E-Business Eighth Edition

1. E-BusinessEighth Edition Chapter 5Business-To-Business Online Strategies

2. Learning Objectives In this chapter, you will learn about: Strategies that businesses use to improve purchasing, logistics, and other support activities Electronic data interchange and how it works How businesses have moved some of their electronic data interchange operations to the Internet E-Business, Eighth Edition

3. Learning Objectives (cont’d.) Supply chain management and how businesses are using Internet technologies to improve it Electronic marketplaces and portals that make purchase-sale negotiations easier and more efficient E-Business, Eighth Edition

4. Purchasing, Logistics, and Support Activities • Electronic commerce • Improves primary and support activities • Tremendous potential for: • Cost reductions, business process improvements • e-government • Collective set of electronic commerce activities • Improving government support activities • Supporting activities and serving stakeholders better • Potential for synergies increase with Internet technologies use • Necessary characteristic: flexibility E-Business, Eighth Edition

5. Purchasing Activities • Supply chain • Part of industry value chain preceding a particular strategic business unit • Includes all activities undertaken by every predecessor in the value chain to: • Design, produce, promote, market, deliver, support each individual component of a product or service • Traditionally • Purchasing Department charged with buying components at lowest price possible • Process focused excessively on individual components’ cost: ignored total supply chain costs E-Business, Eighth Edition

6. Purchasing Activities (cont’d.) • Procurement includes: • All purchasing activities • Monitoring all elements in purchase transactions • Supply management • Describes procurement activities • Procurement staff • Require product knowledge • Identify and evaluate appropriate suppliers • Sourcing • Procurement activity • Identifying suppliers, determining qualifications E-Business, Eighth Edition

7. Purchasing Activities (cont’d.) • e-sourcing • Use of Internet technologies in sourcing activities • Specialized Web-purchasing sites • Figure 5-1 • Typical business purchasing process steps • Many steps and people involved • Spend • Total goods and services dollar amount company buys during a year • Institute for Supply Management (ISM) • Main organization for procurement professionals E-Business, Eighth Edition

8. E-Business, Eighth Edition

9. Direct vs. Indirect Materials Purchasing • Direct materials • Materials that become part of finished product • Direct materials purchasing: two types • Replenishment purchasing (contract purchasing) • Company negotiates long-term material contracts • Spot purchasing • Purchases made in loosely organized market (spot market) • Indirect materials • All other materials company purchases E-Business, Eighth Edition

10. Direct vs. Indirect Materials Purchasing (cont’d.) • Maintenance, repair, and operating (MRO) supplies • Indirect material products purchased on a recurring basis • Standard items (commodities) buyers usually select • Price: main criterion • Purchasing cards (p-cards) • Give individual managers ability to make multiple small purchases at their discretion • Provide cost-tracking information to procurement • MRO suppliers: McMaster-Carr, W.W. Grainger E-Business, Eighth Edition

11. E-Business, Eighth Edition

12. Logistics Activities • Provide the right goods in the right quantities in the right place at the right time • Important support activity for sales and purchasing • Inbound materials and supplies movements • Outbound finished goods and services movements • Example: Schneider Track and Trace system • Real-time shipment information: customers’ browsers • Third-party logistics (3PL) provider • Operates all (large portion) of customer’s materials movement activities • Examples: Ryder and Whirlpool, FedEx, UPS E-Business, Eighth Edition

13. Support Activities • General categories • Finance and administration, human resources, technology development • Example: Allegiance and A.D.A.M. Web site • Training • Common support activity • Underlies multiple primary activities • Advantages: training materials on company intranet • Distribute materials to many different sales offices • Coordinate use of materials in corporate headquarters E-Business, Eighth Edition

14. Support Activities (cont’d.) • Examples: Ericson, BroadVision’s K-Net • Knowledge management • Intentional collection, classification, dissemination of information • About a company, its products, and its processes E-Business, Eighth Edition

15. E-Government • e-government • Use of electronic commerce by governments and government agencies • Perform functions for stakeholders • Operate businesslike activities • Examples in U.S. government • Financial Management Service (FMS) • Pay.govWeb site • Department of Homeland Security (DHS) • Internet technology use initiatives E-Business, Eighth Edition

16. E-Government (cont’d.) • Examples in other countries • United Kingdom • Department for Work and Pensions Web site • Singapore’s SINGOVsite • Examples in state government • California’s one-stop portal site (my.ca.gov) • New York State Citizen Guide site • Examples in local government • Large cities: Minneapolis, New Orleans • New York City (MyNYC.gov) E-Business, Eighth Edition

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18. Network Model of Economic Organization • Trend in purchasing, logistics, and support activities • Shift from hierarchical structures • Toward network structures • Procurement Departments’ new tools (technology) • To negotiate with suppliers • Including possibility of forming strategic alliances • Network model of economic organization • Other firms perform various support activities • Manage payroll, administer employee benefits plans, handle document storage needs • Web: enabling shift from hierarchical to network E-Business, Eighth Edition

19. Electronic Data Interchange • Trading partners • Two businesses exchanging information • EDI compatible • Firms that exchange data in specific standard formats • EDI importance • Most B2B electronic commerce • An adaptation of EDI or based on EDI principles • Still the method used for most electronic B2B transactions E-Business, Eighth Edition

20. Early Business Information Interchange Efforts • 1800s and early 1900s • Need to create formal business transactions records • 1950s • Computers store, process internal transaction records • Information flows printed on paper • 1960s: large volume transactions • Exchanged on punched cards or magnetic tape • 1960s and 1970s • Transferred data over telephone lines • All efforts increased efficiency and reduced errors E-Business, Eighth Edition

21. Early Business Information Interchange Efforts (cont’d.) • These information transfer agreements were not the ideal solution • Data translation programs incompatible • 1968: freight, shipping companies joined together • Transportation Data Coordinating Committee (TDCC) • Created standardized information set • Allowed electronic computer file transmission to any freight company adopting TDCC format • Benefits limited to members of industries that created standard-setting groups • Full realization of EDI • Required standards used by companies in all industries E-Business, Eighth Edition

22. Emergence of Broader EDI Standards • The American National Standards Institute (ANSI) • United States coordinating body for standards • 1979 • Accredited Standards Committee X12 (ASC X12) • Develop and maintain EDI standards • Data Interchange Standards Association (DISA) • Administrative body coordinating ASC X12 activities • 1987: International standards • Administration, Commerce, and Transport (EDIFACT, UN/EDIFACT) E-Business, Eighth Edition

23. E-Business, Eighth Edition

24. E-Business, Eighth Edition

25. How EDI Works • Basic idea: straightforward • Implementation: complicated • Example: company to replace metal-cutting machine • Assume vendor uses its own vehicles instead to deliver purchased machine • Steps to purchase using paper-based system • Figure 5-6 • Steps to purchase using EDI • Figure 5-7 E-Business, Eighth Edition

26. How EDI Works (cont’d.) • Paper-based purchasing process • Buyer and vendor • Not using integrated software for business processes • Each information processing step results in paper document • Must be delivered to department handling next step • Paper-based information transfer • Mail, courier, or fax • Figure 5-6 • Information flows E-Business, Eighth Edition

27. E-Business, Eighth Edition

28. How EDI Works (cont’d.) • EDI purchasing process • Mail service replaced with EDI network data communications • Flows of paper within the buyer’s and vendor’s organizations replaced with computers • Running EDI translation software • Figure 5-7 • Information flows E-Business, Eighth Edition

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30. Value-Added Networks • EDI network key elements • EDI network, two EDI translator computers • Direct connection EDI • Each business operates an on-site EDI translator computer • Value-added network (VAN) • Receives, stores, forwards electronic messages containing EDI transaction sets • Indirect connection EDI • Trading partners use VAN to retrieve EDI-formatted messages E-Business, Eighth Edition

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32. E-Business, Eighth Edition

33. Value-Added Networks (cont’d.) • Advantages • Support one communications protocol (VAN) • VAN records message activity in audit log (independent record of transactions) • VAN provides translation between different transaction sets • VAN performs automatic compliance checking • Disadvantages • Cost (fees) • Cumbersome, expensive (if using different VANs) E-Business, Eighth Edition

34. EDI Payments • Transaction sets provide instructions to trading partner’s bank • Negotiable instruments • Electronic equivalent of checks • Electronic funds transfers (EFTs) • Movement of money from one bank account to another • Automated clearing house (ACH) system • Service banks use to manage accounts • Operated by U.S. Federal Reserve Banks or private ACHs E-Business, Eighth Edition

35. EDI on the Internet • Potential replacement of: • Expensive leased lines, dial-up connections • Required to support direct and VAN-aided EDI • Initial roadblock concerns • Security • Internet’s inability to provide audit logs and third-party verification of message transmission and delivery • TCP/IP structure was enhanced with secure protocols and encryption schemes • Lack of third-party verification concerns continued E-Business, Eighth Edition

36. EDI on the Internet (cont’d.) • Nonrepudiation • Ability to establish that a particular transaction actually occurred • Prevents either party from repudiating (denying) the transaction’s validity or existence • Previously provided by: • VAN’s audit logs (indirect connection EDI) • Comparison of trading partners’ message logs (direct connection EDI) E-Business, Eighth Edition

37. Open Architecture of the Internet • Internet EDI (Web EDI) • EDI on the Internet • Also called open EDI • Internet is an open architecture network • EDI offerings go beyond traditional EDI • Allow more complex information interchanges • Growing rapidly • Not replacing traditional EDI • Large companies have significant investments in traditional EDI computing infrastructure • Most VANs offer Internet EDI services, traditional EDI E-Business, Eighth Edition

38. Open Architecture of the Internet (cont’d.) • More flexible exchange of information • Accomplished with new tools (XML) • ASC X12 task group • Convert ASC X12 EDI data elements and transaction set structures to XML • Context Inspired Component Architecture (CICA) • Set of standards for assembling business messages • Provides predictable structure for message content • Provides more flexibility than EDI transaction sets • Basis for future development of electronic business message standards using XML E-Business, Eighth Edition

39. Open Architecture of the Internet (cont’d.) • Firms extending internal networks (intranets) to trading partners • Turns intranets into extranets • Virtual private networks (VPNs) provide security • Example: Nintendo USA • EDI-based product registration system to prevent fraudulent returns • Huge investment in EDI systems, trained personnel • Reluctant to change business processes, move to Internet EDI, approaches based on XML technologies • Move away from EDI will gradually occur E-Business, Eighth Edition

40. Supply Chain Management Using Internet Technologies • Supply chain management • Job of managing integration of company supply management and logistics activities • Across multiple participants in a particular product’s supply chain • Ultimate goal • Achieve higher-quality or lower-cost product at the end of the chain E-Business, Eighth Edition

41. Value Creation in the Supply Chain • Firms engaging in supply chain management • Reaching beyond limits of their own organization’s hierarchical structure • Creating new network • Form of organization among members of supply chain • Originally a way to reduce costs • Today, value added in the form of benefits to the ultimate consumer • Requires more holistic view of the entire supply chain E-Business, Eighth Edition

42. Value Creation in the Supply Chain (cont’d.) • Tier-one suppliers • Very capable suppliers, a small number of which a firm establishes long-term relationships with • Tier-two suppliers • Larger number of suppliers that tier-one suppliers develop long-term relationships with • Provide components and raw materials • Tier-three suppliers • Next level of suppliers • Trust is a key element E-Business, Eighth Edition

43. Value Creation in the Supply Chain (cont’d.) • Supply alliances • Long-term relationships among participants in the supply chain • Major barrier • Level of information sharing • Example: Dell Computer • Reduced supply chain costs by sharing information with suppliers • Buyers expect annual price reductions, quality improvements E-Business, Eighth Edition

44. Value Creation in the Supply Chain (cont’d.) • Marshall Fisher 1997 Harvard Business Review article • Two types of organization goals • Efficient process goals • Market-responsive flexibility goals • Successful supply chain management key elements • Clear communications • Quick responses to those communications • Internet and Web technologies • Effective communications enhancers E-Business, Eighth Edition

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46. Increasing Supply Chain Efficiencies • Internet and Web technologies used to manage supply chains • Yield increases in efficiency throughout the chain • Increase process speed, reduce costs, increase manufacturing flexibility • Respond to changes in quantity and nature of ultimate consumer demand • Example: Boeing • Invested in new information systems • Increase production efficiency • Launched spare parts Web site E-Business, Eighth Edition

47. Increasing Supply Chain Efficiencies (cont’d.) • Example: Dell Computer • Famous for use of Web to sell custom-configured computers • Also used technology-enabled supply chain management • Give customers exactly what they want • Reduced inventory amount (three weeks to two hours) • Top suppliers have access to secure Web site • Know Dell’s customers and what they are buying • Tier-one suppliers better plan their production E-Business, Eighth Edition

48. Using Materials-Tracking Technologies with EDI and Electronic Commerce • Troublesome task • Tracking materials as they move from one company to another • Use optical scanners and bar codes • Integration of bar coding and EDI is prevalent • Figure 5-11 • Electronic commerce second wave • Integrating new types of tracking into Internet-based materials-tracking systems E-Business, Eighth Edition

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50. Using Materials-Tracking Technologies with EDI and Electronic Commerce (cont’d.) • Radio Frequency Identification Devices (RFIDs) • Small chips • Use radio transmissions to track inventory • Older RFID technology • Each RFID required its own power supply • Important development: passive RFID tag • Made cheaply and in very small sizes • No power supply required • RFIDs • Read much more quickly, with higher degree of accuracy E-Business, Eighth Edition