ARTICLE IN PRESS

Int. J. Production Economics 89 (2004) 247260

Lean production and the Internet

Peter Bruuna, Robert N. Meffordb,*
a

Center for Technology, Economics & Management, Technical University of Denmark, Building 421, DK-2800 Kgs. Lyngby, Denmark
b
School of Business and Management, University of San Francisco, Ignatian Heights, San Francisco, CA 94117, USA
Received 2 May 2002; accepted 2 October 2003

Abstract
In this paper, the implications for lean production systems of the Internet are explored. Does the World Wide Web
facilitate the implementation of Just-In-Time (JIT) production systems, or alternatively, can it serve as a substitute for
JIT? The possible effects on supply chains, production scheduling, inventory control, procurement, quality
improvement, and the workforce are some of the issues addressed. Some case examples of use of the Internet for
these purposes are presented. Constraints on the use of the Web to foster leanness are discussed and recommendations
for integrating the Internet into production systems offered.
r 2003 Elsevier B.V. All rights reserved.
Keywords: Production; Lean production; JIT; Internet; Supply chain management

1. Introduction
In the 1990s, many manufacturing rms around
the world adopted lean production as a strategy to
increase their global competitiveness. Some rms
have made much progress in implementing lean
production in their factories while others have
found it to be very difcult and are still struggling
with implementation, or in some cases, given up
the attempt. Some of the companies that have been
successful in converting their manufacturing facilities to lean production have begun to spread lean
principles to other business activities (e.g. product
design, payments processing, order taking) or into
their supply chains. They are attempting to move
*Corresponding author. Tel.: +1-415-422-6408; fax: +1415-422-2502.
E-mail address: mefford@usfca.edu (R.N. Mefford).

beyond lean manufacturing to become lean enterprises. Since the advent of the concept of lean
production, which itself is derived from the JustIn-Time (JIT) system developed by Toyota beginning back in the 1960s, there have been many
advances in information technology (IT), particularly the widespread deployment of the World
Wide Web and the Internet. Almost every rm and
business function has been impacted by the
Internet in the last few years and whole new
industries have arisen because of the technology.
Of course, lean production systems are not
immune from the effects of the Internet. But what
are these effects likely to be? Will they allow lean
production concepts to be more fully applied, or,
on the other hand, might they serve as an
alternative way to increase operational efciency?
In fact, some have seen an inherent conict
between lean principles and IT such as the Internet

0925-5273/$ - see front matter r 2003 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2003.10.007

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(Piszczalski, 2000). It is argued that lean production emphasizes reducing variety and exibility to
achieve greater efciency whereas one of the
benets of IT is its ability to provide more
exibility and product variety. Also, many proponents of lean production believe simple visual
systems (such as kanban) are sufcient to control a
pull system and that computer systems tend to
shift production control from a line to a staff
function that is undesirable in lean thinking.
Furthermore, computer systems can be expensive
and difcult to implement and may distract
attention from continuous process improvement.
In this paper, we will discuss the ways in which the
Internet is already having an impact on rms using
lean production methods and its potential for
deepening and broadening these effects. We will
argue that the Internet is a facilitator to the
implementation of lean production and lean
enterprises and, in fact, a synergy exists between
the two. In other words, if appropriately applied,
the Internet can help make production systems
leaner, and even more signicantly, make the
entire supply chain leaner.
In Section 1, the principles of lean production
will be examined and how theoretically the
Internet might affect the implementation of these
principles. In Section 2, some examples of how
rms have actually used the Internet to make their
lean production operations more effective are
discussed. Section 3 examines some constraints
and barriers to integration of the Internet into lean
enterprises. In Section 4, we reect on the
theoretical grounding of value creation in the
combined system of lean production, enterprises,
and the Internet. Sections 5 and 6 draw conclusions and present some guidelines for using the
Internet to make the rm and its supply chain
leaner, or e-lean, as it has been called (Piszczalski,
2000).

2. How lean production systems might use the

Internet
To identify ways in which the Internet might be
useful to rms using lean production approaches,
it is helpful to rst dene what a lean production

system is and its key characteristics. The term lean

production was used by the authors of the
International Motor Vehicle Project carried out
by MIT in the 1980s to describe the approach
originally developed in the Japanese auto manufacturing industry which is contrasted with the
mass production approach common in the United
States and Europe at the time. This approach is
often called JIT but the authors (Womack, Jones,
and Roos) of The Machine That Changed the
World, which popularized the term lean production, believe that leanness goes beyond JIT and
more accurately describes the production systems
used in the Japanese auto industry at the time (and
now in much of the world). Their denition: Lean
production is lean because it uses less of everything compared to mass productionhalf the
human effort in the factory, half the manufacturing space, half the investment in tools, half the
engineering hours to develop a new product in half
the time. Also, it requires keeping far less than half
the needed inventory on site, results in many fewer
defects, and produces a greater and ever growing
variety of products (Womack et al., 1990). In
examining this denition, one can see that there is
a strong emphasis on reducing the use of all
resources, not only in the factory but also in
activities extending beyond the shop oor such as
product development and supplier relations. They
subsequently expanded the concept of lean production to consider the lean enterprise and efforts
to apply lean thinking throughout all enterprise
activities (Womack and Jones, 1996). Although
many use the terms JIT and lean production
interchangeably, Womack, Jones, and Roos
clearly believed that leanness is more descriptive
of how pervasive the organizational change must
be to fully benet from a JIT approach. The key
parameters are the same in the two concepts, but
lean systems apply them more comprehensively
throughout the rm to activities beyond the
factory oor (some have called lean production
big JIT) and in relationships with suppliers,
customers and other important partners. While
e-business, understood as trade over the Internet,
is growing at an impressive overall rate, there now
appears to be a slowing in the Business-toConsumer (B2C) growth rate and acceleration in

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the Business-to-Business (B2B) area (Amit and

Zott, 2001). Furthermore, B2B e-business is
predicted to reach $2.7 trillion in 2004 representing
more than 17% of the total Web trade, while
online retail is expected to represent less than 7%
of total trade at that time. In fact, the greatest
potential for the Internet to lean enterprises is that
it will allow leanness to be applied throughout the
supply chain in a way that could not have been
conceived of 10 years ago. In this section we will
examine that potential.
To begin, it is useful to outline the characteristics of a lean production system. As the denition
presented above indicates, there is a strong
emphasis on reducing the use of all resources in
a rmlabor, capital, materials, space, and time.
Lean enterprises are always looking for ways to
cut the use of any of these resources anywhere in
the rm. JIT methods are at the heart of these
efforts and include:
Pull approach and kanban production control
Inventory reduction
Quick setups and orders
Quality at the source (jidoka)
Supplier networks
Teamwork and participation
Continuous improvement (kaizen)
For each of these methods one can see how the
Internet might help to implement the approach.
For example, JIT uses a pull approach to
production scheduling versus the more traditional
push method that is based on forecasts of demand,
rather than the actual demand. In the past, JIT
could be implemented in a single factory using
kanbans (cards) to alert upstream workstations to
produce more of an item. This worked fairly well
but was difcult to transfer outside the factory to
suppliers who often delivered large batches infrequently because it was not easy to link their
production schedules to that of the customer.
Some rms overcame this problem by locating
their factories in close proximity to the customer,
assigning their own employees to work at the
customers plant, or using Electronic Data Interchange (EDI). The Internet provides a better way
of linking members of a supply chain. EDI, which
links the computer systems of different rms

249

through software protocols, is a closed system

which requires substantial investment in software
and hardware, and thus is not widely deployed,
especially among smaller rms. Nor is it interactive in the way that the Internet is. Consequently, the open and inexpensive nature of the
Internet has much potential to link a supply chain
together and allow pull production planning and
scheduling to be more effectively employed. The
collaborative nature of the Internet is particularly
useful for the production planning function for it
will allow quick notication throughout the supply
chain of any disruptions to existing schedules, for
example, capacity or material constraints, or
machine breakdowns. The members of the supply
chain can then quickly and collaboratively adjust
their production plans.
The pull principle of production planning
ultimately begins with the last link in the supply
chain, the nal customer of the product or service.
By using the Internet to transmit point-of-sale
transactions and orders down the supply chain, the
member rms can keep their production in line
with nal demand, reducing inventories throughout the chain and avoiding the bull whip effect.
Of course, much work has to be done by each
member of the supply chain to make their internal
systems truly JIT-responsive, but the Internet
makes it feasible to link the entire supply chain
into one long pull pipeline. stergaard Danish
Automotive Materials (DAM) is an example of a
company that has managed to employ this
principle (this rm will be discussed in a later
section).
A key principle of JIT is reducing inventories to
the bare minimum, and the effort to do so turns
out to be powerful in nding waste and inefciencies throughout a production process. How might
the Internet facilitate the inventory reduction
effort? One obvious way, as explained above, is
to more closely coordinate the supply chain in
order that each participant is only producing what
is actually being used at the next stage, not what
they expect to use. The result is small lot sizes and
frequent deliveries meaning low levels of inventory
throughout the supply chain. In some situations,
of course, lead times and production cycles are too
lengthy to fully apply the pull principle, but where

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applicable, the Internet will allow rms to achieve

greater coordination and collaboration in their
supply chain resulting in substantial inventory
reduction. Another benet is that mass customization will become feasible for some products and
services as the supply chain becomes shorter and
faster. Dell Computer Corp. is a good example of
a rm that makes most of its products to customer
specication resulting in little or no nished goods
inventories.
To be able to deliver mass customization of a
service or product, the supply chain must be very
fast and responsive. This requires quick setups for
production and rapid turnaround on orders to
suppliers. The Internet will facilitate this aspect of
JIT as well. As lot and order sizes come down due
to the closer coordination of production schedules,
rms will be forced to develop faster and more
efcient ways of setting up runs of products and
order delivery to customers. The Internet, by
allowing closer coordination of production schedules and faster adjustment to changes in demand,
will facilitate information transmittal internally
within the rm, and externally throughout the
supply chain. The ongoing trend towards outsourcing of manufacture and service activities that
are not considered core competencies also is
facilitated by the Internet. Outsourcing requires
close cooperation and intensive information sharing among supply chain participants, and this
aspect the Internet can facilitate. In a few cases,
supply chains are moving towards becoming a
virtual corporation where all the participants are so
closely linked that they, in effect, operate as one
entity. Cisco Systems is an example of a rm that is
moving strongly in that direction. Cisco receives
80% of its orders from customers over the Internet
and contracts out most of their manufacturing
activities to Celestica, Solectron, and other ESM
(Electronic Service Manufacturers). In many cases
from order to delivery, Cisco employees never
physically touch the product. There are many
benets to virtual manufacturing, but it would not
be practical without the Internet to link the supply
chain together.
Another key JIT principle is jidoka, or quality at
the source. The Internet can aid in the implementation of quality improvement in a lean enterprise

in several ways. First, internally, it can allow rapid

transmittal of quality problems throughout the
rm, such as when line or machine stoppages
occur. A feature of jidoka that makes it effective is
the highlighting of quality deciencies so that
everyone is aware of them and deals with them.
Andon boards and line-stop authority are common
methods to accomplish jidoka, and the Internet
should broaden awareness of quality problems
throughout the rm (all employees should be able
to see an andon board or a stopped assembly line)
and perhaps eliciting wider participation in solving
them. But perhaps, the greater benet will be
spreading jidoka along the supply chain. If other
rms are immediately notied via the Internet of a
quality problem of a participant, they not only can
adjust their production schedules but also may be
able to help out in resolving the problem. For
example, they may be able to send engineering
personnel or contact another supplier who has had
a similar problem to provide assistance. Additionally, another supplier may be able to provide the
item until the quality problem is resolved.
As mentioned in the Cisco case, supply chains
are becoming more closely linked where the lines
blur between separate corporate entities (i.e., the
virtual corporation). This would not be feasible or
effective without the Internet. The tremendous
amount of information transmittal and cooperation possible over the Internet allows rms to link
more closely with their supply chain partners.
Supplier partnerships are another important feature of effective JIT systems. The Internet alone
cannot create these partnerships for trust and
experience are also required, but it makes it more
practical to link to suppliers in production
scheduling, inventory control, quality improvement, and new product development in a way that
could not even be conceived of when JIT production systems were rst developed in the 1960s. In
fact, it is no coincidence that supply chain management has become an important operations management topic in recent years for its development
closely parallels the development of the Internet.
JIT production systems call for teamwork and
participation of everyone to make them effective.
As lean thinking spreads throughout the rm
creating the lean enterprise, and along the supply

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chain creating the virtual rm, even greater teamwork and participation will be necessary. The
Internet will facilitate this as virtual meetings
become more widespread and much more information is available to everyone within and outside
the rm. As Deming (1982) and others have
pointed out, good management decisions are
based on data and careful analysis of data, and
the information capabilities of the Internet can
disseminate the data. There are many types of
information that will allow for better problem
resolution and production planning, as have been
discussed above, which the Internet can quickly
and cheaply transmit. If rms allow their employees to actively use this wealth of data, and to work
with employees in other rms in the supply chain,
the result should be superior (because of broader
participation) and much faster (because data and
decisions can be communicated quickly) decision
making in the supply chain. An example of this
benet is in ever faster and better product design
as assemblers link with their suppliers and
customers via design teams (both physical and
virtual). The Internet provides the mechanism for
such close coordination and cooperation, especially when the supply chain and the customer base
are global.
The nal characteristic of JIT that we will
discuss is the emphasis on kaizen or continuous
improvement processes. Kaizen is a natural consequence of the other characteristics, previously
discussed, in particular, jidoka, kanban, and
teamwork and participation. The philosophy of
leanness and lean thinking encourage all employees to continually search for better ways of doing
things to improve quality, efciency, and speed.
The concepts of zero defects and zero inventories,
although unattainable in many cases, are motivating and further improvement is almost always
possible. How can the Internet help the kaizen
effort? Probably the largest contribution that the
Internet can make to kaizen is in its ability to
rapidly disseminate all types of data (e.g. demand,
production schedules, and quality performance)
that are essential to effective process improvement.
Many rms have capable internal kaizen programs
so where the Internet can really make a contribution is by spreading these throughout the supply

251

chain and allowing mutual learning. As supply

chains cooperate more closely, each participant
can contribute to efforts of other supply chain
members to improve. If the rms in the supply
chain accept their partnership role in the chain,
they will then see the benets of contributing to
others continuous improvement efforts. Toyota,
Motorola, and others have long realized that if
they can help their supplier improve quality or
lower costs, they also benet. The Internet will
allow each rm to know what others in the supply
chain are doing, problem areas can be highlighted,
performance criteria can be shared, and the entire
supply chain can work as a team toward continuous improvement. Of course, this will not come
automatically as trust will need to be developed
among rms and expertise developed in process
analysis and problem solving, but as the realization that more and more each rm is becoming a
virtual corporation spreads, kaizen should intensify along the supply chain.
In summary, we have seen that for many of the
characteristics of JIT production systems, and
their expansion outside of production activities
into other business functions in the lean enterprise,
the Internet becomes a potent facilitator to make
each of these factors more effective, and even more
importantly, to spread leanness throughout a
supply chain. Only a few rms have fully realized
the potential to become e-lean and even fewer have
begun implementing it, but there are a few
examples of rms moving in that direction. In
the next section, we will discuss in depth, three of
these companies: Dell Computer Corporation,
Cisco Systems Corporation, and DAM, and also
briey describe the efforts of several other rms
using the Internet to become e-lean.

3. How rms are using the Internet to become

leaner
Not many rms have yet learned how to use the
Internet in implementing lean production principles, but a few examples will be discussed to
illustrate successful applications. Three such examples are Dell Computer Corporation, Cisco
Systems, and DAM, which have widely deployed

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the Internet in managing their supply chains. We

will also cite several more specialized applications
by other rms.
3.1. Dell Computer Corporation
Dell Computer Corporation is the largest direct
seller of PCs in the world. Dells sales, prots, and
share prices have all increased at astounding rates
in the last few years, and much of the rms success
can be explained by its effective use of the Internet
to manage its supply chain. Dell has a short supply
chain comprised of only three levels: consumers,
Dell itself, and suppliers. Even though short, it is a
complex network involving millions of individual
consumers and companies buying its products
around the world, ve manufacturing facilities in
Texas, Brazil, China, Ireland and Malaysia, and
hundreds of supplier companies. Dells customers,
and thus its supply chain, demand a very high
degree of responsiveness as Dell builds most of its
computers to order, rather than to stock, and the
technology, and thus components, are constantly
changing. How does Dell use the Internet to make
its supply chain lean and responsive?
The starting point is the companys Web pages
through which a high and increasing percentage of
its orders come, both from individual and corporate customers. Effective Web page layout allows
customers to easily customize their PCs orders and
for Dell to continually adjust options and their
prices on these PCs to introduce new features and
shape demand to available component supplies.
On its Web pages, Dell sets component prices on a
daily basis to match supply and demand. This
gives Dell an ability to quickly introduce new
technology and inuence demand and match it to
capacity through pricing adjustments, an advantage that a computer-maker selling through retail
outlets lacks. Also, Dell is much closer to its
customers than other PC makers and can quickly
identify, and adjust to, changing customer demand. It is better able to forecast future demand
and plan production schedules accordingly.
Once an order is received, Dell can transmit it
directly and immediately to the appropriate
manufacturing facility for assembly. Not only that
manufacturing facility but also its suppliers know

the current order backlog and inventories of their

components at the Dell assembly plant because
Dell has constructed Web pages allowing suppliers
to access the Dell system. This extranet allows the
suppliers to adjust their production schedules in
line with Dells demand from customers, an
effective use of the pull principle in the supply
chain. For some components with longer lead
times, such as microprocessors and hard drives,
suppliers can do better advance production planning knowing Dells current level of sales and
production reducing the bullwhip effect in the
supply chain.
The build-to-order model of Dell has a signicant effect in reducing inventory levels of
components at Dell. Some advanced planning of
component needs must be done because of leadtime considerations, but this is much less for Dell
than computer manufacturers selling through
retail outlets. It also prevents buildup of components that may become obsolete and allows Dell to
quickly work down inventories if a slowdown in
customer demand occurs. The fact that no
inventories of assembled PCs must be kept is
another signicant advantage of the Dell pull
model. Dell carries only an average of 10 days
inventories of components versus an industry
average of 100 days.
The fact that there is a few days interval between
order receipt and shipment allows Dell to further
pull components into its assembly plants in line
with demand. Component commonality obtained
from a limited number of suppliers allows some
smoothing of demand as well as reduced inventory
levels. The several day lag between order receipt
and shipment also allows Dell to follow a more
stable production schedule by varying the shipment dates to customers.
Dell ships its computers directly to its customers
by small package delivery companies such as UPS
and FedEx assuring prompt delivery and eliminating the inventory at the wholesale and retail levels.
For some monitors from Sony, Dell carries no
inventory at all notifying Sonys plant in Mexico
when an order is received, and Sony ships directly,
also via FedEx or UPS, coordinating delivery to
the customer. Linking Sonys logistics system into
Dells over the Internet makes this possible. The

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Internet allows Dell to manage their worldwide

logistics to minimize transportation costs and
assure responsive delivery to customers and from
suppliers.
Dell can actually operate with negative working
capital using its make-to-order model because the
customers typically pay via credit card, or
purchase order in the case of corporate accounts,
resulting in prompt payment to Dell of receivables.
Payables, on the other hand, are paid on typical
longer terms so Dell has use of customer funds
before paying suppliers. The leanness of its
inventories allows Dell to gain signicant nancial
advantage in comparison to its competitors by not
having large amounts of capital tied up in
inventories.
A nal Internet link in Dells supply chain is
servicing. Dell outsources its warranty and repair
service to third-party providers. When Dell receives a service request, it transmits this to the
service provider and coordinates delivery of any
needed parts to the provider, assuring that they
arrive when and where the service is required. The
Internet linkage of Dell with the service suppliers
makes this possible and efcient and meets the
customers need for responsiveness (much of the
information on Dell comes from Chopra and
Meindl (2001)).

3.2. Cisco Systems

Cisco Systems, the leading manufacturer of
network routers, is probably the best example
available of a virtual manufacturer. More than
half of its production is carried out by Celestica,
Solectron, Jabil, Flextronics and other ESMs.
Cisco has found there are many advantages to its
outsourcing approach to manufacture, particularly
in the high technology and global industry in
which it operates. Among these is an ability to
focus on its core competencies of product innovation and marketing while reducing capital expenditures on plant and equipment and beneting
from the process expertise of the ESMs. The Cisco
virtual manufacturing model is only possible due
to extensive use of the Internet to link to the
ESMs, logistics providers, and Cisco customers.

253

More than 80% of Cisco orders come via the

Internet. This results in fast response to orders and
the ability to continually update product offerings
and pricing. Customer satisfaction ratings have
improved for the company as it has moved the
customer interface online.
The electronic orders are then transmitted by
Cisco to the ESMs, which operate 37 factories
around the world. Component suppliers are linked
in either directly by Cisco or by the ESMs to
provide needed parts. The Internet linkages allow
Cisco to coordinate its global supply chain and to
rapidly adjust to demand changes. The suppliers in
turn provide Cisco information on their production schedules, inventories, quality performance,
capacities, and other vital data needed to coordinate the supply chain. To reduce transportation
costs and improve customer responsiveness, many
of Ciscos products are shipped directly to
customers from the ESMs without ever being
handled by Cisco employees. This logistics system
is coordinated over the Internet.
Cisco involves their ESMs and component
suppliers in product design. Cisco personnel work
with their supply chain in developing components
and prototypes, in quality assurance, and ramp up
of production. Electronic documents supporting
the design work can be transmitted electronically
around the world so much of this collaboration
takes place in virtual space. Cisco has found their
product development approach has reduced the
time-to-volume production by 25% and thus
allows faster time-to-market and more product
differentiation giving the rm signicant competitive advantage.
The virtual manufacturing model allows
Cisco to benet from the process expertise of the
ESMs whose core competency is exible, efcient,
and high-quality manufacture. It would be difcult
for Cisco to duplicate this capability, and by
outsourcing this function Cisco can focus on
product development and marketing, its core
competencies. Also, new production techniques,
equipment, and materials will likely be more
quickly deployed by the ESMs than by Cisco
allowing Cisco to focus on its strategic activities
and yet keep its manufacturing capabilities stateof-the-art.

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A further advantage of virtual manufacturing is

scalability. Cisco can quickly and inexpensively
alter its volume of production of different products in the various countries in which it sells by
increasing or decreasing orders to the ESMs. For a
global product with rapidly changing technology
this is a signicant advantage that Cisco can utilize
to expand its production capacities without
incurring heavy capital expenditures for plant
and equipment.
It perhaps is not too surprising that Cisco
Systems is an innovator in the use of the Internet
to coordinate their supply chain since they are a
major provider of hardware and software to make
such linkages possible. Apart from demonstration
benets, however, Cisco has achieved many
tangible benets in terms of reduced capital costs,
improved nancial performance, and high levels of
customer satisfaction. This is reected in the
companys market valuation. Cisco has pushed
the virtual manufacturing model further than any
other major company (information on Cisco
Systems is from Ansley (2000), Business Week
(2000b) and Siekman (1999)).
3.3. stergaard Danish Automotive Materials
DAM is an importer and distributor of auto
spare parts established in 1934 and today covers
Denmark with 47 local warehouses. The basis of
their business is that auto manufacturers account
for only 25% of the value added in car production.
Suppliers create the remaining value. Many
suppliers are today large, worldwide companies.
DAM buys and import spare parts from these
suppliers and sells spare parts to auto workshops/
repair facilities.
Until 1996, a manual system for all major
business processes was used. Two hundred and
eighty sales clerks would take calls from workshops, which wanted to place orders for parts or to
ask for information or advice on a specic job.
Each sales clerk would use a collection of
catalogues (occupying about three meters of shelf
space) to answer queriesa very time consuming
process. The catalogues were supplier-specic.
This meant that to ll a single order, a sales clerk
would typically have to use several catalogues, and

in each catalogue would have to locate parts

relevant to a specic car model and make. The
product selection process was cumbersome and
slow, and hence costly for DAM. In addition,
the process resulted in problems making sure each
sales clerk had up-to-date catalogues and access to
information about parts on stock, etc. Finally, the
process provided no assistance for warehouse
management, control of delivery time, etc.
Since 1997, an electronic catalogue management
system has been developed resulting in a much
higher growth rate of sales. The system includes all
product data in one catalogue and better integration of order fulllment and management of
warehouses. A major advantage is the improved
product selection process, where the system is
based on car model and automatically limits all
searches to relevant parts. The results are higher
customer satisfaction and substantial savings in
operating costs.
The revolution, however, is the Internet part of
it which paved the way for a totally new business
concept, calling for a substantial change management process within the organization and its
structure, new internal systems, and new ways of
thinking. Before we sold spare parts, now we
teach customers to buy spare parts from us, CEO
Steen N^rret says. As a result the sales staff was
cut by 50% and people were reallocated and
trained in new areas, e.g. as consultants.
A central part of the new way of doing business
is the DAM Club. Customers must be members
of the club in order to do business with DAM
over the Internet. Customers pay a small membership fee. Once customers are members of the club,
they can trade over the Internet and will receive
rebates on traded items. This encourages customers to do as much business as possible over the
Internet. Members are also offered a range of extra
services, including service guides for cars, repair
instruction sheets including car-specic and jobspecic instructions, car and components data,
suggestions for service plans and parts for specic
cars, etc.
New functional areas have been added, e.g. a
Workshop module. This module allows all
workshop data to be recorded and stored centrally
in the DAM database, and this allows customers

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to access and manipulate the data at all times.

There are three basic information packets in the
workshop module: a customer record, a car
record, and a job record, all making the operations
at the workshops leaner. Also, a nancial module
that allows workshops to record nancial information along with customer, car, and job data, has
been introduced with all data being exported to a
local nancial rm offering all kinds of nancial
services.
Lately, DAM has been working on closer
linkages with suppliers; i.e. completing the integration of the value chain. This provides automatic ordering and updating of product
specication and service guides. However, difculties have arisen, as suppliers in general do not have
the required level of integration in their systems,
and furthermore, standards for product data and
guides are lacking.
The order-fulllment process is a fully integrated system controlling shipping, delivery, billing, and warehouse management. Now 25% of
DAM revenue is generated through e-business,
the goal being to increase this to 80% during the
next 35 years (the information on DAM is from
Fischer and Peykarimah (2001)).
3.4. Other firms
A few other rms that are using the Internet to
make their operations leaner can be cited to
illustrate the potential applications. Much of the
publicity about B2B Internet applications has been
in the procurement area, particularly online
auctions. But this is only one of the many
applications that are possible. Below we will
discuss applications in project collaboration by
General Electric, logistics in the food industry,
production scheduling and inventory management
in the clothing industry, performance data sharing
by Chrysler, Steltons new product development
and prototyping process, and supply chain management by Harley-Davidson.
General Electric Co.s Power Systems division
manufactures electric turbines used in power
generation facilities around the globe. Turbines
cost an average of $35 million each, contain about
13,000 parts, and are customized for each order.

255

GE handles each order as a project working

closely with the customer to make sure the
generators meet requirements and are delivered
on time. Customers are involved over the Web in
the design of their generators transmitting blueprints, engaging in virtual meetings, and coordinating any design or schedule changes. GE gures
this collaborate design process has reduced delivery times 2030%. After the turbine is delivered,
GE has a system called Turbine Optimizer which
allows the customer to compare performance of
their equipment with other users and ne-tune
performance (Business Week, 2000a).
Logistics in the global food industry is a major
cost and essential to meeting demand while
keeping inventories in check. To improve effectiveness of their logistics systems, several large
food manufacturers and distributors have banded
together to coordinate over the Internet procurement and shipping information. Called UCCnet it
is designed to be open to all supply chain
participants allowing them to link to their internal
Enterprise Resource Planning (ERP) and EDI
systems. Among the companies involved are
Proctor & Gamble, Supervalu, RalstonPurina,
and PepsiCo. Initially, the system will track
purchase orders through shipping, receiving, billing and payment. Later capabilities will be added
to allow online collaborative forecasting, production planning, and inventory management. Firms
pay a fee to subscribe (the amount depends on the
size of the rm) but will pay no transaction fees
(Messmer, 2000).
The clothing industry is notorious for a lengthy
cycle time supply chain. In order to reduce the
time from design to market and make the supply
chain more efcient, a virtual private integrated
supply chain called The Thread has been developed. Participating rms, who pay a fee to use The
Thread, can query their supply chain partners over
the Internet about design changes and availability
of fabrics, dyes and other materials. The virtual
system links to the partners internal production
planning and inventory systems. Companies expect to reduce cycle times signicantly and simplify
and expedite communication with their global
suppliers by replacing the current FAX and phone
linkages (King, 2000).

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The Chrysler division of DaimlerChrysler uses

an extranet to share quality and delivery information with its supply base. Suppliers can log on to
Chryslers Web site to check their delivery and
quality performance and see their relative standing
among similar suppliers. By sharing this information, Chrysler hopes to identify bottlenecks in the
chain and improve quality at the suppliers,
ultimately making the entire supply chain more
responsive and efcient and lowering inventories
(Lee and Whang, 1998).
Stelton, a Danish company specializing in highquality design products in stainless steel and ABS
plastics, has modernized its facilities on several
occasions, and it is today equipped with advanced
high-technology production and engineering
equipment. New product development capabilities
are key and take place in close cooperation with
industrial designers. As a special feature, the
process of prototyping has increased performance
considerably by means of the Internet; e.g.
specications are laid down in a CAD system
and directly transmitted via the Internet to a
company in Germany, and the physical item is
delivered the next day (Bruun and Christiansen,
2001).
Harley-Davidson, the motorcycle manufacturer,
is designing a system called SiLK (for Supply
Information Link) to link to its suppliers over the
Internet. The system will share data among supply
chain participants on inventories, quality and
delivery performance, and billing. H-D expects
the system to reduce cycle times for procurement
and streamline the entire process while allowing
cost savings via access to online markets and
exchanges. The system is also expected to enhance
partnerships with suppliers and allow closer
coordination to improve quality and delivery
performance as well as reduce inventories (Purchasing, 2000).
These are only a few examples of how rms are
attempting to use the Internet to coordinate their
supply chain activities and improve operating
performance. The systems cited above, some of
which are still in the development stage, have the
potential to reduce cycle times and inventories,
improve quality, and increase productivity. As
these goals are achieved the rms involved will

become increasing lean facilitated by these Web

applications. However, there are many potential
obstacles and constraints to attaining e-leanness.
In the next section, we will discuss these.

4. Constraints and obstacles to e-leanness

The examples cited above of rms using the
Internet to become leaner are illustrative of the
possibilities of the Web. However, there remain
many potential obstacles and constraints to
achieving e-leanness. Many of these are typical
organizational change constraints, but some are
unique to production systems and supply chain
management. In this section, we will discuss some
of these constraints and offer suggestions on how
managers may overcome them.
One common problem in linking to supply chain
partners is the incompatibility of internal computer systems with other rms systems and the
Internet. Many companies in recent years have
implemented ERP systems to coordinate internal
nancial, marketing, and human resource data.
However, most ERP systems are not linked to
shop oor production scheduling, inventory, and
quality control data (Vijayan, 2000). This type of
information is essential to collaborative production planning and inventory management throughout the supply chain as well as making build-toorder production feasible. There exists software to
provide the links; for example, Manufacturing
Execution System (MES) or Advanced Planning
System (APS), but many rms are loath to invest
in additional software since they have made
substantial investments in their ERP systems and
may still be working out the bugs. In any case, for
those rms which go ahead and invest in MES or
APS there will be the usual implementation
problems and lags to make these systems operational, thus slowing down their supply chain
Internet efforts.
A related issue is the widespread use of the
HTML computer language which, although good
for transmitting Web pages and other humanreadable information, is not optimal for transmitting and processing data. The XML language is a
much more computer-efcient language, but is not

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widely deployed. Until supply chain software is

compatible with XML, the efcient processing of
the huge amounts of order, schedule, inventory,
and related supply chain data necessary to fully
utilize the Internet in supply chains will be
constrained.
Another potential problem is the sharing of
information that has been considered proprietary
with supply chain members. Many companies are
still struggling with the transition from seeing their
suppliers as opportunistic opponents to partners.
Asked to open up their internal nancial, production, and marketing data to supply chain members, many rms may balk. Additionally, some
suppliers are concerned that any information they
provide to their customers might be used against
them to force down prices or the customer or other
suppliers may expropriate their technology. This
concern is heightened with online auction sites.
More broadly, many rms are concerned about
access of others including competitors to their data
banks, and are unlikely to fully participate in Web
systems until adequate rewalls are developed. So
not only must there be condence in the technology along the supply chain, but there also must be
sufcient trust developed in the other chain
members.
Another concern, especially among companies
that have developed lean production systems, is
that the Internet may transform close, personal
relationships with supply chain members into
arms-length, virtual relationships. The best lean
companies have extensive linkages to their supply
chain partners, developed over the years, with
frequent meetings and plant visits and, in some
cases, training of other rms personnel in process
improvement and quality methods. Much of the

257

transfer of lean principles and techniques occur

through these personnel exchanges and, over time,
trust and condence in supply chain partners is
developed. Will the Internet replace these relationships? It could but certainly need not do so. Firms
can continue to maintain personal relationships
with partners and use the Internet to transmit the
additional production scheduling and performance
data that could make these relationships more
productive. With global partners where close
personnel relationships may not be possible in
any case due to physical distance, the Internet can
at least create virtual relationships where none
may currently exist. However, some proponents of
lean methods may continue to be skeptical of what
the Internet may do to the relations between
supply chain partners.
Other problems include nding personnel such
as Web site developers and training of the
employees involved in implementing and operating
the Internet systems. However, as the potential of
the Internet to increase the efciency and efcacy
of the supply chain and allow more make-to-order
processing, rms will likely nd the resources and
the willingness to overcome these constraints and
obstacles.

5. Towards a model for lean integration

As mentioned earlier, the aims of the lean
principles are to get more out of less. The
contributions of the Internet to lean manufacturing principles as seen from the cases may be
summarized as seen in Table 1.
The overall picture shows that the Internet in
the three cases supports the lean manufacturing

Table 1
Internet support of lean manufacturing
Lean
principles
companies

Pull
approach

Inventory
reduction

Quick setups
and orders

Quality
at source

Supplier
network

Teamwork and
participation

Continuous
improvement

Dell
Cisco
DAM

O
O
O

O
O
O

(O)
(O)
(O)

O
O
O

O
O
(O)

(O)
O
(O)

(O)
O
O

Symbols: O support, and (O) partially support.

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principles. But in addition to this we see that the

use of the Internet in supporting the lean principles
results in a self-reinforcing development of broader business processes like procurement, after-sales
service, invoicing and payments, and even the
adoption of virtual enterprises. Michael Hammer
has written that now that companies have cut
waste in their internal operations they need to look
beyond the walls of the organization to streamline
the processes shared with other rms. He calls this
the superefficient company, and says that there
exists huge potential to reengineer and integrate
the supply chain (Hammer, 2001).
Therefore, can we model the situation and add
to the theoretical development of the lean supply
chain? According to Piszczalski, manufacturers
seem to be divided into two opposing camps: those
supporting lean manufacturing and others employing computer-based planning and control
systems. The growth of e-business is forcing
companies to revisit their position. The question
is whether it really is an either/or situation?
In a paper on value creation in e-business, Amit
and Zott (2001) investigate the B2C area.
Although not developed for the B2B area, which
is more the focus of our research, some parallels
seem to be reasonable. Using concepts from the
grounded theory approach of the strategic
management and entrepreneurship literature like
Schumpeterian innovation, value chain analysis,
resource-based view, theory of strategic networks,
and transaction cost economics, they conclude
that value in e-business is created by four sources:
Efciency, Complementarities, Lock-In and Novelty. They observe that none of the existing
theories in and of themselves can explain the
sources of new value creation in e-business.
Rather, the value creation has to rest on an
integrative approach. A consequence of their
nding is that the value created refers to a network
rather than one rm. Therefore, ythe business
model as a unit of analysis has a wider scope than
does the rm, since it encompass the capabilities of
multiple rms in multiple industries (Amit and
Zott, 2001).
Coming back to the question of how to get more
out of less, we have to nd out (1) what are the
value elements, and (2) how do we as a company

appropriate our part of the value created in these?

For this purpose, we use the concept lean
integration to indicate the application of lean
production principles on the factory oor level as
well as to other business processes within the rm.
Furthermore, we apply the extension of leanness
to the supply chain allowing integration that
bridges participating companies and production
systems.
In Fig. 1, we have illustrated the elements of the
business model, which in the center consists of the
lean production principles (or JIT methods). The
next circle includes other elements of the business,
like processes, systems and servicestypically
such ones that can benet from being integrated
to some extent with customers and suppliers. The
inherent strength of the Internet for supply chain
integration is the external communication it
facilitates. In our case studies, we found that the
Internet contributes to the overall business processes becoming more lean. Therefore, elements
like New Product Development, Order fulllment,
Logistics, Customization, etc. have been included
in the model. This level will represent the lean
enterprise.
The outer level of Fig. 1 represents external
networks towards the suppliers and the customers.
As we have seen in our cases these couplings
represent important elements with great potential
for value creation through leveraging the value of
the lean principles. This level, which includes more
tiers of suppliers and customers, might be denoted
e-lean.
The model describes a framework in which the
Internet in a symbiosis supports the lean principles, where the business processes at the same time
are strengthened. The value creation elements
Efciency, Complementarities, Lock-in and Novelty
are all present in the model. Efciency improvement is caused by the support of the lean principles
themselves, and Complementarities are demonstrated from the cases by the fact that the sum of
the total system exceeds the sum of the individual
contributions. The Lock-in contribution reects
that the value creation potential is increased to the
extent that customers are motivated to engage in
repeat transactions and by the extent to which
strategic partners have incentives to maintain and

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Lock-in

259

Complementarities

Finance

Order fulfilment

Supplier A

Customer 1
Logistics

Inventory Management
Inventory reduction
Teamwork and participation
Supplier B

Production
Planning

Quick setups Lean Production Quality at the

and orders
source (jidoka)
Continuous improvement (kaisen)
Pull approach and kanban
production control

Demand forecast

Supplier C

Catalogs

Tracing

Customer 2

Customization
Auctions

Customer 3

New Product Development

Effectiveness

Novelty

Fig. 1. Lean integration by the internet and the elements of value creation (in bold).

improve their association (Amit and Zott, 2001).

Lastly the Novelty element has been conrmed in
the investigated casesin fact, identied as an
important value driver in the form of a rst mover
effect in all the cases.

6. Conclusions and a look ahead

As was discussed above, there are many reasons
why the Internet can facilitate the movement to
lean production systems, and a few rms have
made tentative efforts in that direction. Most of
the applications have been in supply chain
management, which is a logical target for a lean
approach. Lean thinking has slowly spread from
the factory oor (lean production) to activities such
as order processing, billing, and product development (the lean enterprise). Now some rms are
thinking of the virtual corporation where many of
their processes are linked to their customers and
suppliers. Once they begin thinking in this way,
they soon understand that to fully realize leanness
they will need to apply the concept of pull
production to their customers and suppliers in
one virtual supply chain (lean supply chain). The

benets of doing this will be so compelling that

rms will increasingly move in that direction. The
Internet is a perfect tool for accomplishing the lean
supply chain with its open, easy, and cheap access.
Previous attempts to computerize the supply chain
using ERP and EDI have been limited by the
closed, proprietary, and costly nature of those
systems as well as the limitations of the HTML
computer language. There are, of course, many
obstacles to accomplishing the virtual supply
chain, but none of these is insurmountable.
Another force that will drive the movement to
an Internet-linked supply chain is the increasing
globalization of business. There are very few
companies that do not have some international
customers and suppliers, and they will increasingly
nd that they need to improve communications
and coordinate planning with these global supply
chain partners. Although nothing can substitute
for face-to-face contact for many types of business
dealings, the Internet can supplement direct with
virtual contacts allowing much more information
transmittal globally, in real time. Coordination of
new product development, production planning,
and inventory management will be more feasible
with greater possibilities for driving inventory out

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of the system, a key goal of lean production. Some

of the disadvantages of global supply networks
will become less formidable as collaboration
increases because of the Web. There is huge
potential to benet from being e-lean in global
supply chains.

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