1. Strategies for Purchasing and Support Activities
Chapter 9
Strategies for Purchasing
and Support Activities
Electronic Commerce

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

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

4. Neoforma Product Sourcing Web Site
Figure 9-1

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

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

7. DigitalWork Small Business Support Activities Page
Figure 9-2

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

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

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

11. Commonly Used ASC X12 Transaction Sets
Figure 9-3

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

13. Commonly Used UN/EDIFACT Transaction Sets
Figure 9-4

14. Paper-Based Purchasing Process
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
Paper-based transfers between buyer and vendor can be delivered via mail, courier, or fax

15. The Paper-Based Purchasing Process
Figure 9-5

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

17. The EDI Purchasing Process
Figure 9-6

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

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

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

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

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

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

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

25. Open Architecture of the Internet
The open architecture of the Internet allows trading partners virtually unlimited opportunities to customize their information interchanges

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

27. Financial EDI
A trading partner’s bank is called a Financial EDI (FEDI)
Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet
Companies may opt to establish an indirect connection through a VAN for the added security for FEDI transaction

28. Hybrid EDI Solutions
Utilize the Internet for only part of an EDI transaction, ones where the transactions are not considered a negotiable instrument
Bottomline Technologies PayBase package allows hybrid EDI
NetTransact provides an interface for smaller businesses connected to the Internet, but do not have EDI capability

29. NetTransact EDI-HTML Conversion Service
Figure 9-8

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

31. Supply Chain Management
By working together, supply chain members can reduce costs and increase the value of the product or service to the ultimate customer
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

32. Technology in the Supply Chain
The Internet and the Web can be very effective communication enhancers
Software can allow members to review past performance, monitor current performance, and predict future production levels of products

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

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

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

36. Supply Chain Management Software
Includes demand forecasting tools and planning capabilities to allow all supply chain members to coordinate their activities and adjust their production levels
Two major firms offer supply chain management software
i2 Technologies RHYTHM
Manugistics