Electronic Commerce Eighth Edition Chapter 5 Business-To-Business Online Strategies
Learning Objectives <ul><li>In this chapter, you will learn about: </li></ul><ul><li>Strategies that businesses use to imp...
Learning Objectives (cont’d.) <ul><li>Supply chain management and how businesses are using Internet technologies to improv...
Purchasing, Logistics, and Support Activities <ul><li>Electronic commerce </li></ul><ul><ul><li>Improves primary and suppo...
Purchasing Activities <ul><li>Supply chain </li></ul><ul><ul><li>Part of industry value chain preceding a particular strat...
Purchasing Activities (cont’d.) <ul><li>Procurement includes: </li></ul><ul><ul><li>All purchasing activities </li></ul></...
Purchasing Activities (cont’d.) <ul><li>e-sourcing </li></ul><ul><ul><li>Use of Internet technologies in sourcing activiti...
Electronic Commerce, Eighth Edition
Direct vs. Indirect Materials Purchasing <ul><li>Direct materials </li></ul><ul><ul><li>Materials that become part of fini...
Direct vs. Indirect Materials Purchasing (cont’d.) <ul><li>Maintenance, repair, and operating  ( MRO ) supplies </li></ul>...
Electronic Commerce, Eighth Edition
Logistics Activities <ul><li>Provide the right goods in the right quantities in the right place at the right time </li></u...
Support Activities <ul><li>General categories </li></ul><ul><ul><li>Finance and administration, human resources, technolog...
Support Activities (cont’d.) <ul><li>Examples: Ericson, BroadVision’s K-Net </li></ul><ul><li>Knowledge management </li></...
E-Government <ul><li>e-government </li></ul><ul><ul><li>Use of electronic commerce by governments and government agencies ...
E-Government (cont’d.) <ul><li>Examples in other countries </li></ul><ul><ul><li>United Kingdom </li></ul></ul><ul><ul><ul...
Electronic Commerce, Eighth Edition
Network Model of Economic Organization <ul><li>Trend in purchasing, logistics, and support activities </li></ul><ul><ul><l...
Electronic Data Interchange <ul><li>Trading partners </li></ul><ul><ul><li>Two businesses exchanging information </li></ul...
Early Business Information Interchange Efforts <ul><li>1800s and early 1900s </li></ul><ul><ul><li>Need to create formal b...
Early Business Information Interchange Efforts (cont’d.) <ul><li>These information transfer agreements were not the ideal ...
Emergence of Broader EDI Standards <ul><li>The American National Standards Institute (ANSI) </li></ul><ul><ul><li>United S...
Electronic Commerce, Eighth Edition
Electronic Commerce, Eighth Edition
How EDI Works <ul><li>Basic idea: straightforward </li></ul><ul><li>Implementation: complicated </li></ul><ul><li>Example:...
How EDI Works (cont’d.) <ul><li>Paper-based purchasing process </li></ul><ul><ul><li>Buyer and vendor  </li></ul></ul><ul>...
Electronic Commerce, Eighth Edition
How EDI Works (cont’d.) <ul><li>EDI purchasing process </li></ul><ul><ul><li>Mail service replaced with EDI network data c...
Electronic Commerce, Eighth Edition
Value-Added Networks <ul><li>EDI network key elements </li></ul><ul><ul><li>EDI network, two EDI translator computers </li...
Electronic Commerce, Eighth Edition
Electronic Commerce, Eighth Edition
Value-Added Networks (cont’d.) <ul><li>Advantages </li></ul><ul><ul><li>Support one communications protocol (VAN) </li></u...
EDI Payments <ul><li>Transaction sets provide instructions to trading partner’s bank </li></ul><ul><ul><li>Negotiable inst...
EDI on the Internet <ul><li>Potential replacement of: </li></ul><ul><ul><li>Expensive leased lines, dial-up connections </...
EDI on the Internet (cont’d.) <ul><li>Nonrepudiation </li></ul><ul><ul><li>Ability to establish that a particular transact...
Open Architecture of the Internet <ul><li>Internet EDI (Web EDI) </li></ul><ul><ul><li>EDI on the Internet </li></ul></ul>...
Open Architecture of the Internet (cont’d.) <ul><li>More flexible exchange of information </li></ul><ul><ul><li>Accomplish...
Open Architecture of the Internet (cont’d.) <ul><li>Firms extending internal networks (intranets) to trading partners </li...
Supply Chain Management Using Internet Technologies <ul><li>Supply chain management </li></ul><ul><ul><li>Job of managing ...
Value Creation in the Supply Chain <ul><li>Firms engaging in supply chain management </li></ul><ul><ul><li>Reaching beyond...
Value Creation in the Supply Chain (cont’d.) <ul><li>Tier-one suppliers </li></ul><ul><ul><li>Very capable suppliers, a sm...
Value Creation in the Supply Chain (cont’d.) <ul><li>Supply alliances </li></ul><ul><ul><li>Long-term relationships among ...
Value Creation in the Supply Chain (cont’d.) <ul><li>Marshall Fisher 1997  Harvard Business Review  article </li></ul><ul>...
Electronic Commerce, Eighth Edition
Increasing Supply Chain Efficiencies <ul><li>Internet and Web technologies used to manage supply chains  </li></ul><ul><ul...
Increasing Supply Chain Efficiencies (cont’d.) <ul><li>Example: Dell Computer </li></ul><ul><ul><li>Famous for use of Web ...
Using Materials-Tracking Technologies with EDI and Electronic Commerce <ul><li>Troublesome task </li></ul><ul><ul><li>Trac...
Electronic Commerce, Eighth Edition
Using Materials-Tracking Technologies with EDI and Electronic Commerce (cont’d.) <ul><li>Radio Frequency Identification De...
Electronic Commerce, Eighth Edition
Using Materials-Tracking Technologies with EDI and Electronic Commerce (cont’d.) <ul><li>2003 (Wal-Mart) </li></ul><ul><ul...
Creating an Ultimate Consumer Orientation in the Supply Chain <ul><li>Ultimate consumer orientation </li></ul><ul><ul><li>...
Building and Maintaining Trust in the Supply Chain <ul><li>Major issue in forming supply chain alliances </li></ul><ul><ul...
Electronic Market Places and  Portals <ul><li>Vertical portals (vortal) </li></ul><ul><ul><li>Information hubs for each ma...
Independent Industry Marketplaces <ul><li>First industry hubs following vertical portal model </li></ul><ul><ul><li>Tradin...
Independent Industry Marketplaces (cont’d.) <ul><li>Example: Ventro  </li></ul><ul><ul><li>1997: opened industry marketpla...
Private Stores and Customer Portals <ul><li>Large seller concern  </li></ul><ul><ul><li>Independent operators would take c...
Private Company Marketplaces <ul><li>Large companies purchasing from relatively small vendors </li></ul><ul><ul><li>Exert ...
Private Company Marketplaces (cont’d.) <ul><li>Companies implementing e-procurement software </li></ul><ul><ul><li>Require...
Industry Consortia-Sponsored Marketplaces <ul><li>Companies with strong negotiating positions in their industry supply cha...
Industry Consortia-Sponsored Marketplaces (cont’d.) <ul><li>Example: Agenda   marketplace  </li></ul><ul><ul><li>Consortiu...
Industry Consortia-Sponsored Marketplaces (cont’d.) <ul><li>Supplier concern </li></ul><ul><ul><li>Ownership structure </l...
Electronic Commerce, Eighth Edition
Summary <ul><li>Using Internet and Web technologies improves purchasing and logistics primary activities </li></ul><ul><li...
Summary (cont’d.) <ul><li>Supply chain management techniques </li></ul><ul><ul><li>Fueled by increase in communications ca...
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9781423903055 ppt ch05

  1. 1. Electronic Commerce Eighth Edition Chapter 5 Business-To-Business Online Strategies
  2. 2. Learning Objectives <ul><li>In this chapter, you will learn about: </li></ul><ul><li>Strategies that businesses use to improve purchasing, logistics, and other support activities </li></ul><ul><li>Electronic data interchange and how it works </li></ul><ul><li>How businesses have moved some of their electronic data interchange operations to the Internet </li></ul>Electronic Commerce, Eighth Edition
  3. 3. Learning Objectives (cont’d.) <ul><li>Supply chain management and how businesses are using Internet technologies to improve it </li></ul><ul><li>Electronic marketplaces and portals that make purchase-sale negotiations easier and more efficient </li></ul>Electronic Commerce, Eighth Edition
  4. 4. Purchasing, Logistics, and Support Activities <ul><li>Electronic commerce </li></ul><ul><ul><li>Improves primary and support activities </li></ul></ul><ul><ul><li>Tremendous potential for: </li></ul></ul><ul><ul><ul><li>Cost reductions, business process improvements </li></ul></ul></ul><ul><li>e-government </li></ul><ul><ul><li>Collective set of electronic commerce activities </li></ul></ul><ul><ul><ul><li>Improving government support activities </li></ul></ul></ul><ul><ul><ul><li>Supporting activities and serving stakeholders better </li></ul></ul></ul><ul><li>Potential for synergies increase with Internet technologies use </li></ul><ul><li>Necessary characteristic: flexibility </li></ul>Electronic Commerce, Eighth Edition
  5. 5. Purchasing Activities <ul><li>Supply chain </li></ul><ul><ul><li>Part of industry value chain preceding a particular strategic business unit </li></ul></ul><ul><ul><li>Includes all activities undertaken by every predecessor in the value chain to: </li></ul></ul><ul><ul><ul><li>Design, produce, promote, market, deliver, support each individual component of a product or service </li></ul></ul></ul><ul><li>Traditionally </li></ul><ul><ul><li>Purchasing Department charged with buying components at lowest price possible </li></ul></ul><ul><ul><li>Process focused excessively on individual components’ cost: ignored total supply chain costs </li></ul></ul>Electronic Commerce, Eighth Edition
  6. 6. Purchasing Activities (cont’d.) <ul><li>Procurement includes: </li></ul><ul><ul><li>All purchasing activities </li></ul></ul><ul><ul><li>Monitoring all elements in purchase transactions </li></ul></ul><ul><li>Supply management </li></ul><ul><ul><li>Describes procurement activities </li></ul></ul><ul><li>Procurement staff </li></ul><ul><ul><li>Require product knowledge </li></ul></ul><ul><ul><ul><li>Identify and evaluate appropriate suppliers </li></ul></ul></ul><ul><li>Sourcing </li></ul><ul><ul><li>Procurement activity </li></ul></ul><ul><ul><ul><li>Identifying suppliers, determining qualifications </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  7. 7. Purchasing Activities (cont’d.) <ul><li>e-sourcing </li></ul><ul><ul><li>Use of Internet technologies in sourcing activities </li></ul></ul><ul><ul><ul><li>Specialized Web-purchasing sites </li></ul></ul></ul><ul><li>Figure 5-1 </li></ul><ul><ul><li>Typical business purchasing process steps </li></ul></ul><ul><ul><ul><li>Many steps and people involved </li></ul></ul></ul><ul><ul><li>Spend </li></ul></ul><ul><ul><ul><li>Total goods and services dollar amount company buys during a year </li></ul></ul></ul><ul><li>Institute for Supply Management (ISM) </li></ul><ul><ul><li>Main organization for procurement professionals </li></ul></ul>Electronic Commerce, Eighth Edition
  8. 8. Electronic Commerce, Eighth Edition
  9. 9. Direct vs. Indirect Materials Purchasing <ul><li>Direct materials </li></ul><ul><ul><li>Materials that become part of finished product </li></ul></ul><ul><li>Direct materials purchasing: two types </li></ul><ul><ul><li>Replenishment purchasing ( contract purchasing ) </li></ul></ul><ul><ul><ul><li>Company negotiates long-term material contracts </li></ul></ul></ul><ul><ul><li>Spot purchasing </li></ul></ul><ul><ul><ul><li>Purchases made in loosely organized market ( spot market ) </li></ul></ul></ul><ul><li>Indirect materials </li></ul><ul><ul><li>All other materials company purchases </li></ul></ul>Electronic Commerce, Eighth Edition
  10. 10. Direct vs. Indirect Materials Purchasing (cont’d.) <ul><li>Maintenance, repair, and operating ( MRO ) supplies </li></ul><ul><ul><li>Indirect material products purchased on a recurring basis </li></ul></ul><ul><ul><li>Standard items (commodities) buyers usually select </li></ul></ul><ul><ul><ul><li>Price: main criterion </li></ul></ul></ul><ul><li>Purchasing cards ( p-cards ) </li></ul><ul><ul><li>Give individual managers ability to make multiple small purchases at their discretion </li></ul></ul><ul><ul><li>Provide cost-tracking information to procurement </li></ul></ul><ul><li>MRO suppliers: McMaster-Carr, W.W. Grainger </li></ul>Electronic Commerce, Eighth Edition
  11. 11. Electronic Commerce, Eighth Edition
  12. 12. Logistics Activities <ul><li>Provide the right goods in the right quantities in the right place at the right time </li></ul><ul><li>Important support activity for sales and purchasing </li></ul><ul><ul><li>Inbound materials and supplies movements </li></ul></ul><ul><ul><li>Outbound finished goods and services movements </li></ul></ul><ul><li>Example: Schneider Track and Trace system </li></ul><ul><ul><li>Real-time shipment information: customers’ browsers </li></ul></ul><ul><li>Third-party logistics (3PL) provider </li></ul><ul><ul><li>Operates all (large portion) of customer’s materials movement activities </li></ul></ul><ul><ul><ul><li>Examples: Ryder and Whirlpool, FedEx, UPS </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  13. 13. Support Activities <ul><li>General categories </li></ul><ul><ul><li>Finance and administration, human resources, technology development </li></ul></ul><ul><ul><li>Example: Allegiance and A.D.A.M. Web site </li></ul></ul><ul><li>Training </li></ul><ul><ul><li>Common support activity </li></ul></ul><ul><ul><ul><li>Underlies multiple primary activities </li></ul></ul></ul><ul><ul><li>Advantages: training materials on company intranet </li></ul></ul><ul><ul><ul><li>Distribute materials to many different sales offices </li></ul></ul></ul><ul><ul><ul><li>Coordinate use of materials in corporate headquarters </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  14. 14. Support Activities (cont’d.) <ul><li>Examples: Ericson, BroadVision’s K-Net </li></ul><ul><li>Knowledge management </li></ul><ul><ul><li>Intentional collection, classification, dissemination of information </li></ul></ul><ul><ul><ul><li>About a company, its products, and its processes </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  15. 15. E-Government <ul><li>e-government </li></ul><ul><ul><li>Use of electronic commerce by governments and government agencies </li></ul></ul><ul><ul><ul><li>Perform functions for stakeholders </li></ul></ul></ul><ul><ul><ul><li>Operate businesslike activities </li></ul></ul></ul><ul><li>Examples in U.S. government </li></ul><ul><ul><li>Financial Management Service (FMS) </li></ul></ul><ul><ul><ul><li>Pay.gov Web site </li></ul></ul></ul><ul><ul><li>Department of Homeland Security (DHS) </li></ul></ul><ul><ul><ul><li>Internet technology use initiatives </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  16. 16. E-Government (cont’d.) <ul><li>Examples in other countries </li></ul><ul><ul><li>United Kingdom </li></ul></ul><ul><ul><ul><li>Department for Work and Pensions Web site </li></ul></ul></ul><ul><ul><li>Singapore’s SINGOV site </li></ul></ul><ul><li>Examples in state government </li></ul><ul><ul><li>California’s one-stop portal site (my.ca.gov ) </li></ul></ul><ul><ul><li>New York State Citizen Guide site </li></ul></ul><ul><li>Examples in local government </li></ul><ul><ul><li>Large cities: Minneapolis, New Orleans </li></ul></ul><ul><ul><li>New York City (MyNYC.gov) </li></ul></ul>Electronic Commerce, Eighth Edition
  17. 17. Electronic Commerce, Eighth Edition
  18. 18. Network Model of Economic Organization <ul><li>Trend in purchasing, logistics, and support activities </li></ul><ul><ul><li>Shift from hierarchical structures </li></ul></ul><ul><ul><ul><li>Toward network structures </li></ul></ul></ul><ul><ul><li>Procurement Departments’ new tools (technology) </li></ul></ul><ul><ul><ul><li>To negotiate with suppliers </li></ul></ul></ul><ul><ul><ul><li>Including possibility of forming strategic alliances </li></ul></ul></ul><ul><li>Network model of economic organization </li></ul><ul><ul><li>Other firms perform various support activities </li></ul></ul><ul><ul><ul><li>Manage payroll, administer employee benefits plans, handle document storage needs </li></ul></ul></ul><ul><ul><li>Web: enabling shift from hierarchical to network </li></ul></ul>Electronic Commerce, Eighth Edition
  19. 19. Electronic Data Interchange <ul><li>Trading partners </li></ul><ul><ul><li>Two businesses exchanging information </li></ul></ul><ul><li>EDI compatible </li></ul><ul><ul><li>Firms that exchange data in specific standard formats </li></ul></ul><ul><li>EDI importance </li></ul><ul><ul><li>Most B2B electronic commerce </li></ul></ul><ul><ul><ul><li>An adaptation of EDI or based on EDI principles </li></ul></ul></ul><ul><ul><li>Still the method used for most electronic B2B transactions </li></ul></ul>Electronic Commerce, Eighth Edition
  20. 20. Early Business Information Interchange Efforts <ul><li>1800s and early 1900s </li></ul><ul><ul><li>Need to create formal business transactions records </li></ul></ul><ul><li>1950s </li></ul><ul><ul><li>Computers store, process internal transaction records </li></ul></ul><ul><ul><li>Information flows printed on paper </li></ul></ul><ul><li>1960s: large volume transactions </li></ul><ul><ul><li>Exchanged on punched cards or magnetic tape </li></ul></ul><ul><li>1960s and 1970s </li></ul><ul><ul><li>Transferred data over telephone lines </li></ul></ul><ul><li>All efforts increased efficiency and reduced errors </li></ul>Electronic Commerce, Eighth Edition
  21. 21. Early Business Information Interchange Efforts (cont’d.) <ul><li>These information transfer agreements were not the ideal solution </li></ul><ul><ul><li>Data translation programs incompatible </li></ul></ul><ul><li>1968: freight, shipping companies joined together </li></ul><ul><ul><li>Transportation Data Coordinating Committee (TDCC) </li></ul></ul><ul><ul><ul><li>Created standardized information set </li></ul></ul></ul><ul><ul><ul><li>Allowed electronic computer file transmission to any freight company adopting TDCC format </li></ul></ul></ul><ul><li>Benefits limited to members of industries that created standard-setting groups </li></ul><ul><ul><li>Full realization of EDI </li></ul></ul><ul><ul><ul><li>Required standards used by companies in all industries </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  22. 22. Emergence of Broader EDI Standards <ul><li>The American National Standards Institute (ANSI) </li></ul><ul><ul><li>United States coordinating body for standards </li></ul></ul><ul><li>1979 </li></ul><ul><ul><li>Accredited Standards Committee X12 (ASC X12) </li></ul></ul><ul><ul><ul><li>Develop and maintain EDI standards </li></ul></ul></ul><ul><ul><li>Data Interchange Standards Association (DISA) </li></ul></ul><ul><ul><ul><li>Administrative body coordinating ASC X12 activities </li></ul></ul></ul><ul><li>1987: International standards </li></ul><ul><ul><li>Administration, Commerce, and Transport (EDIFACT, UN/EDIFACT) </li></ul></ul>Electronic Commerce, Eighth Edition
  23. 23. Electronic Commerce, Eighth Edition
  24. 24. Electronic Commerce, Eighth Edition
  25. 25. How EDI Works <ul><li>Basic idea: straightforward </li></ul><ul><li>Implementation: complicated </li></ul><ul><li>Example: company to replace metal-cutting machine </li></ul><ul><ul><li>Assume vendor uses its own vehicles instead to deliver purchased machine </li></ul></ul><ul><ul><li>Steps to purchase using paper-based system </li></ul></ul><ul><ul><ul><li>Figure 5-6 </li></ul></ul></ul><ul><ul><li>Steps to purchase using EDI </li></ul></ul><ul><ul><ul><li>Figure 5-7 </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  26. 26. How EDI Works (cont’d.) <ul><li>Paper-based purchasing process </li></ul><ul><ul><li>Buyer and vendor </li></ul></ul><ul><ul><ul><li>Not using integrated software for business processes </li></ul></ul></ul><ul><ul><li>Each information processing step results in paper document </li></ul></ul><ul><ul><ul><li>Must be delivered to department handling next step </li></ul></ul></ul><ul><ul><li>Paper-based information transfer </li></ul></ul><ul><ul><ul><li>Mail, courier, or fax </li></ul></ul></ul><ul><ul><li>Figure 5-6 </li></ul></ul><ul><ul><ul><li>Information flows </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  27. 27. Electronic Commerce, Eighth Edition
  28. 28. How EDI Works (cont’d.) <ul><li>EDI purchasing process </li></ul><ul><ul><li>Mail service replaced with EDI network data communications </li></ul></ul><ul><ul><li>Flows of paper within the buyer’s and vendor’s organizations replaced with computers </li></ul></ul><ul><ul><ul><li>Running EDI translation software </li></ul></ul></ul><ul><ul><li>Figure 5-7 </li></ul></ul><ul><ul><ul><li>Information flows </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  29. 29. Electronic Commerce, Eighth Edition
  30. 30. Value-Added Networks <ul><li>EDI network key elements </li></ul><ul><ul><li>EDI network, two EDI translator computers </li></ul></ul><ul><li>Direct connection EDI </li></ul><ul><ul><li>Each business operates an on-site EDI translator computer </li></ul></ul><ul><li>Value-added network (VAN) </li></ul><ul><ul><li>Receives, stores, forwards electronic messages containing EDI transaction sets </li></ul></ul><ul><li>Indirect connection EDI </li></ul><ul><ul><li>Trading partners use VAN to retrieve EDI-formatted messages </li></ul></ul>Electronic Commerce, Eighth Edition
  31. 31. Electronic Commerce, Eighth Edition
  32. 32. Electronic Commerce, Eighth Edition
  33. 33. Value-Added Networks (cont’d.) <ul><li>Advantages </li></ul><ul><ul><li>Support one communications protocol (VAN) </li></ul></ul><ul><ul><li>VAN records message activity in audit log (independent record of transactions) </li></ul></ul><ul><ul><li>VAN provides translation between different transaction sets </li></ul></ul><ul><ul><li>VAN performs automatic compliance checking </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Cost (fees) </li></ul></ul><ul><ul><li>Cumbersome, expensive (if using different VANs) </li></ul></ul>Electronic Commerce, Eighth Edition
  34. 34. EDI Payments <ul><li>Transaction sets provide instructions to trading partner’s bank </li></ul><ul><ul><li>Negotiable instruments </li></ul></ul><ul><ul><ul><li>Electronic equivalent of checks </li></ul></ul></ul><ul><li>Electronic funds transfers (EFTs) </li></ul><ul><ul><li>Movement of money from one bank account to another </li></ul></ul><ul><li>Automated clearing house (ACH) system </li></ul><ul><ul><li>Service banks use to manage accounts </li></ul></ul><ul><ul><ul><li>Operated by U.S. Federal Reserve Banks or private ACHs </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  35. 35. EDI on the Internet <ul><li>Potential replacement of: </li></ul><ul><ul><li>Expensive leased lines, dial-up connections </li></ul></ul><ul><ul><ul><li>Required to support direct and VAN-aided EDI </li></ul></ul></ul><ul><li>Initial roadblock concerns </li></ul><ul><ul><li>Security </li></ul></ul><ul><ul><li>Internet’s inability to provide audit logs and third-party verification of message transmission and delivery </li></ul></ul><ul><li>TCP/IP structure was enhanced with secure protocols and encryption schemes </li></ul><ul><li>Lack of third-party verification concerns continued </li></ul>Electronic Commerce, Eighth Edition
  36. 36. EDI on the Internet (cont’d.) <ul><li>Nonrepudiation </li></ul><ul><ul><li>Ability to establish that a particular transaction actually occurred </li></ul></ul><ul><ul><li>Prevents either party from repudiating (denying) the transaction’s validity or existence </li></ul></ul><ul><ul><li>Previously provided by: </li></ul></ul><ul><ul><ul><li>VAN’s audit logs (indirect connection EDI) </li></ul></ul></ul><ul><ul><ul><li>Comparison of trading partners’ message logs (direct connection EDI) </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  37. 37. Open Architecture of the Internet <ul><li>Internet EDI (Web EDI) </li></ul><ul><ul><li>EDI on the Internet </li></ul></ul><ul><ul><li>Also called open EDI </li></ul></ul><ul><ul><ul><li>Internet is an open architecture network </li></ul></ul></ul><ul><ul><li>EDI offerings go beyond traditional EDI </li></ul></ul><ul><ul><ul><li>Allow more complex information interchanges </li></ul></ul></ul><ul><ul><li>Growing rapidly </li></ul></ul><ul><ul><ul><li>Not replacing traditional EDI </li></ul></ul></ul><ul><ul><li>Large companies have significant investments in traditional EDI computing infrastructure </li></ul></ul><ul><ul><li>Most VANs offer Internet EDI services, traditional EDI </li></ul></ul>Electronic Commerce, Eighth Edition
  38. 38. Open Architecture of the Internet (cont’d.) <ul><li>More flexible exchange of information </li></ul><ul><ul><li>Accomplished with new tools (XML) </li></ul></ul><ul><ul><li>ASC X12 task group </li></ul></ul><ul><ul><ul><li>Convert ASC X12 EDI data elements and transaction set structures to XML </li></ul></ul></ul><ul><li>Context Inspired Component Architecture (CICA) </li></ul><ul><ul><li>Set of standards for assembling business messages </li></ul></ul><ul><ul><li>Provides predictable structure for message content </li></ul></ul><ul><ul><li>Provides more flexibility than EDI transaction sets </li></ul></ul><ul><ul><li>Basis for future development of electronic business message standards using XML </li></ul></ul>Electronic Commerce, Eighth Edition
  39. 39. Open Architecture of the Internet (cont’d.) <ul><li>Firms extending internal networks (intranets) to trading partners </li></ul><ul><ul><li>Turns intranets into extranets </li></ul></ul><ul><ul><li>Virtual private networks (VPNs) provide security </li></ul></ul><ul><ul><li>Example: Nintendo USA </li></ul></ul><ul><ul><ul><li>EDI-based product registration system to prevent fraudulent returns </li></ul></ul></ul><ul><li>Huge investment in EDI systems, trained personnel </li></ul><ul><ul><li>Reluctant to change business processes, move to Internet EDI, approaches based on XML technologies </li></ul></ul><ul><li>Move away from EDI will gradually occur </li></ul>Electronic Commerce, Eighth Edition
  40. 40. Supply Chain Management Using Internet Technologies <ul><li>Supply chain management </li></ul><ul><ul><li>Job of managing integration of company supply management and logistics activities </li></ul></ul><ul><ul><ul><li>Across multiple participants in a particular product’s supply chain </li></ul></ul></ul><ul><ul><li>Ultimate goal </li></ul></ul><ul><ul><ul><li>Achieve higher-quality or lower-cost product at the end of the chain </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  41. 41. Value Creation in the Supply Chain <ul><li>Firms engaging in supply chain management </li></ul><ul><ul><li>Reaching beyond limits of their own organization’s hierarchical structure </li></ul></ul><ul><ul><li>Creating new network </li></ul></ul><ul><ul><ul><li>Form of organization among members of supply chain </li></ul></ul></ul><ul><li>Originally a way to reduce costs </li></ul><ul><li>Today, value added in the form of benefits to the ultimate consumer </li></ul><ul><ul><li>Requires more holistic view of the entire supply chain </li></ul></ul>Electronic Commerce, Eighth Edition
  42. 42. Value Creation in the Supply Chain (cont’d.) <ul><li>Tier-one suppliers </li></ul><ul><ul><li>Very capable suppliers, a small number of which a firm establishes long-term relationships with </li></ul></ul><ul><li>Tier-two suppliers </li></ul><ul><ul><li>Larger number of suppliers that tier-one suppliers develop long-term relationships with </li></ul></ul><ul><ul><ul><li>Provide components and raw materials </li></ul></ul></ul><ul><li>Tier-three suppliers </li></ul><ul><ul><li>Next level of suppliers </li></ul></ul><ul><li>Trust is a key element </li></ul>Electronic Commerce, Eighth Edition
  43. 43. Value Creation in the Supply Chain (cont’d.) <ul><li>Supply alliances </li></ul><ul><ul><li>Long-term relationships among participants in the supply chain </li></ul></ul><ul><ul><li>Major barrier </li></ul></ul><ul><ul><ul><li>Level of information sharing </li></ul></ul></ul><ul><li>Example: Dell Computer </li></ul><ul><ul><li>Reduced supply chain costs by sharing information with suppliers </li></ul></ul><ul><li>Buyers expect annual price reductions, quality improvements </li></ul>Electronic Commerce, Eighth Edition
  44. 44. Value Creation in the Supply Chain (cont’d.) <ul><li>Marshall Fisher 1997 Harvard Business Review article </li></ul><ul><ul><li>Two types of organization goals </li></ul></ul><ul><ul><ul><li>Efficient process goals </li></ul></ul></ul><ul><ul><ul><li>Market-responsive flexibility goals </li></ul></ul></ul><ul><li>Successful supply chain management key elements </li></ul><ul><ul><li>Clear communications </li></ul></ul><ul><ul><li>Quick responses to those communications </li></ul></ul><ul><li>Internet and Web technologies </li></ul><ul><ul><li>Effective communications enhancers </li></ul></ul>Electronic Commerce, Eighth Edition
  45. 45. Electronic Commerce, Eighth Edition
  46. 46. Increasing Supply Chain Efficiencies <ul><li>Internet and Web technologies used to manage supply chains </li></ul><ul><ul><li>Yield increases in efficiency throughout the chain </li></ul></ul><ul><ul><li>Increase process speed, reduce costs, increase manufacturing flexibility </li></ul></ul><ul><ul><ul><li>Respond to changes in quantity and nature of ultimate consumer demand </li></ul></ul></ul><ul><li>Example: Boeing </li></ul><ul><ul><li>Invested in new information systems </li></ul></ul><ul><ul><ul><li>Increase production efficiency </li></ul></ul></ul><ul><ul><li>Launched spare parts Web site </li></ul></ul>Electronic Commerce, Eighth Edition
  47. 47. Increasing Supply Chain Efficiencies (cont’d.) <ul><li>Example: Dell Computer </li></ul><ul><ul><li>Famous for use of Web to sell custom-configured computers </li></ul></ul><ul><ul><li>Also used technology-enabled supply chain management </li></ul></ul><ul><ul><ul><li>Give customers exactly what they want </li></ul></ul></ul><ul><ul><ul><li>Reduced inventory amount (three weeks to two hours) </li></ul></ul></ul><ul><ul><li>Top suppliers have access to secure Web site </li></ul></ul><ul><ul><ul><li>Know Dell’s customers and what they are buying </li></ul></ul></ul><ul><ul><ul><li>Tier-one suppliers better plan their production </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  48. 48. Using Materials-Tracking Technologies with EDI and Electronic Commerce <ul><li>Troublesome task </li></ul><ul><ul><li>Tracking materials as they move from one company to another </li></ul></ul><ul><li>Use optical scanners and bar codes </li></ul><ul><ul><li>Integration of bar coding and EDI is prevalent </li></ul></ul><ul><ul><li>Figure 5-11 </li></ul></ul><ul><li>Electronic commerce second wave </li></ul><ul><ul><li>Integrating new types of tracking into Internet-based materials-tracking systems </li></ul></ul>Electronic Commerce, Eighth Edition
  49. 49. Electronic Commerce, Eighth Edition
  50. 50. Using Materials-Tracking Technologies with EDI and Electronic Commerce (cont’d.) <ul><li>Radio Frequency Identification Devices (RFIDs) </li></ul><ul><ul><li>Small chips </li></ul></ul><ul><ul><li>Use radio transmissions to track inventory </li></ul></ul><ul><ul><li>Older RFID technology </li></ul></ul><ul><ul><ul><li>Each RFID required its own power supply </li></ul></ul></ul><ul><ul><li>Important development: passive RFID tag </li></ul></ul><ul><ul><ul><li>Made cheaply and in very small sizes </li></ul></ul></ul><ul><ul><ul><li>No power supply required </li></ul></ul></ul><ul><li>RFIDs </li></ul><ul><ul><li>Read much more quickly, with higher degree of accuracy </li></ul></ul>Electronic Commerce, Eighth Edition
  51. 51. Electronic Commerce, Eighth Edition
  52. 52. Using Materials-Tracking Technologies with EDI and Electronic Commerce (cont’d.) <ul><li>2003 (Wal-Mart) </li></ul><ul><ul><li>Tested use of RFID tags on merchandise for inventory tracking and control </li></ul></ul><ul><ul><li>Initiated plan to have all suppliers install RFID tags in goods they shipped </li></ul></ul><ul><ul><li>Reduced incidence of stockouts </li></ul></ul><ul><ul><ul><li>Retailer loses sales because it does not have specific goods on its shelves </li></ul></ul></ul><ul><ul><li>Suppliers found RFID tags, readers, computer systems to be quite expensive </li></ul></ul><ul><ul><ul><li>Pushed for slowdown in Wal-Mart’s RFID initiative </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  53. 53. Creating an Ultimate Consumer Orientation in the Supply Chain <ul><li>Ultimate consumer orientation </li></ul><ul><ul><li>Customer focus </li></ul></ul><ul><ul><ul><li>Difficult to maintain </li></ul></ul></ul><ul><li>Michelin North America </li></ul><ul><ul><li>Pioneered use of Internet technology </li></ul></ul><ul><ul><ul><li>To go beyond next step in its value chain </li></ul></ul></ul><ul><ul><li>1995: launched electronic commerce initiative </li></ul></ul><ul><ul><ul><li>BIB NET extranet </li></ul></ul></ul><ul><ul><li>Allowed dealer access to tire specifications, inventory status, and promotional information </li></ul></ul><ul><ul><ul><li>Through simple-to-use Web browser interface </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  54. 54. Building and Maintaining Trust in the Supply Chain <ul><li>Major issue in forming supply chain alliances </li></ul><ul><ul><li>Developing trust </li></ul></ul><ul><ul><li>Key elements </li></ul></ul><ul><ul><ul><li>Continual communication and information sharing </li></ul></ul></ul><ul><li>Internet and the Web </li></ul><ul><ul><li>Provide excellent ways to communicate and share information </li></ul></ul><ul><ul><li>Provide opportunity to stay in contact with customers </li></ul></ul><ul><ul><ul><li>More easily and less expensively </li></ul></ul></ul><ul><ul><li>Instant access to sales representatives, vendors </li></ul></ul><ul><ul><ul><li>Comprehensive information at a moment’s notice </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  55. 55. Electronic Market Places and Portals <ul><li>Vertical portals (vortal) </li></ul><ul><ul><li>Information hubs for each major industry </li></ul></ul><ul><ul><ul><li>Offer news, research reports, trend analyses, in-depth reports on companies, marketplaces, and auctions </li></ul></ul></ul><ul><ul><ul><li>Doorway (or portal) to the Internet for industry members </li></ul></ul></ul><ul><ul><ul><li>Vertically integrated </li></ul></ul></ul><ul><li>Predicted to change business forever </li></ul><ul><ul><li>Not exactly correct </li></ul></ul>Electronic Commerce, Eighth Edition
  56. 56. Independent Industry Marketplaces <ul><li>First industry hubs following vertical portal model </li></ul><ul><ul><li>Trading exchanges focused on a particular industry </li></ul></ul><ul><li>Independent industry marketplaces </li></ul><ul><ul><li>Industry marketplaces </li></ul></ul><ul><ul><ul><li>Focused on a single industry </li></ul></ul></ul><ul><ul><li>Independent exchanges </li></ul></ul><ul><ul><ul><li>Not controlled by established buyer or seller in the industry </li></ul></ul></ul><ul><ul><li>Public marketplaces </li></ul></ul><ul><ul><ul><li>Open to new buyers and sellers just entering the industry </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  57. 57. Independent Industry Marketplaces (cont’d.) <ul><li>Example: Ventro </li></ul><ul><ul><li>1997: opened industry marketplace Chemdex </li></ul></ul><ul><ul><ul><li>Trade in bulk chemicals </li></ul></ul></ul><ul><li>By mid-2000 </li></ul><ul><ul><li>More than 2200 independent exchanges </li></ul></ul><ul><li>By 2008 </li></ul><ul><ul><li>Fewer than 80 industry marketplaces still operating </li></ul></ul><ul><li>Other B2B marketplace models arose </li></ul><ul><ul><li>Took business away from the independent marketplaces </li></ul></ul>Electronic Commerce, Eighth Edition
  58. 58. Private Stores and Customer Portals <ul><li>Large seller concern </li></ul><ul><ul><li>Independent operators would take control of transactions in supply chains </li></ul></ul><ul><ul><li>Industry marketplaces would dilute power </li></ul></ul><ul><ul><li>Customer portal sites </li></ul></ul><ul><ul><ul><li>Cisco and Dell: private store with password-protected entrance </li></ul></ul></ul><ul><ul><ul><li>Grainger: provide additional services for customers </li></ul></ul></ul><ul><ul><li>Needlessly duplicated if sellers participated in industry marketplace </li></ul></ul>Electronic Commerce, Eighth Edition
  59. 59. Private Company Marketplaces <ul><li>Large companies purchasing from relatively small vendors </li></ul><ul><ul><li>Exert power in purchasing negotiations </li></ul></ul><ul><li>e-procurement software </li></ul><ul><ul><li>Company manages purchasing function through Web </li></ul></ul><ul><ul><li>Procurement software companies </li></ul></ul><ul><ul><ul><li>Ariba, CommerceOne </li></ul></ul></ul><ul><ul><li>Automates authorizations, other steps </li></ul></ul><ul><ul><li>Marketplace functions </li></ul></ul>Electronic Commerce, Eighth Edition
  60. 60. Private Company Marketplaces (cont’d.) <ul><li>Companies implementing e-procurement software </li></ul><ul><ul><li>Require suppliers bid on business </li></ul></ul><ul><li>Private company marketplace </li></ul><ul><ul><li>Marketplace providing auctions, request for quote postings, other features </li></ul></ul><ul><ul><ul><li>For companies who want to operate their own marketplaces </li></ul></ul></ul><ul><li>Example: United Technologies </li></ul><ul><ul><li>Sells $35 billion of high-technology products, services </li></ul></ul>Electronic Commerce, Eighth Edition
  61. 61. Industry Consortia-Sponsored Marketplaces <ul><li>Companies with strong negotiating positions in their industry supply chains </li></ul><ul><ul><li>Not enough power to force suppliers to deal with them </li></ul></ul><ul><ul><ul><li>Through a private company marketplace </li></ul></ul></ul><ul><li>Industry consortia-sponsored marketplace </li></ul><ul><ul><li>Marketplace formed several large buyers in a particular industry </li></ul></ul><ul><li>Example: Covisint (2000) </li></ul><ul><ul><li>Consortium of DaimlerChrysler, Ford, General Motors </li></ul></ul>Electronic Commerce, Eighth Edition
  62. 62. Industry Consortia-Sponsored Marketplaces (cont’d.) <ul><li>Example: Agenda marketplace </li></ul><ul><ul><li>Consortium formed by Marriott, Hyatt, three other major hotel chains </li></ul></ul><ul><li>Example: Exostar marketplace </li></ul><ul><ul><li>Boeing led group of aerospace industry companies </li></ul></ul><ul><li>Example: Transora marketplace </li></ul><ul><ul><li>Procter & Gamble joined with Sara Lee, Coca Cola, several other companies </li></ul></ul><ul><li>Consortiums have taken large part of market from the industry marketplaces </li></ul>Electronic Commerce, Eighth Edition
  63. 63. Industry Consortia-Sponsored Marketplaces (cont’d.) <ul><li>Supplier concern </li></ul><ul><ul><li>Ownership structure </li></ul></ul><ul><ul><ul><li>Independent operators for fair bargaining (Covisint) </li></ul></ul></ul><ul><ul><ul><li>Including industry participants may be helpful (ChemConnect) </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  64. 64. Electronic Commerce, Eighth Edition
  65. 65. Summary <ul><li>Using Internet and Web technologies improves purchasing and logistics primary activities </li></ul><ul><li>Emerging network model of organization </li></ul><ul><li>Governments extending reach of enterprise planning and control activities </li></ul><ul><ul><li>Beyond legal definitions </li></ul></ul><ul><li>History of EDI and how it works </li></ul><ul><ul><li>Conducting EDI: better than processing mountains of paper transactions </li></ul></ul><ul><ul><li>Internet providing inexpensive communications channel EDI lacked </li></ul></ul>Electronic Commerce, Eighth Edition
  66. 66. Summary (cont’d.) <ul><li>Supply chain management techniques </li></ul><ul><ul><li>Fueled by increase in communications capabilities offered by the Internet and the Web </li></ul></ul><ul><li>Development of several different B2B electronic commerce models </li></ul><ul><ul><li>Private stores </li></ul></ul><ul><ul><li>Customer portals </li></ul></ul><ul><ul><li>Private marketplaces </li></ul></ul><ul><ul><li>Industry consortia-sponsored marketplaces </li></ul></ul><ul><ul><ul><li>Most successful today </li></ul></ul></ul>Electronic Commerce, Eighth Edition
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