1. 1 Dickson K.W. Chiu PhD, SMIEEE, SMACM, Life MHKCS Jelassi & EndersJelassi & Enders: Chapter 10 COMP7880: E-Business Strategies Interaction with suppliers

2. Strategy options External analysis Internal analysis Sustaining competitive advantage Internal organisation Implementation Exploring new market spaces Interaction with suppliers Interaction with users/customers Creating and capturing value Strategic analysis Strategy implementation 3 4 5 6 7 8 9 10 11 13 E-business strategy Mobile e-commerce strategy 12 Opportunities/ threats Strengths/ weaknesses Our Roadmap Strategy formulation COMP7880-IS-2

3. Operating inputs Manufacturing inputs Spot sourcing Systematic sourcing Yield managers Horizontal markets that enable spot sourcing of operating inputs MRO hubs Horizontal markets that enable systematic sourcing of operating inputs Catalogue hubs Vertical markets that enable systematic sourcing for manufacturing inputs Exchanges Vertical markets that enable spot sourcing for manufacturing inputs How do firms buy? What do firms buy? B2B e-commerce matrix classifies different types of B2B e-marketplaces Source: Adapted from S. Kaplan and M. Sawhney (2000). COMP7880-IS-3

4. Supplier Buyer E-market operator Consortia Degree of openness of e-marketplace high low Fastparts.com Medibuy mondus.com Examples Covisint Transora CitiusNet Dell Computer Wal-Mart 2 Supplier Buyer Public e-markets 1 Private Exchanges 3 Supplier Buyer Exchange owner Source: Adapted from W. Hoffman, J. Keedy and K. Roberts (2002), p. 99. Different B2B e-marketplaces display varying degrees of openness COMP7880-IS-4

5. Originator selects, requests order Manager approves order Buyer, originator places order Goods received, and delivered Matching and payment CD/web catalogue Integrated e-procurement or ERP system Accounting system E-mail/workflow systems Stock control catalogue Order entry on website Source: D. Chaffey, (2006), pp. 320-321. E-procurement solutions cover different parts of the supply chain COMP7880-IS-5

6. COMP7880-IS-6 Supplier interaction strategies Pull Draws Comp7880-IS into the stocking location Each stocking location is considered independent Maximizes local control of inventories Push Allocates production to stocking locations based on overall demand Encourages economies of scale in production Just-in-time Attempts to synchronize stock flows so as to just meet demand as it occurs Minimizes the need for Comp7880-IS Supply-Driven Supply quantities and timing are unknown All supply must be accepted and processed Inventories are controlled through demand

7. COMP7880-IS-7 Importance of suppliers Inventories is a major use of capital in the supply channel. Key tradeoff: lead time, demand, service, cost Key difficulties: demand uncertainty together with lead time Push vs pull Purchasing and scheduling involve decisions that affect the efficient movement and storage of goods. Just-in-time scheduling procedures become popular Toyota’s KANBAN and MRP scheduling Combining Distribution and Materials Requirements Planning (DRP and MRP) allows integration of the supply chain from suppliers to customers. Purchasing is important, accounting for 40-60% of dollar sales typically. Impact on the efficiency of logistical activities Key purchasing decision: quantities, timing, and sourcing

8. COMP7880-IS-8 IT applications Again much domain knowledge is required. Note the data / information requirements and how IT helps to collect / integrate the data for calculations and decision making. Capture forecasting and ordering signals (either determined by a business analyst or automatically by a sub-system) as events / exceptions / alerts and forward them to the appropriate system and personnel for decision / action. Effective collaboration with retailers and suppliers requires much new IT in the process and information integration, as well as relying on integrating with existing enterprise systems (e.g., MRP / DRP). Note the difficulties in integrating with multiple suppliers, especially dynamic ones.

9. Reference COMP7880-IS-9

10. Comp7880-IS-10 What is purchased? Price Cost of goods Terms of sale Discounts Quality Meeting specifications Conformance to quality standards Service On-time and damage-free delivery, order-filling accuracy, product availability Product support

11. Comp7880-IS-11 Activities of purchasing Selects and qualifies suppliers Rates supplier performance Negotiates contracts Compares price, quality, and service Sources goods Times purchases Sets terms of sale Evaluates the value received Measures inbound quality if not a responsibility of quality control Predicts price, service, and sometimes demand changes Specifies form in which goods are to be received

12. Comp7880-IS-12 Criteria for selecting suppliers Past or anticipated relations Honesty Financial viability Reciprocity Measured performance Price Responsiveness to change or requests On-time delivery Product or service backup Meeting quality goals Weighted average of ratings Operational compatibility Informational compatibility Physical compatibility Ethical and moral issues Minority vendors Lowest price bidding Patriotic purchasing Open bidding but a pre- selected vendor

13. Comp7880-IS-13 Single vs Multiple Vendors Single vendors Allows for economies of scale Consistent with the just-in-time philosophy Builds loyalty and trust May be only source for unique product or service Multiple vendors Encourages price competition Diffuses risk May disturb supplier relations, reduce loyalty, reduce responsiveness, and cause variations in product quality and service

14. Comp7880-IS-14 Finding Suppliers Personal contacts Trade publications Web sites, catalogs, and directories Advertisements and solicitations …

15. Comp7880-IS-15 Qualifying suppliers Previous experiences and formal rating schemes Word of mouth Samples of product Reputation Site visits and demonstrations

16. Comp7880-IS-16 Allocation to Suppliers Company policy considering risk, fairness, ethics, etc. Definitive methods Is buying based on lowest price a good strategy – consider other costs too… Allocate using linear programming Asking “what if” questions can provide insight into good allocation plans weak supplier - perhaps some price concessions can be negotiated valuable supplier and more capacity should be sought

17. Comp7880-IS-17 Timing of Purchases Through just-in-time planning Material requirements planning for continuous work Gantt charts and CPM/PERT for project work Through Comp7880-IS management Push methods Pull methods According to market conditions Speculative buying Forward buying Hand-to-mouth buying, or buying to current requirements

18. Comp7880-IS-18 Speculative buying Buying more than the foreseeable requirements at current prices in the hope of reselling later at higher prices. Some of the purchased quantities may be used in production and some simply resold. Generally a financial activity, not a materials management one.

19. Comp7880-IS-19 Hand-to-mouth buying Buying to satisfy immediate needs such as those generated through MRP. Advantageous when prices are dropping May improve cash flow by temporarily reducing expenses of carrying Comp7880-IS

20. Comp7880-IS-20 Forward buying Buying in quantities exceeding current requirements, but not beyond foreseeable needs. Takes advantage of favorable prices in an unstable market, or takes advantage of volume transportation rates Reduces risk of inadequate delivery Dollar Averaging Spend the same amount on each purchase with the idea of buying more when prices are low and less when they are high. This is a good strategy when prices are expected to rise over the long term and there is substantial uncertainty as to the actual price level. Because under-supply may occur, some level of Comp7880-IS will need to be maintained.

21. Comp7880-IS-21 Effect of Quantity Discounts – Inclusive Price Breaks Price break curves $ 500 Order quantity, Q Q 2 Q 1 Curve for Q<500 Total cost Curve for Q  500 Feasible curve Quantity, Q i Price, P i 0 < Q i < Q 1 P 1 Q i  Q 1 P 2

22. Comp7880-IS-22 Effect of Quantity Discounts – Non-inclusive Price Breaks Price break curve: non-inclusive discounts Price discount only applies to the items beyond the price break quantity.

23. Comp7880-IS-23 Deal Buying A one-time buying opportunity. Determining the quantity to purchase requires balancing the benefits of a price discount against extra Comp7880-IS holding costs.