ECT 250: Survey of e-commerce technology
Purchasing, logistics, and support
activities
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
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Figure 1-10
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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
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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
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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
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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.
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Support activities
Support activities include:
• Finance and administration
• Human resources
• Technology development
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Finance and administration
• Making payments
• Processing payments received
• Planning capital expenditures
• Budgeting and planning
• Operation of the computing infrastructure
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Human resources
• Hiring
• Training (not always)
• Evaluating employees
• Benefits administration
• Complying with government record-keeping
regulations
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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
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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.
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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
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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.
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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.
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Electronic data interchange
• Electronic data interchange (EDI) is a computerto-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.
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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.
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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.
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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.
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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.
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Implementation
Trading partners can implement the EDI network
and EDI translation processes in several ways.
Each of these uses one of two basic approaches:
1. Direct connection
2. Indirect connection
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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.
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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.
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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.
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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
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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
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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.
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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 nonfinancial transactions.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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