President and CEO of Cisco Systems
Cisco Systems (www.cisco.com) is the world’s largest supplier of high-performance computer internet routing systems. John Chambers is the third CEO of Cisco and has led the company since 1995, growing the company from US$1.2 billion to approximately US$25 billion in annual revenues thus cementing Cisco’s undisputed role as the number one provider of the networking gear that powers the internet and eBusiness.
In the process Chambers has been named ‘The Most Infl uential CEO in Telecommunications’
and ‘The Most Infl uential Person in Communications’ by several industry publications and he has been lauded by government leaders and countless publications worldwide for his visionary strategy, and his ability to drive an entrepreneurial culture. There is also no doubt that Chambers has created a leadership style that favours personal contact over mountains of paperwork. His public appearances, web casts and broadcasts give a consistently clear message: We never take the efforts of our employees or the challenges of our customers for granted—ever.
Almost more importantly for a book of this nature, John Chambers believes that:
• Technology should force sweeping changes in business processes, rather than just be about bolting new technologies onto existing ways of doing things: ‘Investment in IT without process change does not get the results you want.’
• The internet and education are great levellers: ‘They are the two great equalizers in life leveling the playing fi eld for people, companies, and countries worldwide and by providing greater access to educational opportunities through the internet, students are able to learn more... [and] companies and schools can decrease costs by utilizing technology for greater productivity.’
• Collaborative supply chains are the way to go: ‘Productivity is not just about reducing costs.
And reducing costs doesn’t always equal increased sales... a new focus on productivity is emerging based on adding value to the exchange of information. This next horizon for productivity [will be] based on interactions across and between partner and customer organizations.’
Source: Chief Executive Magazine (www.chiefexecutive.org) Time Magazine (www.time.com) and the Cisco website
99
Agri-food Chains in the ‘E’ World
A Business is not an island
This chapter tackles perhaps the most important, and at the same time the most diffi cult, road a business or industry must think about following in terms of electronically enabling to add value, that is: the concept that a business is not an island. In other words, the business does not exist and work in isolation from other businesses – either those supplying goods to it or those customers buying goods from it. This concept has already been introduced in Chapter 1, but in the agribusiness arena in particular, where companies in each agri-industry specifi c chain (e.g. grain, citrus, beef, wool, stonefruit, honey, poultry, cotton, etc.) vary in size dramatically from the sole trader through to the multinational corporates, the electronic enablement of both an individual business and the connections between the businesses that it deals with, need to be thought about and dealt with before the supply chain can function effectively.
Therefore, electronic enablement of agri-industry supply chains along with the implications for value adding, cost reduction and differentiation, is discussed in more detail in this chapter under the banners of the ‘E’ model, the supply chain and supply chain management, the electronically integrated supply chain (ESC), electronic supply chain management (ESCM) andcollaborative supply chains.
Chapter Objectives
After reading this chapter you should understand and be able to describe:
1. The issues associated with an electronically enabled business model
2. What electronic enablement for a business and across an industry chain involves 3. What EDI, ERP and CRM are and why they have become so important in today’s business
world
4. What a supply chain is and what supply chain management (SCM) involves
5. The ‘lean’ supply chain concept and the potential benefi ts it can create within an agri- industry chain
6. Why electronic collaboration and supply chain agility are important.
7. The main business and IT integration issues associated with electronically enabled supply chains
8. What demand based management offers as a business tool in the 21st century.
The Electronically Enabled Model in Business and Industry Chains
Before moving into the world of industry chains with all the complexities associated with the multiple individual businesses involved, it is useful to fi rst look at the issues associated with developing the concept of the electronically enabled model of an individual business and the associated systems this approach requires.
As discussed in Chapter 1, a business model is an organization’s core logic for creating value in a sustainable way. It features the value creating mechanisms (what the company sells) and the value appropriation mechanisms (sources of revenue for the company) and combines these in a profi t-making model. According to Osterwalder and Pigneur (2002),
‘E’ business models have variously been described as internet models or web-based trading models, but these authors go further and suggest that a true electronically enabled business model describes the logic of a business system for creating value in the internet era.
Such a model is composed of four main components – product innovation, infrastructure management, customer relationships and fi nancials. In addition, research by Bryceson and Kandampully (2004) in a number of agri-industry sectors indicates that competencies in relation to electronic technologies, and their implementation and use within an agribusiness should also be included (Fig. 4.1).
Fig. 4.1. The components of a modern ‘E’ business model (adapted from Osterwalder and Pigneur, 2002)
An electronically enabled business model not only requires the company to accept electronic technologies and the internet as underlying infrastructure around which strategies and tactics can be developed to conduct business, but also recognizes that it is only the fi rst part of adopting an holistic model around which to run the business and interact with suppliers and customers.
There is no doubt that there are a number of complexities associated with developing an electronically enabled business model. The issues can be clearly defi ned depending on the developmental stages of the electronic enablement of the business. The following list outlines these stages and the associated levels of ‘e’ complexity that can be found in businesses – and which can have a major impact on how they are able to relate to their suppliers and customers:
1. Stage 1. At this stage, automation of discrete transactions can be found – this predominantly includes accounting processes and online order entry if a company webpage exists.
2. Stage 2. At this stage, functional enhancement of activities such as human resource management (HR), sales and product design starts to happen.
3. Stage 3. This stage is very accelerated by the internet and involves cross-activity integration within the business using tools such as customer relationship management (CRM), supply chain management (SCM) and enterprise resource planning (ERP) systems – i.e. linking sales activity with order processing starts to happen.
4. Stage 4. This stage is where most large scale businesses (e.g. WalMart) are up to and involves the integration of the value chain of the product with the entire value chain system (from raw materials through the industry sector and tiers of customers, suppliers and channels), and product development.
5. Stage 5. This stage involves optimizing the workings of the value chain system in real time.
Businesses are under increasing pressures to respond to change. In large part, the internet offers an entirely new set of options for marketing, transaction processing and customer service. While there are many new opportunities, companies must understand how electronic enablement works to capitalize on these. Current key business trends indicate that managers must be aware of a new focus in business on the use of the internet to collapse time and distance from a communication and information fl ow capability. These trends include the following:
• Globalization.This is fostered by the internet and the ability of companies to reach beyond their traditional geographical boundaries.
• Sophisticated customers. These demand customized service. Customers want a product quickly and are no longer satisfi ed with a mass marketing approach from vendors.
Suppliers at every level need to be part of the process.
• Virtual corporations emerge. Boundaries between companies have become fl uid – the internet provides the connectivity necessary for this to work.
• Speciality skills. These are developing in the workforce and workers are more mobile – as the market changes, so do corporate requirements of their employees.
• Information abounds. Information is out there and available, creating a much more knowledgeable market and customers.
Electronic Enablement and Connectivity
Electronic enablement in business has evolved around the premise that information technologies (IT) can perform six data-based functions (capture, transmission, storage, retrieval, manipulation and display) faster and more effi ciently than any other type of technology (Alter, 1999). Each new innovation and technology plays a part in greater effi ciencies. Further improvements in the IT used to address these basic data functions continue to take place in four major areas:
1. Greater miniaturization, speed and portability. Speed and power is the underlying force of progress to date with the creation of smaller electronic components with greater capabilities being the driving force
2. Greater connectivity and convergence of computing and communications. The need and ability to transmit data between electronic devices at different locations has escalated exponentially in the last fi ve years and will continue to be a major driver in IT improvement (See Figure 4.2)
3. Greater use of digitized information and multimedia. Information exists as defi ned data items, text, pictures, sounds, videos. Digitization involves coding data as a set of equivalent numbers or, in the case of a picture, a series of dots. Multimedia is the use of multiple types of data within the same application. Greatest demand in the future is likely to be for better software techniques and interfaces with people and the development of fl exibly delivered training programs and online learning.
4. Software advances. These have mainly been accomplished by miniaturization of components enabling larger programs using more power and memory to be run on physically smaller and smaller computers costing less and less.
Fig. 4.2. The convergence of innovation, computing and communications (Graphic Design – Chris Frost, Information Design – Emma Somogyi, The University of Queensland –
Source: Alter, S. (1999). Information Systems – A Management Perspective.
Addison Wesley Longman, USA)
An excellent example in the agribusiness arena is the RFID based ear tag traceability systems (see Chapter 6) that are being employed across the globe in an effort to ensure birth to death traceability of livestock. Miniaturization has seen the development of realistically sized ear tags that capture all essential information about a beast for downloading into a database that can be used for individual animal and herd management purposes, as well as traceability of retail products.
Electronic enablement also entails the use of appropriate information systems to capture, transmit, store, retrieve, manipulate or display information, thereby supporting other systems.
There are essentially six types of information systems used to support the functional areas
of business and these are: Offi ce Automation including Electronic Document Management Systems; Communication Systems; Transaction Processing Systems – including payments, credits, and invoicing; Management and Executive Information Systems; Managerial Decision Support Systems and Knowledge Management Systems. More detail can be found on these in Appendix 1 and through this chapter’s references and readings.
Electronic Connectivity
As discussed in earlier chapters, in today’s business world, the reliable and effi cient access to information has become an important asset in trying to achieve a competitive advantage.
With the advent of the internet, time and geographical separation are no longer an excuse for not sharing information. Mind you, the art of connecting components like computers, telephones and personal digital assistants (PDAs), along with their various parts and systems is a real skill of the 21st Century and is best left to the experts.
Our interest in this book regarding electronic connectivity issues is associated with anything that impacts business-based information fl ows. In the main, this means anything to do with computer networks, particularly the internet – and related technologies. These technologies are described in Appendix 1 under the banner of the eLandscape, but Pidgeon (2000) and Tyson (2000) in two good articles describe the main technological issues and protocols associated with computer networking. Readers are directed to these articles for more detail on these areas but suffi ce to say, the emphasis of the articles is that computers are connected to the internet via a hierarchy of networks and that the management of these networks is of extreme importance to ensuring good data and information fl ows. Ensuring the use of appropriate protocols and standards across the business and between businesses as well as the integration of systems (see later in this chapter) is an important management function.
Security
With any form of electronic connectivity – particularly where data and information are being transferred – security is a major issue. This is discussed further in Chapter 5 but the fi ve key elements associated with electronic security from an organizational perspective are listed below for completeness:
• Authentication which involves checking that the users are who they say they are
• Authorization where the users are empowered to perform the action that they are attempting
• Connection integrity where the transactions between the user and the system are not compromised
• Auditing when a record of all pertinent interactions between the users and the system is maintained
• Non-repudiation where the users cannot deny having performed an action on the system.
Strategic Alignment of Business and Electronic Enablement
Strategic alignment of the business effort and the degree of electronic enablement is a central issue which may actually determine the position of a business in the marketplace. Alignment is a two-way process (Figure 4.3). The business determines the electronic enablement needs, but electronic enablement infl uences the business. The prime objective of alignment is to ensure that information provision and technology matches the business needs in what it does (context), how it does it (process), and when it does it (timing).
Fig. 4.3. The two-way process of business and IT alignment
As the business needs develop and the stages of electronic enablement progress, the sophistication of technology used increases. The following section deals with the three most signifi cant systems associated with a technology plan aligned with the business requirement of fully electronically integrating the supply chain.
EDI, ERP and CRM
There are a number of specifi c information systems and applications which make use of the information technologies and systems described above. These include electronic data interchange (EDI), enterprise resource planning systems (ERP) and online customer relationship management systems (CRM).
Electronic Data Interchange (EDI)
Electronic data interchange or EDI is the transfer of data between different companies using networks, such as the internet. As more and more companies get connected to the internet, EDI is becoming increasingly important as an easy mechanism for companies to buy, sell, and trade information (Peat and Webber, 1997; Hildebrand, 2000).
Companies have traditionally used paper as the medium for conducting business.
Company records are fi led on paper, and paper forms are mailed between companies to exchange information. The advent of the business computer enabled companies to process data electronically – however, the exchange of this data between companies still relied heavily on the postal system. For example data was entered into a business application, a form was printed containing the data, and the form mailed to a trading partner. The trading partner, after receiving the form, re-keyed the data into another business application. Even nowadays, such a process is still being used in many smaller businesses. There are a number of issues inherent in this process including:
• Poor response times – use of the postal system can add days to the exchange process
• Excessive paperwork for both companies involved in the exchange
• The potential for errors as information is transcribed multiple times.
Computer telecommunications for data transmission were adopted in the 1960s, the goal being to eliminate human intervention which adds a large burden of time-intensiveness to the transaction task-at-hand through labour costs, and to reduce error-prone data entry which compounds the costliness of undertaking trading ventures. Today it is recognized that computerization has improved response time, reduced paperwork, and reduced the potential for transcription errors.
Early electronic interchanges were based on proprietary formats agreed between two trading partners. The original formats were only for purchasing, transportation, and fi nance data, and were used primarily for intra-industry transactions. It remained diffi cult for a company to exchange data electronically with many trading partners until the late 1970s when work began on international electronic data interchange (EDI) standards (Norris et al., 2001).
Today there are many standards for EDI which defi ne the data formats and encoding rules required for a multitude of business transactions, including order placement and processing, shipping and receiving, invoicing, payment, and many others.
What is now a major concern is that in a globally connected world, all trading partners doing business together need to use the same standards.
Enterprise Resource Planning Systems (ERP)
Enterprise resource planning (ERP) systems are confi gurable business information systems packages that integrate information and information-based processes within and across functional areas in an organization including human resources, fi nance, materials, manufacturing and distribution (Koch, 2002).
ERP systems grew out of the material requirements planning (MRP) systems of the early 1960s. MRPII still forms a core module of current ERP systems. Critical in the step from MRP and MRPII to ERP was the drive towards integration and real time information fl ow that led to the development of contemporary ERP systems (O’Leary, 2000). Examples of companies that deal in ERP systems include SAP (www.sap.com) and Oracle/Peoplesoft (www.oracle.com/applications/peoplesoft-enterprise.html) both of which are found globally across all industry sectors in most large corporations and a growing number of small to medium enterprises (SMEs).
Ideally ERPs can also be used to better connect the organization to customers and suppliers facilitating the fl ow of information, goods and services across the supply chain (James and Wolf, 2000). Technically therefore they should be able to address the need to integrate with other company’s systems and business processes to transmit information between different fi rms (Kumar and Van Hillegersberg, 2000). Tasks that inter-organizational systems address include the design of custom products, entering of orders, transmitting invoices, making payments and servicing the product.
Customer Relationship Management
Customer relationship management (CRM) is about creating value for customers (Deck, 2001). It is not about technology although technology is required to enable CRM – in essence it is a core business strategy.
Why? Every business has customers; every business needs more of them spending more.
While ‘looking after your customers’ has always been a central concept in good retailing, it is particularly true in today’s fl uid and highly competitive market where there are a multitude of choices regarding delivery channels, product packaging, loyalty rewards, service levels and ultimately price. Today’s customers are transaction-makers that exist not just in the external marketplace but throughout a company’s value chain – all are driven by a range of shared needs and expectations including:
• They want to see promises kept with reliable delivery
• They want a seamless, high quality end-to-end experience
• They want service backed by trust and acknowledgement of genuine value.
Maintaining and/or increasing profi t and market share is a fundamental tenet of business – developing and maintaining customer relationships to sustain competitive advantage is thus the focus of CRM (Sims 2000).
CRM solutions should manage the total end-to-end customer related process for an organization, optimizing the implementation of marketing, sales and customer care strategies across multiple channels throughout the organization. Electronically enabled CRM applications allow companies to interact directly with customers via corporate websites and Web based storefronts (Say, 2001), the idea being that ‘E’ CRM will enable a seamless interface between the organization, and existing and potential customers allowing: