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Chapter 9

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

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Chapter 9

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  1. 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, andSupport 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 BetweenTrading 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 BetweenTrading 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 aValue 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 aValue 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-BusinessCommerce 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

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