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  1. 1. Chapter 9 <ul><li>Strategies for Purchasing </li></ul><ul><li>and Support Activities </li></ul>Electronic Commerce
  2. 2. Objectives <ul><li>Improving purchasing, logistics, and other support activities </li></ul><ul><li>Creating network organizations that extend beyond traditional limits </li></ul><ul><li>EDI, how it works, and how it is moving to the Internet </li></ul><ul><li>Internet improvements to supply chain management </li></ul><ul><li>Software packages for business-to-business e-commerce and supply chain management </li></ul>
  3. 3. Purchasing, Logistics, and Support Activities <ul><li>Purchasing activities </li></ul><ul><ul><li>Identifying and evaluating vendors </li></ul></ul><ul><ul><li>Selecting specific products </li></ul></ul><ul><ul><li>Placing orders </li></ul></ul><ul><ul><li>Resolving issues after receiving the ordered goods or services </li></ul></ul><ul><li>Specialized Web sites exist that offer high levels of product knowledge </li></ul>
  4. 4. Neoforma Product Sourcing Web Site Figure 9-1
  5. 5. Logistic Activities <ul><li>Providing the right goods in the right quantities in the right place at the right time </li></ul><ul><li>Managing the inbound movements of materials and supplies and the outbound movements of finished goods and services </li></ul>
  6. 6. Support Activities <ul><li>Includes the general categories of </li></ul><ul><ul><li>Finance and administration </li></ul></ul><ul><ul><ul><li>Making payments, processing customer payments, budgeting and planning </li></ul></ul></ul><ul><ul><li>Human resources </li></ul></ul><ul><ul><ul><li>Hiring, training, evaluating employees, benefits administration </li></ul></ul></ul><ul><ul><li>Technology development </li></ul></ul><ul><ul><ul><li>Networking, published research, connecting outside sources of R&D services </li></ul></ul></ul>
  7. 7. DigitalWork Small Business Support Activities Page Figure 9-2
  8. 8. Electronic Data Interchange <ul><li>The computer-to-computer transfer of business information between two businesses that uses a standard format </li></ul><ul><li>In the 1950s, companies began to use computers to store and process internal data and information </li></ul><ul><li>By the 1960s, companies began exchanging transaction information with each other on punched cards or magnetic tape </li></ul>
  9. 9. Electronic Data Interchange <ul><li>Eventually, trading partners transferred data over telephone lines instead of shipping punched cards or tapes to each other </li></ul><ul><li>In 1968, the Transportation Data Coordination Committee was formed, charged with exploring ways to reduce the paperwork burden </li></ul><ul><li>Since 1918, the American National Standards Institute (ANSI) became the coordinating body for standards in the United States </li></ul>
  10. 10. Electronic Data Interchange <ul><li>In 1979, ANSI charted the Accredited Standards Committee X12 (ASC X12) to develop EDI standards </li></ul><ul><li>The current ASC X12 standard includes specifications for several hundred transaction sets (the names of the formats for specific business data interchanges) </li></ul>
  11. 11. Commonly Used ASC X12 Transaction Sets Figure 9-3
  12. 12. Electronic Data Interchange <ul><li>In the mid-1980s, the United Nations Economic Commission for Europe built a common set of EDI standards based on the American model </li></ul><ul><li>In 1987, the EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT) was developed </li></ul>
  13. 13. Commonly Used UN/EDIFACT Transaction Sets Figure 9-4
  14. 14. Paper-Based Purchasing Process <ul><li>Paper-based purchasing process results in a paper document created at each information processing step that must be delivered to the department handling the next step </li></ul><ul><li>Paper-based transfers between buyer and vendor can be delivered via mail, courier, or fax </li></ul>
  15. 15. The Paper-Based Purchasing Process Figure 9-5
  16. 16. EDI Purchasing Process <ul><li>Mail service is replaced with the data communications of an EDI network </li></ul><ul><li>Flows of paper have been replaced with computers running EDI translation software </li></ul>
  17. 17. The EDI Purchasing Process Figure 9-6
  18. 18. Value Added Networks <ul><li>Trading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches </li></ul><ul><ul><li>Direct connection </li></ul></ul><ul><ul><li>Indirect connection </li></ul></ul>
  19. 19. Direct Connection Between Trading Partners <ul><li>Requires each business in the network to operate its own on-site EDI translator computer </li></ul><ul><li>EDI translator computers are connected to each other using modems or dedicated leased lines </li></ul><ul><li>Trading partners using different protocols can make direct connection options difficult to implement </li></ul>
  20. 20. Indirect Connection Between Trading Partners <ul><li>Companies use the services of a value-added network (VAN) </li></ul><ul><li>The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction sets </li></ul><ul><li>The VAN often supplies the software needed to connect to its services </li></ul>
  21. 21. Direct Connection EDI vs. Indirect Connection EDI through a VAN Figure 9-7
  22. 22. Advantages of Using a Value Added Network <ul><li>Users support only one communications protocol </li></ul><ul><li>The VAN records activity in an audit log, providing an independent record of transactions </li></ul><ul><li>The VAN can provide translation between different transaction sets </li></ul><ul><li>The VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format </li></ul>
  23. 23. Disadvantages of Using a Value Added Network <ul><li>Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee </li></ul><ul><li>VANs can be cumbersome and expensive for companies with trading partners using different VANs </li></ul><ul><li>Inter-VAN transfers do not always provide a clear audit trail </li></ul>
  24. 24. EDI on the Internet <ul><li>Viewed as a replacement for expensive leased lines and dial-up connections </li></ul><ul><li>Small companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliers </li></ul><ul><li>Concerns about security and lack of audit logs continue to be a major roadblock </li></ul>
  25. 25. Open Architecture of the Internet <ul><li>The open architecture of the Internet allows trading partners virtually unlimited opportunities to customize their information interchanges </li></ul>
  26. 26. Open Architecture of the Internet <ul><li>A new ASC X12 Task Group has been charged with several broad objectives </li></ul><ul><ul><li>Converting the ASC X12 EDI data elements and transaction set structures to XML, retaining one-to-one mapping </li></ul></ul><ul><ul><li>Developing XML data element names consistent with existing ASC X12 transaction sets </li></ul></ul><ul><ul><li>Meeting the needs of app-to-app and human-to-app interfaces </li></ul></ul>
  27. 27. <ul><li>A trading partner’s bank is called a Financial EDI (FEDI) </li></ul><ul><li>Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet </li></ul><ul><li>Companies may opt to establish an indirect connection through a VAN for the added security for FEDI transaction </li></ul>Financial EDI
  28. 28. Hybrid EDI Solutions <ul><li>Utilize the Internet for only part of an EDI transaction, ones where the transactions are not considered a negotiable instrument </li></ul><ul><li>Bottomline Technologies PayBase package allows hybrid EDI </li></ul><ul><li>NetTransact provides an interface for smaller businesses connected to the Internet, but do not have EDI capability </li></ul>
  29. 29. NetTransact EDI-HTML Conversion Service Figure 9-8
  30. 30. Supply Chain Management <ul><li>Money can be saved and product quality can be improved through active negotiations with suppliers </li></ul><ul><li>Supply chain management is used to establish long-term relationships (supply alliances) with a small number of very capable suppliers (tier one suppliers) </li></ul>
  31. 31. Supply Chain Management <ul><li>By working together, supply chain members can reduce costs and increase the value of the product or service to the ultimate customer </li></ul><ul><li>With clear communication along the supply chain, each participant can know the demands of the ultimate customer and plot a strategy to meet those demands </li></ul>
  32. 32. Technology in the Supply Chain <ul><li>The Internet and the Web can be very effective communication enhancers </li></ul><ul><li>Software can allow members to review past performance, monitor current performance, and predict future production levels of products </li></ul>
  33. 33. Advantages of Internet and Web Technologies in Supply Chain Management Figure 9-9
  34. 34. Software for Purchasing, Logistics, and Support Activities <ul><li>Enterprise resource planning (ERP) software is designed to integrate manufacturing, finance, distribution, and other internal business functions into one information system </li></ul><ul><li>Major ERP vendors include Baan, J.D. Edwards,Oracle, PeopleSoft, and SAP </li></ul>
  35. 35. Business-to-Business Commerce Software <ul><li>Designed to help companies build Web sites that host catalog and other commercial sales activities </li></ul><ul><li>Major software packages include SellerXpert, ECXpert, LiveCommerce-Transact, Net.Commerce, Site Server, and Ariba </li></ul>
  36. 36. Supply Chain Management Software <ul><li>Includes demand forecasting tools and planning capabilities to allow all supply chain members to coordinate their activities and adjust their production levels </li></ul><ul><li>Two major firms offer supply chain management software </li></ul><ul><ul><li>i2 Technologies RHYTHM </li></ul></ul><ul><ul><li>Manugistics </li></ul></ul>