THE ROLE OF E-COMMERCE TECHNOLOGIES IN SUPPLY CHAIN MANAGEMENT: AN EL PASO/JUAREZ MAQUILADORAS STUDY

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1 THE ROLE OF E-COMMERCE TECHNOLOGIES IN SUPPLY CHAIN MANAGEMENT: AN EL PASO/JUAREZ MAQUILADORAS STUDY M. Adam Mahmood, The University of Texas at El Paso, El Paso, TX , Adriano O. Solis, The University of Texas at El Paso, El Paso, TX , Leopoldo A. Gemoets, The University of Texas at El Paso, El Paso, TX , Laura L. Hall, The University of Texas at El Paso, El Paso, TX , Sudhir Prabhu, The University of Texas at El Paso, El Paso, TX , ABSTRACT ecommerce technologies have created innumerable opportunities for businesses to reengineer their supply chains. Many businesses have invested an enormous amount of resources in the development of e-enabled supply chain management (escm) systems. Anecdotal evidence in the literature suggests that firms have received significant benefits from these investments, but there is no empirical evidence available. The present research provides some empirical evidence of the much anticipated relationships between escm and business value. Keywords: Supply Chain Management, E-Commerce Technologies, E-Enabled Supply Chain Management Systems. INTRODUCTION The supply chain is a network that encompasses suppliers of raw materials and components, through manufacturing/assembly plants, through the distribution chain, and down to the end users. Supply chain management (SCM) involves integrating and managing the key business processes associated with the flow and transformation of goods and services, as well as the attendant information flows, both within and between the various organizations along the supply chain [1] [4]. SCM aims to maximize the overall value generated by the supply chain [2]. The development of ecommerce technologies such as the Internet/world wide web, intranets, and extranets have created innumerable opportunities for businesses to effectively manage and streamline their supply chains. A continuing study [5] [6] on the use of the Internet in SCM has involved a nationwide survey of firms that are members of the Council of Logistics Management (CLM), with a first study conducted in 1999 [5] and a more recent one in 2001 [6]. For each survey, roughly 1,000 CLM members were sent an questionnaire, with response rates of 18.1% and 19.3%, respectively, achieved. The study addresses seven major SCM application areas. The purchasing/procurement function has overtaken transportation as the number 1 SCM area of application, with 86.7% firms using the Internet for the purpose in 2001 compared with 45.2% in 1999 (ranked only 3 rd that year). Transportation has continued to be a strong area of Internet application in SCM, ranking 2 nd with 84.3% of respondent firms in 2001, up from 56.2% in The study [6] reports the following percentages in 2001 with respect to the other SCM - 1 -

2 application areas: (3) customer service, 67.1%, (4) order processing, 63.4%, (5) relations with vendors, 57.2%, (6) inventory, 48.5%, and (7) production scheduling, 19.5%. However, very few empirical studies such as [5] and [6] have thus far been conducted on the extent to which ecommerce technologies have been utilized in SCM, and, more importantly, on whether or not e-enabled supply chain management (escm), with the use of such technologies, has brought about significant improvements in managing end-to-end supply chain links. The objective of the present research is an attempt to fill this void by investigating the impact of escm on organizational performance and productivity. More specifically, it examines the use of ecommerce technologies in SCM in terms of four constructs: escm system quality, escm information quality, escm system usage, and escm system user satisfaction. Organizational impact is measured in terms of effectiveness, efficiency, performance, and productivity. Each construct is measured using variables derived from the literature. To the best of our knowledge, our study is the first such empirical research in this area. The rest of this manuscript is structured as follows: the next section presents the methodology used in the study. The results are provided next. The paper concludes with a summary and suggestions for future research. METHODOLOGY DeLone and McLean [3] present an information systems success model that had been widely used and cited over the years. A slightly modified version of this model was used to measure the organizational impact emanating from escm. We designed an instrument to measure organizational impact stemming from escm system quality, escm information quality, escm user satisfaction, and escm systems usage. As stated earlier, the organizational impact construct itself was measured in terms of effectiveness, efficiency, performance, and productivity. Sevenpoint Likert-type scales (strongly agree = 7, agree = 6, somewhat agree = 5, neutral = 4, somewhat disagree = 3, disagree = 2, and strongly disagree = 1) were used to measure all variables associated with the constructs. Just south of El Paso, Texas is its sister city of Juárez in Mexico, which is home to more than 300 maquiladoras. Many twin plants are located in El Paso, serving principally as warehouses/ transshipment points for the components that are transported across the border to the maquiladoras and the assembled products that are transported back into the U.S.A. A sample of the automotive and electronic industry-related maquiladoras in Juárez was used for the present research. The instrument for collecting data was mailed to 210 maquiladoras in phases over a period of six months, to be filled out by plant managers/directors/vice presidents or managers for logistics/materials/supply/ purchasing. The list of maquiladoras was obtained from the Greater El Paso Chamber of Commerce. The questionnaires were distributed to potential participants via postal mail, fax, , and, when necessary, hand-carried to the potential respondents. They were also given an opportunity to complete the questionnaire online. Thirty-six responses were received. This low response rate is attributable to the problem in reaching these plant managers and other high level executives and the lack of time on their part to complete the questionnaires. RESULTS A total of 86.1% of the respondents (31 out of 36) indicated using ecommerce technologies in SCM in some form or other, although three of these only have intranets which allow only - 2 -

3 internal SCM applications. This is in concordance with Lancioni et al. [5] when they stated that the use of the Internet in SCM will be more prevalent in the future. Nevertheless, this result should be viewed with caution due to small sample size. Organizational Impact As stated earlier, the organizational impact construct was measured in terms of organizational effectiveness, efficiency, performance, and productivity. Overall, close to 61 percent of the respondents, on average, agreed (i.e., somewhat agreed to strongly agreed) that escm had a significant impact on their organizations. Only slightly more than 16 percent, on average, disagreed with that. In this and subsequent discussions referring to average percentages of respondents, it is to be understood that agree means selection of 5, 6, or 7 on the seven-point Likert scale (i.e., somewhat agree to strongly agree) while disagree means selection of 3, 2, or 1 on the scale (i.e., disagree to strongly disagree). It appears that the respondents, when it came to organizational impact, rated overall organizational efficiency as the highest followed by organizational productivity which is followed by organizational effectiveness. Interestingly, performance was rated as the last in terms of being impacted by escm. An overwhelming majority of the respondents (over 67 percent, on average) agreed that the use of ecommerce technologies has increased organizational efficiency by increasing efficiency in the flow of documents and information and by reducing document preparation costs. It appears that the former area is more benefited from the use of ecommerce technologies than the latter (please refer to Table 1.) This makes sense since these technologies can facilitate on-line realtime flow of information and documents. About 16% of the respondents disagreed that the use of ecommerce technologies has impacted their organizational efficiency. Table 1. Organizational Efficiency Impact Increased efficiency in flow of documents and information Reduction in document preparation costs When it came to the productivity area, on average, 20 percent of the respondents disagreed while almost 63 percent of the respondents agreed that the use of escm had increased their organization s productivity in terms of increased sales to total assets and increased sales per employee. A majority of the respondents felt both ratios contributed equally to increased organizational productivity (please refer to Table 2.) The information technology productivity and business value literature suggests that a number of firms had achieved enormous performance and productivity gains by integrating ecommerce with their existing channels. Table 2. Organizational Productivity Impact Increase in ratio of sales to total assets Increase in sales per employee More than 61% percent of respondents, on average, had agreed that the use of ecommerce technologies in SCM had increased organizational effectiveness by lowering inventory carrying costs, reducing stock outs, shortening lead times, and decreasing manufacturing and delivering - 3 -

4 costs. A little over 14 percent disagreed that the use of ecommerce technologies had an impact on organizational effectiveness. The present research had also revealed that escm had made the most impact in reducing lead times for filling customer orders (please refer to Table 3). Anecdotal evidence in the literature suggests that ecommerce technologies are most beneficial for customer service, inventory management, and manufacturing operations. Table 3. Organizational Effectiveness Impact Shorter lead times for customers Fewer stock outs of products that customers require Reduction in inventory carrying costs Fewer stock outs of material required for manufacturing operations Increase in ability to fill customer orders from existing stock Decrease in manufacturing costs (net of cost of material) Shorter lead times between suppliers and the manufacturing plant Decrease in delivered costs of products to customers Decrease in delivered costs of material received from suppliers Twenty percent of the respondents disagreed that escm contributed to organizational performance, while close to 54 percent agreed that ecommerce technologies have indeed impacted their organization s performance. It appears that escm made the most difference in terms of net income to invested capital followed by increased return on sales (please refer to Table 4.) There is anecdotal evidence in the literature that ecommerce technologies have made significant bottom line impact on firms. Table 4. Organizational Performance Impact Increase in ratio of net income to invested capital Increase in return on sales Increase in revenues escm System User Satisfaction More than 64 percent of the respondents, on average, agreed that users were satisfied with escm in terms of customer and supplier information and communication needs, and internal information and communication needs. It appears that, when it came to user satisfaction, the respondents were most satisfied with escm s ability to meet internal communication and information needs. (please refer to Table 5.) Less than 15 percent disagreed that users were satisfied with escm. escm System Quality Close to 69 percent of the respondents, on average, agreed with statements pertaining to quality of the escm system in terms of ease of use and user friendliness, ease of learning, useful features and functions, response times, convenience of internal and remote access, and system accuracy while 16 percent disagreed on this matter. It appears that, when it came to the escm system quality, the respondents rated the convenience of internal access as the highest and convenience of external access as the lowest (please refer to Table 6.) - 4 -

5 Table 5. SCM System User Satisfaction System satisfies internal communication needs System satisfies internal information needs System satisfies information needs for interacting and transacting with suppliers System satisfies information needs for interacting and transacting with customers System satisfies communication needs for interacting and transacting with customers System satisfies communication needs for interacting and transacting with suppliers Improved overall satisfaction with SCM system has been experienced Table 6. SCM System Quality System can be conveniently accessed internally System is accurate System ensures shorter response times System is equipped with useful features and functions System is easy to learn System is easy to use and user friendly System can be conveniently accessed remotely escm System Usage More than 67 percent of the respondents, on average, agreed with statements pertaining to escm system usage, while less than 22 percent of the respondents disagreed with this assessment. It appears that, when it came to escm system usage, respondents had rated the existence of an effective intranet for internal communication as the highest at 5.69 (please refer to Table 7.) Table 7. SCM System Usage Effective intranet exists for internal communication System provides continuous monitoring of inventory and purchase situation Effective electronic system exists for distribution of products Effective electronic system exists for procurement of manufacturing materials System provides automated transmitting and processing of data Internet enabled system exists for information sharing System is fully integrated with existing internal systems Sufficient training has been provided for users of SCM system Effective extranet exists for communication with suppliers and customers escm System Information Quality An overwhelming majority (about 83 percent) of the respondents, on average, agreed that the escm system information quality was better in terms of various characterstics. Only about 8 percent disagreed with this assessment. It appears that when it came to rating the quality of output from the escm system, the respondents rated the currency of output information as the highest (please refer to Table 8.) - 5 -

6 Table 8. SCM System Information Quality Output information is current Output contents are relevant Output contents are reliable Output information is easy to understand Output information is provided in a timely manner Output information is concise CONCLUSIONS Many businesses have invested an enormous amount of resources and effort in the development of escm. In general, they contend that this saves them and their customers a considerable amount of time and money and, perhaps more importantly, provides them with an opportunity to be more competitive and profitable. A lot of anecdotal evidence in the literature supports their contention but there is no hardcore empirical evidence to back their claims. This research fills this gap by providing empirical evidence of the much anticipated relationships between escm and business value. To the best of our knowledge, this is the first such attempt in this area. The results of the study should, however, be viewed with caution due to small sample size. A more comprehensive statistical analysis of the data using Structural Equation Modeling and Partial Least Squares will be undertaken shortly to get a better handle on this matter. REFERENCES [1] Ballou, R.H., Gilbert, S.M. and Mukherjee, A. (2000). New managerial challenges from supply chain opportunities, Industrial Marketing Management, Vol. 29, No. 1, [2] Chopra, S. and Meindl, P. (2001). Supply Chain Management: Strategy, Planning, and Operations, Prentice-Hall, Upper Saddle River, NJ. [3] DeLone, W.H. and McLean, E.R. (1992). Information systems success: The quest for the dependent variable, Information Systems Research, Vol. 3, No. 1, March 1992, [4] Lambert, D.M. and Cooper, M.C. (2000). Issues in supply chain management, Industrial Marketing Management, Vol. 29, No. 1, [5] Lancioni, R.A., Smith, M.F. and Oliva, T.A. (2000). The role of the Internet in supply chain management, Industrial Marketing Management, Vol.29, No. 1, [6] Lancioni, R.A., Smith, M.F., and Schau, H.J. (2003). Strategic Internet application trends in supply chain management, Industrial Marketing Management, Vol. 32, No. 3, Other references available upon request from M. Adam Mahmood, mmahmood@utep.edu. ACKNOWLEDGMENT This study was supported in part by the University Research Institute of the University of Texas at El Paso