in the supply chain and dis-
tinguish between areas of internal competence and exter-
nal dependence. The Internet can affect these decisions.
Because the value of rich information available in real
time rises so dramatically, even as its cost falls dramat-
ically, control over the creation, distribution, and use of
information in the supply chain may be where the great-
est value lies. Traditionally, decisions about make or buy
were defined in terms of the strategic value of the compo-
nent or process, as in the value added, the importance to
the customer, or the knowledge value. In an e-business en-
vironment, where rich information is plentiful and easily
shared, and where products, processes, and supply chains
are codeveloped, the core competency may reside in the
ability to orchestrate the organizations, technologies, and
capabilities in a supply chain. The ability to anticipate
market opportunities and configure or reconfigure a sup-
ply chain to respond rapidly and flexibly may replace tra-
ditional make/buy decisions. This may mean that what
remains consistently in-house are the knowledge assets
associated with technology, markets, and supply chain de-
sign.
A second illustration as to how an Internet-based sup-
ply chain can have a significant impact on strategy and
new business model development is in the management
of demand (Lee, 2001). The ability to link real-time de-
mand information through the supply chain gives rise to
the capacity to manage the relationship between customer
needs and supply chain capabilities, so as to increase ben-
efits for both. The key is to recognize actions taken by the
firm to influence demand, and to integrate those actions
with the capabilities of the supply chain. In the most ele-
mentary sense, this means that marketing efforts to boost
demand should consider the impact over time on the ac-
tual shape of the demand profile and whether this is con-
sonant with an optimized supply chain. The cost of ex-
panding capacity to meet induced demand spikes may ex-
ceed the revenues generated in extra sales. The solution is
to have a clear and precise sense of supply chain costs as-
sociated with different levels of production, and integrate
those costs with decisions relating to promotions. Fur-
ther, promotions need to be coordinated across the supply
chain, so that promotions at the retail level are linked to
promotions at the wholesale level. Internet-based systems
achieve this coordination for individual SKUs and at re-
tail, wholesale, and production sites. The system can take
into consideration the impact of decisions on one prod-
uct as they ripple over other products, production, and
logistics.
A final area for new business models that derive from
Internet-based supply chains is the ability to substitute
a push–pull strategy for a push strategy (Holweg & Pil,
2001; Simchi-Levy et al., 2000). In an era where informa-
tion about final demand was not available across the sup-
ply chain, production decisions were based on demandforecasts supplemented by order information from the
next level in the chain. Products of limited differentiation
were manufactured based on aggregate long-term fore-
casts and pushed forward to consumers in the usually un-
realized hope that the forecast was correct. By contrast,
a pull strategy involves a direct sales and build-to-order
capability in which customers order products configured
to their specifications (that is the meaning of highly differ-
entiated). This is a very unusual situation; a more realistic
option enabled by Internet technology is to redefine the
boundary between push and pull. Typically, some produc-
tion must take place prior to the receipt of actual orders
because of lead times and the fact that customers typi-
cally want quick delivery. This is true even in a direct sales
system with end demand shared across the supply chain.
Thus, one part of the supply chain will need to be orga-
nized around the push model while the other part will be
organized around the pull model. The goal of many firms
is to move beyond complete reliance on a push strategy,
and define the most efficient point in the supply chain to
locate the boundary between production to stock (push)
and production to order (pull).
The availability of demand information across the sup-
ply chain expands the options for locating this point. Avail-
ability of final demand information in real time makes it
possible for firms throughout the chain to generate bet-
ter forecasts and reduce demand uncertainty. Forecasts
are still necessary at the push level of the production pro-
cess, but real-time demand information permits more ac-
curate and more differentiated forecasts. This is because
long-term forecasts can be updated and adjusted based on
more accurate information, rather than the bullwhip af-
fected information found in the traditional supply chain.
Further, firms have long relied on aggregated forecasts be-
cause they were more accurate than forecasts of specific
products. However, this forces greater reliance on push
strategies, with the attendant costs from unsold goods and
lack of flexibility.
Use of real-time information about final demand per-
mits more differentiated forecasts, because final demand
information is about specific products, and this informa-
tion can be use to spread pull strategies further down
in the supply chain. Differentiated forecasts permit push
production strategies using specific product information,
and permit the development of pull strategies at points
farther upstream in the supply chain. More generally, real-
time information about final demand permits the design
of the supply chain so as to integrate and optimize con-
siderations associated with both push and pull. Push fo-
cuses on production scale, distribution logistics and tim-
ing, lead times, inventory, and transportation. Pull focuses
on flexibility, customization, service levels, and delivery.
The trade-offs between push and pull still exist, but are
shifted in such a way that both can be achieved in more
effective ways (Holweg & Pil, 2001).
As we have seen, one important goal in adopting
an Internet-based supply chain is to shift the push–pull
boundary so as to provide a more responsive and even
agile supply chain. This is especially important when de-
mand is uncertain as to volume and variety of product and
when the supply base is affected by uncertainties related
to process and technology of production (Lee, 2002). One