EDI, Supply Chain Management, and Global Information Systems Chapter 11 EDI, Supply Chain Management, and Global Information Systems

Learning Objectives When you finish this chapter, you will be able to: Explain the difference between vertical and horizontal markets. Describe vertical and horizontal information integration among companies. Communicate the role electronic data interchange plays in saving costs on business operations. Recognize the benefits of supply chain management systems Explain the role of global information systems. List the legal, cultural, and other challenges to implementing information exchange systems.

Sharing Information Systems: The Rise of E-Commerce Interorganizational Information Systems Systems shared by two or more organizations to transfer data electronically. Built and owned by only one organization Increases efficiency and effectiveness Organizations use similar systems to serve international sites

Vertical Information Exchange Vertically related Output of one organization used in processes of another Integrating ISs between vertically related organizations highly beneficial Saves time and money Better serves customers

Vertical Information Interchange Figure 11.1 Vertical relationships among organizations

Horizontal Information Interchange Organizations performing similar activities share information Real estate agencies maintain multiple listing service Financial institutions share financial information Airlines share reservation systems Oldest type of electronic horizontal information interchange still takes place among financial institutions

Horizontal Information Interchange Figure 11.2 Horizontal information interchange

Electronic Data Interchange What is EDI? Utilization of telecommunications to exchange electronic data using interorganizational information systems Set of hardware, software, and standards that accommodate the EDI process

Electronic Data Interchange Figure 11.3 Benefits of EDI

Electronic Data Interchange Figure 11.4 Suppliers, manufacturers, and retailers cooperate in some of the most successful applications of EDI.

Electronic Data Exchange How does EDI work? Supplier’s proposal sent electronically to purchasing organization. Electronic contract approved over network. Supplier manufactures and packages goods, attaching shipping data recorded on a bar code. Quantities shipped and prices entered in system and flowed to invoicing program; invoices transmitted to purchasing organization.

Electronic Data Exchange Manufacturer ships order. Purchasing organization receives packages, scans bar code, and compares data to invoices actual items received. Payment approval transferred electronically if there are no discrepancies. Bank transfers funds from purchaser to supplier’s account using electronic fund transfer (EFT). None of the documents involved in the process is on paper.

Electronic Data Interchange Figure 11.5 How EDI works

Electronic Data Interchange EDI is conducted in two major forms: Value-added networks (VAN) The Web

Electronic Data Interchange Value Added Network EDI (VAN) To use VAN EDI, business partners subscribe to the service and use: VAN’s private communication lines Mailboxes Special software Software translating business documents to and from EDI convention strictly conforms to EDI standards Codes for address lines and product prices and length of text comments in an invoice

Electronic Data Interchange VAN EDI provides several advantages: Transaction integrity Privacy and security No repudiation Solid standards

Electronic Data Interchange Web EDI Internet is a natural vehicle for EDI Ease of access Inexpensive implementation Success largely attributed to XML standards Extranet EDI offers several advantages over VAN EDI, including: Lower cost More familiar software Worldwide connectivity Fast communication

Electronic Data Interchange

Supply Chain Management Supply Chain Management (SCM) Coordination of purchasing, manufacturing, shipping, and billing operations Often supported by an enterprise resource planning system ISs that support this type management are called supply chain management systems SCM applications streamline operations from suppliers to customers Lower inventories, decrease production costs, and improve responsiveness to suppliers and clients

Supply Chain Management

International and Multinational Organizations For effective management of an international corporation, executives need: Flow of information across borders essential A number of surveys find that managers are increasing attention to international IS integration Some large multinational corporations build their own international ISs. Example: EDS

International and Multinational Organizations Figure 11.8 The importance of international integration to companies with international operations

Using the Web for International Commerce International Web Commerce Benefits Increased revenues Increased international Web participation Potential Web participation Cost savings Printing and shipping costs Customer service costs

Using the Web for International Commerce

Challenges to Global Information Systems Technological Challenges Some countries have inadequate information technology infrastructures Language: how characters are represented There are other points that might sound trivial, but wreak havoc Example: fields such as telephone numbers (variable lengths) Payment Mechanisms Non-uniform preferred payment method

Challenges to Global Information Systems Language Differences Translation delays Laws forbid foreign language accounting and other systems Cultural Differences Cultural imperialism

Challenges to Global Information Systems Conflicting Economic, Scientific, and Security Interests Government restriction on sharing sensitive information Varying treatment of trade secrets, patents, and copyrights Political Challenges Fear that access to information threatens sovereignty Government pressure to buy only national software

Challenges to Global Information Systems Lack of standards Varying standards for date format, measurements, etc. Legal Barriers Incompatible data privacy laws in U.S. and many other countries

The Latecomer Benefit Countries and companies on the bleeding edge of technology Often take longer, more expensive road to advanced technologies Latecomers are more privileged Learning from predecessors’ mistakes Often taking shortcuts to more advanced solutions

Ethical and Societal Issues Legal Jurisdictions in Cyberspace Legal challenges faced in today’s electronic global markets are numerous Global Free Speech Consumer Protection by Whom? Two Approaches to Jurisdiction Country of origin principle Country of destination principle