© Frederic Adam, 2000 IS 4402: Electronic Commerce Dr. Frederic Adam Department of Accounting, Finance and Information Systems University College Cork.

Primary aspect of the phenomenon of E Commerce Attempts to change the nature of the linkage with suppliers / customers / competitors SABRE American Hospital Supply Corporation Japanese and American car making and retail industry in the 70s Concept of Just In Time (JIT) Information systems for interacting with the environment

© Frederic Adam, 2000 American Hospital Supply Corporation (AHSC): system whereby customers can directly re-order their supplies from terminals located in their hospitals Successful because it enabled AHSC’s customers to cut their costs of administration originally meant as an INTERNAL systems by AHSC and extended to one main customer Link with customers:

© Frederic Adam, 2000 Links with customers and competitors SABRE (American Airlines): first effective electronic reservation systems in the US simple one-line database application available in any travel agent rented to other airlines competitive value of system still felt today in 1988 AA were making more money out of SABRE than out of flying air planes

© Frederic Adam, 2000 Specific Features of Inter- Organisational Systems Require co-operation also some legal implications - e.g. prevention of computer crimes nature of the agreement extends beyond the system itself - e.g. AHSC started from the relationship between a store manager and a customer

© Frederic Adam, 2000 Level of Integration between trading partners Exchanges of information between partners can be more or less structured: –purchase orders –invoices –cheques –……………. –phone inquiries (not totally reliable) –face-to-face meetings between staff (time consuming) Traditionally, structured exchanges were paper based => slow turnaround time

© Frederic Adam, 2000 Electronic Commerce suggests new methods Invoice => Electronic Data Interchange instead of postal service Payments => Electronic Fund Transfer instead of cheque Short messages => Electronic Mail instead of Phone Group discussions => Electronic Bulletin Boards or computer conferencing instead of meetings Promotion => WWW instead of paper brochure Customer product query => on-line database instead of paper catalogue

© Frederic Adam, 2000 Framework of generic forms of Electronic Commerce Permanent Ad Hoc UnstructuredStructured EDI IOS data retrieval systems Electronic catalogues WWW home pages Electronic meeting rooms computer conferencing Electronic Mail Electronic file transfer

© Frederic Adam, 2000 Electronic Data Interchange (EDI) Creation of inter-organisation networks involving at least 2 organisations can be extended to a very large number of organisations (virtual trading community) Often use an intermediary - e.g a Value Added Network (VAN) Service provider

© Frederic Adam, 2000 EDI uses structured data EDI messages are processed by a computer not by an operator it is very different from simple E-Mail the information received is not displayed to anyone, but directly used by a program in a computer messages are coded

© Frederic Adam, 2000 EDI uses agreed standards Link between commercial partners who agree to do business in a certain way preliminary agreement on what data is being transferred and in what order Adherence to standards means Open Environment at both ends it also requires an universally agreed message structure to operate.

© Frederic Adam, 2000 EDI uses electronic links in the beginning: EDI used computer tapes –slow –vulnerable –low level of integration across companies then EDI used telecommunications –scheduling –cost –compatibility

© Frederic Adam, 2000 A modern solution for EDI Join an EDI network run by a VALUE ADDED NETWORK SERVICE (VANS) supplier similar to a postal service all messages are sent through a delivery service messages are delivered into people’s post boxes

© Frederic Adam, 2000 Advantages of VANS: They enables ASYNCHRONOUS COMMUNICATION there is no need for DIRECT COMPUTER TO COMPUTER COMPATIBILITY PROTOCOL CONVERSION is straight forward control and security of the messages are easier to enforce error handling is done by the carrier

© Frederic Adam, 2000 Spread of EDI EDI was originally limited to the automotive and retail industries now involves virtually every sector of business: –shipping –insurance –banking –government –customs

© Frederic Adam, 2000 “The main benefits of EDI stems from receiving orders as quickly as possible after the buying decision has been made. That speed of movement of information means that it is possible to get the right stock in the right place; to deliver quickly; to make sure you have captured the market opportunity and to minimise the working capitals” PURCHASING DIRECTOR OF A MULTINATIONAL EDI - a Business Perspective

© Frederic Adam, 2000 “I see EDI as reducing the efforts required in entering invoices, with less transcription efforts. We will be able to use the people we have to far greater benefit to the company” CHAIRMAN OF A LARGE FOOD SUPPLYING COMPANY. EDI - a Business Perspective

© Frederic Adam, 2000 Benefits Cost savings - reduction in data entry errors - smaller staff reduced lead time for orders speed up communication creates stronger ties between partners improved customer service

© Frederic Adam, 2000 Problems Set up difficulties: –integration with existing systems –selection of EDI standard loss of flexibility resulting from initial choices requires high levels of commitment from partners substantial benefits only come with high volumes of data exchanges

© Frederic Adam, 2000 What is wrong without EDI: Companies use computers to process transactions and produce paper Computers produce paper faster than humans can process it => strain Result is that processes: are Inefficient are open to errors are often delayed generate extra transaction costs

© Frederic Adam, 2000 What is wrong without EDI: companies are using a combination of the most modern and efficient with the most archaic methods postal link or faxes are the wrong media re-keying of data at the reception is a waste of time these create bottlenecks in the communication of organisations

© Frederic Adam, 2000 With EDI Processes can be integrated and computerised fully from end to end Data entry error is considerably reduced Data transfer can be extended to give immediate feed-back: –order correctly received –goods not available –substitution good suggested Other on-line services can be added: –mail distribution list for new products / price changes –special offers

© Frederic Adam, 2000 Introduction of EDI: EDI can be introduced in two ways pro-active way: company sets out to create a link with its suppliers / customers reactive way: company is asked (forced??) to switch to EDI by one of its customer / supplier benefits can only be maximised if EDI is introduced in a pro-active way (otherwise, standards are dictated by an organisation’s partners) companies need to formulate an EDI strategy - much like BPR (re-design processes to fully exploit EDI)

© Frederic Adam, 2000 EDI in Ireland Largest VAN in Ireland is called EIRTRADE managed by Eircom proposes a variety of services: –EDI trading service –E-Mail between customers more than 250 companies use the service in Ireland and the UK Linked to other VANs in the world (GEIS, CFM...)

© Frederic Adam, 2000 Another example: Hickey and Co. Irish clothing company - about 75000 garments a week formal request to implement EDI from large customer only superficial at first then integrated with manufacturing reduced stock levels, faster turnaround of orders, more attractive to other customers, easier to audit paper trail But too small to convince other customers to use EDI

© Frederic Adam, 2000 The Internet Most of the business to business transactions (including EDI) are carried out on the Net Most of the business to customer are carried out on the Web Future of E-commerce is based entirely on the development of this vast network

© Frederic Adam, 2000 Origins of the Internet Phenomenon 30 years in existence - 1969 Communication network for the US Military! Dormant for many years Then confined to basic applications, such as FTP and Telnet, by the platforms used

© Frederic Adam, 2000 The Explosion of the Internet Huge growth in the number of machines on the NET Widespread coverage in the media - eg: buzzword “Information Superhighway” Recognition of new business opportunities provided by the NET Role of the WWW is and will be increasingly important “The best business opportunity that most people are likely to find in a life time” (Hammond, 1996)

© Frederic Adam, 2000 Some recent statistics 400,000 companies have a web site 90,000,000 people access the net regularly Sales over the Net reached $5.1 billions business to business accounts for 78% travel is one of the most common type of transactions

© Frederic Adam, 2000 Internet Threats Dangers inherent in a wait and see approach Companies can be international competitors on the WWW with little resources Industries are radically changed by the WWW WWW is becoming a crucial battleground The Internet is like a set of cross roads where petrol stations fight a tough price war; except with the Internet, all companies are at the same cross roads

© Frederic Adam, 2000 The Internet in Ireland Computer industry very important –13 % of all Irish exports are software –International head-quarters for EMC, Digital, Apple etc.... Internet’s significance is recognised –more than 1000 significant WWW server sites –65,000 corporate users –one of the top 10 countries for WWW development in the world –Number of Internet Service Providers very high

© Frederic Adam, 2000 Finger on the Pulse!! Number of Sessions per Month 16 Number of Unique Sites Visited 11 Time Spent per Site 42: 11 Time Spent per Month 7: 30: 51 Time Spent During Surfing Session 28: 18 Duration of a Page viewed 01: 05 Active Internet Universe 64,953,584 Current Internet Universe Estimate 109,993,829 but double figure growth is over –redistribution towards vertical sites –traffic congestion

© Frederic Adam, 2000 Case Study of Web Fortune Blue Mountain Arts (.com) - on-line postcard service One of the most highly trafficked sites on the Internet (16th, but 3rd E-Com site) 9.2 millions visitors per month Etoys inc. ready to pay £1 billion for it but quick response of competitors may spoil deal AOL, Yahoo and Amazon developed their own service may be extended to include flower, candy or fruit delivery!

© Frederic Adam, 2000 How trivial can you get? You have just received an animated greeting card from XXX You'll see the personal greeting by using the following Web location. http://www1.bluemountain.com/cards/box6958r/ufe4vyeufagkw y.htm (Your greeting card will be available for the next 90 days) There is no charge for this service! :) HAVE a good day and have fun!

© Frederic Adam, 2000 Electronic Commerce As indicated by spread of EDI, phenomenon not recent (gradual increase over 25 years) Interest growing rapidly Definition: automation of commercial transactions using computer and communications technologies commercial = transactions that involve the exchange of goods, funds or obligations...

© Frederic Adam, 2000 Precursors of E-Com More than 2000 initiatives introduced over last 20 years most successful (still exist besides the Web) was France’s Minitel (1980) –infrastructure made available to companies to sell services through telephone lines –France Telecom equipped entire user population within 2 years –hundreds of thousands of local and national services Most other attempts failed (e.g. Minitel in Ireland)

© Frederic Adam, 2000 Key points in the current success International, borderless initiative Technology is mainstream and affordable (e.g GUI) Flexibility is ensured through the existence of thousands of existing / developing local networks Global markets set free from the shackles of 9 to 5 constraints goes hand in hand with internal re-engineering carried out in many organisations...

© Frederic Adam, 2000 Fortune 500 E-Com All have Web sites Only 10% conduct transactions Mostly public relations, customer service and technical assistance (70% of sites) marketing and sales (30% of sites) Illustrates that E-Com is not a silver bullet

© Frederic Adam, 2000 Limitations of current sites Only 3% of sites for direct sale (9% equipped for on-line transactions) more than 50% of users went on-line to make a purchasing decision... only 15% bought because sites did not (easily) allowed them to do it on-line 2/3 of customers put goods in their trolleys and then fail to complete transaction!

© Frederic Adam, 2000 But... Internet has potential to enable / impose radical changes: at first, e-mail is a replication of normal mail, just faster then, it take additional dimensions i.e. effects that go beyond its technical features (virtual communities) E-Mail has the power to change the key parameters in this definition groups are those social aggregates that involve mutual awareness and potential mutual interaction (McGrath, 1984)

© Frederic Adam, 2000 For example: Instigation of electronic exchanges with emerging nations / markets simpler structure less tradition bound attracted to novel and efficient ways little costs in competing in most distant of markets Other experimentation include letting customers deciding the price Internet does create opportunities that could not be exploited otherwise

© Frederic Adam, 2000 Types of e-commerce Business to business: –EDI –largest in money terms (as in real world) business to consumers: –WWW retailing and brokerage services consumer to consumer: –free ads services / discussion groups attempt to implement single point of entry and limit errors and speed up process Also, higher degree of customisation of customer services (e.g. auction markets)

© Frederic Adam, 2000 Where does the money go? Internet retailing grows 200% per year top 10 retailers account for 50% mix retailers (e.g. Dell) account for 60% portal sites only pocket 30% of E-revenues

© Frederic Adam, 2000 E-Commerce Challenges: Speed = service is never too fast Convenient = better integration along the supply chain (end to end value stream) Personalised = service is never too personalised Price = products and services are never too cheap = View the world from a customer perspective (visionary?)

© Frederic Adam, 2000 Constructing a E-Commerce design All about offering new ways to service customer acquiring the capability to implement these new ways e.g. DELL’s BTO model for selling PCs company does not manufacture a PC before an order is received $10 million sales on-line per day! (soon 50% of all DELL sales) - Jan 97: $1 million. Never been easier to buy a PC

© Frederic Adam, 2000 Step One: Self-diagnosis Diagnose the company and its markets –current / recent innovations? –Evolving customer expectations –any way to question industry assumptions –any way to lower costs innovator / market leader - early adopter / visionary - silent majority -...

© Frederic Adam, 2000 Step two: reversing the value chain Linking emerging technology to new business designs More difficult than merely adapting new to current traditional break down into product and service not helpful => creating better offering outside-in approach (better attention to market changes) effectively and competitively presenting good products no longer sufficient

© Frederic Adam, 2000 Step three: choosing a narrow focus Technology can be enabling, but also distracting concentration on a key area is required service excellence (knowing customers better) operational excellence (having better internal processes) continuous innovation excellence (having leading edge products) not compete on every aspect / feature of product service

© Frederic Adam, 2000 Example: Dell Narrow focus on Supply chain innovation “quickly manufacturing and delivering inexpensive top quality PCs” the three plants are located close to their suppliers and operate in JIT Orders follow machines across the floor Automated customer requests mean operators are shown by flashing colours what components to use (i.e. what type of PC to assemble)

© Frederic Adam, 2000 Critical Success Factors Back end systems enable extremely quick transmission of orders to factories CIM systems are then used to schedule production integration of operations with upstream design activities mean shorter time to market for new pdts no finished goods inventory (cost, obsolescence) outsourcing of non-critical components (e.g. screen) acceleration of payment cycle (goods paid for before they are built!)

© Frederic Adam, 2000 Lessons from the Dell case Companies should try to: increase their ability to respond to the ever increasing and ever changing needs of customers requires very flexible business design based on solid technical foundation Even though E-Com is an extra-organisational mode of communication it has crucial implications for internal systems

© Frederic Adam, 2000 Managing customer relationship E-com presents specific challenge because contact is over the web personal relations are excluded only end of process is (sometimes) done with human operators searching for new customers / selling new services to old ones is difficult if you do not know who to talk to

© Frederic Adam, 2000 E.g. Charles Schwab Ltd. Brokerage service for DIY investors $200 billions assets all contacts through phone => little visibility on transactions sales reps + service people do not know enough Customer relationship management (CRM): integrating all activities involving customers All needs addressed together marketingServiceSales CRM

© Frederic Adam, 2000 Many other such examples of integration Enterprise resource planning (Nestle) Supply chain (Ford Motors comp) Selling chain management (Whirlpool) –pricing system was paper based –spreadsheet with 180,000 cells - many customer types / pricing strategies –15 days lead time to print booklets –integrated systems takes into account all parameters The e-commerce strategy is then constructed around these core systems

© Frederic Adam, 2000 Planning for integration Ensure proper knowledge about the end-to-end demand planning function - variations and seasonality carry out data consistency and accuracy checks creating better relationship with partners upstream and downstream envisage structural changes required (e.g. zero inventories) Plan for additional skills / re-training (e.g. MRP)

© Frederic Adam, 2000 Prepare systems for integration Enable information sharing - more robust communication create joint performance measurement systems and collaborative planning processes exchange / re-distribute responsibilities redesign products and processes so work is easier and more efficient (BPR)

© Frederic Adam, 2000 Business Process Re-Engineering: 90’s buzzword in management Redesign the whole organisation to make it more effective rather than efficient Based on extensive studies of all processes Create new ways to do things that minimise -time spent -number of employee required -costs incurred and maximise: –Customer satisfaction –speed of service –profit margin

© Frederic Adam, 2000 Process versus Functions MarketingManufacturingOther functions Production and Sales of Product A Production and Sales of Product B Other Vital Process - e.g. dealing with customers

© Frederic Adam, 2000 BPR versus Process Rationalisation Up to now, emphasis on increasing efficiency But “there is nothing more useless than doing efficiently what should not be done at all” Dramatic improvements require revolutionary moves Everything must be questioned Drucker, 1986

© Frederic Adam, 2000 Information Systems to support the e-business strategy Customer relationship management (CRM) Selling chain management Enterprise Resource Planning (ERP) Supply chain management (SCM)

© Frederic Adam, 2000 Customer Relationship Management Cost of selling to a new customer is six times as high as to existing customer Each dissatisfied customer tells 8 to 10 people 1 extra % of customer retention can boost turnover by as much as 15% Odds of selling to a new customer = 1/7 to an existing customer = 1/2 70% of dissatisfied customers will do business again if they feel their complains are handled well 90% of companies may not have the customer support required for e-business

© Frederic Adam, 2000 Why CRM? Customers don’t care about their suppliers’ internal difficulties They want to be able to access product and services at the least cost They want a single point of entry Existing loyalty programmes don’t go far enough

© Frederic Adam, 2000 The 3 phases of CRM Acquiring new customers –by promotion –leading edge product backed by superior service Enhancing profitability of existing customers –cross-selling and up-selling (one stop shopping) –additional services Retaining most profitable customers –best customer list –customer profitability analysis –make best offer to best customer

© Frederic Adam, 2000 Acquiring new customers Creating a bit of magic! E.g. IBM’s new product site Market research indicates that sales are more secured in the two or three minutes after the inquiry was made! Create a sound relationship from the start may no be so expensive

© Frederic Adam, 2000 Enhancing existing relationships Listening to customer complains is a key aspect of CRM (better to know) e.g. Best Buys (electronic retailer): 3000 calls / day!(average 15 minutes) Many different types of inquiries must be dealt with at the same point (call centre) Operators must have broad knowledge + access to specific info (e.g. TNT)

© Frederic Adam, 2000 Retaining the best Customers Selecting best customers (on rigorous basis) –e.g. State Farm insurance offers best products to people without claims over last five years –already in place in many industries - e.g. car insurance Holding on to them using some positive discrimination Listening to them should tell you how provide incentive to salesreps to boost retention –some companies reward more highly to retain existing customers than for getting new ones

© Frederic Adam, 2000 Novelty of the CRM Approach Complete and integrated solution - breaks down the walls of conventional functional areas Most companies are good at one of the 3 activities - CRM concentrates on all 3 Overall corporate objective of providing customer satisfaction –systems in place to collect, store, exploit CRM info –active distribution of information about customers Not as easy as it looks

© Frederic Adam, 2000 Customer contact point Move from traditional phone + mail towards Web enabled contact: –how will this affect the content of the communication? –will it be cheaper or more expensive? Call centre (70% of all contact points) evolving into a selling channel Goals of the contact point –Listening to the customer –creating higher levels of loyalty (HD) –providing a better experience

© Frederic Adam, 2000 Selling Chain Management Sales information is not always available (e.g. self-service environments) sales people sometimes have too much admin to do Fragmented order support means multiple contact points Legacy systems not integrated

© Frederic Adam, 2000 Why SCM? Increase of self-service ordering (limited choice and interaction - e.g. second hand cars) excessive cost of pre-sales technical support Increasing cost and volume of errors in ordering cycle increasing diversity of channels for selling increasing complexity of products increasing complexity of markets (deregulation, mergers etc…)

© Frederic Adam, 2000 CISCO and SCM CISCO’s customers are resellers who sell networking products before: reps would go around visiting shops and fill orders or orders would arrive directly by fax at Cisco’s Orders were then re-keyed in the SOP systems After: automation of the process (see figure attached)

© Frederic Adam, 2000 Enterprise Resource Planning (ERP) Large application geared towards integrating the essential internal processes of an organisation e.g. SAP R/3, MFG/PRO, Baan, JD Edwards Support the transactional backbone of the organisation 70% of fortune 500 companies have or are implementing ERP systems SAP has become the second largest software producer in the world

© Frederic Adam, 2000 Example: Colgate Palmolive Large corporation with many products: –streamlining the business while offering increasing flexibility to customers SAP R/3 to address manufacturing / logistical complexity 1996 - 2001 to equip the whole corporation 75 data centres / 2 centres with 40 staff 1 to 5 days for order acquisition + 1 or 2 days to process it ……… / combined acquisition and processing in 4 hours! on-time deliveries = 91.5% / 97.5% Also accounts payable and HRM were consolidated in one location Before:After:

© Frederic Adam, 2000 Content of ERP systems ERPs are not single systems: series of modules supporting specific areas –admin functions –HR –manufacturing / MRP –order processing etc… single point of entry for all data: sits on top of a single database of shared data data is released from one module into the relevant modules once it has been checked ERPs have the potential to solve the back end headaches of e-commerce solutions

© Frederic Adam, 2000 Reasons for ERP systems Search for operational excellence cost cutting / rationalisation standardisation / compatibility of disparate IT infrastructures (e.g. mergers) e.g. Ericsson reported following improvements: –SOP 1 hour to 10 minutes –PO 4 hours to 5 minutes –production scheduling: 18 hours to 30 minutes –98% of orders delivered on time

© Frederic Adam, 2000 Benefits of ERP Understanding the implications of changes in production schedule (by de-expediting parts) Keeping inventory low (25% decreases reported) while removing risk of stock-outs Better planning leading to: –reduction in lead times –better use of capacity –lowered risk of obsolete production (e.g. engineering firms) Early warning system: earliest delivery dates are known before promises are made

© Frederic Adam, 2000 Different Applications of ERP Increased flexibility in design / production in order to serve niche markets (focus on small output) - more Europe Better organisation of mass production - more Japan Better utilisation of the capacity, optimisation of performance - more US

© Frederic Adam, 2000 How to get an ERP Build or buy decision try to minimise the high levels of risk: –Foxmeyer ($5 billion pharmaceutical comp.) went bankrupt in 1996 –sued SAP’s US subsidiary and Andersen Consult. for a combined $1 billion –3 years of implementation destroyed the company –bought by McKesson Drugs - 1997 Try to get best fit between ERP functionalities and business model

© Frederic Adam, 2000 Critical issues in ERP implementation High cost and high stakes Misguided belief that there is an ERP that “does it all” difficulty in making a transition from an old model to an ERP model overestimation of the pace of change of some stakeholders (technical change is not sufficient) difficulty in obtaining any direct ROI

© Frederic Adam, 2000 Buying ERPs Many suppliers: SAP / Baan / JD Edwards / QAD always implemented through a distributor advantages are numerous (as against building) –integrate best practice –insurance against obsolescence –cheaper !!?? –Software development is not core competency for most selection process is difficult at best: –site visits –presentation –discussion groups...

© Frederic Adam, 2000 The ASP model Over the last two years - Pressure from Y2K? "An ASP manages and delivers application capabilities to multiple entities from a data centre across a wide area network.” different types of ASP: –horizontal: enterprise / volume or regional ASP –vertical model: task-specific or industry-specific ASP solution offered through a Best-of-breed or One- stop-shopping model

ERP and ASP As with all ecom systems, service has two parts: –interface (web) or client –back end functionality on a server opportunity to differentiate service for ASP + offer additional software in the package opportunity for customer to pay far less and to implement far quicker (c.f. SMEs) Also, traditional ERP market is contracting expertise is in short supply

© Frederic Adam, 2000 Mechanics of ERP / ASP Services 24 to 36 months contracts 400-500 euros per workstation per month + subscription fee at start service includes: technical setup / implementation + software licences + on-going support + upgrade some ASPs offer differentiated services for different industries others develop interfaces that allow some degree of customisation without touching the software SAP claim the same margins can be obtain

© Frederic Adam, 2000 Future trends A bit of a jungle - needs for standards Risk element is great for all partners involves - especially customers Application Service Provider Industry Consortium created end of 1999 Code of good practice ready in January 2000 creation of a certification that guarantees service and gives protection to customer (Ernst / Young and Deloite / Touche)

© Frederic Adam, 2000 ERP Capabilities - SAP Accounting / finance: –Asset management, cash management, product cost accounting, A/R and A/P… Production planning and materials planning –purchasing, inventory management, MRP, production planning HR management –travel expenses, payroll, personnel planning sales and distribution –sales planning, order management, quality management e.g. Microsoft spent 10 months and $25 ms replacing 33 different systems in 26 sites with SAP

© Frederic Adam, 2000 Critical Success Factors in ASP model Security of the data and application performance and reliability of application –at least 98% uptime flexibility of the service offered adaptation of the software relationship between supplier and customer / user

© Frederic Adam, 2000 Potential partners Pure play ASPs - 100% new ISP and Telecom companies - own the infrastructure Software vendors - own the licences Hardware vendors - own the platform Distributors - own the customers No one has all the required competence

© Frederic Adam, 2000 Nest steps on this market All ERPs will include CRM modules Platform provider for ASP solutions –e.g. Prologue + Microsoft: biz@large HP willing to enter into the capital of any venture if they provide the hardware Business Process Outsourcing (BPO) eXtended Resource Planning (XRP) - support decision making as well

© Frederic Adam, 2000 Conclusion on ERP Whether traditional or ASP - matching the business processes to the functionality obtain agreement from all actors be ready for fundamental change don’t lose sight of the specificities of the firm try an incremental implementation rather than a culture shock leave the door open for change after the ERP implementation

© Frederic Adam, 2000 ERP capability - MFG/PRO meant to deal with requirements throughout the entire product supply chain multi-location / multi-factory / multi-products etc… Includes Inventory control Distribution / Manufacturing / Financial / Field services support / Planning Based on a large Progress® relational database and developed in 4th GL

© Frederic Adam, 2000 Case Study of SAP implementation Vandelay Industries Inc. (95 - 97) SAP R/3 ERP Goals: –end the fragmentation of systems –allow process standardisation –give more visibility on data across entire corporation –give competitive advantage much enthusiasm especially amongst plant managers high expectations / low level of understanding what ERPs are

© Frederic Adam, 2000 Company background Manufacture and distribute industrial process equipment $8 billion turnover rapid expansion from 1945 to 1985 by opening new sites and buying smaller firms 30,000 staff on four continents find themselves too expensive and too slow three plant closures and 10,000 staff lost return to profitability but fear that it may not be enough

© Frederic Adam, 2000 Information Systems Each plant had own systems (MRP, planning, scheduling…) corporate finance IS only integrated one problems resulting: –integration often impossible –scheduling incompatible => no end-to-end vision of processes as soon as more than 1 plant involved –no overall planning –order acquisition entirely manual (faxes and phones) –no integration of key functions - e.g. HR –also, processes complex on factory floors

© Frederic Adam, 2000 The Team and the Project SAP - market leader at the time (6000 sites 400,000 users in 1996) Deloitte and Touche / ICS subsidiary - favourite SAP implementer –general management consultants –SAP specialists 18 months planned with 50 f/t staff budget $20 million 50/50 split: designing “to be” processes / implementing SAP target sites: –8 manufacturing –4 order entry –headquarters

© Frederic Adam, 2000 Key issues in the project Steering committee made up of high level, highly committed managers - monthly meetings Pluridisciplinary project team - IS + key functional areas - full time centralisation vs autonomy (involvement of users) standardisation of practices (e.g. part numbers) Suitability of SAP –change business to match SAP –interface SAP with other system –extent SAP system to match current practices Persuasion of key change agents

© Frederic Adam, 2000 Supply Chain Management Increasingly common type of application e.g. Bergen Brunswig (pharmaceutical medical product distributor): –no longer see themselves as a distribution company but as managing the medical supply channel on behalf of others –not merely moving products but also managing information and the ultimate efficiency of the channel e.g. Dell anti e.g.: Boeing wrote off $2.6 billion in Oct. 1997: –raw material and internal assembly shortages –unhappy customers

© Frederic Adam, 2000 Definition Complex network of relationships that organisations maintain with trading partners to source, manufacture and deliver its products includes material, information and financial flows as shown below Product Flow Product Flow Product Flow Product Flow SupplierManufacturing DistributionRetailerConsumer Information Flows Payment Flows

© Frederic Adam, 2000 Goal of SCM Delivering the best value proposition: what the customer want, how and when it’s wanted, at the lowest possible price to achieve this companies need rapid, cost effective and flawless demand fulfilment Involves taking responsibility for what happens outside the walls of the organisation linkage with suppliers minimising the cost of order delivery process by trading off cost of inventory, transport, handling etc...

© Frederic Adam, 2000 Obstacles to good SCM No player has enough info to synchronise the entire channel most SCc contain more than double the required inventory products are handled too many times (5/6 average) Physical carriers struggle to maintain costly equipment on slim margins

© Frederic Adam, 2000 Novelty in SCM - eSCM Better techniques and software: e.g. SAP’s Advanced Planning and Optimisation Supply Chain planning => for the entire channel Web-based applications shared by all partners involved including consumers help both planning and execution + provide greater visibility e.g. complex product with fragmented supply in many different countries

© Frederic Adam, 2000 Supply Chain Trends Increased worldwide dispersion of manufacturing and distribution facilities increased channel unpredictability responsiveness before efficiency: need to be quick and flexible disrupts existing paradigms Market share before profit margin (.com)

© Frederic Adam, 2000 Key Areas of Investment in SCM Inter-enterprise co-ordination of design, manufacturing and business process Effective distribution and channel partnership customer responsiveness and accountability

© Frederic Adam, 2000 Different stages in SCM Enterprise focus - traditional model –figure 1 –characterised by fragmentation –sometimes semi-conflict between links in the chain Partner focus - modern vision –figure 2 –characterised by collaborative idea Direct focus (e.g. Dell) - emerging vision –figure 3 –characterised by customer-direct capability –near zero inventories

© Frederic Adam, 2000 Service through SCM integration Inferior integration of SCM results in: –erratic level of service –no vision of future demand –bad/inefficient production planning and scheduling –rising inventory costs Good SCM leads to: –Responsive SC (quick and accurate) –Enterprising SC (adaptable) –Intelligent SC (dynamic and visionary)

© Frederic Adam, 2000 Elements of SCM Two key elements are planning –forecast of demand, –inventory simulation –manufacturing planning... Execution –procurement –manufacturing –distribution... Specific software exist to enable those

© Frederic Adam, 2000 SC Planning Two types of software: –Order commitment (available-to-promise) –Advanced scheduling and manufacturing planning –Demand planning –Distribution planning –Transportation planning Understanding the impact of taking additional orders / changing current orders Integration with ERP required

© Frederic Adam, 2000 SC Execution Key differentiator in today’s markets Planning can help to cut costs, be more efficient Execution is what truly satisfies customers’ needs key stages: –order acquisition –production / purchase of goods –replenishment –distribution –reverse logistics (dealing with returns - up to 14%)

© Frederic Adam, 2000 Problems with SC Lack of knowledge of the end-to-end demand function inconsistent / out-of-date data about SC (poor decision making) lack of process integration with partners need for fundamental structural changes

© Frederic Adam, 2000 Solutions Enable information sharing –robust communication process create joint performance measurement systems create joint collaborative planning processes exchange responsibilities / redesign across firms redesign products and services to facilitate work and satisfaction of customers All these are stages of the total solution

© Frederic Adam, 2000 Key Questions in sorting out the SCM SCM is a business design issue What is the right e-chain structure? Does the chain enable us to differentiate ourselves? Does it facilitate effective order fulfilment? Is it matched by proper infrastructure / internal processes?

© Frederic Adam, 2000 Types of SCM Integrated Make-to-stock –smoothing demand in mass production industries –linked to postponement in distribution channel Continuous replenishment –customer-demand pull system across firms –ECR, QR Build-to-order –efficient SCM allows return to BTO model –inventory substituted with information (Dell)

© Frederic Adam, 2000 Example: CVS-McKesson SCM McKesson occupied key position –35000 customers / 60000 orders (1.6 m lines) daily –all orders in electronic forms –target: become the world leader CVS has acquired many prime locations on the market –US drug wholesalers down from 180 to 45 –top 5 = 57% of market and growing Market evolution –market is growing –wholesalers are best distribution channel –manufacturers can concentrate on R&D –wholesalers are transforming their offering into information-based services Moves to greater integration between CVS & McKesson –McKesson takes over responsibility for stock levels –measures consumption / plan for demand –replenishes stocks to meet agreed upon levels –High level of inter-firm integration Continuous replenishment

© Frederic Adam, 2000 Moving into E-Business Ecom value proposition –what is the customer looking for? –Strategy of the firm e-business foundation –blueprint for value creation capacity evaluation –current business and capabilities e-business design –how the value is packaged into product, services and sites? Execution and monitoring

© Frederic Adam, 2000 Value proposition Knowledge building –much to learn on customers and their perception of value –Why are doing things the way we are? Specific questions: –who are my customers? (profile / categories) –What are their priorities? –How can I create value for them? –How does my product reach them? –Who are (will be) my real competitors? –How can we use technology to change these parameters?

© Frederic Adam, 2000 Capability evaluation What can we do now? –Organisation specific assets –staff what do we urgently need? –Staff development / new hiring –investments –plans for acquisition –plans for linkages across functions

© Frederic Adam, 2000 E-Business design Category killer (first mover) Channel reconfiguration (change access to customers, suppliers etc..) transaction intermediary (internet for operational support) Infomediary (reduction of search cost) self-service innovator (total service to customer) Supply Chain innovator (integration of SCM agents) Channel Mastery CVS

© Frederic Adam, 2000 Case Study: E Trade Self service innovator invented on-line trading strong web presence offering self-directed traders the best prices Also, real time access to quality information New entrant philosophy = clean slate approach and quick decision making opposed to current players - e.g. Merril Lynch who have brand, customers etc...

© Frederic Adam, 2000 Traditional versus startup planning Analyse trends and compare firm to best practice VS: develop a plan that solves a critical customer pb design fundamental change plan VS: design an ebusiness that matches the business model developed + find suitable partners (BOB) Implement change VS: deploy electronic architecture to attack new segments. Spend! Phase 1 Phase 2 Phase 3

© Frederic Adam, 2000 E-trade: key to success 24 hour service lower price because of lower transaction costs instantaneous access to selected sources of info remove barriers to offer transparency / remove inefficiency in brokering business No precedent / no given way to do business

© Frederic Adam, 2000 E-trade statistics New breed of customers - very active 25% of customers on-line every day! Customer trade 25 times / year on average customer retention rate 96% create a situation where customer perceives high switching costs copy cat: 30 on-line traders (x2 in 1 year) e.g. eSchwab has 1m on-line customers traditional agents face challenge of diversification

© Frederic Adam, 2000 Etrade: maintaining success Maintain momentum + holding on to customers customer acquisition costs increase as competition intensifies first mover advantage massive advertising develop partnerships (e.g. franchise in Canada and Australia)

© Frederic Adam, 2000 Etrade - the future Quick progression by forging alliances to give additional depth to product range Resulting lack of integration of services no cross selling need a change of structure to take advantage has already become a traditional business?

© Frederic Adam, 2000 Seminar from M.Fahy - NUI Galway Financial markets will not be re-opened so easily barriers to entry as still strong markets still highly regulated within geographical areas big players have decided to wait, but not for long At current stage, the kids are playing Ecom! there may be a big shake-up where large resources will be needed to survive

© Frederic Adam, 2000 Key factors in surviving Robust back end: the Ecom iceberg After the novelty has faded, only companies with a sound business model with succeed The underlying / support systems and technology that are truly useful will make the difference: –ERP –c.f. SABRE and AIMS ATM model: simple but robust very moral conclusion that only companies who know what they are doing will survive Also current financial madness will not last as shareholders demand traditional rewards (£££)

© Frederic Adam, 2000 Selection of customers Ecom breaks barrier to entry for customer as well as supplier In a garage, only customers with cars, on the web... Little info available about customers how to detect the most profitable ones? Can companies really turn anyone down?

© Frederic Adam, 2000 Clive Holtham’ s (City University London) seminar Internet growth nothing special definition of Ecommerce and Ebusiness fact that non-E Business will virtually disappear ICDT Model of Ebusiness (Angehrn, 1997) Point about the crazy market valuations –disruptive technologies –madness of crowds rise and fall of Ecom => post-net society will settle again

© Frederic Adam, 2000 ICDT Model: Virtual I nformation Space Virtual C ommunication Space Virtual D istribution Space Virtual T ransaction Space Most Ecom Strategies will include one or more of these aspects

© Frederic Adam, 2000 IS 4402: Electronic Commerce Dr. Frederic Adam Department of Accounting, Finance and Information Systems University College Cork.

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© Frederic Adam, 2000 IS 4402: Electronic Commerce Dr. Frederic Adam Department of Accounting, Finance and Information Systems University College Cork.

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Presentation on theme: "© Frederic Adam, 2000 IS 4402: Electronic Commerce Dr. Frederic Adam Department of Accounting, Finance and Information Systems University College Cork."— Presentation transcript:

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