1. Chapter 9
Strategies for Purchasing and Support Activities: From Electronic Data Interchange to Electronic Commerce

2. Learning Objectives In this chapter, you will learn about:
Strategies that businesses use to improve purchasing, logistics, and other support activities
The ways that firms are creating network organizations
Electronic data interchange, how it works, and how businesses are moving it to the Internet

3. Learning Objectives (Cont.)
Supply chain management and how businesses are using the Internet and Web technologies to improve it
The software packages that companies are using to implement business-to-business electronic commerce and supply chain management

4. 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.

5. 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

6. 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.

7. 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.

8. 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.

9. 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

10. 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.

11. Network Model of Economic Organization
The trend in purchasing, logistics, and support activities is a shift away from hierarchical structures toward network structures.
The Web is enabling this shift from hierarchical forms of economic organization to network forms.
The roots of Web technology for B2B transactions lie in electronic data interchange (EDI).

12. 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.

13. Early Business Information Interchange Efforts
In the 1950s, information flows between businesses continued to be printed on paper.
By the 1960s, businesses had begun exchanging transaction information on punched cards or magnetic tape.
In 1968, a number of freight and shipping companies formed the Transportation Data Coordinating Committee (TDCC) to create the TDCC standard format.

14. Emergence of Broader Standards
The American National Standards Institute (ANSI) has been the coordinating body for standards in the U.S. since 1918.
In 1979, ANSI chartered a new committee to develop uniform EDI standards. This committee is called the Accredited Standards Committee X12 (ASC X12).
In 1987, the United Nations published its first standards under the title “EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT).

15. Value-Added Networks
EDI reduces paper flow and streamlines the interchange of information among departments within a company and between companies.
Trading partners can implement the EDI network and EDI translation processes in several ways use either direct connection or indirect connection.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

27. Technology in the Supply Chain
In 1997, production and scheduling errors costing Boeing over $1.5 billion.
Using EDI and Internet links, Boeing is working with suppliers so that they can provide the right part at the right time.
To further benefit customers, Boeing launched a spare parts Web site, Boeing PART.

28. 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.

29. 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.

30. 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.

31. 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.