THE ROLE
OF SIMULATION IN E-BUSINESS TRANSFORMATION
Vloga simulacije
pri uvajanju elektronskega poslovanja
MOJCA INDIHAR-STEMBERGER,
JURIJ JAKLIC, ANDREJ KOVACIC
University of
Ljubljana, Faculty of Economics
Kardeljeva ploscad
17, 1000 Ljubljana, Slovenia
E-mail: mojca.stemberger@uni-lj.si,
jurij.jaklic@uni-lj.si, andrej.kovacic@uni-lj.si
VESNA BOSILJ-VUKSIC
University of
Zagreb, Faculty of Economics
Trg J.F.Kennedya
6, 10000 Zagreb, Croatia
E-mail: vbosilj@efzg.hr
ABSTRACT
Business renovation
is a key aspect of electronic business
and a high-level strategy for managing change that generally cannot
be handled by continuous improvement and organizational restructuring
methods. Business process modeling and the evaluation of different alternative
scenarios for improvement are usually the driving factors of the business
reengineering process. In this paper, business process simulation is
investigated as a tool for deriving new knowledge on current business
processes, such as additional in-depth understanding of how the process
is executed and the identification of the sources of the problems observed
during the process execution. The main objective of the paper is to
investigate the potential benefits and outcomes of
e-business transitioning that can be assessed in advance by using simulation
modeling. An example is presented of how simulation modeling can be
used understand a procurement process and to evaluate how the proposed
improvements and the introduction of electronic business will influence
the system performance.
Keywords:
simulation modeling, business-to-business (b2b), business process reengineering
(bpr), business renovation, procurement.
povzetek
Pri uvajanju
elektronskega poslovanja je izredno pomembna prenova poslovanja in
ustrezna strategija na najvišjem nivoju. Ponavadi tega ni moč doseči
zgolj z neprestanim izboljševanjem in z manjšimi organizacijskimi
spremembami. Pri prenovi poslovanja in ovrednotenju različnih scenarijev
sprememb v izvajanju poslovnih procesov
igra pomembno vlogo simulacijsko modeliranje. Prispevek predstavlja
uporabo simulacij kot orodja za odkrivanje novega znanja o trenutnem
izvajanju poslovnih procesov, kot je natančno razumevanje načina njihovega
izvajanja in odkrivanje vzrokov problemov, ki so bili pri izvajanju
opaženi. Namen prispevka je predvsem raziskava potencialnih prednosti,
ki jih prinese uvedba elektronskega poslovanja. Å e preden se jih uvede,
jih je moč ovrednotiti s pomočjo simulacije izvajanja poslovnih procesov.
Kot primer je obravnavan nabavni proces, za katerega ocenimo, kakšni
bodo učinki uvedbe elektronskega poslovanja.
1. INTRODUCTION
The value chain
could be described as the set of activities an organization performs
in order to create and distribute its goods and services, including
primary activities, such as inbound logistics and operations, and also
support activities, such as human resource management and technology
development [Porter, 1980]. Each of these activities adds some value
to the product or service. Competitive conditions and pressures in the
global market are forcing companies to search for strategies to streamline
the entire value chain. Increasing the effectiveness of the value chain
will increase the competitiveness of a company. To compete effectively,
organizations must structurally transform their internal and external
processes. These goals could be reached by a simultaneous renovation
of business processes and an implementation of electronic business models.
Electronic
business (e-business) is an execution by electronic means of interactive,
inter-organizational processes [Cunningham and Froschl, 1999]. E-business
represents a shift in the business doctrine that is changing traditional
organizational models, business processes, relationships and operational
models that have been dominant for the past 20 years. The new doctrine
of e-business requires an enterprise to integrate and synchronize the
strategic vision and tactical delivery of products to its customers
with the information technology and service infrastructure needed to
meet this vision and process execution [Phipps, 2000]. In the next few
years, successful enterprises will restructure their organization, process
and technology infrastructure for successful e-business execution.
It is well
known that e-business might bring several advantages to a company. However,
existing practical business applications have not always been able to
deliver the benefits they have promised in theory. Prior to adopting
e-business, companies need to assess the costs needed for setting up
and maintaining the necessary infrastructure and applications, and they
need to compare this to the expected benefits. Although the evaluation
of alternative solutions might be difficult, it is essential because
in this way some risks associated with the introduction of e-business
can be avoided. The business processes should be analyzed first in order
to find out if they are well defined, adequate, and ready for the implementation
of new information technology. Only in this way can an improvement in
quality, lower costs, and shorter performance times be expected.
Business Renovation
(BR) or business process renovation and the introduction of information
system (IS) efforts integrate the radical strategic method of Business
Process Re-engineering (BPR) and more progressive methods of Continuous
Process Improvement (CPI) with adequate Information Technology (IT)
infrastructure strategies. Process renovation is a re-engineering strategy
that critically examines current business policies, practices and procedures,
rethinks them and then redesigns the mission-critical products, processes,
and services [Prasad 1999].
The methods
of BR, which combine business process modeling and simulation modeling
which enables quantitative estimations of alternative renovated business
processes [Bhaskar et al., 1994], are one of the possible approaches
to address the above-mentioned problem of the evaluation of alternative
solutions. In most instances, several models are built: one that represents
current practices, named the AS-IS model, and proposals for business
process renovation, TO-BE models.
The main objective
of this paper is to develop a simple simulation model of an electronic
procurement business process that could be used to evaluate the potential
benefits and constraints of BR and the implementation of an e-business
project. The paper is structured as follows. The impact of IT on e-business
is discussed in Section 2. Following a brief overview of business renovation
strategies in Section 3, business process modeling and a simulation
with the simulation modeling tool iGrafx Process are described in Section
4. An example of modeling B2B processes is provided in Section 5. At
this point, the applicability of simulation modeling and the evaluation
of alternative business process strategies are investigated. The main
findings of this research and concluding remarks are given in Section
6.
2. The
ROLE of IT In THE PROCESS OF NEW Business MODELS DEVELOPMENT
There are three
critical factors that determine business performance: business models,
the business environment, and change [Afuah and Tucci, 2000]. A competitive
environment (powerful suppliers and competitors) and change (supply
and demand, government regulations and deregulations, technologies and
demographics) impact business models. Electronic business (e-business)
dramatically and strategically changes traditional business models.
Parallel to the development of Internet technologies, a great number
of new business models have appeared, providing significant changes
in the nature of business processes. Some basic questions that global
business leaders are faced with are: Has the classical business model
invented in the 19th-century outlived its usefulness? Is it capable
of successfully handling the complexity of IT and today's “New economy”?
2.1. IT
as the Enabler of Business Renovation
To explore
the role of IT in e-business, the contributions of IT could be categorized
in two different ways [Chang, 2000]. First, it contributes greatly as
a facilitator to the process of re-engineering. Second, IT contributes
as an enabler to master the new process in the most effective way [Davenport
and Short, 1990].
As the Internet
becomes a very important component of companies' information systems,
it plays an increasingly significant role. The Internet enables companies
of all sizes to develop new online business models, which means improving
and altering the ways in which they operate and interact with business
partners, customers and suppliers. Companies are now pursuing more intensive
and interactive relationships with their suppliers, collaborating in
new product development, integrating key business processes and cross-functional
information sharing on a range of issues [McIvor, 2000]. The Internet
enables the complete integration of inter-organizational processes in
BR projects to take place [Alt et al, 2000] and extends the strengths
of BR to new strategic options (e.g. electronic distribution),
new possibilities for processes (e.g. order entry, distribution, on-line
payment) as well as technical issues (e.g. integration of Enterprise
Resource Planning systems (ERP) with Electronic Commerce (E-commerce),
Supply Chain Management (SCM), Customer Relationship Management (CRM),
etc.). The advantages of IT and the Internet (faster connections, speed
of delivery, collaboration capabilities, and information collected across
all commerce channels) yield unprecedented opportunities to suppliers
and buyers. These advantages will help them to connect and establish
mutually profitable relationships.
2.2. E-business
Models Development
Within the
overall electronic business economy, there are two major models: business-to-consumer
(B2C) and business-to-business (B2B). As a result of the early success
of business-to-consumer Internet companies which provided new ways for
consumers to purchase goods, several entrepreneurs developed Internet
solutions for long-standing business purchasing problems. Business-to-business
models have experienced explosive growth in the marketplace, beginning
in the early 1990s.
The market for B2B has continued to expand with predictions that the
B2B model will far exceed the B2C model in the future. Forrester research
estimates that over $1.5 trillion in goods and services will be purchased
through B2B e-commerce by the year 2003, while this number could be
about $108 billion for B2C e-commerce [Forrester Research, 2000].
The business-to-business
model could be defined as the use of electronic interactions to conduct
business among enterprises [Turban et al, 2000]. B2B includes purchasing
and procurement, sales activities, payment management, inventory management,
channel management, supplier management, and service support. In recent
literature, several B2B models have been described [Kalakota and Robinson,
2001], [Turban et al, 2000], [Afuah and Tucci, 2000], [Deitel et al,
2001]. Most business activities are business-to-business [May, 2000]
and a huge potential lies in the introduction of e-business in
both the inside and outside part of the value chain. One of the important
issues in e-business implementation is the ease with which flexible
structures in the supply-demand relationship can be established to become
the driving force for cooperation through strategic alliances between
business partners [Roberts and Mackay, 1998]. The Value Chain Model,
developed by Porter [1985], considers the main activities present in
the supply-chain process management and takes IT as a key element in
driving these activities. However, several problems and obstacles occur
during the introductory phase of the business-to-business model. The
investments into information technology can be significant, common standards
for this industry are yet to emerge, let alone to be adopted, and the
way that the company operates has to be (sometimes radically)transformed.
But the results can be rewarding for both sides in the form of savings
through reduced costs, process efficiencies, and compliance [Deise et
al., 2000].
Nowadays, companies
are investing heavily to transform their traditional business into e-business,
but most of them lag behind in adopting the Internet in the process
of procurement. The indirect procurement process is usually considered
as unstrategic and is therefore overlooked. However, savings in this
area can be huge. Knowledge of established contracts and of what buyers
are actually spending on each supplier's product is very worthwhile, since a 10 percent
reduction in indirect procurement costs can result in a 50 percent increase
in profit margin [Deise et al.]. According to many industry analysts,
the big three auto companies procuring over $240 billion a year may
expect to save anywhere from $2,000 to $3,000 per $19,000 vehicle through
online procurement, supply-chain, information sharing and collaboration
[Baer and Davis, 2001]. While small companies could gain competitive
advantage and extend their customer base by using e-commerce, it must
be stressed that the key business driver for large companies should
be the implementation of an e-procurement process.
3. business
renovation
Business Process
Re-engineering (BPR) is an organizational method which demands the radical
redesign of business processes in order to achieve higher efficiency,
better quality and more competitive production [Hammer and Champy, 1993].
It is also a method of improving the operation and therefore the outputs
of organizations [Kovacic, 1999]. This means analyzing and altering
the business processes of the organization as a whole. BPR was first
introduced in a research program at MIT (Massachusetts Institute of
Technology) in the early nineties. The term was used in the description
of Davenport and Short's 1990 research project [Davenport and Short,
1990]. They found that the implementation of modern information technology
in organizations means not only the automation of managerial and production
tasks, but also has an enormous and direct effect on the means and quality
of the work done.
3.1. The Evolution of BPR
BPR has become
one of the most popular topics in organizational management, creating
new ways of doing business [Tumay, 1995]. Many leading organizations
have conducted BPR in order to improve productivity and gain competitive
advantage. However, regardless of the number of companies involved in
re-engineering, the rate of success of re-engineering projects is less
than 50% [Hammer and Champy, 1993]. Some of the frequently mentioned
problems related to BPR include the inability to accurately predict
the outcome of radical change, the difficulty in capturing existing
processes in a structured way, the lack of creativity in process redesign,
the level of costs incurred in implementing the new process, and the
inability to recognize the dynamic nature of the processes.
On the other
hand, CPI integrates methods such as industrial engineering, systems
analysis and design, socio-technical design and total quality management
[Davenport, 1993], [Galliers, 1998]. Continuous improvement refers to
programs and initiatives that emphasize incremental improvement in work
processes and outputs over an open-ended period of time [Davenport and
Beers, 1995]. Several researchers suggest that using CPI techniques
dramatically increases competitive advantage. Furthermore, it is particularly suggested
that TQM be integrated with BPR [Al-Mashari and Zairi, 1999].
In the 90s,
BPR focused on internal benefits such as cost reduction, the downsizing
of a company and operational efficiency, which are more tactical than
strategically focused. Nowadays, e-business renovation strategies focus
on the processes between business partners and the applications supporting
these processes. These strategies are designed to address different
types of processes with the emphasis on different aspects [Phipps, 2000],
[Kalakota and Robinson, 2001]: customer relationship management, supply
chain management, selling-chain management, and enterprise resource
planning. Recent BR research papers demonstrate the critical role of
information technology in business process restructuring [Broadbent
et al., 1999], [Teng et al., 1998].
Re-engineering
Through Simulation Modeling
Many different
methods and techniques can be used for modeling business processes in
order to give an understanding of possible scenarios for improvement
[Ould, 1995]. IDEF0, IDEF3, Petri Nets, System Dynamics, Knowledge-based
Techniques, Activity Based Costing and Discrete-Event Simulation are
only some examples of business process modeling techniques widely used
[Eatock et al, 2000]. There are also many software tools on the market
that use these modeling techniques.
In Kettinger
et al, 1997, an empirical review was made of existing methodologies,
tools, and techniques for business process change. The authors also
developed a reference framework to assist the positioning of tools and
techniques that improve re-engineering strategy, people, management,
structure, and the technology dimensions of business processes.
However, relevance is far more important than completeness [Davenport,
Prusak, 1998] and simple models are far more understandable for non-specialists.
Process modeling tools must be capable of showing interconnections between
the activities and conducting a decomposition of the processes. These
tools must help users to conduct “what-if” analyses and to identify
and map no-value steps, costs, and process performance (bottleneck analysis).
They should be able to develop AS-IS and TO-BE models of business processes,
which represent both existing and alternative processes. They must be
validated and tested before implementation. They can be used to predict
characteristics that cannot be directly measured, and can also predict
economic and performance data that would otherwise be too expensive
or impossible to acquire.
Some of the
benefits can be directly evaluated and predicted, but others are difficult
to measure (intangible benefits). Some intangible benefits might be
(as observed in several case studies in Slovenian companies that have
introduced e-sales) the improved image of a company as a whole, increased
market share, better relationships with business partners, and increased
customer satisfaction. This research investigates some of the benefits
and outcomes of introducing new processes (time and cost savings, workload
reduction and increased throughput) that could be measured in advance
by simulation modeling.
Simulation
has an important role in modeling and analyzing the activities in introducing
BPR since it enables quantitative estimations to be made on the influence
of the redesigned process on system performances [Bhaskar et al, 1994].
The majority of simulation software implements a model using the discrete-event
method [Seila, 1995]. The simulation of business processes is suggested
for use in BPR projects as it allows the essence of business systems
to be understood, the processes for change to be identified, process
visions to be developed, new processes to be designed and prototyped
and the impact of the proposed changes on key performance indicators
to be evaluated [Greasley and Barlow, 1998]. The reasons for the introduction
of simulation modeling into process modeling can be summarized as follows:
simulation allows for the modeling of process dynamics, the influence
of random variables on process development can be investigated, re-engineering
effects can be anticipated in a quantitative way, process visualization
and animation are provided, and simulation models facilitate communication
between clients and an analyst.
The final reason
for using simulation modeling is the fact that it can be increasingly
used by those who have little or no simulation background or experience
[Zahir et al, 2000]. Modern simulation software includes a graphic user
interface (GUI), enabling process animation and a graphical display
of simulation results. Simulation software often includes connections
with flow diagramming tools and CASE tools, which result in faster simulation
execution and more precise simulation experiment output variables.
4. BUSINESS
PROCESS MODELING USING THE IGRAFX PROCESS
The iGrafx
Process [Micrografx] software is a powerful and suitable tool for process
mapping and simulation modeling in BPR projects. It provides powerful
graphical process modeling and simulation, as well as comprehensive
diagramming capabilities.
Figure 1 shows
the basic modeling elements of the process map technique used by the
iGrafx Process. An activity is an individual step of a process map presented
as a symbol in a flowchart. Each activity can set or determine the following
information:
Inputs: an activity
can have one or many inputs that arrive by way of incoming connection
lines.
Resources: a resource
is a person, machine, or other asset that may perform the activity.
An activity can use several resources or more than one kind of resource
simultaneously.
Task: the task information
covers the duration that the activity takes, its associated costs, activity
base, and schedule.
Outputs: the outgoing
connection lines from an activity attach to other activities for further
processing.
Figure 1. Basic
modeling elements of the process map technique
Modeling elements
are connected with links which describe the process flow. Each activity
is placed in one or more departments that represent an organizational
unit which performs these activities. A transaction can be split in
order to be processed simultaneously by different departments or resources,
and batched again in a single transaction. Each activity can be defined
in detail by several attributes, such as: types and number of resources
performing the activity, duration of the activities (constant or stochastic)
and different types of costs (value added, non value added, or business
value added). The costs of the resources utilization can be defined
according to the hourly rates, rates per use, and overtime rates. Schedules
for resources and event generators are fully customizable.
All the above-mentioned
and other possibilities offer a detailed cost and time analysis of business
processes. One of the main advantages of this modeling technique is
its simplicity; even people unskilled in business process modeling can
easily understand and use this technique. The reports generated by the
iGrafx Process software allow the re-engineering effects to be anticipated
and show the results in quantitative parameters, such as the number
of transactions in queue, the cost and time of the utilization of the
resources and the time of the process cycle. The tool also offers the
possibility to visually trace the process execution; different colors
are attached to activities in order to observe bottlenecks, idle activities
etc.
iGrafx IDEF0
is a powerful modeling solution integrated into the iGrafx process management
platform that enables companies to quickly build consistent and comprehensive
IDEF0 business models. IDEF diagrams are used widely, especially for
business process analysis and modelling. They represent the standard
modelling and analysis method for enterprise engineering and support
particular reengineering activities such as simulation modelling and
information system modelling. They can not represent all the elements
important for simulation modelling, such as queues, random behavior
and process dynamics, but could provide the basic elements for simulation
model development.
Due to their
simplicity and understandability, it seems appropriate to develop IDEF
diagrams during preliminary phases of business process modelling project
in order to develop “AS IS” models. In later phases, when
“TO BE” models are developed, IDEF diagrams could be simply transformed
into the iGrafx Process simulation model. Simulating the effects of
redesigned processes before implementation improves the chances of getting
the processes right at the first attempt. The advantages of simulation
modelling were demonstrated on the example of the procurement process
model using the iGrafx Process software.
5. SIMULATION
MODELING OF THE B2B PROCUREMENT PROCESS
This study
refers to the indirect procurement process of a real Slovene company.
Several interviews had to be performed because knowledge about the business
process was not documented and moreover not well defined. The main difficulty
in business process modeling was to find out the time required for each
activity as the employees usually overestimate it. The experiences of
one of our team members who had participated in more than twenty BPR
project by now helped a lot in this phase of the modeling. The data
to construct the model was taken from IS reports and interviews with
subject-matter experts. The model was refined continually during the
analysis phase as new information and data were added.
The study emphasizes
the assessment of savings in terms of time and cost for the execution
of one purchase transaction. During the first phase of the research,
an AS-IS model was developed (Figure 2). The indirect procurement process
starts in any department where a need is identified and is performed
in three departments: Purchasing, Warehouse and Finance/Accounting.
There are seven employees working on this process; a detailed list can
be found in Table 2. The details of the activities are presented in
Table 1.
The simulation
of a two-year performance was carried out, with the assumption that
the process starts every 1 to 5 hours during working time. The report
shows that an average indirect procurement process lasts for about 20
days and the average cost is $50. However, the quantitative results
of the simulation experiment presented in the simulation report, no
matter how precise and deep the simulation is, are only one aspect of
the business process analysis. Business process maps themselves can
frequently show many problems that have not been observed before. In
this research two main (and very common) problems have been discovered:
The communication
between the insiders of the business process and the communication between
the company’s employees and its suppliers is slow and ineffective;
consequently, many time gaps occur in the process execution.
Very often during
the process execution, the same data are inserted (e.g. purchase order
and acceptance slip) and therefore problems of data inconsistency, integrity
and accuracy occur [Turban et al., 2000; Redman, 1995].
Figure 2: Existing
process (AS-IS model)
Activity
Resources
Time
Outputs
1
Identify a need and requisition
preparation
Employee
10 – 60 min
2
Accepting requisition
Purchasing officer
5 min
3
Inventory level checking
Purchasing officer
1 – 20 min
4
Inventory level is sufficient?
Yes - 20%, No - 80%
5
Reservation of goods and notifying
the employee
Purchasing officer
10 min
6
Selecting the best supplier
is necessary?
Yes - 40%, No - 60%
7
Collecting and combining requisitions
Purchasing officer
5 – 60 min
8
Issuing Request for Quotation
(RFQ)
Purchasing officer
10 – 20 min
9
Find a qualified supplier
Purchasing officer
5 – 120 min
10
Waiting for proposals
1 week
11
Evaluation of terms and conditions
and negotiations
Purchasing officer
Purchasing director
1 – 3 hrs
12
Selection of one or two suppliers
Purchasing director
10 min
13
Purchase order (PO) preparation
Purchasing officer
5 – 20 min
14
Waiting for approval
0 – 24 hrs
15
PO approval
Purchasing director
10 min
16
Sending PO to supplier
Purchasing officer
10 min
17
Waiting for acknowledgment
1 – 48 hrs
18
PO acknowledged?
Yes - 80%, No - 20%
19
Updating and sending PO
Purchasing officer
5 – 10 min
20
Sending order to receiving
clerk
Purchasing officer
10 min
21
Waiting for delivery
1 – 10 days
22
Accepting delivery note
Receiving clerk
1 min
23
Comparison of order and delivery
note
Receiving clerk
5 – 10 min
24
Agreement?
Yes - 95%, No - 5%
25
Reject delivery
Receiving clerk
20 min
26
Inform purchase dept.
Receiving clerk
1 – 5 min
27
Reconciliation
Purchasing officer
30 – 120 min
28
Sending goods for unloading
Receiving clerk
5 min
29
Agreement?
Yes - 95%, No - 5%
30
Delivery acceptance
Warehouseman
15 – 120 min
31
Filling in acceptance slip
Warehouseman
5 – 15 min
32
Sending acceptance slip to
purchase dept.
Warehouseman
1 – 30 min
33
Waiting for invoice
0 – 10 days
34
Registering invoice
Purchasing officer
10 min
35
Comparing bill, acceptance
slip and PO
Purchasing officer
5 – 20 min
36
Agreement?
Yes - 95%, No - 5%
37
Reconciliation
Purchasing officer
10 – 40 min
38
Authorizing invoice
Employee
5 – 30 min
39
Confirming invoice for
payment
Accountant
5 – 60 min
40
Creating and transmitting
payment orders
Accountant
1 – 5 min
41
Booking invoice
Accountant
5 min
42
Waiting for bank statement
1 – 2 days
43
Booking payments (accounts
payable)
Accountant
5 min
44
Filling invoice
Financier
1 – 5 min
Table 1: Activities
in AS-IS model
In the second
phase of the project some changes and improvements in the procurement
process were proposed. Proposals were based on the generic models of
introducing e-business into procurement processes as proposed by [Deise
et al., 2000] and some of them were based on the simulation analysis
(simulation reports and bottlenecks discovered while observing model
tracing). Many changes come from the introduction of new technology,
although many of them are of an organizational nature (different ways
of working). This is usually the most difficult part of introducing
new, or re-engineering existing, business processes. The following changes
relating to the introduction of e-business inside the company and with
the suppliers were assumed:
Long-term contracts
and e-business connections are implemented with the selected suppliers
Electronic product
catalogues and product configurators are available to employees
Product availability
and pricelists are available on-line
Approval and authorization
procedures are preconfigured in the electronic indirect procurement
process (automated) to ensure they conform to policies
A workflow management
system is used in the company
Comparing bill,
acceptance slip and purchase order (PO) is supported by an integrated
database
Electronic delivery
tracking is offered
Electronic payment
is introduced
A TO-BE model
of the indirect procurement process was developed. Its process map is
shown in Figure 3. Many activities became unnecessary, while some others
were performed more efficiently.
Figure 3: Renewed
process (TO-BE model)
More precisely,
the following changes that are the consequence of the above proposals
are made in the TO-BE model:
Selecting the best
supplier and appertaining activities is done previously, during the
establishment of a long-term contract with suppliers.
Collecting and combining
is done automatically within PO generation.
Requisition approval
is usually done automatically (business rules are enforced); sometimes
the purchasing director has to approve the requisition (it is performed
by a workflow management system).
PO generation is
done automatically and PO approval is omitted.
Waiting for acknowledgement
is omitted, because availability is evident from electronic product
catalogues.
Sending order to
receiving clerk is done automatically (receiving clerk obtains PO by
workflow management system).
Comparison of order
and delivery note is done automatically.
Confirming acceptance
is shortened as this is done by checking the PO data in the database.
Waiting for invoice
is omitted (invoice is automatically created by IS of supplier after
confirming acceptance).
Registering invoice
is not necessary.
Comparing bill,
acceptance slip and PO is done automatically.
Creating and transmitting
payment orders is shortened due to the introduction of electronic payment;
waiting for bank statement is also shortened.
Duration of the
simulation2
years
Employees
Number
Hourly rate
Employee
(any)
$15
Purchasing
officer
1
$10
Purchasing
director
1
$20
Receiving
clerk
1
$10
Warehouseman
1
$8
Financier
1
$15
Accountant
1
$15
AS-IS model
TO-BE model
Time for
one transaction (Cycle time)
20 days
5 days
Costs of
each transaction
$50
$36
Table 2: Parameters and comparison
of the two models
Both models (AS-IS and TO-BE)
were analyzed and compared according to the time and cost of an average
process execution (Table 2). The results of the comparison show that
the time could be significantly shortened if the proposed solutions
are used. The costs can also be cut from (on average) $50 to $36 for
one process execution.
Of course, one should stress
other important benefits that are more difficult to be measured or evaluated
in advance, such as better working relationships with suppliers, suppliers
having better and more accurate evidence of the company’s needs and
who react more promptly to partners’ demands. On the other hand, several
problems can occur in the introduction of e-business solutions, especially
in the B2B model; high costs and risks are always associated with such
a project.
6. CONCLUSION
E-business represents a shift
in business doctrine since it changes traditional organizational models,
business processes, relationships and operational models. The corporate
value chain links the different processes and players in the domain
of e-business. Therefore, most traditional firms will not be able to
conduct business in the traditional way any more. One of the ways of
accomplishing these goals is BR, which uses additional features included
in simulation modeling methods. Simulation modeling is the "cost-effective"
method of exploring "what-if" scenarios quickly and finding
a solution to a problem or providing a better understanding of the problem
because this method is supported by a number of software tools that
provide a graphical representation of the business processes by executable
models.
In this research, the indirect
procurement process of the real Slovenian companies and the “virtual”
e-procurement process were modeled using the iGrafx Process modeling
and simulation tool. The opportunity for "standard e-procurement
model" development was explored. The e-business environment and
its characteristics were examined, and this was followed by an evaluation
of the impact of electronic commerce on the procurement process. The
costs and benefits of future e-business implementation were analyzed
and different models were compared. The results of the research indicate
that business process modeling and discrete-event simulation are valuable
mechanisms for realizing the real business value of B2B e-commerce.
The business process model
enabled the accurate description of the indirect procurement process
and facilitated the evaluation of process through simulation.
Although only a "prototype"
of the model was developed, it showed that the introduction of e-business
would cause organizational and technological changes. The changes in
technology are mostly concerned with new IT and IS implementation. The
organizational changes should help to remove or reduce non value-adding
activities in the procurement process, to maintain or reduce the stocks
by precisely matching supply and demand, and to increase the productivity
of the supply-chain process through improvements made in purchase order
management. Advances made in the procurement process have greatly reduced
the costs and time involved in the procurement life-cycle. The improvements
made in the process of indirect procurement were evaluated presenting
the simulation results to the managers and end-users. The model was
well accepted by both of them and management was impressed enough to
plan to make simulation modelling an integral part of its business renovation
plans.
The benefits of the developed
model should be explored through further research. The most critical
issues of IT and e-business adoption have been recognized, but there
are still other factors that have to be identified and analyzed. The
authors plan to extend the research by developing simulation models
of Croatian and Slovenian companies involved in e-business to establish
a richer analysis of B2B usage and to evaluate the main critical success
factors for e-procurement implementation.
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