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