Chapter 9 Strategies for Purchasing and Support Activities Electronic Commerce

Objectives u Improving purchasing, logistics, and other support activities u Creating network organizations that extend beyond traditional limits u EDI, how it works, and how it is moving to the Internet u Internet improvements to supply chain management u Software packages for business-to-business e-commerce and supply chain management

Purchasing, Logistics, and Support Activities u Purchasing activities l Identifying and evaluating vendors l Selecting specific products l Placing orders l Resolving issues after receiving the ordered goods or services u Specialized Web sites exist that offer high levels of product knowledge

Neoforma Product Sourcing Web Site Figure 9-1

Neoforma Product Sourcing Web Site

Logistic Activities u Providing the right goods in the right quantities in the right place at the right time u Managing the inbound movements of materials and supplies and the outbound movements of finished goods and services

Support Activities u Includes the general categories of l Finance and administration u Making payments, processing customer payments, budgeting and planning l Human resources u Hiring, training, evaluating employees, benefits administration l Technology development u Networking, published research, connecting outside sources of R&D services

DigitalWork Small Business Support Activities Page Figure 9-2

DigitalWork Small Business Support Activities Page

Electronic Data Interchange u The computer-to-computer transfer of business information between two businesses that uses a standard format u In the 1950s, companies began to use computers to store and process internal data and information u By the 1960s, companies began exchanging transaction information with each other on punched cards or magnetic tape

Electronic Data Interchange u Eventually, trading partners transferred data over telephone lines instead of shipping punched cards or tapes to each other u In 1968, the Transportation Data Coordination Committee was formed, charged with exploring ways to reduce the paperwork burden u Since 1918, the American National Standards Institute (ANSI) became the coordinating body for standards in the United States

Electronic Data Interchange u In 1979, ANSI charted the Accredited Standards Committee X12 (ASC X12) to develop EDI standards u The current ASC X12 standard includes specifications for several hundred transaction sets (the names of the formats for specific business data interchanges)

Commonly Used ASC X12 Transaction Sets Figure 9-3

Electronic Data Interchange Standards u In the mid-1980s, the United Nations Economic Commission for Europe built a common set of EDI standards based on a US ANSI model u In 1987, the EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT) was developed

UN/EDIFACT

Commonly Used UN/EDIFACT Transaction Sets Figure 9-4

Paper-Based Purchasing Process u Paper-based purchasing process results in a paper document created at each information processing step that must be delivered to the department handling the next step u Paper-based transfers between buyer and vendor can be delivered via mail, courier, or fax

The Paper-Based Purchasing Process Figure 9-5

EDI Purchasing Process u Mail service is replaced with the data communications of an EDI network u Flows of paper have been replaced with computers running EDI translation software

The EDI Purchasing Process Figure 9-6

Value Added Networks u Trading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches l Direct connection l Indirect connection

Direct Connection EDI vs. Indirect Connection EDI through a VAN Figure 9-7

Direct Connection Between Trading Partners u Requires each business in the network to operate its own on-site EDI translator computer u EDI translator computers are connected to each other using modems or dedicated leased lines u Trading partners using different protocols can make direct connection options difficult to implement

Indirect Connection Between Trading Partners u Companies use the services of a value- added network (VAN) u The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction sets u The VAN often supplies the software needed to connect to its services

Advantages of Using a Value Added Network u Users support only one communications protocol u The VAN records activity in an audit log, providing an independent record of transactions u The VAN can provide translation between different transaction sets u The VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format

Disadvantages of Using a Value Added Network u Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee u VANs can be cumbersome and expensive for companies with trading partners using different VANs u Inter-VAN transfers do not always provide a clear audit trail

EDI on the Internet u Viewed as a replacement for expensive leased lines and dial-up connections u Small companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliers u Concerns about security and lack of audit logs continue to be a major roadblock

Open Architecture of the Internet u The open architecture of the Internet allows trading partners virtually unlimited opportunities to customize their information interchanges u Steps are now in hand to convert EDI to XML

Open Architecture of the Internet u A new ASC X12 Task Group has been charged with several broad objectives l Converting the ASC X12 EDI data elements and transaction set structures to XML, retaining one-to-one mapping l Developing XML data element names consistent with existing ASC X12 transaction sets l Meeting the needs of app-to-app and human-to-app interfaces

u EDI instruction sets that provide instructions to banks are called Financial EDI (FEDI) u Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet u Companies may opt to establish an indirect connection through a VAN for the added security for FEDI transaction Financial EDI

Hybrid EDI Solutions u Utilize the Internet for only part of an EDI transaction, ones where the transactions are not considered a negotiable instrument u Eg. NetTransact provides an interface for smaller businesses connected to the Internet, but do not have EDI capability

NetTransact EDI-HTML Conversion Service Figure 9-8

Supply Chain Management u Money can be saved and product quality can be improved through active negotiations with suppliers u Supply chain management is used to establish long-term relationships (supply alliances) with a small number of very capable suppliers (tier one suppliers)

Supply Chain Management u By working together, supply chain members can reduce costs and increase the value of the product or service to the ultimate customer u With clear communication along the supply chain, each participant can know the demands of the ultimate customer and plot a strategy to meet those demands

Technology in the Supply Chain u The Internet and the Web can be very effective communication enhancers u Software can allow members to review past performance, monitor current performance, and predict future production levels of products u Interesting paper on car spares: automotive-EXEL.pdf

Advantages of Internet and Web Technologies in Supply Chain Management Figure 9-9

But is it all good news?

Software for Purchasing, Logistics, and Support Activities u Enterprise resource planning (ERP) software is designed to integrate manufacturing, finance, distribution, and other internal business functions into one information system u Major ERP vendors include Oracle and SAP

Business-to-Business Commerce Software u Designed to help companies build Web sites that host catalog and other commercial sales activities u Major software packages include SellerXpert, ECXpert, LiveCommerce- Transact, Net.Commerce, Site Server, and Ariba

Supply Chain Management Software u Includes demand forecasting tools and planning capabilities to allow all supply chain members to coordinate their activities and adjust their production levels

Summary u Improving purchasing, logistics, and other support activities u Creating network organizations that extend beyond traditional limits u EDI, how it works, and how it is moving to the Internet u Internet improvements to supply chain management u Software packages for business-to-business e-commerce and supply chain management