COMP7880: E-Business Strategies
Interaction with suppliers
Dickson K.W. Chiu
PhD, SMIEEE, SMACM, Life MHKCS
Jelassi & Enders: Chapter 10
1
Our Roadmap
Mobile e-commerce strategy
E-business strategy
Strategy
Strategy formulation
implementation
12
Strategic
analysis
3
External
analysis
9
5
Internal
organisation
Strategy
options
Opportunities/
threats
Strengths/
weaknesses
4
Internal
analysis
6
Sustaining
competitive
advantage
8
7
Exploring
new market
spaces
Creating and
capturing
value
10
13
Interaction with
suppliers
Implementation
11
Interaction with
users/customers
COMP7880-IS-2
B2B e-commerce matrix classifies
different types of B2B e-marketplaces
MRO hubs
Systematic
sourcing
How do firms buy?
Spot
sourcing
Horizontal markets
that enable
systematic
sourcing of
operating inputs
Yield
managers
Horizontal markets
that enable spot
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
Operating Manufacturing
inputs
inputs
What do firms buy?
Source: Adapted from S. Kaplan and M. Sawhney (2000).
COMP7880-IS-3
Different B2B e-marketplaces display
varying degrees of openness
Degree of openness of
e-marketplace
low
high
1
Public e-markets
Supplier
2
Buyer
Consortia
Supplier
Buyer
Fastparts.com
Medibuy
mondus.com
Private Exchanges
Supplier
Buyer
Exchange
owner
E-market
operator
Examples
3
Covisint
Transora
CitiusNet
Dell Computer
Wal-Mart
Source: Adapted from W. Hoffman, J. Keedy and K. Roberts (2002), p. 99.
COMP7880-IS-4
Source: D. Chaffey, (2006), pp. 320-321.
Integrated e-procurement or ERP
system
Matching
and payment
Accounting system
Goods received,
and delivered
Order entry on
website
Buyer, originator
places order
E-mail/workflow
systems
Manager
approves order
CD/web
catalogue
Originator
selects,
requests order
Stock control
catalogue
E-procurement solutions cover
different parts of the supply chain
COMP7880-IS-5
Supplier interaction strategies

Pull
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Push
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Allocates production to stocking locations based on overall demand
Encourages economies of scale in production
Just-in-time
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Draws Comp7880-IS into the stocking location
Each stocking location is considered independent
Maximizes local control of inventories
Attempts to synchronize stock flows so as to just meet demand as it occurs
Minimizes the need for Comp7880-IS
Supply-Driven
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Supply quantities and timing are unknown
All supply must be accepted and processed
Inventories are controlled through demand
COMP7880-IS-6
Importance of suppliers

Inventories is a major use of capital in the supply channel.
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Purchasing and scheduling involve decisions that affect the
efficient movement and storage of goods.
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Key tradeoff: lead time, demand, service, cost
Key difficulties: demand uncertainty together with lead time
Push vs pull
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.
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Impact on the efficiency of logistical activities
Key purchasing decision: quantities, timing, and sourcing
COMP7880-IS-7
IT applications
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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.
COMP7880-IS-8
Reference
COMP7880-IS-9
What is purchased?
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Price
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Quality
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Cost of goods
Terms of sale
Discounts
Meeting specifications
Conformance to quality standards
Service

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On-time and damage-free delivery, order-filling
accuracy, product availability
Product support
Comp7880-IS-10
Activities of purchasing

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Selects and qualifies
suppliers
Rates supplier
performance
Negotiates contracts
Compares price, quality,
and service
Sources goods
Times purchases
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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
Comp7880-IS-11
Criteria for selecting suppliers
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Past or anticipated relations
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Measured performance
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Honesty
Financial viability
Reciprocity
Price
Responsiveness to change or
requests
On-time delivery
Product or service backup
Meeting quality goals

Operational compatibility
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Informational compatibility
Physical compatibility
Ethical and moral issues
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Minority vendors
Lowest price bidding
Patriotic purchasing
Open bidding but a preselected vendor
Weighted average of ratings
Comp7880-IS-12
Single vs Multiple Vendors
Single vendors

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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

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Encourages price
competition
Diffuses risk
May disturb supplier
relations, reduce loyalty,
reduce responsiveness,
and cause variations in
product quality and
service
Comp7880-IS-13
Finding Suppliers
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Personal contacts
Trade publications
Web sites, catalogs, and directories
Advertisements and solicitations
…
Comp7880-IS-14
Qualifying suppliers
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Previous experiences and formal rating schemes
Word of mouth
Samples of product
Reputation
Site visits and demonstrations
Comp7880-IS-15
Allocation to Suppliers
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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

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weak supplier - perhaps some price concessions can be
negotiated
valuable supplier and more capacity should be sought
Comp7880-IS-16
Timing of Purchases

Through just-in-time planning
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Through Comp7880-IS management
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Material requirements planning for continuous work
Gantt charts and CPM/PERT for project work
Push methods
Pull methods
According to market conditions
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Speculative buying
Forward buying
Hand-to-mouth buying, or buying to current
requirements
Comp7880-IS-17
Speculative buying
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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.
Comp7880-IS-18
Hand-to-mouth buying
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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
Comp7880-IS-19
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
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Dollar Averaging
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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.
Comp7880-IS-20
Effect of Quantity Discounts –
Inclusive Price Breaks
Price break curves
Quantity, Qi
Pi
0 < Qi < Q 1
Qi  Q1
Price,
P1
P2
Curve for Q<500
Total cost
$
Feasible curve
Curve for Q500
Q2 Q1
500
Order quantity, Q
Comp7880-IS-21
Effect of Quantity Discounts –
Non-inclusive Price Breaks
Price break curve: non-inclusive discounts
Total cost
Cost for
0  Qi  Q1
Price discount only
applies to the items
beyond the price break
quantity.
Cost for
Qi  Q1
0
Q1
Purchase quantity, Qi
Comp7880-IS-22
Deal Buying
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A one-time buying opportunity.
Determining the quantity to purchase
requires balancing the benefits of a price
discount against extra Comp7880-IS holding
costs.
Comp7880-IS-23