1. © 2006 Prentice Hall, Inc.S11 – 1 Operations Management Supplement 11 – E-Commerce and Operations Management Supplement 11 – E-Commerce and Operations Management © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e

2. © 2006 Prentice Hall, Inc.S11 – 2 Outline  The Internet  Electronic Commerce  E-Commerce Definitions  Economics Of E-Commerce  Product Design  Collaborative Project Management

3. © 2006 Prentice Hall, Inc.S11 – 3 Outline – Continued  E-Procurement  Online Catalogs  RFQs and Bid Packaging  Internet Outsourcing  Online Auctions  Inventory Tracking

4. © 2006 Prentice Hall, Inc.S11 – 4 Outline – Continued  Inventory Reduction  Warehousing for E-Commerce  Just-in-Time Delivery for E- Commerce  Scheduling And Logistics Improvement  Coordinated Pickup and Delivery  Logistics Cost Reduction

5. © 2006 Prentice Hall, Inc.S11 – 5 Learning Objectives When you complete this supplement, you should be able to: Identify or Define:  E-commerce  B2B, B2C, C2C, C2B  Online catalogs  Outsourcing  E-procurement

6. © 2006 Prentice Hall, Inc.S11 – 6 Learning Objectives When you complete this supplement, you should be able to: Describe or Explain:  How E-commerce is changing the supply chain  Online auctions  Internet trading exchanges  Inventory tracking  Pass-through warehouses

7. © 2006 Prentice Hall, Inc.S11 – 7 The Internet  International computer network  Connects companies and people around the world  Enables the integration of internal information systems and enhanced communications between organizations  Ties together global design, manufacturing, delivery, sales, and after-service

8. © 2006 Prentice Hall, Inc.S11 – 8 The Internet  Reshaping how businesses think about delivering value to customers  Prime benefits are speed and access  Important vehicle for change in Operations Management  Intranets are internal networks not available to external users  Growing daily with over 300 million domains registered worldwide

9. © 2006 Prentice Hall, Inc.S11 – 9 Electronic Commerce  E-commerce (or e-business) – the use of the internet to buy and sell products and services and exchange information  Low cost rapid exchanges  A whole new way of doing business “… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.” Louis Gerstner Former Chairman, IBM

10. © 2006 Prentice Hall, Inc.S11 – 10 E-Commerce Definitions  Business-to-business (B2B) – Both sides of the transaction are businesses, non- profit organizations, or governments  Business-to-consumer (B2C) – Transactions in which buyers are individual consumers  Consumer-to-consumer (C2C) – Consumers sell directly to each other  Consumer-to-business (C2B) – Individuals sell services or goods to businesses

11. © 2006 Prentice Hall, Inc.S11 – 11 E-Commerce Transactions Figure S11.1 BusinessConsumer Business B2B Global Health Care Exchange, Global Net Xchange B2C Amazon, Dell, Netgrocer.com Consumer C2B Priceline, Travelocity C2C eBay

12. © 2006 Prentice Hall, Inc.S11 – 12 Economics of E-Commerce  Costs of information exchange are dramatically reduced  Barriers to entry are lower  Time constraints almost disappear  Information and communication is cheap and easy

13. © 2006 Prentice Hall, Inc.S11 – 13 Types of Information  Product — drawings, specifications, video, or simulation demonstrations, prices  Production Processes — capacities, commitments, product plans  Transportation — carrier availability, lead times, costs  Inventory — inventory tracking, levels, costs, and location Table S11.1

14. © 2006 Prentice Hall, Inc.S11 – 14 Types of Information  Suppliers — product catalog, quality history, lead times, terms, and conditions  Supply Chain Alliances — key contact, partners’ roles and responsibilities, schedules  Supply Chain Process and Performance — process descriptions, performance measures such as quality and delivery Table S11.1

15. © 2006 Prentice Hall, Inc.S11 – 15 Types of Information  Competitor — benchmarking, product offerings, market share  Sales and Marketing — point of sale (POS) data entry, promotions, pricing, discounts  Customer — sales history and forecasts  Costs — market indexes, auction results Table S11.1

16. © 2006 Prentice Hall, Inc.S11 – 16 Benefits and Limitations Benefits of E-Commerce  Improved, lower-cost information that makes buyers and sellers more knowledgeable has an inherent power to drive down costs  Lower entry costs increase information sharing  Available 24 hours a day, virtually any place in the world, enabling convenient transactions for those concerned Table S11.2

17. © 2006 Prentice Hall, Inc.S11 – 17 Benefits and Limitations  Availability expands the market for both buyer and seller  Decreases the cost of creating, processing, distributing, storing, and retrieving paper-based information  Reduces the cost of communication  Richer communication than traditional paper and telephone communication because of video clips, voice, and demonstrations Table S11.2

18. © 2006 Prentice Hall, Inc.S11 – 18 Benefits and Limitations  Fast delivery of digitized products such as drawings, documents, and software  Increased flexibility of location. (That is, it allows some processes to be located anywhere electronic communications can be established, and allows people to shop and work from home.) Table S11.2

19. © 2006 Prentice Hall, Inc.S11 – 19 Benefits and Limitations Limitations of E-Commerce  Lack of system security, reliability, and standards  Lack of privacy  Some transactions are still rather slow  Integrating e-commerce software with existing software and databases is still a challenge Table S11.2

20. © 2006 Prentice Hall, Inc.S11 – 20 Benefits and Limitations  Lack of trust in (1) unknowns about the integrity of those on the other end of a transaction, (2) integrity of the transaction itself, and (3) electronic money that is only bits and bytes Table S11.2 Security and risk are major factors in E-commerce

21. © 2006 Prentice Hall, Inc.S11 – 21 Product Design  Easily shared knowledge and information allows quicker and lower cost design cycles that can involve participants in diverse locations  Product data can be managed over the Internet  Engineering changes and configuration management can be extended along the supply chain

22. © 2006 Prentice Hall, Inc.S11 – 22 Collaborative Project Management  Project management software allows for establishing intranet sites for sharing documents and maintaining status reports  Intranets can also be used for document libraries

23. © 2006 Prentice Hall, Inc.S11 – 23 E-Procurement  Purchasing or order release communicated over the Internet  Online catalogs allow quicker cost comparisons and bidding processes  Catalogs can be provided by  Vendors  Intermediaries  Buyers

24. © 2006 Prentice Hall, Inc.S11 – 24 Online Catalogs  Vendor catalogs provide quick and easy access to the entire product line  Available to anyone with Internet access  Quick and easy to customize and adjust  Reduced paper trails reduce purchasing costs

25. © 2006 Prentice Hall, Inc.S11 – 25 Online Catalogs  Intermediary catalogs facilitate buyers and sellers meeting  Buyers can find multiple sellers on one site  Buyer-focused exchanges allow groups of generally similar firms to join together to buy in larger quantities and more efficiently than if they worked independently

26. © 2006 Prentice Hall, Inc.S11 – 26 Internet Trading Exchanges Table S11.3 Retail goods — setup by Sears and France’s Carrefour; called GlobalNetXchange for retailers (gnx.com) Health care products — set up by Johnson & Johnson, GE Medical systems, Baxter International, Abbott Laboratories, and Medtronic Inc; called the Global Heath Care Exchange (ghx.com)

27. © 2006 Prentice Hall, Inc.S11 – 27 Internet Trading Exchanges Table S11.3 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)

28. © 2006 Prentice Hall, Inc.S11 – 28 Internet Trading Exchanges Table S11.3 Steel and metal products — such as New View Technologies (exchange.e-steel.com); and Metal-Site (metalsite.com) 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

29. © 2006 Prentice Hall, Inc.S11 – 29 Medical Supply Chain Figure S11.2 Current Supply Chain Customers H H H Manual processes, including paper, phone, and fax Suppliers H – Manufacturer – Distributor – Hospital H Group Purchasing Organizations –

30. © 2006 Prentice Hall, Inc.S11 – 30 Medical Supply Chain Figure S11.2 New Supply Chain Customers H H H Automated Web-based processes Online Global Health Care Exchange Suppliers H – Manufacturer – Distributor – Hospital H Group Purchasing Organizations –

31. © 2006 Prentice Hall, Inc.S11 – 31 E-Procurement  RFQs and Bid Packaging  Database of history improves vendor selection  Electronic files speed decisions  System is faster and less expensive  Internet Outsourcing  Outsourcing support systems like payroll, accounting, human resources, and travel

32. © 2006 Prentice Hall, Inc.S11 – 32 E-Procurement  Online Auctions  Maintained by buyers, sellers, or intermediaries  May be used to sell excess raw material or discontinued or excess inventory  Low cost and increased access to buyers

33. © 2006 Prentice Hall, Inc.S11 – 33 Inventory Tracking  Technologies like bar code scanners, radio frequency, electronic communications can be used by almost any firm to track inventory in transit, on the shop floor, or in a warehouse

34. © 2006 Prentice Hall, Inc.S11 – 34 Inventory Reduction  Warehousing for E-Commerce  Managed by a logistics vendor  Pass-through facility rather than storage  Just-in-Time Delivery for E- Commerce  E-commerce can improve communication and coordination  E-commerce service companies manage complex transactions

35. © 2006 Prentice Hall, Inc.S11 – 35 Scheduling and Logistics Improvements  Coordinated Pickup and Delivery  Unified view of data  Shipments can be merged in transit  Reduced inventory and delays mean lower costs

36. © 2006 Prentice Hall, Inc.S11 – 36 Scheduling and Logistics Improvements  Logistics Cost Reduction  Carriers with unused capacity can find loads through Internet sites  Logistics efficiency improves and costs are reduced