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Mitigating the Bullwhip Effect with eword Of Mouth: ebusiness Intelligence Perspective

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Mitigating the Bullwhip Effect with eword Of Mouth: ebusiness Intelligence Perspective ABSTRACT Dr. Mohammed AlSudairi 1, Dr. T. G. Vasista 2, Dr. A. M. Zamil 3, Dr. R. S. Algharabat 4 1 Associate Professor,
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Mitigating the Bullwhip Effect with eword Of Mouth: ebusiness Intelligence Perspective ABSTRACT Dr. Mohammed AlSudairi 1, Dr. T. G. Vasista 2, Dr. A. M. Zamil 3, Dr. R. S. Algharabat 4 1 Associate Professor, College of Business Administration, King Saud University, Riyadh, Saudi Arabia 2 Researcher, Vice-Rector Office for Business Development, King Saud University, Riyadh, Saudi Arabia 3 Associate Professor, Vice-Rector Office for Business Development, King Saud University, Riyadh, Saudi Arabia 4 Assistant Professor, Faculty of Business and Marketing Department, University of Jordan Whereas the bullwhip effect is a phenomenon strictly related to supply chain management and regards the magnification and variance in order volumes observed at upstream nodes in a supply chain, the ewom refers to the knowledge exchange which consumers carry out online, known as online rating or review systems. It delivers credible and relevant product information to potential customers and thus can significantly impact the consumer choices. EWOM as a Social Mediated Monitoring (SMM) technique, when combined with web analytics and predictive modeling, will have potential to generate probabilistic information. EWOM is trying to upgrade its portfolio as an effective alternate to brand communication media in the Internet supported business environment. This study aims to explore the influence of electronic Word Of Mouth (ewom) with the actual adoption of internet technologies in influencing customer demand in the enterprise supply chain management scenario as well as how it influences demand uncertainty that can cause bullwhip effect. The research methodology follows a qualitative method of eliciting literature evidences, correlations and manifestations through reviews, available surveys and brief on example case findings. We conclude that by integrating Business Intelligence and web analytics, organizations can derive better customer demand information and Key Performance Indicator along the Supply chain so that it can be used to mitigate the Bullwhip effect. But providing decision management capability under Multi-Enterprise Collaboration requires the integrated effort of end-to-end solutions to enable collaborative enterprise information sharing capability with visibility and quality customer demand information. KEYWORDS Bullwhip Effect, Business Intelligence, Customer Relationship Management, eword of Mouth, Supply Chain Intelligence, Web Business Analytics. 1. INTRODUCTION Recently, many firms are exposed to a sophisticated environment which is constituted by open markets, globalsiation of sourcing, intensive use of information technologies, and decreasing in product lifecycles [1]. Moreover, such a complexity is intensified by consumers who are becoming increasingly demanding in terms of product quality and service. It means globalization has increased firms internationalization, shifting them from local to global DOI: /ijmvsc markets and with increasing competitiveness [2]. Furthermore, the dynamic environment (consisting of competitors, suppliers capacity, product variability and customers) complicated the business process. To that end, many enterprises are often forced to cooperate together within a Supply Chain (SC) by forming a virtual enterprise which is a network of agents typically consisting of suppliers, manufacturers, distributors, retailers and consumers [3]. Virtual enterprise is derived from such collaboration among different partners [1] [4]. Previous research [5] [6] posits that SC can be considered as a network of autonomous and semi-autonomous business entities associated with one or more family related products. Virtual enterprises are best described as companies integrated in different stages from design to delivery of products to end user [7]. Consumers (i.e., end or industrial) often require different types of products & services, ranging from ordering batches to maintaining final products. This process needs suppliers to manage their demand chain activities which are often based on customer demand [8]. Previous research in this area posits the importance of internet-based tools in aiding this process [9]. It has been reported that a number of challenges have to be faced while fulfilling demand management through supply chain collaboration [10]. The ever changing market with prevailing volatility in business environment with constantly shifting and increasing customer expectations is causing two types of timeframe based uncertainties that can affect the system. They are: (i) short term uncertainties and (ii) long term uncertainties. Short term uncertainties include day-to-day processing variations, such as cancelled/rushed orders, equipment failure etc. Long term uncertainties include material and product unit price fluctuations, seasonal demand variations. Understanding uncertainties can lead to planning decisions so that company can safeguard against threats and can avoid the affect of uncertainties. As a result, any failure in recognizing demand fluctuations often hold unpredictable consequences such as loosing customers, decrease in the market share and increasing in costs associated with holding inventories [11]. In order to achieve competitive advantage, manufacturers are forced to rely on the agile supply chain capabilities in the contemporary scenario of changing customer requirements and expectation as well as with the changing technological requirements. SC integration often is considered as a vital tool to achieve competitive advantage [12]. Previous research proved the implementation difficulty due to certain factors such as lack of trust among partners and depending solely on technology [13]. Due to commercialization, privatization and liberalization, the traditional role of business organisation is limiting to act as infrastructure providers and leading their way towards understanding about market orientated business, focusing on customer needs. While internal performance indicators and customer surveys are suitable for benchmarking purpose, they do not fully reveal the true customer perspective. Recently, many organizations are adopting social software platform for the purpose of better understanding their customers' needs and to engage them in their business process [14]. EWOM communication as a tool to social media often attracts new customers and is one of the mainstays of the contemporary practices because it not only attracts but also enhances customers decisions via spreading positive word of mouth [15]. It is thus believed that all the theoretical explanations of influence of ewom in E-Marketing communication on supply chain customers will considerably reduce the uncertainty and can contribute significantly by adding value to supply chain information to mitigate bullwhip effect. We believe that the research value addition done by us lies in identifying and proposing the strategic idea and approach for reducing the bullwhip effect with the contemporary use of ICT tools and techniques and presenting the corresponding literature study. 28 2. OBJECTIVE AND METHODOLOGY OF RESEARCH STUDY Though there are significant number of research studies conducted in ewom subject, the study on influence of ewom on supply chain based Bullwhip effect as a part of reducing the Bullwhip effect in B2C market, from the business intelligence perspective is not been explored yet. These are very limited even if found and that too in an indirect manner. However a direct study on this kind of research topic in the business management domain is found almost negligible. So the objective of this paper is to explore the influence of ewom with the actual adoption of internet technologies in influencing customer demand in the enterprise supply chain management scenario as well as how it influences demand uncertainty that can cause bullwhip effect. Our research methodology followed eliciting literature evidences and content relevant to support research objective. The sources included: Journals, research databases, reviews, reports and industry based survey reports, web sites and blogs. Our original work is the basic idea of how to correlate the supply chain based bullwhip effect and its mitigation with the contemporary social marketing practices and how business intelligence can help turning this scenario to generate value based shared information that can contribute to the entire supply chain. 3. ORGANISATION OF OUR STUDY Since, literature review comes as part of addressing the problem at every place within the body of text of this research paper, authors felt that a separate section on literature review may not add value and may not contribute directly to the research problem at hand. In the subsequent section authors have mentioned their literature efforts and evidences for the topics viz., supply chain management, Bullwhip effect (include strategies for reducing the bullwhip effect), ewom, CRM 2.0 and Social Media Monitoring (SMM), Text Mining, Web Analytics with Business Intelligence and its influence on Demand Uncertainty, Role of Enterprise Application Software and Recent Information Management Trends for mitigating Bullwhip Effect. 4. SUPPLY CHAIN MANAGEMENT Supply Chain Management (SCM) focuses on managing internal aspects of the supply chain. SCM is concerned with the integrated process of design, management and control of the Supply Chain for the purpose of providing business value to organisations lowering cost and enhancing customer reachability [3]. Further, SCM is the management of upstream and downstream relationships among suppliers to deliver superior value at less cost to the supply chain as a whole [6]. Many factors such as globalization and demand uncertainty pressures forced companies to concentrate their efforts on core business [16]. A process which leads many companies to outsource less profitable activities so that they gain cost savings as well as increased focus on core business activities [17]. As a result, most of these companies have opted for specialization and differentiation strategies [18]. Moreover, many companies are attempting to adopt new business models around the concept of networks in order to cope with such a complexity (e.g., system has become extremely volatile, making planning and predicting [19]. The new changes in business environment have shifted the concentration of many companies towards adopting mass-customization instead of mass-production. Further, it derives the attention of many companies to focus their effort on markets and customer value rather than on the product [20]. This forced process may lead industries worldwide to focus on integrating, optimizing, and managing their entire supply chain from component sourcing, production, inventory management and distribution to final customer delivery [19]. Taking the above 29 factors, a single company often cannot satisfy all customer requirements such as fast-developing technologies, a variety of product and service requirements and shortened product lifecycles. Creating such new business environments have made companies look to the supply chain as an extended enterprise, to meet the expectations of end-customers [7]. 5. BULLWHIP EFFECT In a Supply Chain (SC), the uncertainty market demands of individual firms are usually driven by some macro-level, industry-related or economy-related environmental factors. These are individually managed demand forecasts and are causing SC to become inefficient in three ways: (i) supply chain partners invest repeatedly in acquiring highly correlated demand information which increases the overall cost of demand forecasting (ii) the quality of individual forecasts is generally sub-optimal, since individual companies have only limited access to information sources and limited ability to process them, it results in less accurate forecasts and inefficient decision making (iii) firms vary in their capability to produce good quality forecasts. Significant information asymmetry leads to strategic plays and has been reported to be the main reason for many coordination failures such as well-known bullwhip effect [21] also called Forrester effect as it was first initiated by Forrester in The phenomenon of bullwhip effect is related to SCM. It is often considered as magnified and varied order volumes observed at upstream nodes in Supply Chain. [22]. However the term bullwhip was used by Procter & Gamble managers which observed the increase of variability of vendors and distributors orders (with respect to the customer demand) through an empirical observation: the supply chain of pampers (the famous baby s diapers) [3]. The four causes of information distortion in supply chain are identified by [22] as: (i) demand forecast update (ii) order batching (iii) price fluctuation and (iv) rationing and shortage gaming. Simchi-Levi et al. (2000) [23] highlighted order and delivery lead time as the main factors contributing to the bullwhip effect. Further, it is asserted that the bullwhip effect might be the result of lack of trust, lack of demand forecasting ability, lack of communication and lack of accurate information regarding the customer demand observed at the downstream nodes among Supply chain partners 5.1. Strategies for counteracting Bullwhip effect Companies can reduce uncertainty by having information shared along the whole supply chain providing the complete information related to customer demand at each stage [24]. Other counteracts of bullwhip effect include channel alignment [for e.g. alignment of Point-Of-sale (POS), with Electronic Data Interchange (EDI)] and operational efficiency (for e.g., everyday low price) [25]. At private e-market places or in B2B scenario, use of EDI can substantially reduce the bullwhip effect [7]. However the scenarios in B2C market that deal with public e-market place will be different from B2B and should be tackled differently. So authors would like to propose that ewom along with SMM, CRM and Business Intelligence has influence in reducing the bullwhip effect. 6. EWORD OF MOUTH Consumers generally believe that Word Of Mouth (WOM) credibility is higher than commercial advertisement. Therefore, the impact of WOM is typically higher than advertisements [26]. When consumers perceive high social or psychological risk of a purchase, they would search for credible information that is more diagnostic or referential, such as WOM information, from a source they believe to be reliable [27]. The emergence of ewom could be explained as the phenomenon of increasing numbers of consumers who are using advanced Internet technologies, to seek and communicate information about a product or a company. 30 Hennig-Thurau et. al. (2004) [28] defined ewom as any positive or negative statement made by potential, actual, or former customers about a product or company which is made available to multitude of the people and institutes via the Internet. Previous research by [29] posits that ewom refers to any positive or negative statement made by potential, actual and former customer about a product or a company via Internet. Further, Hennig-Thurau et. al., (2004) [28] state that ewom refers to the knowledge exchange consumers carry out Online. The growth of development and participation of Internet tools has led the appearance of new forms of word-of-mouth communication. Using the Internet, consumers can now publish their opinions, providing thoughts, feelings and viewpoints on products and services to the public at large [30]. However previous research by [31] and [27] regarding ewom asserts the difficultly for online consumers to determine the credibility of the message (i.e. whether or not the recommender is on the same side). When consumers evaluate the product attribute, they are involved in the product and feel disturbed about the uncertainty of purchasing the product, which means they now have perceived risk. Consumers with a high degree of product involvement actively look for information related to the product and evaluate all the alternatives, whereas consumers with a low degree of product involvement do not. Therefore, when degrees of product involvement differ, perceived risk for purchasing a product differs [27]. At present, most of the well-known online retailers are offering ewom systems as essential elements of their businesses. The ewom has a significant impact on consumer choices. For example,, the online review system, provides customers (current or potential) with reliable product information which they often use to make their decisions. 6.1 Prior studies on ewom A number of studies have been conducted to investigate the relatively new ewom phenomenon. These studies include: the study of characteristics of ewom that enables market researchers in analyzing the role of the systems in businesses [32]; The relationships between the ewom and sales/price [33][34] [35]; the cognitive impacts of ewom on trust and customer s purchase intention [36] [37] [38]; use of ewom in interactive marketing, viral marketing and innovation [39]; the use of micro-blogging for ewom branding [40]. The ewom systems provide customers with quality product and service information [33]. By providing quality information, ewom enables customers to know more about a product, accordingly articulate their demands for the product. In B2C exchanges, customers face serious disruptions if product/service providers fail to meet expectations. Consequently, customers typically rely on a small number of trusted product/service providers that consistently deliver high quality products or services [41]. Interpersonal influences are often classified into two types: (i) normative, which are found to be significant across nations, and (ii) informational, which can be found significant among consumers [42]. Since ewom remains available on the Web, in contrast with traditional WOM, ewom is visible for the public and triggers social comparison and behavior among consumers. The nature of ewom implies the visibility of a larger amount of messages posted by many people and possibility to follow threads. In such a setting, consumers get an opportunity to compare themselves with the majority of other consumers. Thus, we expect that an online environment enables the emergence of the effect of consumer need for uniqueness on information processing and the behavior of individuals [43]. Moreover, this kind of message can effectively reduce the risk and uncertainty recognized by consumers when purchasing products or services, so that their purchase intention and decision making can be further influenced [31]. Various platforms, such as discussion boards and other online communication tools, often facilitate ewom, which in return impact the adoption and use of products and services [44]. EWOM media can be classified based on level of interactivity into synchronous/asynchronous; and based on communication scope such as: one-to-one, one-to-many and many-to-many (see Figure 1) [43]. 31 Figure 1. EWOM Media Classification [43] 7. CRM 2.0 AND SOCIAL MEDIA MONITORING (SMM) Customer Relationship Marketing (CRM) solutions are considered to be the latest and mostly used topic in business world that facilitate business growth in B2B and B2C markets [45]. Internet is considered as an empowerment tool both in the field of consumer behavior and information systems with the capability of allowing consumers to interact with the rest of the world at different levels including personal, group, community and others. Social psychology and marketing literature are the main sources for the definition of consumer empowerment. For example, based on a consumer empowerment Index, countries like UK, Sweden, Poland and Germany display the highest empowerment match as compared to Iceland, Italy and Spain in European Union [46]. It acts as: a distribution channel for digital goods and services; advertising medium from the company perspective; potential source of
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