ECT 250: Survey of e-commerce technology

1. ECT 250: Survey of e-commerce technology Purchasing, logistics, and support activities

2. Perspective • In previous lectures we talked about ways that • goods and services are marketed, promoted, • and sold. • In terms of the value chain, this involves: • Identify customers • Market and sell • Deliver • We now consider how technology can improve: • Purchasing • Logistics • Support

3. Figure 1-10

4. Purchasing • Purchasing activities include: • Identifying vendors • Evaluating vendors • Selecting specific products • Placing orders • Resolving issues that arise after receipt • of goods or services: • Late deliveries • Incorrect items or quantities shipped • Defective items

5. Procurement • The term procurement refers to all purchasing • activities, as well as the monitoring of all • elements of purchase transactions. • Procurement also includes the management • and development of relationships with • suppliers. • In many case procurement staff must have • detailed knowledge about products. • Specialized Web sites can aid in disseminating • necessary information. • Example: Neoforma

6. MRO supplies • Maintenance, repair, and operating (MRO) supplies • are commodity items that companies buy on a • recurring basis. • Price is usually the main selection criterion. • By using a Web site to process orders, vendors • in this market can save the cost of printing • and shipping catalogs and the cost of handling • telephone orders. • Examples: W.W. Grainger, McMaster-Carr, Office • Depot, Digi-Key, Global Computer Supplies

7. Logistics • Objective: Provide the right goods in the right • quantity in the right place at the right time. • Major transportation companies want to be seen • as information management firms as well as • freight carriers. • Example: Freight tracking Web pages made • available by Schneider Logistics, FedEx, UPS. • Logistics activities include receiving, warehousing, • inventory control, vehicle scheduling and control, • and finished goods distribution.

8. Support activities • Support activities include: • Finance and administration • Human resources • Technology development

9. Finance and administration • Making payments • Processing payments received • Planning capital expenditures • Budgeting and planning • Operation of the computing infrastructure

10. Human resources • Hiring • Training (not always) • Evaluating employees • Benefits administration • Complying with government record-keeping • regulations

11. Developing technology • Activities included here depends on the nature of • the business or organization. • May include: • Networking of researchers into virtual collaboration • Posting of research results • Publishing research papers online • Providing connections to outside sources of research • and development services

12. Training • In some companies training is handled by human • resources. • In other organizations it may decentralized and be • done by individual departments. • Where it occurs can depend on the type of training. • Example: At DePaul orientation for benefits and • for incoming faculty is handled by a centralized • group. CTI does its own training for advising.

13. Examples • Examples of firms providing support activities • services: • OnLine Benefits: Benefit management • TheTrip.com: Employee travel policies • CyLex Systems: Document storage • PayMaxx: Payroll processing • Driveway Business Solutions: Electronic file • storage

14. Forms of economic organization • Three different forms of economic organization: • Markets: Buyers and sellers come together to • conduct transactions • Hierarchies: Large organizations that conduct • many different business activities entirely • within the structure of the firm • Networks: Firms coordinate their strategies, • resources, and skills sets by forming long-term, • stable relationships based on a shared purpose.

15. Effect of technology • One trend in in purchasing, logistics, and support • activities is a move away from hierarchical • structures toward network structures. • Highly specialized firms can now exist and trade • services very effectively on the Web. • The emerging networks of firms are more flexible • and can respond to changes in the economic • environment more quickly than hierarchical • companies.

16. Electronic data interchange • Electronic data interchange (EDI) is a computer- • to-computer transfer of business information • between firms that use a standard format for • representing the information. • The two businesses trading information are called • trading partners. • Firms that exchange data in specific standard • formats are said to be EDI-compatible. • The types of information include invoices, purchase • orders, requests for quotations, bills of lading, and • receiving reports.

17. Early efforts • By the 1960s companies began exchanging punch • cards or magnetic tape with transaction data. • Data communications improvements resulted in • phone lines being used to exchange information. • In 1968 a number of freight and shipping companies • formed the Transportation Data Coordinating • Committee (TDCC). The TDCC created a format • including all elements found on bills of lading, • freight invoices, shipping manifests, and other • paper forms. • Standardization across industries remained difficult.

18. Broader standards • In 1979, the American National Standards Institute • (ANSI) chartered a new committee, called the • Accredited Standards Committee X12 (ASC X12) • to develop uniform EDI standards. • The ASC X12 standard benefited from member • participation across a wide variety of industries. • The current standard includes specifications for • several hundred transaction sets, which are the • names of the formats for specific business data • interchanges.

19. International standards • Although the ASC X12 standards were quickly • adopted by major firms in the U.S., businesses • in other countries continued to use their own • standards. • In 1987, the United Nations published its first • standards under the title EDI for Administration, • Commerce, and Transport (UN/EDIFACT). • The ASC X12 organization has voted to move its • U.S. standards toward the UN/EDIFACT • standards, although no date for the final migration • has been set.

20. Paper versus EDI • Example: A company that needs to replace one of • its metal cutting machines. • Figure 9-5 on page 294 shows the paper version. • Figure 9-6 on page 298 shows the EDI version. • The same messages are exchanged between the • departments, but EDI reduces paper flow and • streamlines the interchange of information both • within and outside a company.

21. Implementation • Trading partners can implement the EDI network • and EDI translation processes in several ways. • Each of these uses one of two basic approaches: • Direct connection • Indirect connection

22. Direct connection • Each business in the network operates its own • on-site EDI translator computer. • The EDI translator computers are then connected • directly to each other using modems and dial-up • telephone lines or dedicated leased lines. • Trading partners using different communication • protocols can make direct connection options • difficult to implement.

23. Indirect connection • 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. • In an indirect connection, the trading partners use • the services of a VAN for communication. • The VAN often supplies EDI translator software • as part of their package of services.

24. Advantages • The benefits of using a VAN include: • Support for only one communications protocol • The audit log maintained by the VAN can be • used to resolve disputes. • The VAN can provide translation if the partners • use different transaction sets. • Examples of VAN services include General Electric • Information Services, IBM Global Services, GPAS, • and Sterling Software.

25. Disadvantages • The disadvantages of using VAN include: • Requires an enrollment fee, a monthly maintenance • fee, and a transaction fee. • Using VAN is cumbersome for companies that want • to do business with a number of trading partners • using different VANs. • Costs are unpredictable and tend to be higher • There is not always a clear paper trail

26. EDI on the Internet • The Internet was seen as a way to replace • leased lines and dial-up connections. • Potential problems include: • Concerns about security • Inability to provide audit logs • Third-party verification of message • transmission and delivery

27. Open EDI • EDI on the Internet is called Open EDI. • Many new firms offer Open EDI including: • Commerce One • EB2B.com • VanTree • The Internet allows customization for data • exchanges. • New tools such as XML are helping trading • partners be more flexible in exchanging • detailed information.

28. Financial EDI • The EDI transaction sets that provide instructions • to a trading partner’s bank are called financial • EDI (FEDI). • EDI-capable banks are those banks that are • equipped to exchange payment and remittance • data through VANs. • Value-added banks offer VAN services for non- • financial transactions.

29. Perceived risk • Many companies are reluctant to send over the • Internet FEDI transaction sets that contain • transfer instructions for large amounts of money • (in some cases millions of dollars) because of • the perceived low level of Internet security. • Reliability of FEDI transaction sets is also an issue • since a delay in delivery of $10 million can result • in a large loss of interest income.

30. Hybrid solutions • Hybrid EDI solutions use the Internet for part of • the transaction. • For example, EDI-HTML translation services • allow EDI-enabled firms to communicate with • firms that are non-EDI-enabled. • EDI-enabled firm transmits document to the • service • The service translates this into HTML for the • non-EDI-enabled partner • The partner’s response is translated back

31. Supply chain • The part of an industry value chain that precedes • a particular strategic business unit is often called • a supply chain. • A company’s supply chain for a product or service • includes all the activities undertaken by every • predecessor in the value chain to design, produce, • promote, market, deliver, and support each • component of that product or service. • Example: Car manufacturer’s supply chain would • include engine manufacturers, steel fabricators, • glass manufacturers, etc.

32. Supply chain management • In recent years businesses have realized that they • can save money and increase product quality by • negotiating more actively with suppliers. • Companies can work together with suppliers to • identify new ways to serve customers more • quickly and cheaply. • The process of taking an active role with suppliers • to improve products and processes is called • supply chain management.

33. Levels in the supply chain • Business develop long-term relationships with a • small number of very capable suppliers, called • the tier one suppliers. • Tier one suppliers work with a select group of • their suppliers in the same way. This second • level is called the tier two suppliers. • Tier two suppliers work with tier three suppliers. • The long term relationships created are called • supply alliances.

34. Value creation • In exchange for stability, buyers expect price • reductions and quality improvements from • their suppliers. • By working together, supply chain members • reduce costs and increase the value of the • product or service to the consumer. • With clear communication up and down the • supply chain, each participant can know • what the ultimate consumer is demanding • and can plot a strategy to meet the demand.

35. Technology in the supply chain • Clear communications and quick responses to • those communications are a key element of • successful supply chain management. • The Internet and the Web can be very effective • communication enhancers. • Software can help all members of the supply • chain review past performance, monitor • current performance, and predict when and • how much of certain products need to be • produced.

36. Advantages • Suppliers can: • Share information about demand fluctuations • Receive rapid notification of product design • changes and adjustments • Provide specifications and drawings more • efficiently • Increase speed of processing transactions • Reduce cost of handling transactions • Reduce errors in entering transaction data • Share information about defect rates and types

37. Example • Dell computer has used technology-enabled • supply chain management to give customers • exactly what they want. • It reduced inventories from three weeks’ sales • to six days’ sales. • Dell’s top suppliers have access to a secure • Web site that lets them see: • The latest sales forecasts • Planned product changes • Defect rates and warranty claims • This enables the suppliers to plan better.