Communications of the ACM

Virtual extension

Is Web-Based Supply Chain Integration Right For Your Company?

By Charles E. Downing
Communications of the ACM, May 2010, Vol. 53 No. 5, Pages 134-137
10.1145/1735223.1735256
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The 1980s saw the advent of the personal computer, and the days of "Data Processing" departments solely dictating the timeline of office productivity solutions were gone. The 1990s saw the advent of enterprise resource planning (ERP) software packages, and organizations enthusiastically (even if sometimes slowly and painfully) moved from the silo mentality of departmental and unit-based information systems solutions to enterprise-wide information solutions. Today, companies are increasingly realizing that the progression from departmental to enterprise information systems has a logical next step: inter-organizational or supply chain solutions. While many pioneering companies have linked to their customers and suppliers for years,⁷ the improving reliability and security of the Web presents new opportunities for all organizations. Companies are increasingly moving to the Web or considering moving to the Web to conduct business transactions, connecting themselves with suppliers and customers.^2,3,8

Much of the recent research on electronic data interchange and information technology (IT) in the supply chain has focused on using the Web to conduct business-to-business (B2B) commerce across the supply chain, thus improving the older electronic data interchange ("EDI") model.^2,9 The B2B market has grown steadily over the last several years.^4,5 As an increasing portion of companies migrate to the Web it becomes important for both academics and practitioners to understand the benefits and pitfalls of such a migration. Numerous studies enumerate the benefits of electronic supply chain integration and B2B,^2,4,5,6 and these benefits fall into the following categories: Reduction of process cost, improved operational efficiency, improved customer satisfaction, improved coordination, cooperation, and commitment between EDI partners, and improved overall process performance. However, a study has not been done which compares the process performance benefits of all three possible groups: Companies or processes (hereafter simply "companies") using no electronic supply chain integration (verbal and/or paper orders, invoices, etc.), companies using non-Web-based Supply Chain Integration (traditional EDI, using private or leased lines), and companies using Web-based supply chain integration. A notable exception occurred in a 2002² study, but this study was done on only 18 companies, a very small sample size. Also, many current studies claim that companies are misdiagnosing the advantages of B2B over existing ways of doing business.¹ The absence of a three group comparison, along with a possible misdiagnosis of advantages, calls for further examination.

Thus, this research will attempt to determine differences in the performance of companies using no electronic supply chain integration, companies using non-Web-based supply chain integration, and companies using Web-based supply chain integration.

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Methodology, Data Collection and Results

The sample studied consists of business processes at financial services companies, primarily in the Northeastern part of the U.S. This sample was chosen because the U.S. economy is moving more and more toward a services economy, and financial services companies have long been heavy users of information technology. The geographic region was chosen for convenience. Companies were given a definition of business processes, were asked to describe their processes, and were asked questions about their process performance. They were also asked what type of supply chain integration they practiced with their business partners: no electronic supply chain integration, non-Web-based supply chain integration, or Web-based supply chain integration. 320 people agreed to receive the survey. If a completed survey was not received within a month of mailing, each potential participant was contacted again and sent out a new survey, if necessary. Completed surveys were received from 129 respondents, for a response rate of 40%. The 129 surveys represent 86 different financial services companies and 79 different types of business processes. Examples of processes include executing a stock trade, selling an insurance product to an individual or institutional client, managing a portfolio, and technology recruiting and staffing.

Of the respondents, 83 were using electronic supply chain integration, while 46 were not. Of the 83 respondents using electronic supply chain integration, 51 were using the Web for electronic supply chain integration, and 32 were not (they were using traditional EDI).

A large survey was completed by all 129 respondents. Of interest to this study, survey questions were given to all respondents regarding their experiences with the major benefits expected from electronic supply chain integration: Reduction of Process Cost, Improved Operational Efficiency, Improved Customer Satisfaction, Improved Coordination, Cooperation, and Commitment between EDI Partners and overall process performance. The survey questions used for this study have been omitted for brievity, but are summarized in Table 1. Table 1 also shows the mean responses for each of the three groups, the differences between the means, and the significance level if the difference was found to be significant (shaded). Figure 1 presents a graphical representation of the significant results from Table 1.

Process cost. Companies using Web-based electronic supply chain integration had lower costs of doing business with their partners than companies with no electronic supply chain integration (as perceptually rated by respondents on the two cost questions shown in Table 1). This is an important result, as lower cost has long been an assumed benefit of Web migration with regard to supply chains. Some ambiguity concerning cost benefits has emerged in prior studies,² and having this benefit significant at the p<.01 level (meaning there is less than a 1 in 100 chance that this result was determined in error) can give confidence to managers who need to use it as an implementation rationalization.

Operational efficiency. Operational efficiency was also shown to be superior for companies using Web-based electronic supply chain integration. While all of the benefits are desirable and important, certainly Process Cost and Operational Efficiency are two critical benefits that must be obtained if companies expect widespread adoption of Web-based supply chain integration.

Customer satisfaction. Web-based electronic supply chain integration did not do well in the "Customer Satisfaction" category, as shown in Table 1 and Figure 1. Non-Web-based electronic supply chain integration had a significantly higher mean than Web-based, and the Web-based satisfaction mean for both questions was not shown to be significantly higher than the "no electronic supply chain integration" mean. This result could possibly be due to the maturity of the processes involved (Web-based being newer and thus less familiar to the customers). When asked about the stage of the process that supply chain integration is being used to support, most of the companies using Web-based supply chain integration reported the stage being either "Introduction" or "Growth", and few reported the stage as being "Maturity" or "Decline". Given that the trend toward Web-based integration is fairly recent, many companies have chosen to "beta test" it on newer business processes. Sometimes with newer processes, and newer technology, satisfaction benefits come subsequent to a learning and exploration curve. Thus, given that the processes of the companies using electronic supply chain integration were generally in earlier process life cycle stages, they had not yet realized significant customer satisfaction benefits.

Additionally, if the Web-based application has been poorly designed and/or implemented, customer satisfaction of the users could be lower. As mentioned, the processes using non-web-based electronic supply chain integration solutions are older than the web-based solutions covered in this survey and therefore have gone through more development iterations ...theoretically improving their usability and therefore the customer satisfaction.

Coordination, Cooperation, and Commitment Between EDI Partners. Companies using non-Web-based electronic supply chain integration scored the highest on the coordination and cooperation questions, being significantly higher than the "no electronic supply chain integration" on all three questions and even higher than the Web-based electronic supply chain integration companies on the first question. Traditional supply chain integration, given its relative maturity compared to Web-based electronic supply chain integration, has roots that go back many years. This fact could explain the closeness those companies felt with their suppliers and partners. But even given the relative maturity of the processes of companies with no electronic integration, it is also important to note that both types of electronic supply chain integration, traditional and Web-based, showed a greater degree of bonding between partners. This result suggests that electronic linkages can in fact promote partnership.

Overall Performance. Both Web-based and non-Web-based electronic supply chain integration companies demonstrated superior overall performance as compared to the "no electronic supply chain integration" companies. However, as compared to one another, there was no statistical difference. This again provides support for electronic partnerships.

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Conclusion

The results from this study have important implications for managers, but two limitations of the study should also be mentioned:

• Information security was not examined as a reason companies might choose not to migrate to the Web. Many companies see the potential cost and operational efficiency benefits of Web migration as possible, but are unwilling to take the security risk to achieve them. A future study with appropriate security considerations is desirable.
• This survey focused on Financial Services companies whose products tend to be virtual and easy to access/distribute via the web...thus facilitating web-based integration. It is possible that companies with more physical products might experience different results. A future study in manufacturing or another sector with tangible products would be valuable.

This study was conducted from the standpoint of benefits achieved, as opposed to problems avoided, and the implications for managers can be summarized as follows:

• As expected, moving electronic supply chain integration to the Web can yield decreased costs.
• Operational Efficiency was shown to be best for Web-based electronic supply chain integration.
• Customer Satisfaction may take time to realize. Potential Web-based partners should be cautioned at the outset that extra patience may be required in the early going while waiting for a satisfaction increase. Having said that, of course companies should not assume that things will get better simply by waiting... actively monitoring or surveying customer satisfaction and taking steps to improve it (for example, usability workshops with key customers/suppliers) is advisable during any waiting periods.
• Long-term coordination, cooperation and commitment with an electronic partner was highest between non-Web-based electronic supply chain integration partners, but any electronic integration proved superior to none for strength in partnerships.
• It is safe to expect that overall process performance will increase after implementation of either Web-based or non-Web-based electronic supply chain integration.

Therefore, many of the claims and/or predictions that have been made in practitioner and academic outlets concerning the performance benefits of Web-based electronic supply chain integration seem to be accurate or becoming accurate. In particular, Web-based electronic supply chain integration has lower costs, superior operational efficiency, higher cooperation between partners, and greater overall performance than no electronic supply chain integration. Companies with particular problems with high supply chain costs, inefficiency, low partner coordination and/or generally poor supply chain process performance would be good candidates for Web-based integration. And, while Web-based integration did not prove to be superior to traditional integration at the time of this survey, given its low costs and process efficiency, it is emerging as at least a viable, and possibly a preferred, long-term option. These results suggest that if mangers of businesses which could use or need to use electronic linkages have not considered Web-based integration, now may be the time to do so.

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