1. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-1 Operations Management E-Commerce and Operations Management Supplement 11

2. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-2 Outline  THE INTERNET  ELECTRONIC COMMERCE  E-commerce Definitions  ECONOMICS OF E-COMMERCE  PRODUCT DESIGN  E-PROCUREMENT  Online Catalogues  RFQs and Bid Packaging  Internet Outsourcing  On-line Auctions

3. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-3 Outline - Continued  INVENTORY TRACKING  INVENTORY REDUCTION  Warehousing for E-commerce  Just-in-Time Delivery for E-commerce  SCHEDULING AND LOGISTICS IMPROVEMENT  Coordinated Pickup and Delivery  Logistics Cost Reduction

4. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-4 Learning Objectives When you complete this supplement, you should be able to : Identify or Define:  E-commerce  E-business  Online catalogues  Outsourcing  E-procurement Describe or Explain :  How E-commerce is changing the supply chain  Online auctions  Pass-through warehouses

5. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-5 E-Commerce The use of computer networks, primarily the internet, to buy and sell products, services, and information.

6. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-6 E-Business “… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.” Louis Gerstner, Chairman, IBM

7. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-7 E-Commerce Definitions Business-to business (B2B) Both sides of the transaction are businesses, non-profit organizations, or governments. Business-to-consumer (B2C) E-commerce transactions where customers are individual consumers Consumer-to-consumer (C2C) Consumers sell directly to each other. Consumer-to-business (C2B) Individuals sell services or goods to businesses

8. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-8 Types of E-Commerce Transactions BusinessConsumer BusinessB2B GM/Ford/Daimler’s Covisint exchange B2C Amazon, Dell, Net Grocer.com ConsumerC2B Priceline, Travelocity C2C Ebay

9. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-9 Types of Information Offered by Business-to-Business Applications  Product - drawings, specifications, video or simulation demonstrations, prices  Production Processes - capacities, commitments, product plans  Transportation - carriers, lead times, costs  Inventory - inventory tracking, levels, costs, and location

10. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-10 Types of Information Offered by Business-to-Business Applications - Continued  Suppliers - product catalogue, quality history, lead times, terms, and conditions  Supply Chain Alliances - key contact, partners’ roles and responsibilities, and schedules  Supply Chain Process and Performance - process descriptions, performance measures such as quality and delivery

11. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-11 Types of Information Offered by Business-to-Business Applications - Continued  Sales and Marketing - point-of-sale (POS) data entry, promotions, pricing, discounts  Customer - sales history and forecasts

12. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-12 Security in the E-Commerce Environment  Serious issue!  Multiple deprivation of service attacks on e-commerce web sites 2/6 - 2/11, 2000; also, the attack of October 21, 2002, which flooded all 13 of the root servers of the Internet Domain Name System (DNS) (on main internet servers)  Security of data, proprietary business information  Impact on the volume of sales and on the bottom line.

13. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-13 Benefits of E-commerce  Improved, lower cost information  Lower entry costs  Available 24/7, virtually anywhere in the world  Availability expands markets for both buyers and sellers  Decreases the cost of paper-based information  Reduces the cost of communication  Provides richer communication than traditional means  Fast delivery of digitized products  Increased flexibility of location

14. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-14 Limitations of E-commerce  Lack of system security, reliability and standards  Lack of privacy  Insufficient bandwidth  Integrating e-commerce software with existing software is still a challenge  Lack of trust in (1) unknowns on the other end of the transaction, (2) integrity of the transaction itself, and(3) electronic money that is only bits and bytes

15. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-15 Impact on Product Design  Shorter life cycles require faster product development and lead to time-based competition  Greater use of shared knowledge and collaboration - decreased development costs  More data sharing with suppliers and strategic partners

16. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-16 E-Procurement Purchasing or order release communicated over the internet or via approved online vendor catalogues

17. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-17 Online Catalogues  Information about products made available in electronic form via the Internet.  Provided by vendors  Developed by buyers  Provided by intermediaries  Often incorporate voice and video

18. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-18 Internet Trading Exchanges  Health care products: set up by Johnson & Johnson, G.E. Medical Systems, Baxter International, Abbott Laboratories, and Medtronic Inc.; called the Global Health Care Exchange (ghx.com)  Defense and aerospace products: created by Boeing, Raytheon, Lockheed-Martin, and Britain’s BAE Systems; called the Aerospace and Defense Industry Trading Exchange (exostar.com)  Food, beverage, consumer products: set up by 49 leading food and beverage firms; called Transora (transora.com)  Retail goods: setup by Sears and France’s Carrefour; called Global Net Xchange, for retailers (gnx)

19. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-19 Internet Trading Exchanges - Continued  Steel and metal products: such as New View Technologies (exchange.e-steel.com); and Metal- Site (metalsite.com)  Construction Industry: set up by Bechtel, Flour, and G.E. Power Systems (citadm.com) is one of 5 construction industry exchanges  Hotels: created by Marriott and Hyatt, and later joined by Fairmont, Six Continents, and Club Corp, Called Aventra (aventra.com) – buys for 2,800 hotels

20. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-20 Traditional Medical Supply Chain Manual processes Hospital Group purchasing organization for small, independent hospitals DistributorSupplier

21. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-21 On-Line Medical Supply Chain On-line Global Health Care Automated web- based processes Hospital Group purchasing organization for small, independent hospitals DistributorSupplier

22. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-22 E-Commerce and Requests for Quotes (RFQs) Extensive databases of supplier information, and ability to rapidly transfer specifications to vendors reduces time and costs

23. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-23 Online Auctions  Useful for disposing of excess raw material, and discontinued and excess inventory  Online auctions lower entry barriers and increase the potential number of customers

24. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-24  Significant savings (10%)  Requires new skills and staffing in procurement area E-Procurement

25. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-25 Inventory Tracking  Mass customization requires knowledge of location of all goods  Requires data collection, barcode technology, RF and electronic communications to track inventory in transit, on the shop floor, and in the warehouse  Customers can learn what is happening with their order

26. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-26 Warehousing for E-Commerce  E-commerce warehouse is less a warehouse than a “pass through facility.”

27. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-27 FedEx and Dell Computer  FedEx operates warehouses that pick, pack, test, and assemble products, then handle delivery and even customs clearance  FedEx’s “Virtual Order”integrates different companies web catalogues and customer orders for Dell; and then fulfills orders and delivers them through its fleet of trucks and planes.

28. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-28 E-Commerce and JIT  E-commerce coordinates the supplier’s inventory system with the service capabilities of the delivery firm.

29. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S11-29 Scheduling and Logistics Improvements  Coordinated pickup and delivery  Fed Ex merges orders in transit  Logistics cost reduction  Greater capacity utilization