Chapter 9
Strategies for Purchasing and Support
Activities: From Electronic Data
Interchange to Electronic Commerce
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Learning Objectives
In this chapter, you will learn about:
• Strategies that businesses use to improve
purchasing, logistics, and other support activities
• The ways that firms are creating network
organizations
• Electronic data interchange, how it works, and
how businesses are moving it to the Internet
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Learning Objectives
• Supply chain management and how
businesses are using the Internet and Web
technologies to improve it
• The software packages that companies are
using to implement business-to-business
electronic commerce and supply chain
management
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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.
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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
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Purchasing Activities
• Procurement includes all purchasing
activities, plus the monitoring of all
elements of purchase transactions.
• 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.
Click to see Figure 9-1:
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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.
Click to see Figure 9-2:
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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.
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Support Activities
• Online Benefits is a firm that duplicates its
clients’ human resource functions on a
secure Web site that is accessible to clients’
employees.
• Support activities include:
– Finance and administration
– Human resources
– Technology development
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Knowledge Management
• Knowledge management is another support
activity that 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.
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Network Model of Economic
Organization
• The trend in purchasing, logistics, and support
activities is the 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).
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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 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.
• In 1968, a number of freight and shipping
companies formed the Transportation Data
Coordinating Committee (TDCC) to create the
TDCC standard format.
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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).
Click to see Figure 9-3:
Click to see Figure 9-4:
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How EDI Works – An Example
• The information flows that will occur in the
paper-based version of the purchasing
process example are shown in Figure 9-5.
• The information flows that will occur in the
EDI version of this example purchasing
process are shown in Figure 9-6.
Click to see Figure 9-5:
Click to see Figure 9-6:
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Value-Added Networks
• 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
on-site 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.
Click to see Figure 9-7:
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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.
Click to see Figure 9-8:
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VAN
• Companies that provide VAN services
include General Electric Information
Services, GPAS, Harbinger Corp., IBM
Global Services, etc.
• Cost is an issue to VAN. Most VANs require
an enrollment fee, a monthly maintenance
fee, and a transaction fee.
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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.
• The major roadblocks to conducting EDI
over the Internet were security.
• As the TCP/IP was enhanced and SHTTP
protocol was developed, businesses
worried less about security issues.
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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.
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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 are handled through the
Automated Clearing House (ACH).
• Security and reliability are issues of FEDI.
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Hybrid EDI Solutions
• Some firms are offering hybrid EDI
solutions that use the Internet for part of the
transaction.
• Bottomline Technologies’ payBase package
is an example.
• Other hybrid solutions include EDI-HTML
translation services.
Click to see Figure 9-9:
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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.
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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.
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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.
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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.
• Figure 9-10 lists the advantages of using
Internet and Web technologies in SCM.
Click to see Figure 9-10:
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Technology in the Supply Chain
• In 1997, production and scheduling errors
costing Boeing over $1.5 billion.
• Using EDI and Internet links, Boeing is
working with suppliers so that they can
provide the right part at the right time.
• To further benefit customers, Boeing
launched a spare parts Web site, Boeing
PART.
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Technology in the Supply Chain
• Dell Computer has also used technologyenabled SCM to give customers exactly
what they want.
• 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.
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Enterprise Resource Planning
Software
• Enterprise resource planning (ERP)
software is designed to help a company
integrate all of its manufacturing, finance,
distribution, and other internal business
functions into one information system.
• Major ERP vendors include J.D. Edwards,
Oracle, PeopleSoft, and SAP.
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Business-to-Business (B2B)
Commerce Software
• B2B commerce software is designed to help
companies build Web sites that host catalog and
other commercial sales activities.
• Netscape’s SellerXpert and Open Market’s
LiveCommerce-Transact combination are fullfeatured products that help companies put catalogs
online.
• The other B2B commerce software packages are
toolkits that help the customer custom configure
catalog and order management systems.
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Supply Chain Management
Software
• Supply chain management software
includes demand forecasting tools and
planning capabilities to coordinate various
activities.
• Currently, the two major firms offering
SCM software are i2 Technologies and
Manugistics.
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