Chapter 9

1. Chapter 9 Strategies for Purchasing and Support Activities: From Electronic Data Interchange to Electronic Commerce

2. Learning Objectives In this chapter, you will learn about: • Strategies that businesses use to improve purchasing, logistics, and other support activities • The ways that firms are creating network organizations • Electronic data interchange, how it works, and how businesses are moving it to the Internet

3. Learning Objectives • Supply chain management and how businesses are using the Internet and Web technologies to improve it • The software packages that companies are using to implement business-to-business electronic commerce and supply chain management

4. Purchasing, Logistics, and Support Activities • Electronic commerce possesses the potential for cost reduction and business process improvement in purchasing, logistics, and support activities. • An emerging characteristic of purchasing, logistics, and support activities is that they need to be flexible.

5. Purchasing Activities • Purchasing activities include: • Identifying vendors • Evaluating vendors • Selecting specific products • Placing orders • Resolving any issues that arise after receiving the ordered goods and services

6. Purchasing Activities • Procurement includes all purchasing activities, plus the monitoring of all elements of purchase transactions. • 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. Click to see Figure 9-1:

7. Purchasing Activities • Products that companies buy on a recurring basis are called maintenance, repair, and operating (MRO) supplies. • One of the largest MRO suppliers in the world is W.W. Grainger. • McMaster-Carr is another major MRO supplier through WWW. • Office Depot and Staples are also examples in this area. Click to see Figure 9-2:

8. Logistic Activities • The classic objective of logistics is to provide the right goods in the right quantities in the right place at the right time. • Businesses have been increasing their use of information technology to achieve this objective. • FedEx and UPS have freight tracking Web page available to their customers.

9. Support Activities • Online Benefits is a firm that duplicates its clients’ human resource functions on a secure Web site that is accessible to clients’ employees. • Support activities include: • Finance and administration • Human resources • Technology development

10. Knowledge Management • Knowledge management is another support activity that intentional collection, classification, and dissemination of information about a company, its products, and its processes. • BroadVision has installed K-Net, or Knowledge Network, that organizes all information sources that its employees use regularly in their jobs.

11. Network Model of Economic Organization • The trend in purchasing, logistics, and support activities is the shift away from hierarchical structures toward network structures. • The Web is enabling this shift from hierarchical forms of economic organization to network forms. • The roots of Web technology for B2B transactions lie in electronic data interchange (EDI).

12. Electronic Data Interchange (EDI) • EDI is a computer-to-computer transfer of business information between two businesses that uses a standard format. • Transaction data in B2B transactions includes the information on paper invoices, purchase orders, requests for quotations, bills of lading, and receiving reports.

13. Early Business Information Interchange Efforts • In 1950s, information flows between businesses continued to be printed on paper. • By the 1960s, businesses had begun exchanging transaction information on punched cards or magnetic tape. • In 1968, a number of freight and shipping companies formed the Transportation Data Coordinating Committee (TDCC) to create the TDCC standard format.

14. Emergence of Broader Standards • The American National Standards Institute (ANSI) has been the coordinating body for standards in the U.S. since 1918. • In 1979, ANSI chartered a new committee to develop uniform EDI standards. This committee is called the Accredited Standards Committee X12 (ASC X12). • In 1987, the United Nations published its first standards under the title “EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT). Click to see Figure 9-3: Click to see Figure 9-4:

15. How EDI Works – An Example • The information flows that will occur in the paper-based version of the purchasing process example are shown in Figure 9-5. • The information flows that will occur in the EDI version of this example purchasing process are shown in Figure 9-6. Click to see Figure 9-5: Click to see Figure 9-6:

16. Value-Added Networks • EDI reduces paper flow and streamlines the interchange of information among departments within a company and between companies. • Trading partners can implement the EDI network and EDI translation processes in several ways use either direct connection or indirect connection.

17. Direct Connection between Trading Partners • Direction connection EDI requires each business in the network to operate its own on-site EDI translator computer. • These EDI translator computers are then connected directly to each other using modems and dial-up phone lines or dedicated leased lines. Click to see Figure 9-7:

18. Indirect Connection between Trading Partners • Instead of connecting directly to each of its trading partners, a company might decide to use the services of a value-added network. • 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. Click to see Figure 9-8:

19. VAN • Companies that provide VAN services include General Electric Information Services, GPAS, Harbinger Corp., IBM Global Services, etc. • Cost is an issue to VAN. Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee.

20. EDI on the Internet • Trading partners who had been using EDI began to view the Internet as a potential replacement for the expensive leased lines. • The major roadblocks to conducting EDI over the Internet were security. • As the TCP/IP was enhanced and SHTTP protocol was developed, businesses worried less about security issues.

21. Open Architecture of the Internet • A number of new firms, such as Commerce One and IPNet, have begun providing EDI services on the Internet. • EDI on the Internet is also called “open EDI” because the Internet is an open architecture network. • New tools such as XML are helping trading partners be even more flexible in exchanging detailed information.

22. Financial EDI • The EDI transaction sets that provide instructions to a trading partner’s bank are called financial EDI (FEDI). • All banks have the ability to perform electronic funds transfers (EFTs). • Most EFTs are handled through the Automated Clearing House (ACH). • Security and reliability are issues of FEDI.

23. Hybrid EDI Solutions • Some firms are offering hybrid EDI solutions that use the Internet for part of the transaction. • Bottomline Technologies’ payBase package is an example. • Other hybrid solutions include EDI-HTML translation services. Click to see Figure 9-9:

24. Supply Chain Management • The part of an industry value chain that precedes a particular strategic business unit is often called a supply chain. • The purchasing department has traditionally been charged with buying all of these components at the lowest price possible.

25. Value Creation in the Supply Chain • The process of taking an active role in working with suppliers to improve products and processes is called supply chain management (SCM). • SCM was originally developed as a way to reduce costs.

26. Value Creation in the Supply Chain • Today, SCM is used to add value in the form of benefits to the ultimate consumer at the end of the supply chain. • Supply chain members can reduce costs and increase the value of product or service to the ultimate customer.

27. Technology in the Supply Chain • Clear communications, and quick responses to those communications, are a key element of successful SCM. • Technologies of the Internet and the Web can be very effective communication enhancers. • Figure 9-10 lists the advantages of using Internet and Web technologies in SCM. Click to see Figure 9-10:

28. Technology in the Supply Chain • In 1997, production and scheduling errors costing Boeing over $1.5 billion. • Using EDI and Internet links, Boeing is working with suppliers so that they can provide the right part at the right time. • To further benefit customers, Boeing launched a spare parts Web site, Boeing PART.

29. Technology in the Supply Chain • Dell Computer has also used technology-enabled SCM to give customers exactly what they want. • Dell has been able to dramatically reduce the amount of inventory it must hold. • Dell has also shared this information with members of its supply chain.

30. Enterprise Resource Planning Software • 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. • Major ERP vendors include J.D. Edwards, Oracle, PeopleSoft, and SAP.

31. Business-to-Business (B2B) Commerce Software • B2B commerce software is designed to help companies build Web sites that host catalog and other commercial sales activities. • Netscape’s SellerXpert and Open Market’s LiveCommerce-Transact combination are full-featured products that help companies put catalogs online. • The other B2B commerce software packages are toolkits that help the customer custom configure catalog and order management systems.

32. Supply Chain Management Software • Supply chain management software includes demand forecasting tools and planning capabilities to coordinate various activities. • Currently, the two major firms offering SCM software are i2 Technologies and Manugistics.