Chapter 5
B2B Strategies:
From EDI to E-Commerce
Purchasing, Logistics, and
Support Activities
• Electronic commerce possesses the potential for cost
reduction and business process improvement in
purchasing, logistics, and support activities.
• An emerging characteristic of purchasing, logistics,
and support activities is that they need to be flexible.
• Such as e-Government … do you know any local
services offered?
2
Exercise
• What are the benefits of e-Government?
• What are the disadvantages?
3
Example (1)
• e-Government
(http://www.gov.mt/egovernment.asp?p=116&l=2)
– Usage of eCommerce by Government to improve efficiency of its
support operations such as …
• Ċertifikati.gov.mt Order certificates online
• Servizz.gov.mt e-Customer Care System
• MCAST Short Courses Online application/enrolment for these courses
• Exams.gov.mt Examinations Applications
• VAT online services
• eHealth Portal
4
Example (2)
• Ird.gov.mt
– Corporate Taxes online services
– Final Settlement System
– FSS-Fringe Benefit Calculator
• Social Security Contributions Calculator
• Map Server
• E-Libraries Service at the National and Public Libraries
• Pulizija.gov.mt - Pulizija On-Line
• Gpd.gov.mt - Pay Rent On-Line
• Les.gov.mt - Local Enforcement System - Pay your local warden
tickets online
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Example (3)
• Justice
–
–
–
–
•
Sentenzi Online
Civil Cases
Laws of Malta Online
Hall Usage
eServices
– Elderly
– Persons with Special Needs
• - eLicences
• Laws of Malta
• Order of Fiscal Receipts Books
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Example (4)
•
Children's Allowance Calculator
•
Disabled Child Allowance Calculator
•
Retirement Planner
•
Buses Route Finder
•
Job Vacancies at the Employment & Training Corporation (ETC)
•
Viewing CVs at the ETC
•
Renewal of Vehicle Licenses
•
Social Security contributions submissions for employees
•
Unique Notification of change in address
•
Online renewal of Passports
•
E-procurement for Government departments
7
E-Government
• Employment, buying supplies, benefit payment
distribution etc
• Different levels
– National Governments
– State or Provincial
– Local Governments
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Purchasing Activities
• Purchasing activities include:
–
–
–
–
–
Identifying vendors
Evaluating vendors
Selecting specific products
Placing orders
Resolving any issues that arise after receiving the
ordered goods and services
• late deliveries
• incorrect quantities
• incorrect or defective items
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Purchasing Activities
• Procurement includes all purchasing activities,
plus the monitoring of all elements of
purchase transactions.
– supply chains
– e-sourcing
• By using a Web site to process orders, the
vendors in this market can save the cost of
printing and shipping catalogs, and the cost of
handling telephone orders.
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E-Procurement promises
•
Reduction of process costs
•
Less capital costs due to reduced inventory
• Increased buying power and better purchase price
through aggregation
•
Increased cost and process transparency
• Better management of decentralized purchasing
• More capacity for strategic procurement
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Snapshot of SMEs using EProcurement
•
•
•
•
29 % of SMEs buy online
2 % interchange data with suppliers
9% buy more than 50% online
42 % buy less than 5 % online
• Favorite Products:
–
–
–
–
Books
Office Supplies
Travel Services
Soft- & Hardware
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E-Procurement benefits
• e-Procurement, when properly implemented should
provide:
–
–
–
–
Savings: Easy access to contract pricing
Convenience: Online ordering tool, access from anywhere
Speed: Automated approvals
Help: Guidance through the tool (make process easy to use)
• Improving Service
• Lowering Total Cost of Ownership
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TCO
• A comprehensive process to help enterprises
understand all the costs, benefits and value
associated with procuring, owning and using
IT components over time.
• Example:
– How much do you think a networked Window 95 PC
would cost an organisation per year?
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TCO Example
• Annual TCO of a networked Window 95 PC has
been estimated at
– $2,859 by Zona Research,
– $2,680 by Forrester Research, Inc.,
– $9,784 by the Gartner Group
• No matter how they calculate the costs the
conclusion is that this part of cost is
considerably higher than the capital outlay
• Why so high?
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Budgeted TCO
• The cost of hardware and software.
• The cost of management including network, system
and storage administration labor.
• The cost of training and support services.
• The cost of system development including application
and content development, testing and documentation,
new development, customizations of system, and
maintenance.
• The cost of communication fees including lease lines
and server access charges.
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Most Significant Contributing Factors
to TCO
• Labor and end user operations.
• Non-standard PC configurations.
• Information and applications uniquely tied to specific
workstations.
• Deploying and maintaining hardware and software
infrastructure.
• Manageability is the largest single factor.
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Hidden Costs
•
Miscellaneous cost
– The cost of toner, paper, etc.
– License fees/transaction costs
– Energy costs needed to run the technology
•
The cost of lost productivity
– The cost of system downtime
– The cost occurred when end users are attempting
to solve IS problems for themselves or their
coworkers.
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TCO Principles
1. The TCO $ number is meaningless without discussing service
levels.
2. The more centralized the architecture, the lower the cost.
3. Standardization at the desktop controls costs.
4. Local optimization for a particular application is costly.
5. Attempt to quantify benefits of expenditures or savings when
considering acquiring or disposing of technology.
6. Take a long term perspective and use TCO best practice wherever
possible.
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TCO Best Practices
1. Maximum consolidation of datacenters, system images, and other resources.
2. Maximize processor and storage capacity.
3. Remove unnecessary portions of system.
4. Use integrated management tools.
5. Automation of system administration, storage, and operational tasks.
6. Streamline datacenter work processes.
7. Limit users ability to get themselves in trouble.
8. Maintain inventory of all hardware and software.
9. Train employees.
10. Replacement of legacy applications.
11. Keep the infrastructure reliable.
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Direct Materials Purchasing
• Direct Materials
– materials that become part of the finished product
• E.g. Iron Ore in Steel Manufacturing
– Types
• Replenishment Purchasing
– Yearly contracts with particular suppliers
• Spot Purchasing
– For additional purchases during the year
21
Indirect Purchasing Activities
• Products that companies buy on a recurring basis are
called maintenance, repair, and operating (MRO)
supplies.
• One of the largest MRO suppliers in the world is W.W.
Grainger.
• McMaster-Carr is another major MRO supplier through
WWW.
• Office Depot and Staples are also examples in this
area.
22
Logistic Activities
• The classic objective of logistics is to provide
the right goods in the right quantities in the
right place at the right time.
• Businesses have been increasing their use of
information technology to achieve this
objective.
• FedEx and UPS have freight tracking Web
page available to their customers.
• Materials Tracking Technologies
– Scanners, Bar Codes and RFIDs
23
Exercise
• Consider a parcel delivery service.
• Draw a flowchart which outlines all the steps
which take place from when the client initially
accesses the website to the time the parcel is
delivered
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FedEx
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Support Activities
• Includes
– Finance and Administration
– Human Resources
– Technology Development
• Online Benefits is a firm that duplicates its
clients’ human resource functions on a secure
Web site that is accessible to clients’
employees.
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Knowledge Management
• Knowledge management is the intentional collection,
classification, and dissemination of information about
a company, its products, and its processes.
• BroadVision has installed K-Net, or Knowledge
Network, that organizes all information sources that its
employees use regularly in their jobs.
27
Working Definition
Knowledge Management is the explicit
and systematic management of vital
knowledge - and its associated processes
of creation, organisation, diffusion, use and
exploitation.
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Roots of Knowledge Management
Learning
Organization
Business
Transformation
(BPR, TQM, culture)
Innovation
Knowledge
Management
Intellectual
Assets/Capital
Information
Management
Knowledge-based
Systems
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Knowledge is Different
Intelligence /
Wisdom
Knowledge
Information
Data
Human, judgemental
Contextual, tacit
Transfer needs learning
Codifiable, explicit
Easily
transferable
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Conversion processes
Source: The knowledge creating company, I. Nonaka and H. Takeuchi
Tacit
Socialization
Externalization
Internalization
Combination
From
Explicit
Tacit
To
Explicit
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What is ... in Practice
•
•
•
•
•
•
•
Knowledge Teams - multi-disciplinary, cross-functional
Knowledge (Data)bases - experts, best practice
Knowledge Centres - hubs of knowledge
Learning Organization - personal/team/org development
Communities of Practice - peers in execution of work
Technology Infrastructure - Intranets, Domino, doc mgt
Corporate Initiatives – Chief Knowledge Officers, etc
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Seven Levers
•
•
•
•
•
•
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Customer Knowledge - the most vital knowledge
Knowledge in Products - ‘smarts’ add value
Knowledge in People - but people ‘walk’
Knowledge in Processes - know-how when needed
Organizational Memory - do we know what we know?
Knowledge in Relationships - richness and depth
Knowledge Assets - intellectual capital
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KM Cycle
Collect
Identify
Create
Classify
Knowledge
Repository
Use/Exploit
Access
Organize/
Store
Share/
Disseminate
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IT Infrastructure
•
•
•
•
•
•
A key enabler
Access anytime, anywhere, anyhow
Lotus Notes, First Class, Intranets - groupware
Point solutions e.g. data mining, mapping
New generation of Knowledge Based systems
Focus on the I (Information - about
Knowledge)
• Hybrid, virtual teams
35
Soft Infrastructure
• A culture of sharing - vs. information fiefdoms
• Directors of Knowledge (Intellectual Capital)
• Facilitating knowledge processes
– change teams, development workshops etc.
• Developing personal skills
– info management, ‘dialogue’, online techniques
• New measures of human capital, capabilities
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Critical Factors
•
•
•
•
•
•
•
Strong link to business imperative
Compelling vision and architecture
Knowledge leadership
Knowledge creating and sharing culture
Continuous Learning
Well developed ICT infrastructure
Systematic knowledge processes
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Action Planning
1. Find out where you are!
– do an assessment; look for existing practice
2. Identify the knowledge champions
– and top level sponsors
3. Start the learning process
– attend seminars, site visits, assemble resources
4. Understand the seven knowledge levers
– find how knowledge adds value to your business
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Action Planning (cont.)
5. Identify Related Initiatives
– an opportunity for collaboration?
6. Initiate a Pilot Project
– look for quick wins, within long-term framework
7. Assess Organizational Readiness
– assessment plus enablers, levers, foundations
8. Develop a road map for knowledge
– vision, goals, strategies, resources, networks.”
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KM Case Studies …
• Glaxo Wellcome
• Price Waterhouse KnowledgeView
• Buckman Laboratories
• Skandia Life
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Glaxo Wellcome
• A strategy led initiative - learning org. focus
• Workshops to convert rhetoric to action
plans
• Using Intranets to share R&D, help approvals
• Library, document management support
• Reoreinted Technical Architecture
• Challenge is creating ‘sharing culture’
Bottom Line - better RoIC
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Glaxo Wellcome - Knowledge Net
Learning History
Team Skills
Process Improvements
- Quality etc.
Communications
Knowledge
Network
Architecture
New science
competencies
People
Marketing products
- manager skills
- ‘Yellow pages’
- expertise
- customer dialogue
Strategy
42
Price Waterhouse KnowledgeView
• Knowledge is their business
• Systematic processes - sharing ‘best
practice’
• Knowledge centres - editors and advisers
• Taxonomy - International Business Language
• Common formats on information
• Lotus Notes for multiple ‘views’
• Adding contextual/contact information
Bottom Line: Better solutions in less time
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Buckman Laboratories
•
•
•
•
•
•
•
“Solutions lie in minds, not databases”
Corporate network (V1 - CIS) - up in 30 days
Knowledge Transfer department
CEO monitors and uses the network
FAQs, virtual conferences, forums
K’Netix (sm) - knowledge sharing Intranet
Metrics - direct customer engagement
Bottom line - open, unrestricted communication
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Skandia Life
• First to publish ‘intellectual’ balance sheet
• Visible assets vs. invisible assets
• Intellectual Capital = customer + human +
structural
• IT + IC + values = Intelligent organisation
• Not just sums - will drive operating units
– “visualise”, success factors, indicators,
development
Bottom line - ongoing growth and value
45
Network Model of Economic
Organization
• The trend in purchasing, logistics, and support
activities is a shift away from hierarchical structures
toward network structures.
• The Web is enabling this shift from hierarchical forms
of economic organization to network forms.
• The roots of Web technology for B2B transactions lie
in electronic data interchange (EDI).
46
Economic Forces of E-Commerce
•
Transaction costs were the main motivation for moving economic activity
from markets to hierarchically structured firms
•
Transaction costs are the total of all costs that a buyer and a seller incur
for business
•
Types of economic organization:
– Market form
– Hierarchically-structured form
47
Electronic Data Interchange (EDI)
• EDI is a computer-to-computer transfer of
business information between two businesses
that uses a standard format.
• Transaction data in B2B transactions includes
the information on paper invoices, purchase
orders, requests for quotations, bills of lading,
and receiving reports.
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Early Business Information
Interchange Efforts
• In the 1950s, information flows between businesses
continued to be printed on paper.
• By the 1960s, businesses had begun exchanging
transaction information on punched cards or magnetic
tape.
• Benefits were outweighed by required computing
infrastructure bearable only by large, high-volume
companies
• In 1968, a number of freight and shipping companies
formed the Transportation Data Coordinating
Committee (TDCC) to create the TDCC standard
format.
49
Emergence of Broader Standards
• The American National Standards Institute (ANSI) has been the
coordinating body for standards in the U.S. since 1918.
• In 1979, ANSI chartered a new committee to develop uniform EDI
standards. This committee is called the Accredited Standards
Committee X12 (ASC X12).
• In 1987, the United Nations published its first standards under the
title “EDI for Administration, Commerce, and Transport (EDIFACT,
or UN/EDIFACT).
50
The Critics say…
• Reliance on forms has made it difficult for
businesses to integrate EDI data flow into their
business process-oriented information
systems
• Switching to business processes instead of
paper transaction forms would completely
redesign 30 year old standards which are part
and parcel of existing computing
infrastructures
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EDI Elements
• 3 key elements
– EDI network
– Two EDI translator computers
• Translator computers
– Convert data from internal formats to standard EDI
transaction sets
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2 kinds of connections
• EDI reduces paper flow and streamlines the
interchange of information among
departments within a company and between
companies.
• Trading partners can implement the EDI
network and EDI translation processes in
several ways use either direct connection or
indirect connection.
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Direct Connection between
Trading Partners
• Direction connection EDI requires each
business in the network to operate its own onsite EDI translator computer.
• These EDI translator computers are then
connected directly to each other using
modems and dial-up phone lines or dedicated
leased lines.
55
Indirect Connection between
Trading Partners
• Instead of connecting directly to each of its
trading partners, a company might decide to
use the services of a value-added network.
• 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.
56
VANs
• Companies that provide VAN services include
– Computer Associates,
– Descartes VAN Services,
– GPAS,
– KleinSchmidt,
– IBM Global Services, etc.
57
Advantages
• Users need to support only one
communication Protocol – the VANs’s
• Transaction Audit logs to resolve disputes
• Can provide translation between different
transaction sets (e.g. ASC X12 and
Un/EDIFACT)
• Automatic compliance checking
58
Disadvantages
• Cost is an issue to VAN:
– an enrollment fee,
– a monthly maintenance fee
– a transaction fee based on
• Volume and/or Length
• Participating in more than one VAN to accommodate
multiple clients could be very expensive
• Inter-VAN communication not possible or not reliable
• Value-Added Services (VASs) are a lower cost
alternative to VANs. You pay for EDI as you use it
rather than making the full investment to have EDI
capability within your business.
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EDI on the Internet
• Trading partners who had been using EDI began to
view the Internet as a potential replacement for the
expensive leased lines – an enabling technology
• The major roadblocks to conducting EDI over the
Internet were
– Security
– Inability to provide audit logs
– 3rd party verification of message transmission and
delivery
• As the TCP/IP was enhanced and SHTTP protocol was
developed, businesses worried less about security
issues.
60
Open Architecture of the Internet
• A number of new firms, such as Commerce One and
IPNet, have begun providing EDI services on the
Internet.
• EDI on the Internet is also called “open EDI” because
the Internet is an open architecture network.
• New tools such as XML are helping trading partners be
even more flexible in exchanging detailed information.
61
Financial EDI
• The EDI transaction sets that provide
instructions to a trading partner’s bank are
called financial EDI (FEDI).
• All banks have the ability to perform electronic
funds transfers (EFTs).
• Most EFTs between two banks are handled
through the Automated Clearing House (ACH).
• EDI-capable banks are those equipped to work
with VANs
• VABanks – offer VAN services for nonfinancial
transactions (e.g. remittance advices, added
benefits)
62
Supply Chain Management
• The part of an industry value chain that
precedes a particular strategic business unit is
often called a supply chain.
• The purchasing department has traditionally
been charged with buying all of these
components at the lowest price possible with
the highest quality possible.
63
Value Creation in the Supply
Chain
• The process of taking an active role in working
with suppliers to improve products and
processes is called supply chain management
(SCM).
• SCM was originally developed as a way to
reduce costs.
64
Value Creation in the Supply
Chain
• Today, SCM is used to add value in the form of
benefits to the ultimate consumer at the end of
the supply chain.
• Supply chain members can reduce costs and
increase the value of product or service to the
ultimate customer.
65
Supply Alliances
• Tier One Suppliers
– Long-term relationships with small number of very
capable suppliers
• Tier Two Suppliers
– Tier one establish long-term relationships with a
larger number of suppliers providing components
or raw materials
• Tier Three Suppliers
– Tier three establish long-term relationships with a
larger number of suppliers providing components
or raw materials
66
Flexible or Efficient?
• An efficient producer cannot be a flexible
producer and vice-versa
• Members of a supply-chain must all be flexible
or all be efficient
• If one member changes, all other members
suffer
• Decisions should be made on the ultimate
customer’s demands
67
Technology in the Supply Chain
• Clear communications, and quick responses to
those communications, are a key element of
successful SCM.
• Technologies of the Internet and the Web can
be very effective communication enhancers
– Past performance
– Monitor current performance
– Predict when and how much products to produce
68
Advantages
• Share info about customer demand fluctuations
• Receive rapid notification of product design changes and
adjustments
• Provide specifications and drawings more effectively
• Increase transaction processing speeds
• Reduce transaction-handling costs
• Reduce transaction-data entering errors
• Share info about defect rates and types
• DISADVANTAGE: Cost !!
69
Technology in the Supply Chain
• In 1997, production and scheduling errors
shutdown two entire assembly operations
costing Boeing over $1.5 billion – over 1
million parts per airplane.
• Using EDI and Internet links, Boeing is working
with suppliers so that they can provide the
right part at the right time – down from 36
months to 10-12 months per plane.
• To further benefit customers, Boeing launched
a spare parts Web site, Boeing PART.
70
Technology in the Supply Chain
• Dell Computer has also used technology-enabled SCM
to give customers exactly what they want.
• Who are the customers and what they are buying.
• Dell has been able to dramatically reduce the amount
of inventory it must hold.
• Dell has also shared this information with members of
its supply chain.
71
Creating an ultimate consumer
orientation
• One of the main goals of SCM
– Help each company in the chain focus on meeting
the needs of the end-consumer
• Instead of…
– Meeting the needs of the next member in the supply
chain
• Michelin provided BIB NET: an online website
providing tyre specs to tyre-vendors
answering their customers queries.
72
Trust in the Supply Chain
• Continual Communication
• Information Sharing
• Staying in contact easily and cheaply via the
web
• Developing information exchange resources
that can provide supplier performance
summaries is one of the greatest challenges
that B2B commerce faces.
73
Electronic Marketplaces and
Portals
• At the beginning of e-Commerce, many
predicted Vortals would change e-Commerce
• Vortals are Vertical Portals which offer
specialised information
• Also called Independent Industry marketplaces
• This change did not happen!
74
Questions?
75