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  1. 1. McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Chapter 9 e-Commerce II
  3. 3. Key Concepts <ul><li>eCommerce and Supply Management </li></ul><ul><ul><li>Advantages for Supply Management </li></ul></ul><ul><ul><li>Disadvantages for Supply Management </li></ul></ul><ul><ul><li>Evolution to World Class Supply Management SM </li></ul></ul><ul><li>Electronic Data Interchange </li></ul><ul><ul><li>Traditional EDI </li></ul></ul><ul><ul><li>Open EDI </li></ul></ul><ul><li>Exhanges, Hubs, and Marketplaces </li></ul><ul><ul><li>Exchange Variations </li></ul></ul><ul><ul><li>Success with Exchanges </li></ul></ul><ul><ul><li>Future of Exchanges </li></ul></ul>
  4. 4. Key Concepts <ul><li>Enterprise Resource Planning </li></ul><ul><ul><li>Benefits of ERP </li></ul></ul><ul><ul><li>Criticisms of ERP </li></ul></ul><ul><li>Negotiation and Bidding </li></ul><ul><ul><li>Online Negotiation </li></ul></ul><ul><ul><li>Reverse Auctions </li></ul></ul><ul><ul><li>Forward Auctions </li></ul></ul><ul><li>Information Sharing </li></ul><ul><ul><li>Extensible Markup Language </li></ul></ul><ul><ul><li>Intranets and Extranets </li></ul></ul><ul><ul><li>Data Warehousing </li></ul></ul><ul><ul><li>Electronic Supplier Catalogs </li></ul></ul>
  5. 5. Key Concepts <ul><li>Information Sharing Continued </li></ul><ul><ul><li>Project Management </li></ul></ul><ul><ul><li>Intelligent Agents </li></ul></ul><ul><li>Software Solutions </li></ul><ul><ul><li>Supply Chain Solutions </li></ul></ul><ul><ul><li>Maintenance, Repair and Operating Supplies </li></ul></ul><ul><ul><li>Expert systems </li></ul></ul><ul><li>eCommerce II </li></ul><ul><ul><li>Collaboration Built on Trust </li></ul></ul><ul><ul><li>eCommerce II at Dell </li></ul></ul>
  6. 6. E-Commerce and WCSM <ul><li>eCommerce provides many opportunities for supply chains and individual chain members to improve their efficiency and effectiveness at both the tactical and strategic levels. </li></ul><ul><li>However, such possibilities must be tempered with the knowledge that no eCommerce solution will ever be capable of replacing the human element that is at the core of truly successful supply chains. </li></ul><ul><li>As such, eCommerce is not a replacement but an enabler of World Class Supply Management SM . </li></ul>
  7. 7. What is E-Commerce? <ul><li>Activities conducted using electronic data transmission via the Internet and the World Wide Web </li></ul><ul><ul><li>Consumer shopping on the Web, called business-to-consumer (or B2C) </li></ul></ul><ul><ul><li>Transactions conducted between businesses on the World Wide Web, called business-to-business (or B2B) </li></ul></ul><ul><ul><li>The transactions and business processes that support selling and supply </li></ul></ul>
  8. 8. Visual Representation of a Segment of the Internet Figure 9-1
  9. 9. Advantages for Supply Management <ul><li>Share customer demand information </li></ul><ul><li>Enable collaboration among supply chain members </li></ul><ul><li>Enable collaboration among functional areas </li></ul><ul><li>Enable collaboration on design of new products and services. </li></ul><ul><li>Share information about quality </li></ul><ul><li>Identify new suppliers </li></ul><ul><li>Compare potential suppliers </li></ul><ul><li>Improve information exchange </li></ul><ul><li>Run 24/7 </li></ul><ul><li>Reduce purchase order cost </li></ul>
  10. 10. Disadvantages for Supply Management <ul><li>Costs and benefits are hard to quantify </li></ul><ul><li>Requires highly educated supply professionals </li></ul><ul><li>Problems with integration of databases, data accumulation systems, and software </li></ul><ul><li>Exposes a company to a myriad of global issues: </li></ul><ul><ul><li>Currency conversions, </li></ul></ul><ul><ul><li>tariffs, import and export restrictions </li></ul></ul><ul><ul><li>local business customs </li></ul></ul><ul><ul><li>laws of each country </li></ul></ul>
  11. 11. Disadvantages for Supply Management <ul><li>High cost of entry </li></ul><ul><li>Resistant to change may be high </li></ul><ul><li>Call for a reduction in the supply management staff </li></ul><ul><li>Static systems often result </li></ul>
  12. 12. E-Commerce as an Enabler <ul><li>Maintenance of inventory records </li></ul><ul><li>Computation of order quantities </li></ul><ul><li>Preparation of purchase requisitions for inventory items </li></ul><ul><li>Preparation of requests for quotation </li></ul><ul><li>Preparation of purchase orders </li></ul><ul><li>Maintenance of order status records </li></ul><ul><li>Distribution of accounting charges </li></ul><ul><li>Automatic preparation of follow-up memos </li></ul>
  13. 13. E-Commerce as an Enabler <ul><li>Posting of delivery and quality records, by part and by supplier </li></ul><ul><li>Preparation of numerous operating reports for management </li></ul><ul><li>Provision of decision support system information </li></ul><ul><li>Auditing of invoices and preparation of checks for payment </li></ul><ul><li>Electronic data interchange (open and closed) communications </li></ul>
  14. 14. Evolution to WCSM <ul><li>Suppliers are actively involved in the development of specifications and requirements. </li></ul><ul><li>Supply managers work continuously with suppliers to update key system inputs such as lead times to reflect the most accurate information possible. </li></ul><ul><li>Forecasts and plans for meeting customer demand are actively shared with suppliers </li></ul><ul><li>When appropriate, buying firms work with suppliers to reveal opportunities for improvement at both the buying and supplying firms </li></ul>
  15. 15. Evolution to WCSM <ul><li>Online reverse auctions are conducted only after supply management has completed appropriate research </li></ul><ul><li>eCommerce usage exposes opportunities to work with suppliers </li></ul><ul><li>eCommerce enables supply managers to go beyond day-to-day transactions to collaborative commerce </li></ul>
  16. 16. Electronic Data Interchange <ul><li>EDI is the direct electronic transmission, computer to computer, of standard business forms, such as purchase orders, shipping notices, invoices, and the like, between two organizations </li></ul><ul><li>The benefits are that EDI…. </li></ul><ul><ul><li>Reduces paperwork </li></ul></ul><ul><ul><li>Reduces administrative requirements </li></ul></ul><ul><ul><li>Improves data accuracy </li></ul></ul><ul><ul><li>Reduces lead time </li></ul></ul>
  17. 17. Traditional Transmission Figure 9-2 Data entry Post office Invoices Telephone Sales representative Post office Order entry Buyer Forms (POs, etc.) Supplier
  18. 18. Three EDI Choices Figure 9-3 Buyer’s Computer Supplier’s mailbox Buyer’s mailbox Supplier’s mailbox Buyer’s mailbox Supplier’s computer Direct Connection Open EDI Value Added Network Internet Internet Internet Internet Internet
  19. 19. Traditional EDI <ul><li>EDI prior to the mid-1990s required the purchase of expensive computer hardware and software </li></ul><ul><li>Leased telephone lines or subscribing to a value added network (VAN) provided the connection through a centralized location </li></ul><ul><ul><li>A VAN is a third party firm that offers connection and EDI transaction forwarding services to buying and selling firms </li></ul></ul>
  20. 20. Open EDI <ul><li>EDI on the Internet is also called open EDI because the Internet is an open architecture network </li></ul><ul><li>Open EDI’s lower cost now makes the cost affordable for most supply chain members </li></ul><ul><li>Traditional EDI is still being used in many supply chains </li></ul><ul><ul><li>As one manager recently put it “If it ain’t broke, don’t fix it!” </li></ul></ul>
  21. 21. Wal-Mart’s POS System Using EDI 1 Customer Arrives 2 Customer Selects Product 3 Purchase is Scanned and Customer Checks Out 4 Purchase Added to Database on Store’s Server 5 Periodic Sales and Inventories Data Transmitted Customer Departs 10 Goods Shipped to Retail Store Wal Mart Retail Store 11 Goods Restocked by Supplier and Scanned into Retail System Supplier Notifies Buyer of Shipment Supplier Data Processing Center Figure 9-4, Top Half
  22. 22. Wal-Mart’s POS System 5 Periodic Sales and Inventories Data Transmitted RETAIL CHAIN DATA PROCESSING CENTER 6 Information is Processed 7 Sales and Orders 9 Restock Order Transmissions from Other Stores in Chain Sales, Orders and Payments Transmitted to Other Suppliers Supplier Notifies Buyer of Shipment 8 Supplier’s Database Payments for goods sold 10 Goods Shipped to Retail Store SUPPLIER Wal Mart Retail Store Figure 9-4, Bottom Half
  23. 23. Exchanges, Hubs and Marketplaces <ul><li>Public versus Private: A public exchange is open to all buyers and sellers. eBay is an example. </li></ul><ul><li>Buyer versus Seller Centric: A buyer centric exchange is developed by one or more buying firms </li></ul><ul><li>Consortium versus Independent: A consortium refers to several companies that come together to form one marketplace or exchange </li></ul><ul><li>Vertical versus Horizontal: Vertical focused exchanges are developed to support a specific industry or segment of a market </li></ul>
  24. 24. Success with Exchanges <ul><li>Public e-Marketplaces must do the following to be successful: </li></ul><ul><ul><li>Be open to all buyers and sellers </li></ul></ul><ul><ul><li>Match the right buyers with the right sellers </li></ul></ul><ul><ul><li>Provide relevant content </li></ul></ul><ul><ul><li>Support various transaction types </li></ul></ul><ul><ul><li>Provide services and practices that are flexible </li></ul></ul><ul><ul><li>Maintain a technological infrastructure that enables companies to seamlessly conduct business with anyone, anytime, anywhere. </li></ul></ul>
  25. 25. IBM’S Trading Network Figure 9-5
  26. 26. Future of Exchanges <ul><li>Phase One: Commodity Exchanges and Marketplaces </li></ul><ul><li>Phase Two: Value-Added eMarketplaces </li></ul><ul><li>Phase Three: Global Knowledge Exchanges/The Global Knowledge Network </li></ul><ul><li>Phase Four: Global Value Trust Networks </li></ul>
  27. 27. Enterprise Planning Systems <ul><li>ERP is an industry term for the broad set of activities supported by multi-module application software that help a business manage tactical and strategic decisions both internally in a company and across the company’s entire supply chain </li></ul>
  28. 28. What are ERP Systems? <ul><li>“There’s not one definition of what a manufacturer is, so the definition of ERP depends on what your enterprise is, If it’s a single shop in Pennsylvania trying to tie the accounting department into distribution, that’s ERP.” Randy Naylor of Interactive </li></ul><ul><li>“...a turbocharged version of manufacturing resource planning (MRP II)” Greg Farley, APICS </li></ul><ul><li>ERP refers to enterprise-wide systems that knit together the operations of whole companies </li></ul>
  29. 29. Benefits of ERP <ul><li>Cycle time reduction </li></ul><ul><li>Faster information transactions </li></ul><ul><li>Better financial management </li></ul><ul><li>Laying the groundwork for eCommerce </li></ul><ul><li>Making tacit process knowledge explicit </li></ul>
  30. 30. Criticisms of ERP <ul><li>Long implementation periods </li></ul><ul><li>Inflexibility </li></ul><ul><li>Overly hierarchical organizations </li></ul><ul><li>Antiquated technology </li></ul><ul><li>High cost </li></ul>
  31. 31. Best of the Breed Software Solution Disadvantages <ul><li>“Best of the breed” systems can take longer and cost more primarily due to two reasons: </li></ul><ul><ul><li>Selection process times for individual packages may sum to more time than the selection time for an integrated package </li></ul></ul><ul><ul><li>Integrating the “best of the breed” packages may be a repetitive, tedious process that consumes more cost and time (integration may not be possible at all in some circumstances!) </li></ul></ul><ul><li>There are many opportunity costs that can exist with “best of the breed” systems </li></ul>
  32. 32. An ERP Success Story: Discovery Toys <ul><li>Purchasing (called Purchasing at the time) staff was decreased from nine to two </li></ul><ul><li>Most transactions were automated </li></ul><ul><li>Average lead time for processing orders dropped from about 5 days to 1 day </li></ul><ul><li>Strategic decision making is enabled </li></ul><ul><li>Purchasing paperwork is almost eliminated </li></ul><ul><li>Tracing orders is now instantaneous </li></ul><ul><li>Qualification for new Supply Management employees has increased significantly </li></ul><ul><ul><li>College degree in Supply Management is now essential </li></ul></ul>
  33. 33. Discovery Toys ERP Vendor Selection Criteria <ul><li>Risk: how much the system will interrupt business during the implementation </li></ul><ul><li>Implementation: speed and ease </li></ul><ul><li>Functionality: how close the software meets the business’ needs </li></ul><ul><li>Partnership: relationship vendor provides, primarily in terms of support </li></ul><ul><li>Cost: TCO or Total Cost of Ownership </li></ul><ul><li>Technology: compatibility with existing systems, but not too “ancient” </li></ul>
  34. 34. Negotiation and Bidding <ul><li>One of the most controversial uses of eCommerce </li></ul><ul><ul><li>Can “real” negotiation take place without face-to-face or voice-to-voice interaction </li></ul></ul><ul><ul><li>70% of all communication between individuals is non-verbal </li></ul></ul><ul><li>Supporters of online negotiation argue that the negotiation process can focus better on facts instead of emotional reactions </li></ul>
  35. 35. Online Bidding <ul><li>Online bidding is dynamic, where multiple bids from the same firm are possible </li></ul><ul><li>Online bidding speeds up the bidding process </li></ul><ul><li>It also encourages suppliers to reduce profit margins </li></ul><ul><li>When does an online bidding process become a negotiation? </li></ul><ul><ul><li>If the buying firm changes the criterion for awarding the contract during the bidding process </li></ul></ul><ul><ul><li>Engaging in this type of buying can create a poor reputation for the buying firm </li></ul></ul>
  36. 36. Online Negotiation Example <ul><li>Suppose an automobile manufacturer needs to purchase 10,000 tires for delivery within two days </li></ul><ul><li>An online, multistage, and multiparameter negotiation format is used for the selection process </li></ul>
  37. 37. Online Negotiation Example <ul><li>Eight suppliers are notified of the request by email </li></ul><ul><li>They are directed to the company’s eCommerce Web site where the negotiation is to be conducted </li></ul><ul><li>The first stage involves delivery time </li></ul><ul><li>The second stage is price and delivery package </li></ul><ul><li>In an environment similar to an online threaded discussion, the supply manager determines that only three suppliers can provide the tires in the requested period </li></ul>
  38. 38. Online Negotiation Example <ul><li>The supply manager will determine, through the first two stages, which supplier provides the greatest value of price and delivery </li></ul><ul><li>These interactions are dynamically communicated online simultaneously, but with hidden details </li></ul><ul><li>These negotiations can also support third and fourth stages of negotiations </li></ul><ul><li>At any point, the buying or selling firm can accept, reject, or counter an offer </li></ul>
  39. 39. Reverse Auctions <ul><li>The buying firm specifies a particular requirement and allows suppliers to bid on it </li></ul><ul><li>Typically, the lowest bid wins </li></ul><ul><li>However, some auctions can support very complex auctions </li></ul><ul><ul><li>For example, sales terms may be determined by price, delivery, quality, service, or some combination of them all. The entire bid process can be controlled electronically. </li></ul></ul>
  40. 40. More on Reverse Auctions <ul><li>Buying firms can determine what information will be visible to the suppliers </li></ul><ul><li>Multiple bids may be accepted right up to the closing moments of the bidding process </li></ul><ul><li>An open reverse auction is where any supplier can respond </li></ul><ul><li>A closed reverse auction is where the bidders are limited to those who meet some predefined criteria </li></ul><ul><li>Some auctions allow additional rounds of bidding </li></ul>
  41. 41. Forward Auctions <ul><li>Sellers often use forward auctions to reduce or liquidate excess finished goods, parts, assemblies and equipment </li></ul><ul><li>A forward auction has one seller and two or more potential buyers </li></ul><ul><li>The auction usually starts with a low price that the buyers will bid up on until a set time has expired or no other buyer wishes to place a higher bid </li></ul>
  42. 42. Information Sharing <ul><li>Information sharing through eCommerce can create synergies between supply chain members </li></ul><ul><li>Most existing systems are used for tactical sharing </li></ul><ul><li>Information sharing can be expanded to include strategic information </li></ul><ul><li>Two issues must be addressed to make an electronic system capable of sharing information: </li></ul><ul><ul><li>Data must be in a form that is transferable and understandable </li></ul></ul><ul><ul><li>The organizations involved must be willing to share critical and confidential information </li></ul></ul>
  43. 43. Extensible Markup Language <ul><li>Extensible Markup Language (XML) appears to meet most of the needs of data transferability today </li></ul><ul><li>XML works in the same way as HTML except that, instead of defining the format of a Web page, XML’s tags define the context and meaning of the text </li></ul><ul><li>The information in an XML document can appear and be in whatever order or length the sender desires </li></ul>
  44. 44. Intranets and Extranets <ul><li>Intranets are networks internal to an organization that use the same technology that is the foundation of the global Internet </li></ul><ul><li>Often start out as ways to link employees to company information </li></ul><ul><li>Intranets can easily become Extranets by extending them to include customers and suppliers </li></ul>
  45. 45. Intranets and Extranets Figure 9-6: Intranet Figure 9-7: Extranet
  46. 46. Data Warehouses <ul><li>Data warehouses are used to collect and organize information from multiple sources </li></ul><ul><li>The information is then made available to end users in a consolidated, consistent manner </li></ul><ul><li>The concept originated in the 1970s </li></ul><ul><li>Corporations realized they had many isolated information systems “islands” </li></ul><ul><li>Rather than trying to develop one unified system or linking all systems in terms of processing, a data warehouse provides a means to combine the data in one place and make it available to all of the systems </li></ul>
  47. 47. Electronic Supplier Catalogs <ul><li>Definition: A digitized version of a supplier’s catalog that allows buyers to view detailed information about the supplier’s products and services through the buyer’s own computer browser </li></ul><ul><li>Simple catalogs may contain only basic information, such as products and prices </li></ul><ul><li>Detailed catalogs may contain complex information, such as design specifications and quality data </li></ul><ul><li>Registered suppliers can upload their catalog content to a hosting server where it can be accessed by a number of buying firms </li></ul><ul><li>Price changes can occur dynamically </li></ul>
  48. 48. Project Management <ul><li>Internet servers provide a centralization capability </li></ul><ul><li>Internet enables real time posting of project information to all resources across supply networks </li></ul><ul><li>Software has advanced to the point where rules can manage and update key resources </li></ul><ul><li>The importance of project management using the Internet will continue to grow </li></ul>
  49. 49. Intelligent Agents <ul><li>A program that performs functions such as information gathering, information filtering, or mediation running in the background on behalf of a person or entity </li></ul><ul><li>They will become more prevalent in the future </li></ul><ul><li>Intelligent agents require continuous maintenance of the knowledge base </li></ul>
  50. 50. Software Solutions <ul><li>Supply Chain Solutions </li></ul><ul><ul><li>I2, Manugistics, </li></ul></ul><ul><ul><li>Four General Categories </li></ul></ul><ul><ul><ul><li>Supply planning tools </li></ul></ul></ul><ul><ul><ul><li>Demand planning tools </li></ul></ul></ul><ul><ul><ul><li>Plant scheduling tools </li></ul></ul></ul><ul><ul><ul><li>Logistics systems tools </li></ul></ul></ul><ul><li>Maintenance, Repair, and Operating Supplies </li></ul><ul><ul><li>Grainger, Ariba </li></ul></ul><ul><li>Expert Systems </li></ul><ul><ul><li>Programs that solve problems by emulating the problem-solving behavior of human experts </li></ul></ul>
  51. 51. ECommerce II <ul><li>What really makes eCommerce work for supply chains? </li></ul><ul><ul><li>The answer is knowledge </li></ul></ul><ul><li>Experience creates the knowledge needed to move eCommerce systems to eCommerce II </li></ul><ul><li>eCommerce II is based on two critical human contributions: </li></ul><ul><ul><li>Experience, and </li></ul></ul><ul><ul><li>Human interpersonal relations </li></ul></ul>
  52. 52. Collaboration Built on Trust <ul><li>B2B is at its best when it is a win-win game </li></ul><ul><ul><li>All the players must cooperate and share goals </li></ul></ul><ul><li>Trust is the real essence of relationships in the e-universe </li></ul><ul><li>Trust requires security and control but it goes beyond them </li></ul><ul><li>Trust involves reputation, contracts, law, openness, familiarity, fair business practices and ethics, quality, timeliness </li></ul>
  53. 53. eCommerce II at Dell <ul><li>“Just as the Internet increases customer intimacy, it can also be used to enhance supplier intimacy. The idea is to connect with your suppliers in much the same way you connect with your customers” </li></ul><ul><li>“We use our supplier connections to share inventory data, quality data, and technology plans; to give our partners immediate visibility to the field; and to serve as a central repository for information we all need – which we can access simultaneously, in real time.” </li></ul>
  54. 54. eCommerce II at Dell <ul><li>“By using the Internet to maintain a continuous flow of materials from our suppliers into our factories, our people spend less time placing orders or expediting parts and more time adding value.” </li></ul><ul><li>“The other thing the Internet gives us is immediate transmission of quality data. We have data on product quality that come in every minute of the day. We’d like our suppliers to see the information in real time.” </li></ul>
  55. 55. eCommerce II at Dell <ul><li>“If we’ve given them a goal of 500 defects per million and they’re at 750 or 1,000, we don’t want to have to wait for a monthly meeting to report customer response. We want them to see it almost as soon as it happens.” </li></ul><ul><li>“If we can accelerate the availability of the data, our chances of encouraging suppliers to improve also will increase exponentially.” </li></ul>
  56. 56. eCommerce II at Dell <ul><li>“By providing real-time information on the day-to-day mix and volume, we can help our suppliers level-load their factories and minimize their level of inventory. By helping our suppliers do a better job of reducing their supply chain lead times and moving to a higher degree of flexibility within their supply base, we can reduce the total cycle time from when we place the order to when they fulfill it.” </li></ul>
  57. 57. Concluding Remarks <ul><li>eCommerce II is the next evolution of eCommerce </li></ul><ul><li>eCommerce II will leverage the supply chain through enabling win-win alliance opportunities </li></ul><ul><li>eCommerce II usually requires a philosophical change at executive levels </li></ul><ul><li>eCommerce II is built on trust, which is earned through collaborative and alliance relationships </li></ul>