Strategies for Purchasing and Support Activities: From Electronic Data Interchange to Electronic Commerce

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.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.