Benefits of IT in Supply Chain Management-Kauremma

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Benefits of IT in supply chain management an explorative study

of progressive Finnish Companies

Jaana Auramo *)

Jouni Kauremaa **)

Kari Tanskanen ***)

*) Department of Industrial Engineering & Management, Helsinki University of Technology, POBox 5500, FIN-02015 TKK, Helsinki, Finland, E-mail:[email protected], Tel: +358-9-4511,Fax:+ 358-9-4513556

**) Department of Industrial Engineering & Management, Helsinki University of Technology, POBox 5500, FIN-02015 TKK, Helsinki, Finland, E-mail:[email protected], Tel: +358-9-

4511,Fax: + 358-9-4513556***) Department of Industrial Engineering & Management, Helsinki University of Technology, POBox 5500, FIN-02015 TKK, Helsinki, Finland, E-mail: [email protected], Tel: +358-9-4511,Fax:+ 358-9-4513556

ABSTRACT

It is commonly acknowledged that information technology (IT) is and increasingly will bean essential element of managing logistics operations in networks. However, there is lessempirical evidence describing of the actual benefits of IT in supply chain management(SCM). This study, by means of a small survey and case-interviews, examines within se-

lected progressive companies what are the benefits, types of use, and trend in the use ofinformation technology in industrial supply chains. Five propositions on the use and bene-fits of IT are presented. First, successful companies have developed focused e-businesssolutions for improving customer service elements that are most important in their busi-ness. Second, efficiency has improved which allows company personnel to focus more on

business critical activities. Third, the use of e-business solutions improves informationquality. Fourth, e-business solutions that are based on planning collaboration improve agil-ity of the supply network. Finally, for receiving strategic benefits, the use of IT has to becoupled with process re-design. In addition, as an empirical observation, companies have

progressed in the use of e-business technologies in transaction execution under the last fiveyears. The key enabling factors have been the proliferation of Internet technology and

emergence of 3rd party service providers in information transmission. In practise the bene-fits from the use of IT in supply chain relations are mostly related to operational effi-ciency: to single supply chain processes, such as order information exchange. However,

based on the study results, some companies have been able to implement larger scale e-business solutions using technology diversely in network level. A key in benefiting fromIT strategically is to re-design business processes.

Key Words: Benefits of IT, e-Business, e-Business Technologies, Information Tech-

nology (IT), Logistics, Supply Chain Management (SCM)


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1. Introduction

Key trends for the near future in logistics include supply chain management and e-business(Skjoett-Larsen 2000). The use of e-business in supply chains is commonly related, but in

this paper is not limited, to the use of Internet. Prominent case-examples demonstrate po-tential benefits. Cisco reported savings of $500 million by restructuring its internal opera-tions and integrating processes with suppliers and customers with the help of Web-basedtools (Berger 2000). Currently, 90 % of Ciscos sales are handled on-line (Copacino & Dik2001). Intel was able to replace hundreds of order clerks by an automated on-line orderingapplication (Chopra & Meindl 2001). Celestica, one of the worlds largest electronicmanufacturing services company has applied a web-solution to better coordinate its globalsupply base (Shore 2001). Information technology has helped Celestica to improve its re-sponsiveness to customers, and thus helping, for example, Dell maintain its delivery prom-ise to the end-customers. Although it is commonly acknowledged that information tech-

nology is and increasingly more will be a vital ingredient in managing logistics operationsin networks, empirical evidence of the actual benefits of IT in SCM are less clear.

The issue of efficacy of new technologies in supply chains is of paramount interest, besidesto the companies operating in networks, to governments investing funds in developmentand promotion of new technologies. This is the reason why the National TechnologyAgency of Finland (Tekes) commissioned a study on which this paper is based on.

This paper addresses these issues by means of an empirical study in Finland. In this studywe review through a series of different research settings what benefits IT really gives formanaging supply chains in practice. By doing this, we also examine how companies usedifferent kinds of IT solutions in their networked logistics operations. Finally, we seek an

answer to the question, whether there is a trend in the use of IT for supply chain manage-ment. This paper is organized as follows. First, relevant literature on the themes of thisstudy is reviewed, followed by the description of the research design of this study. Second,key empirical findings paraded as propositions are presented. Finally, the results are dis-cussed and conclusions of the study are put forward.

2. Literature review

2.1. Information technology and supply chain management

The review of extant literature shows the abundance of papers dealing with IT in SCM(Gunasekaran & Ngai 2003, and Johnson & Whang 2002, provide two, although not com-

prehensive, literature reviews on the subject). Common terms for business models using ITare e-commerce and e-business the former relating commonly to web-based sales, andthe latter to a more holistic use of IT; in many instances, however, e-business refers to theuse of Internet (for example in discussions of Chopra & Meindl 2001, Johnson & Whang2002, Lee & Whang 2001, Cagliano et al. 2003, and Cross 2000). In the recent literaturefor example Simchi-Levi et al. (2003), Dawson (2002), Chopra & Meindl (2001), and Le-vary (2000) provide comprehensive discussions on the role of new information technologyfor SCM. According to Simchi-Levi et al. (2003, p. 267) objectives of IT in SCM are:

Providing information availability and visibility

Enabling single point of contact of data Allowing decisions based on total supply chain information


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Enabling collaboration with supply chain partners

Elaborating on the commonly viewed functional roles of IT in SCM we can use the follow-ing classification (Figure 2.1).

Figure 2.1: Functional roles of IT in SCMThe most typical role of IT in SCM is reducing the friction in transactions between supplychain partners through cost-effective information flow (e.g. Cross 2000). On the otherhand, IT is more importantly viewed to have a role in supporting the collaboration andcoordination of supply chain through information sharing (for example Lee et al. 1997

present IT as one of the key cures for bullwhip effect in supply chains). Third, IT can beused for decision support. In these instances the analytical power of computers are used to

provide assistance to managerial decisions (for detailed discussion of decision support sys-tems for supply chain management see Simchi-Levi et al. 2003, pp. 293-318, and Swami-nathan & Tayur 2003 on the review of analytical models in the supply chain managementliterature).

2.2. Impact and benefits of IT in supply chain management

IT in general and IT in SCM is viewed to have great opportunities, ranging from directoperational benefits to the creation of strategic advantage. For example McFarlan (1984),Benjamin et al. (1985), and Porter and Millar (1985) argued already in the 1980s for thestrategic possibilities of IT for business. Porter and Millar in particular advocate that ITchanges industry structures and rules of competition, creates competitive advantage, andcreates new business opportunities. In the logistics/supply chain context, Bowersox andDaugherty (1995) outlined that IT is key in supporting companies creating strategic advan-tage by enabling centralized strategic planning with day-to-day centralized operations.

A common view is that IT has a profound impact on managing supply chains. Using casestudies in six Finnish industrial supply chains as data, Kemppainen and Vepslinen

(2003) argue that IT is, alongside specialization and outsourcing, a key precondition fornetworking of organizations. One group of scholars argues that because of informationtechnologies, supply chains become less integrated and more market oriented (Malone etal. 1987, Golicic et al. 2002, Williams et al. 2002). For example, Williams et al. suggestthat electronic SCM (in their discussion electronic relates to the use of Internet) combinesthe structural benefits of SCM with the efficiency benefits of arms length approach, ena-

bling, for example, lower cost through possibilities of selecting from a larger supplier base.The classic work of Malone et al. (1987) proposes that the value offerings through IT areelectronic communication (speed of communication), electronic brokerage (by IT provid-ing a lean, automated intermediary for resolving market transactions), and electronicintegration (coupling of processes). IT seems to be particularly important in fast clock

speed industries (Guimaraes et al. 2002) or when flexibility and agility is needed (Sanders& Premus 2002, Heinrich & Betts 2003).

Functional roles of IT in SCM

Transaction execution Collaboration and coordination Decision support

Functional roles of IT in SCM

Transaction execution Collaboration and coordination Decision support


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Many conceptual papers have addressed the value of IT in SCM (van Hoek 2001, Lee &Whang 2001, Levary 2000, Cross 2000, and Bowersox & Daugherty 1995). For exampleLevary (2000) suggests that IT in SCM provides reduction of cycle time, reduction of in-ventories, minimization of bullwhip effect, and improvement of effectiveness of distribu-tion channels. There are also a number of articles presenting empirical findings on the

benefits of IT in SCM. The results of these articles are, unfortunately, diminished becauseof the typically narrow focus of discussion, for example estimating the dollar value of EDIin automotive manufacturercomponent supplier relationship (Mukhopadhay et al. 1995)or the impact of ERP on order completion performance under a period of one year after theimplementation of the system (McAfee 2002).

Reporting on a general level the benefits of IT in SCM is fraught with problems, because,as noted insightfully by Walton and Gupta (1999) in their discussion of the benefits ofEDI:

Some benefits are dyadic (or multilateral), dependent on both (or a number of)supply chain parties, and some individualistic

The magnitude of change differs from slight to significant process change to thecreation of competitive advantage

Benefits depend on where (EDI) is implemented.

Thus, the benefits of IT in SCM can be manifold and vary by the implementation context.Moreover, the use of IT is closely related to process changes. As such, SCM can be viewedas a process change that is helped or enabled by IT. This makes it hard, or in many caseseven a useless academic exercise, to separate the origin of the benefit, whether it comesfrom IT, process change, or both.

Finally, discussing the impact and benefits of IT, the controversial phenomenon, produc-tivity paradox of IT (e.g. Loveman 1991) cannot be bypassed. Macroeconomic studies in

US showed that despite growing IT investment, overall productivity statistics showed poorperformance. However, several firm level studies have argued for the non-existence ofproductivity paradox. For example, in a longitudinal firm-level investigation, Brynjolfssonand Hitt (1996) show that IT has clear impact on firm output. More recently, Devaraj andKohli (2003) argued that the conceptual problem relating to productivity paradox of IT isthat in many studies only IT investment, not the actual usage is considered. They showedhow the observed use of IT was positively and statistically significantly related to revenueand quality improvements with a specified time lag, while the investment in IT as suchwith the same data was not. In addition, David (1990) draws a parallel of IT productivity

paradox with the example of introduction of revolutionary electrical dynamo in the turn of1900, reminds that this innovation did not first affect productivity, and argues that there arecommon problems with the introduction of new technology, which might affect that pro-ductivity gains realize only with considerable time lags.

2.3. Summary of literature review

The literature review shows that IT is expected to have a pivotal role in managing supplychains now and in the future. In fact it seems that the use of IT is crucial, especially in thefast moving industries, for managing modern supply networks. Moreover, the close rela-tionship of these two concepts, SCM and IT, make it sometimes hard to assess which onegave what benefits. For example, implementing a VMI-model with EDI-informationtransmission can lead to substantial reduction of inventories and at the same time increase

material availability. But could the benefits have been achieved without EDI, for exampleexchanging information via fax? Or, on the other hand, could the information exchange


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even have been possible in any other way? Finally we observe the lack of in-depth casestudies describing the best cases and recording the impacts and benefits of IT. Extensivefocused quantitative surveys are also needed, but a phenomenon as complicated as IT inSCM also needs a thorough examination from a more qualitative point of view, enabling a

broader scope of discussion.

3. Research design

The study consisted on four stages. During the first stage a thorough literature review wasconducted and nine leading business consultants operating with supply chain managementissues were interviewed. The aim of the first stage was to increase our understanding aboutthe current state of IT implementations in SCM. In our discussion we follow Patterson etal. (2003) and use IT in SCM as synonym for all those technologies that can be used formanaging and controlling supply chain related data and activities and information ex-change between organizations except that we rule decision support systems out of the

scope. This is because decision support systems represent a somewhat separate area withdifferent challenges and benefits. The research was limited to the following IT technolo-gies:

EDI, ERP, XML Internet, extranet, electronic B2B marketplaces, 3rd party transaction hubs that pro-

vide B2B integration services Item identification (bar coding and RFID) and handheld and wireless technologies

The second stage was a phone inquiry. A total of 48 interviews were made with manufac-turing, trade and logistics services companies that were viewed as progressive in the use ofIT in SCM. Expert opinion of industry representatives and academics was used when se-lecting the companies for this stage. The objective was to identify what IT solutions com-

panies have implemented in SCM and what practical benefits they have recognized. Thequestions were sent to the informants beforehand and the actual interviews were conductedover the telephone. In larger organisations informants were logistics or SCM managers,development managers or IT managers and in smaller organisations questions were ad-dressed to managing directors. The SCOR process model was used as a basis for the ques-tionnaire to cover all relevant SCM issues. The questionnaire contained questions aboutuse of IT in:

Buy-side transactions Sell-side transactions Inbound and outbound material flows and inventory management

Planning collaborationA total of 18 cases were identified to have clear benefits from IT implementations in SCMduring telephone interviews. These were selected for the stage 3. This stage was a more in-depth analysis of practical e-business solutions in various SCM areas. Cases that were stillin the planning stage were excluded, since we were searching for realised benefits. Casemethod was selected as it permitted us to explore the question, what are the benefits of ITin SCM, even though may of the variables related to the phenomenon are still unknown(Meredith, 1998). Semi structured interviews were conducted with teams of two investiga-tors. Questionnaires were sent to the informants beforehand to enable them to acquire nec-essary knowledge about the topics to be covered. Topics included case specific elements

related to the selected IT implementation as well as questions about the benefits and chal-lenges during and after the implementation process.


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Within case and cross case analysis was conducted during the stage 4. Each case analysiscontained a detailed description of the particular IT application in SCM including processdescription and technology used. The reported benefits were analysed based on both quali-tative and quantitative data when available. Cross case analysis was conducted in two di-mensions: what were the recorded benefits of IT in SCM and weather the implementation

of IT was related to single processes within a company, co-operation between two SCMpartners or if there was a clear network impact. Benefits were further developed intopropositions that are presented in chapter four. All of the 18 e-business solutions were thentrawled and grouped according to which propositions they were related. Results are ap-

plied in Table 3.1.

Table 3.1: Specific information of cases used in the study

Case and company Industry Technology solution Propositions*)

Scope of solution**)

Datex Ohmeda, supplier web Medical instruments 3rd

party transaction hub 1,2,3 process

Elcoteq, demand forecasts tosuppliers

Electronics EDI, RosettaNet XML 1,2,3,4,5 network

Finnish Post, web service forcentralised purchases

Logistics services Extranet, EDI, XML 1,2 process

GNT-Finland, sell-side web IT wholesale Extranet, systems integra-tion over web

1,2,4 process / dyadic

Innogas, VMI Logistics services EDI 1,2,4 dyadic

Kiitolinja, sell-side web Logistics services Extranet 1,2,3 process

Kone, supplier web and collabo-ration with LSP

Machinery manufacturing Extranet, EDI 1,2,3,4,5 network

Kverner Power, RFID tracking Machinery manufacturing RFID, XML 1,2,3 process

Nokia, dynamic VMI Telecommunication EDI, RosettaNet XML 1,2,3,4,5 network

Optiroc, integration with logisticsservice provider

Construction supplies System integration, mobiledata terminals in vehicles

1,2,3,4 dyadic

Orion Pharma, integration withpackage manufacturer

Pharmaceuticals EDI 1,2,3 dyadic

Rocla, supplier web Machinery manufacturing Extranet 1,2, 3 process / dyadic

SE Mkinen, logistics controlsystem

Logistics services Extranet, EDI, systemintegration, mobile dataterminals in vehicles

1,2,3,4,5 dyadic

Tellabs, direct delivery model Telecommunication EDI 1,2,3 dyadic

Tellabs, integration with logisticsservice provider

Telecommunication EDI 1,2 dyadic

UPM Kymmene self billing Forest products - 1,2 process

Vaisala, back office integration,supplier web

Electronics 3rd

party transaction hub,system integration

1,2,3,4,5 network

Wrtsil, sell-side web Machinery manufacturing Intranet, extranet 1,2,3,4 dyadic*)

Numbers refer to propositions presented in chapter 4 and indicate the relation to the case.

**)Indicates weather the case is related to a single SC process, is a dyadic partnership or has a

true network dimension.

4. Results

Based on our study we present five propositions on the use and benefits of e-business tech-nologies in supply chain management. The content of the propositions can be summarizedas follows:

Proposition 1: A key operational impact of IT is the enhancement of service level.

Proposition 2: IT improves operational efficiency.

Proposition 3: IT improves information quality.

Proposition 4: IT enables agile supply chain operating models.


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Proposition 5: Use of IT has to be coupled with process re-design to receive strategicbenefits

A detailed discussion on the propositions follows below. Before that we report several em-pirical observations on the use of e-business technologies in our sample companies. Datacollected in the phone inquiry of this study shows a clear increase in companies using IT intransaction execution under the last five years. Table 4.1 summarizes the number of com-

panies using the most common e-business technologies and the time of use based on theanswers of 48 industrial and logistics services provider companies.

Table 4.1: The time in use of the most common IT solutions in purchase and sales transac-

tions based on answers of 48 companies (pct of companies using the technology)

< 3 years 3 - 5 years > 5 years Total n*)

Purchase orders:

EDI/EDIFACT 13 % 13 % 73 % 100 % 15

Extranet 44 % 33 % 22 % 100 % 9

3

rd

party transaction hubs

**)

25 % 75 % 0 % 100 % 4

Purchase invoices:

EDI/EDIFACT 31 % 19 % 50 % 100 % 16

System to system with other means 80 % 0 % 20 % 100 % 5

Sales orders:

EDI/EDIFACT 24 % 33 % 43 % 100 % 21

Extranet 47 % 33 % 20 % 100 % 15

Sales invoices:

EDI/EDIFACT 22 % 22 % 57 % 100 % 23

EDI/EDIFACT with EPL***)

17 % 25 % 58 % 100 % 12

*)indicates the total number of companies using the solution

**) 3rd party transaction hub refers to B2B integration service offered by a 3rd party. Service provideris a node to which the interacting companies attach to without having to be concerned about inte-gration issues***)

Sending invoices as EDI messages to a 3rd

party service provider who either via mail or elec-tronically transmits the invoices to the receiver

As expected, EDI/EDIFACT has in general been used over 5 years, with, however somecompanies being newer with the solution. According to this data EDI is alive and well.

Novel solutions are extranet for orders and the use of 3rd party transaction hubs of inter-company exchange of transaction data. Some companies have recently created proprietarysystem-to-system links with suppliers to receive purchase orders. 50% of the 21 companiesusing extranet for receiving customer orders have implemented the solution less than 5

years ago. Interestingly, electronic B2B marketplaces (Grieger, 2004, Skjott-Larsen et al.,2002) were non-existent in our sample. In conclusion, companies have progressed in theuse of e-business technologies in transaction execution, but comprehensive electronicmodels are still yet to emerge. The key enabling factors for increased use of IT have beenthe proliferation of Internet and emergence of 3rd party service providers in informationtransmission.

Proposition 1: Successful companies have developed focused e-businesssolutions for improving customer service elements that are most importantin their business

The relationship between SCM information and communication systems and customerservice has been identified in several previous researches. Earlier studies have mostly fo-


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cused on specific ICT solutions, as EDI or integrated information systems. Lim and Palvia(2001) found that EDI contributes positively (statistically significantly) to order cycletime, product availability, distribution flexibility, distribution information, and distributionmalfunctions. They studied 114 US companies of which 61 were from automotive industryand 53 from pharmaceutical industry. Ahmad and Schroeder (2001) reached similar results

in their study that was based on data from the world class manufacturing project involving85 world class manufacturers from US, Japan, Europe. Vickery et al. (2003) observed sta-tistical causality of integrated information systems, supply chain integration, customer ser-vice and financial performance. Their study involved 57 1st tier automotive industry sup-

pliers. These results can, however be criticized because the identified correlations wereweak.

Customer service is commonly an essential part of companys strategy, but views of itscontents vary. In logistics it means making the products available for the customer. Thisinvolves, however, much more than just delivering the products when ordered. Christoper(1998) discusses logistical customer service using the classification into pre-transaction,

transaction and post-transaction elements. Good pre-transaction customer service meansthat customers understands what the company is able to supply, the company is easy tocontact, and the company can adapt delivery systems to particular customer needs. Thetransaction elements of customer service are between order and delivery, for example ordercycle time, delivery preciseness and order status information. The post-transaction ele-ments refer to issues after the customer has received the original product, for exampleavailability of spares and correct billing.

Our research revealed that there exist a wide variety of e-business solutions that aim atimproving customer service. The solutions are commonly tailor-made for the companyssituation and they focus on improving customer service elements that are most important in

that specific business. This way the e-business solutions have reached good perceived re-turn to investment and big leverage to companys competitiveness.

An example of improving both pre-transaction and transaction elements of customer ser-vice is Kone Elevators e-procurement system for modernization projects. When customer

places an order for Kone, it is immediately visible also for suppliers. Major suppliers re-ceive an EDI-message directly their ERP-system, for smaller suppliers Kone has an extra-net solution. A few suppliers still receive the information by fax. With this operationmodel Kone is able to check its suppliers capability and confirm customer orders within 3days. Using also a collaboration model with a logistics service provider their delivery timehas shortened from 8 weeks to 4 weeks, and delivery accuracy has improved. Customerhas also real-time access to information related to his order. In another case, Optiroc, asupplier of construction materials, is able in tight collaboration with a logistics service

provider to send accurate pre-warnings to customers about forthcoming shipments. SEMkinen, a provider of vehicle (primarily new cars) transporting services, uses its real timeinformation system to deliver at right time to right place keeping its promises to customerswhile maintaining operational efficiency.

Finally, Wrtsil Service, a supplier of ship machinery and power plants, saw that the post-transaction elements of customer service are critical in their business. They implemented 3years ago a Spares Online extranet system for shortening order confirmation time and help-ing the customer to order the right spare part. The system also requires the customer to keyin all the necessary information Wrtsil needs for handling the order. In 1996 the average

time from order to order confirmation was 5,3 days, today it takes in average only 1,8 days


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and in best cases only a few hours. Approximately 80% of all spare part orders comethrough Spares Online.

Proposition 2: Efficiency has improved which allows company personnel tofocus more on business critical activities.

The adoption of IT has enhanced the efficiency of SCM as has been reported in variousstudies (Power and Sohal 2002, Supply Chain Council 2002, Min & Galle 2001, McAfee2002). Also the findings of our study support the fact that by improving the efficiency ininformation transfer IT has made it possible to streamline logistics flows, reduce inventoryand improve customer service. In our study we looked at some supplier web solutions andhow they have allowed procurement staff to spend more time focusing on building strate-gic supplier relationships. Purchasing function has traditionally been very labour-intensiveactivity, where large proportion of procurement staffs time is spent on non-value activitiessuch as data entry, correction of errors in paper work and delivery expedition.

In our study, Rocla, a manufacturer of electronic warehouses trucks and automated guided

vehicles, implemented its supplier web solution in 2002. All of the direct procurement to aspecific customer order is conducted through this extranet. This accounts for 30% of total

purchases. Suppliers have real-time visibility to Roclas demand (item, quantity, price, andrequested delivery date) and they are requested to view Roclas supplier web daily. Roclahas estimated its savings in ordering and checking invoices to be 2.5 man-years after im-

plementing the supplier web. Our second case Datex-Ohmeda has since 2001 moved allcommunication (demand forecasts, purchase orders and order confirmations) with its sup-

pliers to electronic form. It uses a 3rd party transaction hub that is linked to Datex-Ohmedas ERP system. 15% of suppliers have integrated their ERP systems with the ser-vice provider, some use EDI and the majority of the suppliers use so caller Supplier Web-solution. Today 95% of Datex-Ohmedas purchases with 120 suppliers are done electroni-cally. The company reported that those 20 persons that have previously been involved withroutine paper work could now concentrate on more productive jobs.

Similar phenomenon was reported from the sell-side IT implementations, where the cus-tomer service personnel can focus on more value adding tasks. Wrtsil Service has beenable to keep the number of customer service personnel same as before and at the same timeimprove the response time to customer orders. SE Mkinen has been systematically devel-oping its IT system since 1995 and today about 75-80% of all incoming orders come inelectronic form into a central database. Personnel that were earlier engaged in front-linecustomer operations can now allocate more time to route optimisation to increase operativeeffectiveness and companys competitiveness.

Proposition 3: The use of e-business solutions improves information quality

Informational benefits of IT are generally broken into information access, informationflexibility, and information quality (Mirani and Lederer, 1998). Information access bene-fits provide supply chain decision makers with faster and/or easier access to internal andexternal information. Information flexibility benefits allow decision makers to easily ma-nipulate the content and format of retrieved information. Information quality benefits makethe available information more useful, accurate, and reliable. It improves the usefulness ofinformation for strategic planning and operational control (ibid.).

Information quality has been studied overwhelmingly by researchers interested in comput-ing, management information systems, databases and their management, data security anddata warehouses to mention a few (Melkas 2004). Conventionally, information quality has


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been described as how accurate information is. English (1999) represents information byformula, where all three components, data, definition, and presentation must have integrityto provide information quality. In supply chain context there are business processes that

produce information (planning, designing, selling, distributing etc.), other processes thattranscribe if from one form to another and processes that can be considered as users of

information. When planning e-business solutions and the underlying processes attentionshould be paid on information quality management (English, 2001).

In our study we identified three different mechanisms how the use of e-business solutionscan improve information quality. The first identified mechanism is related to the actualdesign of the e-business solutions. A good design is based on a clear understanding of theunderlying process and the relevant information flows. Those cases where enough time andeffort was invested in analysing what data is needed, in what context, to what purposes it isused in various parts of the process and what is the right accuracy and objectivity levelreported that the overall quality level of information has improved. Wrtisl Services andGNT Finlands, an IT wholesaler, sell-side web-portals force the customer to specify all

the necessary information to the web site before the order goes through. These companiescommented that they have been able to rely on the quality of the information in decision-making. Kiitolinja, a logistics service provider receives complete customer orders throughits web-portal. This helps in executing deliveries and pick-ups without any additional veri-fication.

Second, successful e-business solutions have accurate BOM structure built in that breakdown the demand to components and raw materials. Roclas representatives commented,that when implementing the supplier web it was necessary to systematically check all the

product structures to make sure that the information at the web related to the componentsto be sourced was faultless. The effort to guarantee information quality has paid off as the

supplier accuracy has since increased from previous 90-95% to 100%.The first two mechanisms are associated with careful planning of the e-business solutionsand its impact on accuracy and reliability of information. The third mechanism is related tousing information for operational control or to some extent to strategic planning. We canuse Nokias demand information management as an example to illustrate this mechanism.

Nokias demand information is broken down to component needs and distributed to vari-ous suppliers either as an EDI or XML message or through the supplier web-extranet. Newtechnology solutions enable almost real time demand information distribution to compo-nent suppliers. As a result all supply chain partners use same information when makingdemand fulfilment decisions. According to Lee and Whang (2001) this should counter the

problem of demand information distortion the bullwhip effect in a supply chain, whichis an important element of information quality.

Well-planned e-business solutions also guarantee that all the parties use same version ofthe changed information. Orion Pharmas co-operation with a packaging company is agood example. It is a medical company that has 20 000 different packaging items. The in-formation on packages change constantly. Previously, when photocopy of a changed pack-age was sent through mail, it took 3 days for the packaging company to process it. In addi-tion for the long lead-time, there was frequently confusion about the latest version of a

package. Now when Orion Pharma sends packaging information electronically (both EDIand Internet are used) this problem has disappeared.


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Proposition 4: e-Business solutions that are based on planningcollaboration improve agility of the supply network

Agility is a key capability for companies in an environment of rapid and unpredictablechange. Christopher and Towill (2000) define agility as a business-wide capability thatembraces organizational structures, information systems, logistics processes and, in par-ticular, mindsets. They state that agile supply chain is market sensitive, which means ca-

pability to respond to real demand in volatile markets. Bruce and Daly (2004) state thatinformation sharing between supply network partners is essential for reaching agility.

Our research revealed that information sharing is already quite common, for example 92%of the studied companies shared demand information, 47% order status information and42% inventory level information with their suppliers. Most companies shared some mate-rial flow related information in addition to orders also with logistics service providers andcustomers. Most of the information sharing was manual: telephone of face-to-face conver-sation, telefax or e-mail. Some companies had, however, developed e-business solutions incollaboration with their supply network partners. These solutions were more than just in-

formation sharing; they involved simultaneous process and technology development ofseveral supply chain partners. The benefits of these kind of e-business solutions were not

just amendments of single customer service elements, like in examples of proposition 1. Inthese cases the agility of a part of the supply network has improved.

An example of improved agility is the previously mentioned Optiroc-case. The companyimplemented an e-business solution together with their logistics service provider that is

based on real time information transfer between the two partners. When customer order iskeyed into Optirocs ERP system, it is instantaneously visible at logistics service pro-viders planning system. As the logistics service provider completes the order the updatedinformation is also observable from Optirocs ERP system. Most of the vehicles are

equipped with mobile terminals and also status information is updated instantaneously.The use of mobile terminals enables optimisation of deliveries and pick-ups up to the lastminute and this has as well improved Optirocs competitiveness at the market. However,Optiroc has not limited the collaboration to the transfer of operational information. Theyhave agreed on a process to meet regularly, four times a year, with the logistics service

provider to discuss about the development plans and future business scenarios.

Another example is a dynamic vendor-managed inventory (VMI) system that Nokia Net-works has developed with its suppliers. Nokia updates continuously the upper and lowerinventory limits of its VMI-system and provides this information to its suppliers either bytheir supplier web-portal or by EDI or RosettaNet XML-messages. The suppliers have also

visibility to Nokias sales forecast and inventory accounts of their own products. The sup-pliers have developed their own planning processes to utilize this information. The VMIsystem together with dynamic control parameter updating, enhanced visibility and suppli-ers improved planning systems have had a positive impact on agility of the supply net-work.

A third case example is from the same industry as Nokia. Elcoteq, a contract manufacturerof electronics components, operates with a pull strategy and. When Elcoteq receives de-mand forecasts from its customer, they are immediately passed on to the supplier base.Subsequent to suppliers confirmation of their ability to fulfil the requested demand, El-coteq confirms its ability to the customer. Fulfilment is based on the forecasts and no ac-

tual orders are passed between the supply chain partners. At the moment all the data istransferred as EDI messages, but the company is piloting RosettaNet XML that would en-


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able more dynamic exchange of information in the supply chain. As a result, Elcoteq hasbeen able to build a supply chain that can quickly react to demand changes at the market.

Proposition 5: For receiving strategic benefits, the use of IT has to becoupled with process re-design

As noted in the literature review, IT is suggested to have strategic impact on companiesand supply chain management. We propose that to receive strategic benefits with IT, sup-

ply chain processes have to be changed and that some companies have been able to do this.In extant literature, business process re-engineering (BPR) authors hold that the link of ITuse and simultaneous design of business processes is a vital ingredient to benefit from de-velopment efforts notably (e.g. Venkatraman 1994, Hammer 1990, Davenport & Short1990). Several other studies in supply chain context have come across the same finding.The study conducted by Supply chain council (2002) reported managers views that tech-nology is only facilitator, not an end target itself. According to the interviewed supplychain managers the biggest challenge is changing the process. Jayaram et al. (2000) show

statistically that supply chain time based performance drivers are information intensive ITstructure, the utilization of process improvement practices, and jointly deploying these two

The best case in our data to support this notion is Vaisala Instruments, the manufacturer ofhigh-tech measuring devices. Vaisala Instruments transformed its global operations withthree main market areas (Asia, US, and Europe) into a true make-to-order mode coupling

process change in sales and capacity planning with the implementation of several IT solu-tions. As a result, the new supply chain coordinated by Vaisala Instruments is operating

based on projected demand, transmits information without delays, is responsive to changesin demand, and less vulnerable to risks, as regional inventories of finished goods were re-moved. In addition, previously, regional sales forces were tied with the supply of regionalinventories. With a truly global make-to-order mode and centralized manufacturing opera-tions in Finland, the regional sales forces can sell the whole product offering of VaisalaInstruments. The key process change was so called sales planning: this includes incorpo-rating the expected sales in key countries with highest sales with sales force opinion and

based on this, planning of both own and supplier production capacity. After the capacity isset, the sales force receives sales quota, that is, the level of sales that can be fulfilled with

promised lead-time of 5 days all over to globe. The realized demand is monitored continu-ously and changes to projected demand are communicated electronically on a day-to-day

basis with key suppliers. The IT solutions used in Vaisala Instruments operating modelare:

3rd party transaction hub with suppliers enabling capacity collaboration on a day-to-

day basis with key suppliers and exchange of transaction data with practically allsuppliers

ERP system integration with subsidiaries enabling real time visibility to end-customer demand in manufacturing operations

System integration with global courier company enabling efficient handling oftransaction data

Our findings also show that only relatively few companies have been able to implementlarger e-business solutions and use IT strategically, and most companies still view IT pri-marily as a means for operational efficiency rather than a tool for strategic advantage.Similar results are reported by a number of scholars in different settings and relating to

different technologies (Cagliano et al. 2003, Kheng & Al-Hawamdeh 2002, Hill & Scudder2002, and Edwards et al. 2001). For example, Cagliano et al. clustered 276 European


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manufacturing firms according to their type of use of Internet in their supply chains. Theresult was that only 7 % of the companies were categorized as e-integrators, entailing thecomprehensive use of Internet towards both directions in their supply chain. In the 1980sBenjamin et al. (1984) suggested that only some companies have seized the possibility tostrategic advantage with IT. We might then ask, is the strategic use of IT more a company

specific feature if after 20 years of IT presence only progressive companies use IT strategi-cally? That is, leading companies have and will be using technologies strategically, whileothers, perhaps while being followers, are not able to exploit given technological innova-tions for the strategic benefit.

Power & Sohal (2002) and van Hoek (2001) advocate the importance of using IT strategi-cally in supply chains. Power and Sohal show through ten case studies of Australian com-

panies that implementing electronic solutions, such as EDI and bar coding, from strategicpoint of view can lead to substantial benefits. Van Hoek, on the other hand manifests thate-supply chain (the combination of using IT with a strategic approach and integral way),while being under-practiced, results in higher benefits compared to operational and frag-

mented use of IT.

5. Discussion and conclusions

The results of this study indicate that the operational use of IT has proceeded in the lastfive years. Especially Internet technology and 3rd party transaction integration serviceshave provided companies with increased possibilities to network with supply chain part-ners. However, in most cases the solutions used are quite individualistic as they are devel-oped from a single companys point on view. Of course user aspects (customer and sup-

plier) have been taken into consideration when planning for example buy-side and sell-sideportals but the driving force has been to increase effectiveness of the company executingthe e-business application. These applications are relatively general with clear specifica-tions and the solutions do not technically differ much from each other. Further, implement-ing IT only as such, for example in invoicing automation, is not likely to lead to businesslevel impacts. Stating this, it is interesting to observe that in the SCM context the main

body of companies views IT primarily from operational side of view. A reason for thismight be the relative novelty of IT, meaning that larger scale and strategic solutions arestill yet to come, after companies have installed a basic IT infrastructure.

When observing those e-business solutions that genuinely are dyadic we notice that it isimportant to allocate enough resources on planning the processes and selecting the tech-nologies together with the network partners. These e-business solutions are more specific

to the particular application and there is more variety within implemented solutions. Thecase examples in this study demonstrate the multiple ways that IT can be employed. Thereis no single way of using IT, and moreover, the broader the business area where IT im-

pacts, the more solutions have to be customized. As the applications are more tailor-made,it is also more difficult to copy a solution from one company to another. It was further ob-served that to achieve real competitive advantage it is important to focus on improvingthose processes that are most critical for customer service. Successful companies have

been able to improve service level and effectiveness simultaneously.

Benefits of IT in SCM are multitude and vary by the implementation context. Moreover, asthe use of IT is closely related to process changes, most of the benefits are overlapping and

interlinked. Then, it is hard to specify the origin of benefit very explicitly. Notable, strate-gic benefits are only achievable when the introduction of IT is coupled with process re-


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design. The ideas of BPR are then closely related to current study. Our study corroboratesthat business process re-engineering skills are vital for benefiting from IT strategically inSCM. The change in processes needs not to be total, but without any process changes, ITeasily becomes merely an automating force, providing efficiency benefits in a limitedscope limited. In conclusion: to benefit from IT strategically, process changes are inevita-

ble.

Acknowledgements

We are grateful to the National Technology Agency of Finland (Tekes) for the funding ofthis study as well as to all the participating companies for their active participation.

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