SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business included how the Internet operation should differ es th he product. We will discuss several mod priced across these two channels; whether all prod- their effect on supply chain performance In ss hs and from traditional practice; how the products should be capture the trade-offs in these operatio ucts should be offered on both channels: and what kind of autonomy should be provided to Internet 1.3.5. Enterprise Software and Decision Support operations. Technologies. Last, the Internet has had a great The ability to dynamically change prices in the impact on development of decision technologies that marketplace is yet another aspect of distribution that use the available data across the supply chain. In the e-business has greatly impacted. In traditional sup- past, although the models were available, their imple- ply chain operations, price changes were allowed mentation in real time was almost infeasible. As a but would occur only at regular or planned inter- result, they were mainly used for planning purposes vals. However, the Internet enables firms to more However the Internet has facilitated real-time acce dynamically adjust prices with little additional effort. to information across the supply chain, making it now This poses interesting issues related to how often possible to use decision models durin execution. A prices should be changed and how one can effectively related phenomenon is the development of intelligent couple dynamic pricing with production or capacity supply chain software agents that could take appro- decisions priate actions in real time, thus, streamlining supply of distribution that relates to risk pooling. Because sion technologies in greater detl some of these deci- The Internet has compounded one of the benefits chain operations. In s6, we discuss products may be stored at fewer physical loca tions, the benefits of risk pooling will lead to lower inventory requirements. Having a separate inven- 2. Procurement and Supplier tory depot for Internet operations provides the abil- Selection ity to adjust inventory allocations between the retailer One of the major effects of the Internet on supply and the inventory depot. This raises several impor- chain practices is in the area of procurement. Firms tant research issues. How much inventory should be now use the Internet, not only to diversify the supply stored at the various locations? How can firms cre- base and hedge risk, but also to obtain lower costs ate incentives so that the brick-and-mortar retailers through auctions. This has raised important issues an collaborate with each other? We discuss pertinent related to supply chain management. At the strategi research related to distribution and pricing in $4 level, firms need to decide whether they should have 1.3.4. Customization and Postponement. The In- long-term contracts with a few fixed ternet has increased the expectation of customers for auctions and a dynamic supplier base to reduce their complete customization at a nominal charge. Even costs. In particular, firms need to understand under before the advent of e-business, firms faced the chal- what circumstances is it beneficial to have(1)long es relate ed to mass customization and high prod- term relationships; (2)auction-based, short-term rela uct variety, but this has increased immensely over the tionships; or(3)a combination of(1)and(2).Another last few years. Part of the reason is the Internet pro- important decision is whether a firm should have one vides an easy and convenient wa ay for customers to supplier or multiple suppliers and how that choice express their preferences, and sometimes even v: may depend on repetition in purchase Elmaghraby the product as it is customized. Firms are finding(2000) presents an extensive survey of economics that it is important not to completely rely on tradi- oriented models that deals with supplier selection and ional manufacturing paradigms of inventory build- sourcing strategies in traditional settings. Our focus ing(make to stock). They are fine tuning their produc- will be on supplier selection and procurement models tion process so that they can store inventory of raw under uncertainty in demand or supply that incorpo- materials or semifinished inventory and more rapidly rate the ability of the firm to use the Internet to make respond to customer demand after the customer has the process more efficient MANAGEMENT SCIENCE/Vol. 49, No 10, October 2003SWAMINATHAN AND TAYUR Models for Supply Chains in E-Business included how the Internet operation should differ from traditional practice; how the products should be priced across these two channels; whether all prod￾ucts should be offered on both channels; and what kind of autonomy should be provided to Internet operations. The ability to dynamically change prices in the marketplace is yet another aspect of distribution that e-business has greatly impacted. In traditional sup￾ply chain operations, price changes were allowed but would occur only at regular or planned inter￾vals. However, the Internet enables firms to more dynamically adjust prices with little additional effort. This poses interesting issues related to how often prices should be changed and how one can effectively couple dynamic pricing with production or capacity decisions. The Internet has compounded one of the benefits of distribution that relates to risk pooling. Because products may be stored at fewer physical loca￾tions, the benefits of risk pooling will lead to lower inventory requirements. Having a separate inven￾tory depot for Internet operations provides the abil￾ity to adjust inventory allocations between the retailer and the inventory depot. This raises several impor￾tant research issues. How much inventory should be stored at the various locations? How can firms cre￾ate incentives so that the brick-and-mortar retailers can collaborate with each other? We discuss pertinent research related to distribution and pricing in §4. 1.3.4. Customization and Postponement. The In￾ternet has increased the expectation of customers for complete customization at a nominal charge. Even before the advent of e-business, firms faced the chal￾lenges related to mass customization and high prod￾uct variety, but this has increased immensely over the last few years. Part of the reason is the Internet pro￾vides an easy and convenient way for customers to express their preferences, and sometimes even view the product as it is customized. Firms are finding that it is important not to completely rely on tradi￾tional manufacturing paradigms of inventory build￾ing (make to stock). They are fine tuning their produc￾tion process so that they can store inventory of raw materials or semifinished inventory and more rapidly respond to customer demand after the customer has ordered the product. We will discuss several mod￾els that capture the trade-offs in these operations and their effect on supply chain performance in §5. 1.3.5. Enterprise Software and Decision Support Technologies. Last, the Internet has had a great impact on development of decision technologies that use the available data across the supply chain. In the past, although the models were available, their imple￾mentation in real time was almost infeasible. As a result, they were mainly used for planning purposes. However, the Internet has facilitated real-time access to information across the supply chain, making it now possible to use decision models during execution. A related phenomenon is the development of intelligent supply chain software agents that could take appro￾priate actions in real time, thus, streamlining supply chain operations. In §6, we discuss some of these deci￾sion technologies in greater detail. 2. Procurement and Supplier Selection One of the major effects of the Internet on supply chain practices is in the area of procurement. Firms now use the Internet, not only to diversify the supply base and hedge risk, but also to obtain lower costs through auctions. This has raised important issues related to supply chain management. At the strategic level, firms need to decide whether they should have long-term contracts with a few fixed suppliers or use auctions and a dynamic supplier base to reduce their costs. In particular, firms need to understand under what circumstances is it beneficial to have (1) long￾term relationships; (2) auction-based, short-term rela￾tionships; or (3) a combination of (1) and (2). Another important decision is whether a firm should have one supplier or multiple suppliers and how that choice may depend on repetition in purchase. Elmaghraby (2000) presents an extensive survey of economics￾oriented models that deals with supplier selection and sourcing strategies in traditional settings. Our focus will be on supplier selection and procurement models under uncertainty in demand or supply that incorpo￾rate the ability of the firm to use the Internet to make the process more efficient. 1392 Management Science/Vol. 49, No. 10, October 2003