1. From Electronic Data Interchange to Electronic Commerce
Chapter 5 B2B Strategies
From Electronic Data Interchange to Electronic Commerce
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2. Purchasing, Logistics & Support Activities
The potential for cost reductions & business process improvements in these areas are tremendous.
Increase of synergies, which form the basis for 2nd-wave e-commerce opportunities.
An emerging characteristic of these activities is their flexibility.

3. Purchasing Activities
These activities include:
Identifying vendors
Evaluating vendors
Selecting specific products
Placing orders
Resolving issues
In most companies, charged with buying all components at lowest possible price.
Usually more complex than consumer purchasing process.

4. Typical Business Purchasing Process

5. Purchasing Activities (Cont.)
Requires a large number of people to complete the process.
Spend: The total amount of the goods & services that a company buys in a year.
In 2002, Motorola implemented a set of Internet technologies in the procurement operation.
Spend = $48 Billion
Estimate savings of $2.5 Billion by using technologies to accomplish tasks more efficiently & at a lower cost.

6. Direct vs. Indirect Materials Purchasing
Those materials that become part of the finished product in a manufacturing process
Large Manufacturing Companies have 2 types of direct materials purchasing:
Replenishment/Contract purchasing: The company negotiates long-term contracts for most of the needed materials.
Spot purchasing: The company buys direct materials in a spot market, which is a loosely organized market within a specific industry.
Indirect Materials
Materials & supplies purchases by the company in support of manufacturing an item, but not directly used in production of product.
Often called maintenance, repair, & operating (MRO) supplies
MRO supplies are hard to keep track of. Some Procurement departments issue purchasing cards (p-cards). Give individual managers the ability to make multiple small purchases at their discretion, but also allows cost-tracking info to the procurement office.
By using web sites, vendors in this market save cost of printing and shipping catalogs and handling telephone orders, can also keep info continuously updated.

7. Logistics Activities
Classic objective has been to provide the right goods in the right quantities in the right place at the right time.
These activities include:
Managing the inbound movements of materials & supplies
Managing the outbound movements of finished goods & services.
The Internet is providing an increasing number of opportunities to manage these activities better by lowering transaction costs & providing constant connectivity between firms engaged in logistics management.
J. B. Hunt
FedEx

8. Support Activities These activities include:
Finance & administration
Human resources
Technology departments
Training is another common support activity
By putting training materials on the companies intranet, companies can distribute these materials to many different offices, but continue to be centrally located.
Knowledge management is also being collected using the Internet

9. E-Government
Governments do not typically sell products or services, but they perform many functions for their stakeholders.
Operate businesslike activities:
Employ people
Buy supplies from vendors
Distribute benefit payments
In 2000, U.S. government’s Financial Management Service opened its Pay.gov web site.
Allows site visitors pay taxes & fees using various forms of electronic transfer.
State & local governments are also have web sites that offer services to its citizens.

10. Network Model of Economic Organization
Trend is the shift away from hierarchical structure toward network structures.
Procurement departments are being given new tools to negotiate with suppliers.
The result is alliances & outsourcing contracts.
Highly specialized firms can exist & trade services efficiently using the web.
The network of firms are more flexible & can respond to changes in the economic environment more quickly that hierarchical structured businesses.

11. Electronic Data Interchange
Computer-to-computer transfer of business information between 2 businesses that uses a standard format of some kind.
Information is usually:
Transaction data
Price quotes
Order status inquiries
EDI was first form of e-commerce to be widely used in business.

12. Early Business Information Interchange Efforts
1950s: Companies began to use computers to store & process internal transaction records, but info flow between businesses used paper
This process was slow, inefficient, expensive, redundant, & unreliable.
1960s: Businesses began to transfer info on punched cards or magnetic tape
Advances during the ’60s & 70s allowed transfer to occur over telephone lines
1968: The Transportation Data Coordinating Committee was established.
Explored new ways to reduce the paperwork burden that shippers & carriers faces.
Savings from the reduction of paperwork were significant.

13. Emergence of Broader EDI Standards
American National Standards Institute (ANSI)
Created a set of procedures for the development of national standards & accredit committees that follow those procedures.
1979: Accredited Standards Committee X12 (ASC X12) established, meets 3 times/year to develop & maintain EDI standards.
Includes standards for specifications for several hundred transaction sets (names of the formats for specific data interchanges)
1987: United Nations established the EDI for Administration, Commerce, & Transport (UN/EDIFACT)
Designed a common set of standards to be used internationally
2000: The ASC X12 & UN/EDIFACT agreed to develop one common set, but no date for implementation has been set.

14. Common ASC X12 Transaction Sets

15. Common UN/EDIFACT Transaction Sets

16. How EDI Works Paper-Based Purchasing Process
No integrated software for internal business processes.
Each step results in production of a paper document, which is delivered by mail, courier or fax to the next department.

17. How EDI Works EDI Purchasing Process
Mail service replaced by EDI data communication
Paper flows replaced by computers running EDI translation software

18. Value-Added Networks
Trading partners can implement the EDI network & EDI translation process in several ways, but every way uses one of two approaches.
Direct connection EDI:
EDI translator computers at each company are linked directly to each other through modems & dial-up phone lines or leased lines
Indirect connection EDI:
Each company transmits & receives EDI messages through a value-added network (VAN)

19. Direct Connection EDI

20. Indirect Connection EDI through a VAN

21. EDI on the Internet
Trading partners began to view the Internet as a potential replacement for expensive leased lines & slow dial-up connections required for direct & VAN-aided EDI.
Major concerns:
Internet security
Inability to provide audit logs & 3rd party verification

22. Open Architecture of the Internet
Mid-1990s: Many firms began providing EDI services on the Internet (Internet EDI, Web EDI, or open EDI)
Allows trading partners virtually unlimited opportunities for customization of their info interchanges.
Some firms are extending their internal networks to their trading partners, turning intranets into extranets.
Virtual Private Networks (VPN) provides the security that makes this process attractive.

23. Financial EDI
These are EDI transactions that provide instructions to a trading partner’s bank.
EDI-capable banks: those that are equipped to exchange payment & remittance data through VANs.
Value-added banks: those that offer VAN services for non-financial transactions.
Financial VANs: These are not banks but can translate financial transaction sets into ACH formats & transmit them to banks that are not EDI capable.
Reluctant because of perceived low security of Internet

24. Supply Chain Management Using Internet Technologies
The process of taking an active role in working with suppliers & other participants in the supply chain to improve products & processes.
Ultimate Goal
To achieve a higher-quality or lower-cost product at the end of the chain

25. Value Creation in the Supply Chain
Business work to establish long-term relationships with a small number of capable suppliers
Known as supply alliances
Key element is trust between the parties
Buyers expect annual price reductions & quality improvements from suppliers at each stage.
Clear communication & quick responses are essential to successful SCM.
Technologies can be very effective communication enhancers.

26. Advantages of Using Internet Technologies
Only disadvantage is the cost of the technologies, but in most cases the advantages provide a greater value that the cost of implementing & maintaining the technologies.

27. Increasing Supply Chain Efficiencies
Many companies are using the Internet and web technologies to manage supply chains in ways that yield increases in efficiency throughout the chain.
Boeing
Dell
Use of technologies result in:
Increased process speed
Reduced costs
Increased flexibility
Boeing: makes engineering specifics available to its suppliers through secure internet connections.
Decreased customer waiting time from 36 months for delivery to 10 to 12 months.
Dell: reduced inventory from 3 weeks sales to 6 days sales, due to increased amount of info about customers and Dell shares customer info with members of its supply chain

28. Using Materials-Tracking with EDI & E-Commerce
Integration of use of bar codes & EDI has become prevalent.
Allow companies to scan materials as the are received & to track them as they move from the warehouse to production.
Radio frequency identification devices (RFIDs)
Small chips that include radio transponders
Can be used to track inventory as it moves through an industry value chain
Passive RFID tag: made cheaply, very small, no need for a power source
2003, Wal-Mart began testing the use of RFID tags on merchandise for inventory tracking and control.

29. Creating an Ultimate Consumer Orientation in the Supply Chain
A focus on the needs of the consumer who is at the end of an industry value chain.
Companies with long supply chains have problems remembering this focus.
Internet technologies are tools that improve communication at a very low cost.
Ideal aids for enhancing the creation of a highly coordinated & effective supply chain.

30. Building & Maintaining Trust in the Supply Chain
Major issue in building supply chain alliances
Continual communication & information sharing are key elements.
Internet offers new avenues for building trust
Vendors are finding the web provides an opportunity to stay connected with customers more easily & less expensively.
Task of developing info exchange resources that provide supplier performance summaries is a challenge that B2B e-commerce faces.

31. Electronic Marketplaces & Portals
Many business researchers & consultants believed that the Internet would provide an opportunity for companies to establish info hubs for each major industry.
These hubs would be in the form of vertical portals.
Prediction of the success of vertical portals was not completely correct.

32. Independent Industry Marketplaces
These are vertical portals that are focused on a specific industry.
First to open was Chemdex in early 1997 to trade in bulk chemicals.
By mid-2000, more than 2200 independent exchanges were open.
Venture capital funding became scarce & many closed.
By mid 2002, there were fewer than 100 industry marketplaces in operation.
4 other B2B models arose to take the place of these

33. New B2B Marketplaces Private Stores Customer Portals
A password protected area of a web site that offers individual customers negotiated price reductions on a limited selection of products & other customized features.
Customer Portals
A corporate web site designed to meet the needs of customers by offering additional services such as private stores, part number cross-referencing, product-use guidelines & safety info.

34. New B2B Marketplaces (Cont.)
Private Company Marketplaces
A marketplace that provides auctions, requests for quotes postings, & other features to companies that want to operate their own marketplace.
Industry Consortia-Sponsored Marketplaces
A marketplace formed by several large buyers in a particular industry.

35. Characteristics of B2B Marketplaces