Operations
Management
Supplement 11 –
E-Commerce and
Operations Management
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006
Prentice
Hall, Inc. Hall, Inc.
©
2006
Prentice
S11 – 1
Outline
 The Internet
 Electronic Commerce
 E-Commerce Definitions
 Economics Of E-Commerce
 Product Design
 Collaborative Project
Management
© 2006 Prentice Hall, Inc.
S11 – 2
Outline – Continued
 E-Procurement
 Online Catalogs
 RFQs and Bid Packaging
 Internet Outsourcing
 Online Auctions
 Inventory Tracking
© 2006 Prentice Hall, Inc.
S11 – 3
Outline – Continued
 Inventory Reduction
 Warehousing for E-Commerce
 Just-in-Time Delivery for ECommerce
 Scheduling And Logistics
Improvement
 Coordinated Pickup and Delivery
 Logistics Cost Reduction
© 2006 Prentice Hall, Inc.
S11 – 4
Learning Objectives
When you complete this supplement,
you should be able to:
Identify or Define:
 E-commerce
 B2B, B2C, C2C, C2B
 Online catalogs
 Outsourcing
 E-procurement
© 2006 Prentice Hall, Inc.
S11 – 5
Learning Objectives
When you complete this supplement,
you should be able to:
Describe or Explain:
 How E-commerce is changing the
supply chain
 Online auctions
 Internet trading exchanges
 Inventory tracking
 Pass-through warehouses
© 2006 Prentice Hall, Inc.
S11 – 6
The Internet
 International computer network
 Connects companies and people
around the world
 Enables the integration of internal
information systems and enhanced
communications between organizations
 Ties together global design,
manufacturing, delivery, sales, and
after-service
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The Internet
 Reshaping how businesses think about
delivering value to customers
 Prime benefits are speed and access
 Important vehicle for change in
Operations Management
 Intranets are internal networks not
available to external users
 Growing daily with over 300 million
domains registered worldwide
© 2006 Prentice Hall, Inc.
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Electronic Commerce
 E-commerce (or e-business) – the use of
the internet to buy and sell products and
services and exchange information
 Low cost rapid exchanges
 A whole new way of doing business
“… all about cycle time, speed, globalization,
enhanced productivity, reaching new
customers and sharing knowledge across
institutions for competitive advantage.”
Louis Gerstner
Former Chairman, IBM
© 2006 Prentice Hall, Inc.
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E-Commerce Definitions
 Business-to-business (B2B) – Both sides
of the transaction are businesses, nonprofit organizations, or governments
 Business-to-consumer (B2C) –
Transactions in which buyers are
individual consumers
 Consumer-to-consumer (C2C) –
Consumers sell directly to each other
 Consumer-to-business (C2B) –
Individuals sell services or goods to
businesses
© 2006 Prentice Hall, Inc.
S11 – 10
E-Commerce Transactions
Business
Consumer
Business
B2B
Global Health
Care Exchange,
Global Net
Xchange
B2C
Amazon, Dell,
Netgrocer.com
Consumer
C2B
Priceline,
Travelocity
C2C
eBay
Figure S11.1
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S11 – 11
Economics of E-Commerce
 Costs of information exchange are
dramatically reduced
 Barriers to entry are lower
 Time constraints almost disappear
 Information and communication is
cheap and easy
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Types of Information
 Product — drawings, specifications,
video, or simulation demonstrations,
prices
 Production Processes — capacities,
commitments, product plans
 Transportation — carrier availability,
lead times, costs
 Inventory — inventory tracking, levels,
costs, and location
Table S11.1
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Types of Information
 Suppliers — product catalog, quality
history, lead times, terms, and
conditions
 Supply Chain Alliances — key contact,
partners’ roles and responsibilities,
schedules
 Supply Chain Process and Performance
— process descriptions, performance
measures such as quality and delivery
Table S11.1
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Types of Information
 Competitor — benchmarking, product
offerings, market share
 Sales and Marketing — point of sale
(POS) data entry, promotions, pricing,
discounts
 Customer — sales history and forecasts
 Costs — market indexes, auction
results
Table S11.1
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Benefits and Limitations
Benefits of E-Commerce
 Improved, lower-cost information that
makes buyers and sellers more
knowledgeable has an inherent power to
drive down costs
 Lower entry costs increase information
sharing
 Available 24 hours a day, virtually any
place in the world, enabling convenient
transactions for those concerned
Table S11.2
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Benefits and Limitations
 Availability expands the market for both
buyer and seller
 Decreases the cost of creating,
processing, distributing, storing, and
retrieving paper-based information
 Reduces the cost of communication
 Richer communication than traditional
paper and telephone communication
because of video clips, voice, and
demonstrations
Table S11.2
© 2006 Prentice Hall, Inc.
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Benefits and Limitations
 Fast delivery of digitized products such
as drawings, documents, and software
 Increased flexibility of location. (That is,
it allows some processes to be located
anywhere electronic communications
can be established, and allows people
to shop and work from home.)
Table S11.2
© 2006 Prentice Hall, Inc.
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Benefits and Limitations
Limitations of E-Commerce
 Lack of system security, reliability, and
standards
 Lack of privacy
 Some transactions are still rather slow
 Integrating e-commerce software with
existing software and databases is still
a challenge
Table S11.2
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Benefits and Limitations
 Lack of trust in (1) unknowns about the
integrity of those on the other end of a
transaction, (2) integrity of the
transaction itself, and (3) electronic
money that is only bits and bytes
Security and risk are major
factors in E-commerce
Table S11.2
© 2006 Prentice Hall, Inc.
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Product Design
 Easily shared knowledge and
information allows quicker and lower
cost design cycles that can involve
participants in diverse locations
 Product data can be managed over the
Internet
 Engineering changes and configuration
management can be extended along the
supply chain
© 2006 Prentice Hall, Inc.
S11 – 21
Collaborative Project
Management
 Project management software
allows for establishing intranet
sites for sharing documents and
maintaining status reports
 Intranets can also be used for
document libraries
© 2006 Prentice Hall, Inc.
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E-Procurement
 Purchasing or order release
communicated over the Internet
 Online catalogs allow quicker cost
comparisons and bidding processes
 Catalogs can be provided by
 Vendors
 Intermediaries
 Buyers
© 2006 Prentice Hall, Inc.
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Online Catalogs
 Vendor catalogs provide quick and
easy access to the entire product
line
 Available to anyone with Internet
access
 Quick and easy to customize and
adjust
 Reduced paper trails reduce
purchasing costs
© 2006 Prentice Hall, Inc.
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Online Catalogs
 Intermediary catalogs facilitate
buyers and sellers meeting
 Buyers can find multiple sellers on
one site
 Buyer-focused exchanges allow
groups of generally similar firms to
join together to buy in larger
quantities and more efficiently than
if they worked independently
© 2006 Prentice Hall, Inc.
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Internet Trading Exchanges
Retail goods — setup by Sears and
France’s Carrefour; called
GlobalNetXchange for retailers (gnx.com)
Health care products — set up by Johnson
& Johnson, GE Medical systems, Baxter
International, Abbott Laboratories, and
Medtronic Inc; called the Global Heath Care
Exchange (ghx.com)
Table S11.3
© 2006 Prentice Hall, Inc.
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Internet Trading Exchanges
Defense and aerospace products — created
by Boeing, Raytheon, Lockheed-Martin, and
Britain’s BAE Systems; called the
Aerospace and Defense Industry Trading
Exchange (exostar.com)
Food, beverage, consumer products — set
up by 49 leading food and beverage firms;
called Transora (transora.com)
Table S11.3
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Internet Trading Exchanges
Steel and metal products — such as New
View Technologies (exchange.e-steel.com);
and Metal-Site (metalsite.com)
Hotels — created by Marriott and Hyatt, and
later joined by Fairmont, Six Continents,
and Club Corp: called Aventra
(aventra.com) buys for 2,800 hotels
Table S11.3
© 2006 Prentice Hall, Inc.
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Medical Supply Chain
Current Supply Chain
Suppliers
Customers
H
H H
H
H H
H
H
Manual processes, including
paper, phone, and fax
– Manufacturer
H
© 2006 Prentice Hall, Inc.
– Hospital
Figure S11.2
– Distributor
H H
H
– Group Purchasing
Organizations
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Medical Supply Chain
New Supply Chain
Suppliers
Customers
H
Online
Global Health
Care
Exchange
H H
H
H H
H
H
Automated Web-based processes
– Manufacturer
H
© 2006 Prentice Hall, Inc.
– Hospital
Figure S11.2
– Distributor
H H
H
– Group Purchasing
Organizations
S11 – 30
E-Procurement
 RFQs and Bid Packaging
 Database of history improves vendor
selection
 Electronic files speed decisions
 System is faster and less expensive
 Internet Outsourcing
 Outsourcing support systems like
payroll, accounting, human
resources, and travel
© 2006 Prentice Hall, Inc.
S11 – 31
E-Procurement
 Online Auctions
 Maintained by buyers, sellers, or
intermediaries
 May be used to sell excess raw
material or discontinued or excess
inventory
 Low cost and increased access to
buyers
© 2006 Prentice Hall, Inc.
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Inventory Tracking
 Technologies like bar code
scanners, radio frequency,
electronic communications can be
used by almost any firm to track
inventory in transit, on the shop
floor, or in a warehouse
© 2006 Prentice Hall, Inc.
S11 – 33
Inventory Reduction
 Warehousing for E-Commerce
 Managed by a logistics vendor
 Pass-through facility rather than
storage
 Just-in-Time Delivery for ECommerce
 E-commerce can improve
communication and coordination
 E-commerce service companies
manage complex transactions
© 2006 Prentice Hall, Inc.
S11 – 34
Scheduling and Logistics
Improvements
 Coordinated Pickup and Delivery
 Unified view of data
 Shipments can be merged in transit
 Reduced inventory and delays mean
lower costs
© 2006 Prentice Hall, Inc.
S11 – 35
Scheduling and Logistics
Improvements
 Logistics Cost Reduction
 Carriers with unused capacity can
find loads through Internet sites
 Logistics efficiency improves and
costs are reduced
© 2006 Prentice Hall, Inc.
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