This paper examines the key drivers and economic values of using the Internet in operations management in Australia. The market place of the twenty-first century is evolving into one of merging national markets fragmented consumer market, and rapidly changing product/service technologies. These changes are driving firms to compete, simultaneously, along several different dimensions: design, manufacturing, distribution, communication, marketing, sales, advertisement, and others. To effectively compete in global markets, firms must be quick and flexible in their response to customer needs. Firms of all sizes find it necessary to compete in these markets in order to survive. With their customer orientation and flexible nature, small firms are the logical innovators to adopt the new technologies necessary to enter these markets. Understanding why and how these firms adopt cost-saved and time- based technologies - like Internet- can be critical to Australian competitiveness.
First, the important thing to use the Internet is ease-of-use. This has been the driving force behind any selection of client software and the selection of software/hardware combination. All cases indicate that the most important factor in accessing the usefulness of the Internet is the timely access of data that would otherwise take many hours, if not months to procure.
Second, it is easy to save both time and money using the Internet. Its unique pricing structure means that it is now as cost-effective to send an electronic message ten thousand kilometres away as to phone somebody down the street whether or not the recipient is around when we send it. This means that as well as saving us money; the Internet saves time by sparing us the game of the telephone tag. We can make money over the Internet, too. One of the exciting recent developments has been the appearance of commercial sites and services directly over the Internet. We can now buy thousands of goods and services directly over the Internet and pay using a credit card.
This study provides evidence that companies can respond to customer needs in global markets by exploiting the Internets cost-saved and time-based information resource capabilities.
The Internet is the
largest and fastest growing global communication network and is defined
as simply network of networks. The Internet is administered not by any
single authority, but rather by the individuals that run each of the separate
systems connected to the Internet.
According to the Internet Society, the number of users on the Internet has more than doubled in the past year to an estimated 40 million users. Industry analysts predict this will rise to over 200 million users conducting $75 billion worth of trade annually by the end of the decade (Lee, 1995). Most of this growth has come from newly registered commercial enterprises. Businesses are beginning to use the Internet for such things as shortening the development cycle of new products, communicating with experts from around the world, receiving customer feedback on software, and accessing supercomputers for industrial research and development.
The Internet will be one of the most important business tools that will drive the formation of integrated supply chains. Supply-chain concepts are already evident in many initiatives for just-in-time manufacturing, continuous replenishment, vendor-managed inventory and electronic commerce. A successful supply-chain strategy depends to a large extent on the information system backbone that supports it. The Internet is a key part of that infrastructure, promoting business-to-business integration, ultimately resulting in global market expansion and increased control over working (Mann, 1996).
On the other hand, in a recent survey conducted by Arthur Andersens Enterprise Group and national Small Business United in the US to determine what small companies (entrepreneurs) really do on the Internet, it was revealed that they were engaged in global business. The survey sampled 996 small and medium sized firms. Of these, exporters are 70% more likely to use the Internet than small companies overall are. The survey also revealed that exporters are twice as likely as non-exporters to use the Internet to buy and sell goods and host a home page. To them, it allows cost approach to facilitate international commerce. This suggests that entrepreneurs based in the US have not really caught on the Internet. There is an apparent need for entrepreneurs to host home pages, which are after all relatively cheap (Table 1).
Table 1: Percent of respondents who indicated the following Internet uses apply to them.
|Use of the Internet||
|Conduct research on the Internet||
|Host/have a Web page||
In addition, global access to people, data, software, documents and multimedia changes the way in which people scan for information, process personal and business communications, and ultimately, solve business problems. Increasingly, operations management professionals need to interact with persons from other disciplines and with persons who are geographically dispersed around the globe. The Internet enables direct person to person communication using electronic mail and group communication using electronic communication forums. In addition, many computers on the Internet store free accessible information, thus allowing people to share, disseminate and receive data and software.
In industry, the efficient and effective management, manipulation and use of information is essential to economic vitality and growth. According to some experts, the use the integration of information technologies, in an infrastructure of communication networks, hardware and software applications, databases, bulletin boards and other services, is a critical ingredients in operations management success.
FOR OPERATIONS MANAGEMENT
Internet provides to operations management immediate global access to information. In order to better understand the Internets role in providing information to operations management, it is important to understand the main five categories of available resources:
Operations management systems can be classified as: service systems and manufacturing systems. Service systems usually offer intangible products to their customers (for example, transportation, entertainment, health care, etc.). Manufacturing systems offer tangible products to their customers (for example, automobiles, food, computers, etc.). Some organisations offer their customers both a service and manufactured product (for example, petrol refinery :manufacturing and service stations, etc.). In such cases, it is more accurate to divide the organisation into separate service and manufacturing operations according to their dominate activities.
Changes in political, social, and economic forces have revolutionised the way Operations Management is managed. These forces are continuing to establish a global market, which requires the standardisation of products in order to compete in a global economy.
The phenomenon of globalisation has not been a sudden , nor will it be a discontinuous, development. Globalisation has been a product of change caused by economic, technological, and competitive factors. A hundred years ago, these same factors transformed companies from a regional to a national scope.
Three principal economic forces have driven companies and industries toward globalisation: economies of scale, economies of scope, and national differences in the availability and cost of resources. These forces have caused companies to specialise and standardise their products. This competitive strategy has became known as global chess and can only be played by companies that message their worldwide operations as interdependent units implementing a coordinated global strategy (Alkhafaji, 1995).
Only since the early 1980s have Operations Management adopted this global chess strategy. In the past, the approach of most Operations Management was based on the assumption that each national market was unique and independent. With the advent of a new global strategy, Operations Management quickly discovered that they could use funds generated in one market to stabilise their position in other markets, thereby increasing their competitive advantage.
As the international market becomes more and more competitive, those companies that can most effectively develop, diffuse and implement innovative products and processes on a worldwide bases will be the ones that prosper. Firms are recognising that they can gain a competitive advantage by sensing the needs in one country, responding with capabilities from a second country, and diffusing the innovation to markets around the world. For example, no longer can US or Japan companies assume that they have the most sophisticated consumers and the most advanced technology. No longer does the US or Japan have the most innovative environment in the world. Today, new technology and new consumers needs are emerging worldwide.
In the last two decades, several factors have forced Australian firms (especially manufacturing) to make dramatic changes in their products, markets, and operations strategies:
Time and Cost Compression:
The compression of time and the reduction in costs in the whole operation
chain make it possible to gain competitive advantages in price, product
innovation and service. The time and cost compression, which can be obtained
by adapting a global strategy, is greater than that which can be obtained
by adopting a domestic one.
Companies must develop the skills that will allow them to learn from many different environment to benefit the host country, the home country, and the corporation. The 1990s and beyond will present both strategic and organisational challenges to operations management. On the one hand, corporations are being forced to develop strategies that will allow them to be efficient, responsive, and innovative. At the same time they must continue the practice tradition strategic approaches to ensure other aspects of their operations.
The global economy is rapidly evolving into an integrated economic system, which presents tremendous opportunities to aggressive global manufacturers while threatening the very existence of the mediocre manufacturer. According to Scully (1993) competitive survival depends on the firms ability to understand the changing global environment and to adopt the emerging rules of global strategy.
One of the more salient aspects of the new global marketplace is the borderless world - a world in which capital is more mobile than ever and relevant competitive response times have been dramatically reduced (Ohmae, 1989). This borderless world has made the need for decision making based on coordinated global strategies more compelling than ever. To prosper in this competitive environment, firms must adopt a competitive approach, which leads to continuous improvement in strategic advantage.
Dumond (1994) expressed that managing any function or individual can be difficult and managing a boundary-spanning functions is even more challenging. One such boundary-spanning organisation is procurement, which must link a firms internal operations with external sources of supply. Because of the breath of activities and responsibilities and the magnitude of monetary resources they control, managing the procurement function is especially challenging. Its expenditure generally accounts for as much as 63 per cent of the total revenues of a corporation through the purchase of raw materials, components, and subassemblies, as well as capital equipment.
The complexity of raw materials and manufacturing processes, demanding customers, substantial competition make it essential that Quality be sought throughout every element of the plant. The movement of synchronised manufacturing and an elimination of buffer stock mandate improved processes - including the procurement of the right material, at the right place, at the right time.
Vastag (1994) stress that in this rapidly changing world, not only internal manufacturing processes but also its external logistical infrastructure need to be changed. manufacturing companies require new supporting infrastructures to compete successfully in quickly changing global markets demanding flexibility and timely delivery.
Most authors agree that time and flexibility will be the new driving forces of competitiveness, and quality is becoming more and more an order qualifier rather than order winner. Vastag (1994) concluded that one of the main forces to manufacturing restructuring in the next five years will be speed in product innovation and delivery.
Respondents to the 1992 US Manufacturing Futures Survey indicated that they expected the biggest changes in environment to come from four areas:
According to Stalk and Hout (1990), time-based competitors built their companies around customer needs by redesigning and compressing work processes in order to more directly provide those needs. Two concepts serve as the core for restructuring work time compression: organising around the main sequence;
· Those activities
that directly add customer value in real time; and
· Establishing a smooth and regular flow of work.
They later stress that time-based competitors must use time-based measures to derive performance. Time-based are effective in minimising costs and maximising the value added to customers because longer development times, cycle times, and lead times invariably cause higher costs.
Stonich (1990) stresses that implementing a time-based strategy requires drastic changes in company culture, structure, systems, and the way the work is accomplished. The plan that he offers for becoming a time-based competitor is centred on establishing, planning, and assessing the feasibility of a time-based strategy.
According to Fawcett (1992), integration of logistics into the design and management of global manufacturing networks is critical to the success of a global manufacturing strategy. Skilful management of logistics should be essential to time-based competition.
Youssef (1992) presents a model where the internal capabilities of the firm, suppliers, and the main pillars of agile manufacturing. His model indicates that these three components, if integrated, can enhance the manufacturing performance.
KEY DRIVERS OF THE
The Internet has grown explosively and more than doubling in recent years. Now (1997) there are more than 40 million users on the Internet around the world. The business sector itself is ripe for more growth, with estimates that there will be more than 200 million users on the Internet by the end of this decade.
The Internet is constantly changing, and so too will the methods for marketing on the Internet. The best way to keep abreast of those changes is to stay plugged into the lists and Usenet, and to observe what others are doing (Ellsworth 1994). Acceptable use policies are under revision, and we can expect changes in these as the network matures, as projects like Commerce Net expand, and as the Information Superhighway gets underway. It is likely that the audio and video capacity of the Internet will grow, establishing many marketing opportunities.
Hypermedia-based applications such as World Wide Web and Mosaic are growing rapidly and offering many diverse opportunities for business use. Mosaic, with its full sound and video capabilities, may just be the killer app of the Internet. Certainly, it opens up a much wider range of business possibilities (Ellsworth 1994).
Furthermore, new products and services are coming online quickly which will themselves offer opportunities for businesses. As an example, OReilly and Associates, along with SPRY, have made Internet in a Box, which will provide Internet access through cable television systems. This kind of product will provide opportunities for other businesses to reach much larger and demographically different audiences.
In addition to that, The Internet Engineering Task Force (IETF) is discussing the establishing of an Internet Merchantile Protocol (IMP), which will include plans to adapt current protocols to make ways to automate and complete business transactions using Multipurpose Internet mail Extensions (MIME) and Privacy Enhanced Mail (PEM). Encryption, a hot topic on the Internet, will likely make the Internet more secure. In addition to enhancing privacy and security of e-mail, this would facilitate the use of the Internet for commerce, banking, and sales. Electronically verifiable signatures will allow the verification of message and transactions.
At present, the business and commercial component is the largest and fastest growing segment of the Internet. The number of Internet users is growing at the phenomenal rate of 10 percent a month. Some of the reason is that, we can gather information, communicate, and actually transact business on the Internet. Some businesses are establishing a corporate presence on the Internet, including virtual storefronts.
There are both visible and invisible business users of the Internet. many businesses use the Internet for transacting business, but the average Internet user does largely not see their work. Corporations are using e-mail for communication, and FTP for file and data transfers.
The Internet is currently made up of over 45,000 networks world wide and there are probably more than 40 million people who have some kind of Internet connectivity (Statistics about the Internet are almost always estimates because the numbers change so frequently). The Internet includes individuals, groups, organisations, schools, universities, commercial services, companies, government, and Free-Nets. The Internet has an unusual history, is not governed in the way other organisations are, and has a significant community culture of cooperation, sharing data, and providing services and information for free.
Currently, the commercial power users of the Internet are in a broad scope of industries, including high-technology manufacturers, computer-related industries, oil companies, pharmaceutical companies, HealthCare-related industries, financial services, and banks. But, nowadays, financial and medical institutions are the largest invisible users of the Internet. These industries have very high data traffic rates on the network. Most of these large companies have established fire walls to separate their own local data traffic from the rest of the Internet.
On the other hand, the most visible businesses on the Internet have a multifaceted corporate presence on the Internet. They are visible in product announcements, on lists, on Usenet, on Gophers, FTP, and more, and we will see their messages in .plan files and in signature files (Ellsworth 1994).
The main reasons for using the Internet briefly are:
It is also easy to save both time and money using the Internet. Its unique pricing structure means that it is now as cost-effective to send an electronic message ten thousand kilometres away as to phone somebody down the street. -with the big difference that there is no engaged dialtone for electronic mail on the Internet: whether or not the recipient is around when we send it, the post will be waiting for them when they connect. This means that as well as saving us money, the Internet saves time by sparing us the game of the telephone tag.
Moreover, the Internet can make money for us too. One of the exciting recent developments has been the appearance of commercial sites and services directly over the Internet. We can now buy thousands of goods and services directly over the Internet-flowers, books, CDs, software-and pay using a credit card. Again, because of the Internets global nature, there is often no reason why we cannot order and play for things are on sale halfway round the world.
ECONOMIC VALUES OF USING THE INTERNET
The information highway- the INTERNET will revolutionise communications even more than it will revolutionise computing (Gates, 1995). This is already starting in the workplace. Because the most efficient businesses have an advantage over their competitors, companies have an incentive to embrace technologies that make them more productive.
Electronic documents and networks offer businesses opportunities to improve their information management, service, and internal and external collaboration. Over the next decade, businesses worldwide will be transformed. Software will became friendlier, and companies will base the nervous systems of their organisations on networks that reach every employee and beyond, into the world of suppliers, consultants, and customers. The result will be companies that are more effective and, often, smaller.
In the near future , as the information highway makes physical proximity to urban services less important, many businesses will decentralise and disperse their activities, and cities, like companies, may be downsized. Businesses will be the first users of high-speed networks. Every new computing technology was adopted first by businesses because the financial benefits of advanced information systems can be readily demonstrated.
Mann (1996) indicated that companies will look to Internet commerce to enable inexpensive information exchange that allows for the reengineering of business processes involving external partners. The Internet, particularly the World Wide Web, provides organisations with the means to open up the internals of their operations, to deliver meaningful information to their suppliers and partners.
Internet commerce also holds the potential for providing interactive Web-based applications. Trading partners can perform a variety of transactions on the Internet to enhance their business. Inventory levels can be monitored, pricing rates from multiple suppliers can be checked, inquires and sales transacted.
The Internet enables a group of trading partners to be sophisticatedly connected by integrating disparate businesses and organisations providing business benefits to each individual. A production site could use the Web to share information about inventory levels, sales and marketing statistics and product delivery schedules. Shared visibility of stocking levels across the supply chain including production sites, warehouses, distributing centres and points of sale, allow for production plans based on actual rather than perceived demand.
On the other hand, managers of both small and large businesses are going to be dazzled by the capability information technology has to offer. Before they invest they should remember that a computer is just a tool to help in solving identified problems. It is not, as people sometimes seem to expect, a magical universal panacea.
The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency (Gates, 1995). In another words, instead of rushing out of to buy the latest and greatest equipment for every employee, managers in a company of any size should first step back and think about how they would like their business to work.
It is important to know the essential processes, and its key databases and the movement of information. If your system cannot provide product-availability information or quote a price immediately, you risk losing out to a competitor who is taking better advantage of technology. For example, some car companies are centralising service information so that any dealer can easily check a vehicles entire history and watch for recurring problems.
Moreover, a company should also examine all of its internal processes, such as employee reviews, business planning, sales analysis, and product development, and determine how networks and other electronic information tools can make these operations more effective.
It seems that, in the near future, the information Superhighway- the Internet will become an essential tool for the individual, and for a large corporation. It is quite clear that the Internet improve business processes, efficiency, and accuracy if it is used in correct way.
Businesses of all sizes will receive different benefits from using Internet. Small businesses will have the greatest beneficiaries, because low-cost hardware and software will permit tiny outfits to compete better with large multinational corporations. For a large company, the biggest benefit of Internet comes from improving the sharing of information. Now electronic mail (e-mail) is becoming the primary tool for exchanging messages. It has done more for big companies than for small companies.
On the other hand, conventionally, businesses share information internally by exchanging paperwork, placing telephone calls, and/or gathering around a conference table or white board. Plenty of time and plenty of expensive face-to-face meetings and presentations are required to reach good decisions this way. The potential for inefficiency is enormous. Companies that continue to rely on these methods exclusively risk losing out to competitors who reach decisions faster while devoting fewer resources, and probably fewer layers of management, to the process. Future advances in electronic mail streamline lots of activities we may not even realise are inefficient. For example, receiving and paying bills via Internet.
Within a few years there will be hybrid communications systems that combine elements of synchronous and asynchronous communications. These systems will use DSVD (and later ISDN) telephone connections to permit the simultaneous transfer of voice and data, even before the full information highway is in place. Another important use of voice/data connection will be to improve product support. The picture transmitted during a DSVD (or ISDN) telephone connection will not necessarily have to be of a document. One or both people participating will also be able to transmit still images of themselves.
In addition, electronic
mail and shared screens will eliminate the need for many meetings. Presentation
meetings, called primarily so participants can listen and learn, can be
replaced with e-mail messages with spreadsheets and other exhibits enclosed
as attachments. When face-to-face meetings do take place, they will be
more efficient because participants will already have exchanged background
information by e-mail. It will also be easier to schedule meetings because
software will handle it.
Moreover, clients will expect their lawyers, dentists, accountants, architects, and other professionals to be able to schedule appointments and exchange documents electronically. There will also be an efficient way to schedule restaurants or theatre reservations. When the information Superhighway is available, people will not be limited to audio and still images, because the highway will also transmit high quality videos. The meetings they schedule will more and more often be conducted electronically, using shared-screen videoconferencing. If a group were to meet electronically to collaborate on a press release, each member would be able to use his or her computer to move paragraphs around and drop in a photographs or a video.
Information Superhighway will affect much more than the physical location and supervision of employees. The very nature of almost every business organisation will have to be re-examined. This should include its structure and the balance between inside, full-time staff and outside consultants and firms.
On the other hand, the corporate reengineering movement starts with the premise that there are better ways to design companies. To date, most reengineering has focused on moving information inside the company in new ways. The next movement will be to redefine the boundary between the company and its customers and suppliers. Key questions to re-examine include: How will customers find out about products and how will they order? What new competitors will emerge as geography becomes less of a barrier? How can the company do the best job of keeping customers happy after the sale?
In addition, corporate structure will evolve. For example, e-mail is a powerful force for flattening the hierarchies common to large companies. If communications systems are good enough, companies do not need as many levels of management. Intermediaries in middle management, who once passed information up and down the chain of command, already are not as important today as they once were. In a sense, because of e-mail, there are no levels between CEO and anyone in the company.
Moreover, as technology makes it easier for a business to find and collaborate with outside expertise, a huge and competitive market for consultants will arise. For example, if you want someone to help design a piece of direct -response advertising, you will ask a software application running on the information Superhighway to list consultants with certain qualifications who are willing to work no more than a certain rate and have an appropriate time period free.
Companies will re-evaluate such issues as how extensive a legal or finance department they should keep, based on the relative benefits of having expertise inside an organisation versus outside it. By this way lots of companies will eventually be far smaller because using the information Superhighway will make it easy to find and work with outside resources and the Internet will provide more flexibility and efficiency.
In addition, the economics of running a Web site make it extremely attractive compared with the cost of traditional advertising and marketing costs. Any business can establish a full-blown Web site and operate it for the first year for the cost of a single-page advertisement in a PC magazine with a readership say 100,000. For the same money invested in a Web site, one gets an entire business platform that can provide a lot of content to a potential audience of over 40 million people worldwide.
To be able to analyse the economic values of Internet usage, it is helpful to have a measuring stick. For individuals, we can compare the cost of an Internet connection to the cost of using the telephone. We pay extra for long distance charges based on the amount of time we are talking. There is a definite thing that e-mail is cheaper than phone to communicate long distance with a number of people.
Then, the Internet usage can make it possible to reduce the amount of time or effort required to perform certain tasks. If we get information on the Internet that we would have to get otherwise by driving to the library, how much have we saved? Look at the cost savings and the good will generated from providing sales and customer support online. Evaluate the potential of collaborative partnerships established over the Internet. Find out how much we might save in overnight delivery fees if we use e-mail or file transfer programs to deliver time-sensitive documents.
In addition, there are also things we can do on the Internet that are not practical to do by postal mail, by phone, in print, or any other means. For example, how often do we have the opportunity to address 5000 people in a public forum and state our opinion? How important is it for us to follow the latest developments on an important subject, and be able to respond immediately?
On the other hand, businesses spend much more money than individuals on their phone. They usually have sophisticated phone systems that are seen as part of the companys basic infrastructure, as essential as desks and chairs. is our Internet connection going to be as useful as a phone system to our business? It could be, and perhaps everyone in the company should have access. it might allow our business to expand in new ways.
As an example, one providers estimated cost of an Internet connection for a site of 15,000 users was about 8 cents per month per user. The same connection for 100 users would cost about $12.50 per month. When compared to a minimum cost of $15 per month for a phone, the Internet seems like a bargain. In most cases, the cost of an Internet will be far less than an equivalent telephone connection and far more valuable in the long run. An average individual user spends $20 to $30 monthly on an Internet connection which compares favourably with the cost of a telephone line (Estrada 1993).
In many industries there is a clear tendency towards globalisation. It is believed that this phenomenon will grow as it aided by the progressive reduction in barriers between countries and differences between consumers. Staying competitive in the next decade will require the development of, and commitment to, a strategy focused on improving manufacturing (or service) cost and quality. Market globalisation, on the other hand, also depends on the behaviour of companies. For example, Japanese producers have given a significant impulse in this direction by redefining products on a world basis. To obtain competitive advantages in global industries, all producers, including those in other countries, must be taken into account.
The benefits of using the Internet to conduct business, or rather in most cases to supplement an existing business, are many. With the millions of users already connected to it, the Internet has quickly become an establish method for connecting suppliers and customers worldwide within a very short time since the network was first officially opened to commercial activities in 1991. More than 40 million are now connected to the Internet, an estimated 200 million people will be connected by 1999. The Internet offers great opportunities to improve business productivity and opens up new untapped markets on a global scale.
As a conclusion, it is expected that INTERNET will made major advances into redefining manufacturing away from physical driven processes and towards an information-intensive system. The extent to which companies are cognisant of Internets multi-mission capabilities in itself does not in any way guarantee their successful implementation of a flexible strategy; rather, strategy, organisation design and incentives must match the new opportunities offered by Internets multi-dimensional and complex offerings.
Internet also redefining the way to compete in the global marketplace. Because global segments and niches are changing faster, companies wishing to remain competitive will have to search for alternative ways of serving many small, distant and fickle markets simultaneously. The Internet (Computer Network) offers one possibility in achieving what was once considered an impractical, if not impossible, end.