Chapter 9


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Chapter 9

  1. 1. Chapter 9 Strategies for Purchasing and Support Activities: From Electronic Data Interchange to Electronic Commerce
  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>The ways that firms are creating network organizations </li></ul><ul><li>Electronic data interchange, how it works, and how businesses are moving it to the Internet </li></ul>
  3. 3. Learning Objectives (Cont.) <ul><li>Supply chain management and how businesses are using the Internet and Web technologies to improve it </li></ul><ul><li>The software packages that companies are using to implement business-to-business electronic commerce and supply chain management </li></ul>
  4. 4. Purchasing, Logistics, and Support Activities <ul><li>Electronic commerce possesses the potential for cost reduction and business process improvement in purchasing, logistics, and support activities. </li></ul><ul><li>An emerging characteristic of purchasing, logistics, and support activities is that they need to be flexible. </li></ul>
  5. 5. Purchasing Activities <ul><li>Purchasing activities include: </li></ul><ul><ul><li>Identifying vendors </li></ul></ul><ul><ul><li>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 any issues that arise after receiving the ordered goods and services </li></ul></ul>
  6. 6. Purchasing Activities <ul><li>Procurement includes all purchasing activities, plus the monitoring of all elements of purchase transactions. </li></ul><ul><li>By using a Web site to process orders, the vendors in this market can save the cost of printing and shipping catalogs, and the cost of handling telephone orders. </li></ul>
  7. 7. Purchasing Activities <ul><li>Products that companies buy on a recurring basis are called maintenance, repair, and operating (MRO) supplies. </li></ul><ul><li>One of the largest MRO suppliers in the world is W.W. Grainger. </li></ul><ul><li>McMaster-Carr is another major MRO supplier through WWW. </li></ul><ul><li>Office Depot and Staples are also examples in this area. </li></ul>
  8. 8. Logistic Activities <ul><li>The classic objective of logistics is to provide the right goods in the right quantities in the right place at the right time. </li></ul><ul><li>Businesses have been increasing their use of information technology to achieve this objective. </li></ul><ul><li>FedEx and UPS have freight tracking Web page available to their customers. </li></ul>
  9. 9. Support Activities <ul><li>Online Benefits is a firm that duplicates its clients’ human resource functions on a secure Web site that is accessible to clients’ employees. </li></ul><ul><li>Support activities include: </li></ul><ul><ul><li>Finance and administration </li></ul></ul><ul><ul><li>Human resources </li></ul></ul><ul><ul><li>Technology development </li></ul></ul>
  10. 10. Knowledge Management <ul><li>Knowledge management is another support activity that intentional collection, classification, and dissemination of information about a company, its products, and its processes. </li></ul><ul><li>BroadVision has installed K-Net, or Knowledge Network, that organizes all information sources that its employees use regularly in their jobs. </li></ul>
  11. 11. Network Model of Economic Organization <ul><li>The trend in purchasing, logistics, and support activities is a shift away from hierarchical structures toward network structures. </li></ul><ul><li>The Web is enabling this shift from hierarchical forms of economic organization to network forms. </li></ul><ul><li>The roots of Web technology for B2B transactions lie in electronic data interchange (EDI). </li></ul>
  12. 12. Electronic Data Interchange (EDI) <ul><li>EDI is a computer-to-computer transfer of business information between two businesses that uses a standard format. </li></ul><ul><li>Transaction data in B2B transactions includes the information on paper invoices, purchase orders, requests for quotations, bills of lading, and receiving reports. </li></ul>
  13. 13. Early Business Information Interchange Efforts <ul><li>In the 1950s, information flows between businesses continued to be printed on paper. </li></ul><ul><li>By the 1960s, businesses had begun exchanging transaction information on punched cards or magnetic tape. </li></ul><ul><li>In 1968, a number of freight and shipping companies formed the Transportation Data Coordinating Committee (TDCC) to create the TDCC standard format. </li></ul>
  14. 14. Emergence of Broader Standards <ul><li>The American National Standards Institute (ANSI) has been the coordinating body for standards in the U.S. since 1918. </li></ul><ul><li>In 1979, ANSI chartered a new committee to develop uniform EDI standards. This committee is called the Accredited Standards Committee X12 (ASC X12). </li></ul><ul><li>In 1987, the United Nations published its first standards under the title “EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT). </li></ul>
  15. 15. Value-Added Networks <ul><li>EDI reduces paper flow and streamlines the interchange of information among departments within a company and between companies. </li></ul><ul><li>Trading partners can implement the EDI network and EDI translation processes in several ways use either direct connection or indirect connection. </li></ul>
  16. 16. Direct Connection between Trading Partners <ul><li>Direction connection EDI requires each business in the network to operate its own on-site EDI translator computer. </li></ul><ul><li>These EDI translator computers are then connected directly to each other using modems and dial-up phone lines or dedicated leased lines. </li></ul>
  17. 17. Indirect Connection between Trading Partners <ul><li>Instead of connecting directly to each of its trading partners, a company might decide to use the services of a value-added network. </li></ul><ul><li>A value-added network (VAN) is a company that provides communications equipment, software, and skills needed to receive, store, and forward electronic messages that contain EDI transaction sets. </li></ul>
  18. 18. VAN <ul><li>Companies that provide VAN services include General Electric Information Services, GPAS, Harbinger Corp., IBM Global Services, etc. </li></ul><ul><li>Cost is an issue to VAN. Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee. </li></ul>
  19. 19. EDI on the Internet <ul><li>Trading partners who had been using EDI began to view the Internet as a potential replacement for the expensive leased lines. </li></ul><ul><li>The major roadblocks to conducting EDI over the Internet were security. </li></ul><ul><li>As the TCP/IP was enhanced and SHTTP protocol was developed, businesses worried less about security issues. </li></ul>
  20. 20. Open Architecture of the Internet <ul><li>A number of new firms, such as Commerce One and IPNet, have begun providing EDI services on the Internet. </li></ul><ul><li>EDI on the Internet is also called “open EDI” because the Internet is an open architecture network. </li></ul><ul><li>New tools such as XML are helping trading partners be even more flexible in exchanging detailed information. </li></ul>
  21. 21. Financial EDI <ul><li>The EDI transaction sets that provide instructions to a trading partner’s bank are called financial EDI (FEDI). </li></ul><ul><li>All banks have the ability to perform electronic funds transfers (EFTs). </li></ul><ul><li>Most EFTs are handled through the Automated Clearing House (ACH). </li></ul><ul><li>Security and reliability are issues of FEDI. </li></ul>
  22. 22. Hybrid EDI Solutions <ul><li>Some firms are offering hybrid EDI solutions that use the Internet for part of the transaction. </li></ul><ul><li>Bottomline Technologies’ payBase package is an example. </li></ul><ul><li>Other hybrid solutions include EDI-HTML translation services. </li></ul>
  23. 23. Supply Chain Management <ul><li>The part of an industry value chain that precedes a particular strategic business unit is often called a supply chain. </li></ul><ul><li>The purchasing department has traditionally been charged with buying all of these components at the lowest price possible. </li></ul>
  24. 24. Value Creation in the Supply Chain <ul><li>The process of taking an active role in working with suppliers to improve products and processes is called supply chain management (SCM). </li></ul><ul><li>SCM was originally developed as a way to reduce costs. </li></ul>
  25. 25. Value Creation in the Supply Chain <ul><li>Today, SCM is used to add value in the form of benefits to the ultimate consumer at the end of the supply chain. </li></ul><ul><li>Supply chain members can reduce costs and increase the value of product or service to the ultimate customer. </li></ul>
  26. 26. Technology in the Supply Chain <ul><li>Clear communications, and quick responses to those communications, are a key element of successful SCM. </li></ul><ul><li>Technologies of the Internet and the Web can be very effective communication enhancers. </li></ul><ul><li>Figure 9-10 lists the advantages of using Internet and Web technologies in SCM. </li></ul>
  27. 27. Technology in the Supply Chain <ul><li>In 1997, production and scheduling errors costing Boeing over $1.5 billion. </li></ul><ul><li>Using EDI and Internet links, Boeing is working with suppliers so that they can provide the right part at the right time. </li></ul><ul><li>To further benefit customers, Boeing launched a spare parts Web site, Boeing PART. </li></ul>
  28. 28. Technology in the Supply Chain <ul><li>Dell Computer has also used technology-enabled SCM to give customers exactly what they want. </li></ul><ul><li>Dell has been able to dramatically reduce the amount of inventory it must hold. </li></ul><ul><li>Dell has also shared this information with members of its supply chain. </li></ul>
  29. 29. Enterprise Resource Planning Software <ul><li>Enterprise resource planning (ERP) software is designed to help a company integrate all of its manufacturing, finance, distribution, and other internal business functions into one information system. </li></ul><ul><li>Major ERP vendors include J.D. Edwards, Oracle, PeopleSoft, and SAP. </li></ul>
  30. 30. Business-to-Business (B2B) Commerce Software <ul><li>B2B commerce software is designed to help companies build Web sites that host catalog and other commercial sales activities. </li></ul><ul><li>Netscape’s SellerXpert and Open Market’s LiveCommerce-Transact combination are full-featured products that help companies put catalogs online. </li></ul><ul><li>The other B2B commerce software packages are toolkits that help the customer custom configure catalog and order management systems. </li></ul>
  31. 31. Supply Chain Management Software <ul><li>Supply chain management software includes demand forecasting tools and planning capabilities to coordinate various activities. </li></ul><ul><li>Currently, the two major firms offering SCM software are i2 Technologies and Manugistics. </li></ul>