Electronic Commerce
• Long term evolution of business environment coupled with
technological developments (i.e. WWW)
• Phenomenon not recent (gradual increase over 25 years)
• Definition: automation of commercial transactions using
computer and communications technologies
• commercial = transactions that involve the exchange of
goods, funds or obligations...
• It is a reality in today’s modern environment => must
become knowledgeable about it
eBusiness versus eCommerce
• Conducting any kind of business via an electronic channel
Electronic Commerce
Web
Commerce
Internet
Commerce
Electronic
Business
Information systems for interacting
with the environment
• Initial development of the phenomenon of E Commerce
• Attempts to change the nature of the linkage with suppliers /
customers / competitors
• SABRE
• American Hospital Supply Corporation
• Japanese and American car making and retail industry in the
70s
• Concept of Just In Time (JIT)
Link with customers:
• American Hospital Supply Corporation (AHSC): system
whereby customers can directly re-order their supplies
from terminals located in their hospitals
• Successful because it enabled AHSC’s customers to cut
their costs of administration
• originally meant as an INTERNAL systems by AHSC and
extended to one main customer
Links with customers and
competitors
• SABRE (American Airlines): first effective electronic
reservation systems in the US
• simple one-line database application
• available in any travel agent
• rented to other airlines
• competitive value of system still felt today
• in 1988 AA were making more money out of SABRE
than out of flying air planes
Specific Features of InterOrganisational Systems
• Require co-operation
• also some legal implications - e.g. prevention of computer
crimes
• nature of the agreement extends beyond the system itself e.g. AHSC started from the relationship between a store
manager and a customer
Level of Integration between
trading partners
• Exchanges of information between partners can be more or
less structured:
–
–
–
–
–
–
Meetings and phone calls
purchase orders
invoices
cheques
…………….
Shared systems
• Traditionally, structured exchanges were paper based =>
slow turnaround time
Electronic Commerce suggests
new methods
• Invoice => Electronic Data Interchange instead of postal
service
• Payments => Electronic Fund Transfer instead of cheque
• Short messages => Electronic Mail instead of Phone
• Group discussions => Electronic Bulletin Boards or computer
conferencing instead of meetings
• Promotion => WWW instead of paper brochure
• Customer product query => on-line database instead of paper
catalogue
Framework of generic forms of
Electronic Commerce
Permanent
Ad Hoc
EDI
IOS data retrieval systems
Electronic meeting rooms
computer conferencing
Electronic catalogues
WWW home pages
Electronic Mail
Electronic file transfer
Structured
Unstructured
Electronic Data Interchange
(EDI)
• Creation of inter-organisation networks involving at least 2
organisations
• can be extended to a very large number of organisations
(virtual trading community)
• Often use an intermediary - e.g a Value Added Network
(VAN) Service provider
Electronic Data Interchange:
A Formal Definition:
“EDI is the transfer of structured data by agreed message
standards from computer to computer by electronic
means”
Important Points about EDI
The definition points our three important issues:
• EDI uses structured data
• EDI uses agreed standards
• EDI uses electronic links
EDI uses structured data
• EDI messages are processed by a computer not by an
operator
• it is very different from simple E-Mail
• the information received is not displayed to anyone, but
directly used by a program in a computer
• messages are coded
an EDI message:
• Messages are made up of STANDARD LOCATION
SEGMENTS (LOC):
TYPE OF
DATA
TYPE OF PLACE
LOC+
POD+
CODE
USNYC 01:
CODE LIST
DECODED TEXT
NEW YORK, NY
EDI uses agreed standards
• Link between commercial partners who agree to do
business in a certain way
• preliminary agreement on what data is being
transferred and in what order
• Adherence to standards means Open Environment at
both ends
• it also requires an universally agreed message
structure to operate.
EDI uses electronic links
• in the beginning: EDI used computer tapes
– slow
– vulnerable
– low level of integration across companies
• then EDI used telecommunications
– scheduling
– cost
– compatibility
BILATERAL LINK:
Multilateral Links:
A modern solution for EDI
• Join an EDI network run by a VALUE ADDED
NETWORK SERVICE (VANS) supplier
• similar to a postal service
• all messages are sent through a delivery service
• messages are delivered into people’s post boxes
EDI using a VAN
MAIL BOX
POSTBOX
What is wrong without EDI:
• Companies use computers to process transactions and
produce paper
• Computers produce paper faster than humans can
process it => strain
Result is that processes:
• are Inefficient
• are open to errors
• are often delayed
• generate extra transaction costs
What is wrong without EDI:
• companies are using a combination of the most modern and
efficient with the most archaic methods
• postal link or faxes are the wrong media
• re-keying of data at the reception is a waste of time
• these create bottlenecks in the communication of
organisations
With EDI
• Processes can be integrated and computerised fully from
end to end
• Data entry error is considerably reduced
• Data transfer can be extended to give immediate feedback:
– order correctly received
– goods not available
– substitution good suggested
• Other on-line services can be added:
– mail distribution list for new products / price changes
– special offers
Benefits
•
•
•
•
•
Cost savings - reduction in data entry errors - smaller staff
reduced lead time for orders
speed up communication
creates stronger ties between partners
improved customer service
Problems
• Set up difficulties:
– integration with existing systems
– selection of EDI standard
• loss of flexibility resulting from initial choices
• requires high levels of commitment from partners
• substantial benefits only come with high volumes of data
exchanges
Spread of EDI
• EDI was originally limited to the automotive and retail
industries
• now involves virtually every sector of business:
–
–
–
–
–
–
shipping
insurance
banking
government
Customs
Also, HR
Introduction of EDI:
EDI can be introduced in two ways
• pro-active way: company sets out to create a link with its
suppliers / customers
• reactive way: company is asked (forced??) to switch to
EDI by one of its customer / supplier
• benefits can only be maximised if EDI is introduced in a
pro-active way (otherwise, standards are dictated by an
organisation’s partners)
• companies need to formulate an EDI strategy - much like
BPR (re-design processes to fully exploit EDI)
Example of EDI adoption:
• Before Northern Telecom joined Eirtrade
more than 5 days from ordering to delivery
Example of EDI adoption:
• After Northern Telecom joined Eirtrade
Other suppliers
EIRTRADE VAN
Other customers
Same day delivery
Northern
Telecom
Another example: Hickey and Co.
•
•
•
•
Irish clothing company - about 75000 garments a week
formal request to implement EDI from large customer
only superficial at first then integrated with manufacturing
reduced stock levels, faster turnaround of orders, more
attractive to other customers, easier to audit paper trail
• But too small to convince other customers to use EDI
The Internet
• Now, most of the business to business transactions
(including EDI) are carried out on the Net
• Most of the business to customer are carried out on the
Web
• Future of E-commerce is based entirely on the
development of this vast network
Origins of the Internet
Phenomenon
• 30 years in existence - 1969
• Communication network for the US Military!
• Dormant for many years
• Then confined to basic applications, such as FTP and
Telnet, by the platforms used
The Explosion of the Internet
• Huge growth in the number of machines on the NET
• Widespread coverage in the media - eg: buzzword
“Information Superhighway”
• Recognition of new business opportunities provided
by the NET
• Role of the WWW is and will be increasingly
important
“The best business opportunity that most people are
likely to find in a life time”
(Hammond, 1996)
Number of Computers
Connected to the Internet
Internet Opportunities
• Like the gold rush of 1849
• A shop in 0.5 m2
• Interactive advertising
• A lot of very optimistic predictions
Internet Threats
• Dangers inherent in a wait and see approach
• Companies can be international competitors on the
WWW with little resources
• Industries are radically changed by the WWW
• WWW is becoming a crucial battleground
The Internet is like a set of cross roads where petrol
stations fight a tough price war; except with the
Internet, all companies are at the same cross roads
How to make money
• LAYER ONE - The Internet Infrastructure [$200
billion]
• LAYER TWO - The Internet Applications
Infrastructure [$100 billion]
• LAYER THREE - The Internet Intermediary [just
below $100 billion]
• LAYER FOUR - The Internet Commerce [$171
billion + fastest growth]
Where does the money go?
•
•
•
•
Internet retailing grows 200% per year
top 10 retailers account for 50%
mix retailers (e.g. Dell) account for 60%
portal sites only pocket 30% of E-revenues
As of the end of 1999
•
•
•
•
•
•
•
•
•
Number of Sessions per Month
Number of Unique Sites Visited
Time Spent per Site
Time Spent per Month
Time Spent During Surfing Session
Duration of a Page viewed
Active Internet Universe
Current Internet Universe Estimate
but double figure growth is over
– redistribution towards vertical sites
– traffic congestion
16
11
42: 11
7: 30: 51
28: 18
01: 05
64,953,584
109,993,829
Rank
Nation
Internet population (ms)
Share of world population (%)
1.
United States
135.7
36.2
2.
Japan
26.9
7.18
3.
Germany
19.1
5.10
4.
UK
17.9
4.77
5.
China
15.8
4.20
6.
Canada
15.2
4.05
7.
South Korea
14.8
3.95
8.
Italy
11.6
3.08
9.
Brazil
10.6
2.84
10.
France
9.0
2.39
11.
Australia
8.1
2.16
12.
Russia
6.6
1.77
13.
Taiwan
6.5
1.73
14.
Netherlands
5.4
1.45
15.
Spain
5.2
1.39
Total
374.9
100
Revised statistics (Summer 2000)

Patterns of Internet browsing in the US
Number of Sessions per Month
18
Number of Unique Sites Visited
10
Time Spent per Site
57: 02
Time Spent per Month
9: 40: 53
Time Spent During Surfing Session
31: 32
Duration of a Page viewed
00: 50

Patterns of Internet browsing in the UK
Number of Sessions per Month
10
Number of Unique Sites Visited
18
Time Spent per Site
15: 39
Time Spent per Month
4: 39: 07
Time Spent During Surfing Session
29: 02
Duration of a Page viewed
00: 45
The Size of the Beast
•
•
•
•
•
12,844,877 unique domain names registered worldwide
1,570,000,000 pages
29,400,000,000,000 bytes of text
353,000,000 images
5,880,000,000,000 bytes of image data
The Growth of the Beast
For every 24 hours that elapses
• 3,180,000 new pages
• 59,700,000,000 new bytes of text
• 716,000 new images
• 1,900,000,000 new bytes of image data
• Imagine the implications for traffic
• But the capacity of the Internet backbone has doubled
every 100 days !
Case Study of Web Fortune
• Blue Mountain Arts (.com) - on-line postcard service
• One of the most highly trafficked sites on the Internet
(16th, but 3rd E-Com site)
• 9.2 millions visitors per month
• Etoys inc. ready to pay £1 billion for it
• but quick response of competitors may spoil deal
• AOL, Yahoo and Amazon developed their own
• service may be extended to include flower, candy or fruit
delivery!
How trivial can you get?
You have just received an animated greeting card from XXX
You'll see the personal greeting by using the following Web
location.
http://www1.bluemountain.com/cards/box6958r/ufe4vyeufagkwy.htm
(Your greeting card will be available for the next 90 days)
There is no charge for this service! :) HAVE a good day and
have fun!
Precursors of E-Com
• More than 2000 initiatives introduced over last 20 years
• most successful (still exist besides the Web) was France’s
Minitel (1980)
– infrastructure made available to companies to sell services through
telephone lines
– France Telecom equipped entire user population within 2 years
– hundreds of thousands of local and national services
• Most other attempts failed (e.g. Minitel in Ireland)
Key points in the current success
• International, borderless initiative
• Technology is mainstream and affordable (e.g GUI)
• Flexibility is ensured through the existence of thousands of
existing / developing local networks
• Global markets set free from the shackles of 9 to 5
constraints
• goes hand in hand with internal re-engineering carried out
in many organisations ...
Fortune 500 E-Com
• All have Web sites
• Only 10% conduct transactions
• Mostly public relations, customer service and technical
assistance (70% of sites)
• marketing and sales (30% of sites)
• Illustrates that E-Com is not a silver bullet
Limitations of current sites
• Only 3% of sites for direct sale (9% equipped for on-line
transactions)
• more than 50% of users went on-line to make a purchasing
decision...
• only 15% bought because sites did not (easily) allowed
them to do it on-line
• 2/3 of customers put goods in their trolleys and then fail to
complete transaction!
But...
•
•
•
•
Internet has potential to enable / impose radical changes:
at first, e-mail is a replication of normal mail, just faster
then, it take additional dimensions
i.e. effects that go beyond its technical features (virtual
communities)
groups are those social aggregates that involve mutual awareness
• E-Mail
has the
powerinteraction
to change the
key parameters
and
potential
mutual
(McGrath,
1984)in this
definition
For example:
• Instigation of electronic exchanges with emerging nations /
markets
• simpler structure
• less tradition bound
• attracted to novel and efficient ways
• little costs in competing in most distant of markets
• Other experimentation include letting customers deciding
the price
Internet does create opportunities that could not be exploited otherwise
Types of e-commerce
• Business to business:
– EDI
– largest in money terms (as in real world)
• business to consumers:
– WWW retailing and brokerage services
• consumer to consumer:
– free ads services / discussion groups
• attempt to implement single point of entry and limit errors and
speed up process
• Also, higher degree of customisation of customer services
(e.g. auction markets)
Some wise words
•
•
•
•
•
Internet growth nothing special
definition of Ecommerce and Ebusiness
fact that non-E Business will virtually disappear
ICDT Model of Ebusiness (Angehrn, 1997)
Point about the crazy market valuations
– disruptive technologies
– madness of crowds
• rise and fall of Ecom => post-net society will settle again
EBusiness
• Conducting any kind of business via an electronic channel
Electronic Commerce
Web
Commerce
Internet
Commerce
Electronic
Business
E-Commerce Challenges:
• Speed = service is never too fast
• Convenient = better integration along the supply chain
(end to end value stream)
• Personalised = service is never too personalised
• Price = products and services are never too cheap
• = View the world from a customer perspective (visionary?)
Constructing a E-Commerce
design
•
•
•
•
All about offering new ways to service customer
acquiring the capability to implement these new ways
e.g. DELL’s BTO model for selling PCs
company does not manufacture a PC before an order is
received
• $10 million sales on-line per day! (soon 50% of all DELL
sales) - Jan 97: $1 million.
• Never been easier to buy a PC
Step One: Self-diagnosis
• Diagnose the company and its markets
–
–
–
–
current / recent innovations?
Evolving customer expectations
any way to question industry assumptions
any way to lower costs
• innovator / market leader - early adopter / visionary - silent
majority - ...
Step two: reversing the value
chain
• Linking emerging technology to new business designs
• More difficult than merely adapting new to current
• traditional break down into product and service not helpful
=> creating better offering
• outside-in approach (better attention to market changes)
• effectively and competitively presenting good products no
longer sufficient
Step three: choosing a narrow
focus
•
•
•
•
•
Technology can be enabling, but also distracting
concentration on a key area is required
service excellence (knowing customers better)
operational excellence (having better internal processes)
continuous innovation excellence (having leading edge
products)
• not compete on every aspect / feature of product service
Important points in establishing a
Web presence
• ECommerce is not only a matter of interface
• Robust back end must be developed to cope with
additional volumes of transactions
• Ecom is not a replacement for current business practices:
rather a new way to do business:
– Help retain customers
– Attract new customers
• Data must be totally reliable as web is very visible
Technology
• Best practice is not always the best model
• Technological evolution results in pockets of uneven
development
• Cannot run the risk of excluding customers
• Must run in parallel with existing business practices
Technology (2)
•
•
•
•
Breaks down barriers to entry
Thus, source of threat as well as opportunity
Loss of market by substitution of core competencies
Failure to understand / evaluate the impact on market may
spell disaster
Customer differentiation
• Develop the web site to learn about customers as well as
support transactions
– Login
– Archive of transactions: basis to learn about patterns and trends +
who are the best customers
• Use profiles to present a “favourite” view of the web site
• Make sure the best customer gets the best offer
Constructing a E-Commerce
design
•
•
•
•
All about offering new ways to service customer
acquiring the capability to implement these new ways
e.g. DELL’s BTO model for selling PCs
company does not manufacture a PC before an order is
received
• $10 million sales on-line per day! (soon 50% of all DELL
sales) - Jan 97: $1 million.
• Never been easier to buy a PC
Example: Dell
• Narrow focus on Supply chain innovation
• “quickly manufacturing and delivering inexpensive top
quality PCs”
• the three plants are located close to their suppliers and
operate in JIT
• Orders follow machines across the floor
• Automated customer requests mean operators are shown by
flashing colours what components to use (i.e. what type of
PC to assemble)
Critical Success Factors
• Back end systems enable extremely quick transmission of
orders to factories
• CIM systems are then used to schedule production
• integration of operations with upstream design activities
mean shorter time to market for new pdts
• no finished goods inventory
(cost, obsolescence)
• outsourcing of non-critical components (e.g. screen)
• acceleration of payment cycle (goods paid for before they are
built!)
Lessons from the Dell case
• Companies should try to:
• increase their ability to respond to the ever increasing and
ever changing needs of customers
• requires very flexible business design
• based on solid technical foundation
• Even though E-Com is an extra-organisational mode of
communication it has crucial implications for internal
systems
The ICDT Framework (Angerhn,
1997)
VIS
VCS
Traditional
Market Space
VTS
VDS
Current Ecom hype
Rate of change / Value
Time
Rise and Fall of Ecom
Visibility
today
Time
Managing customer relationship
• E-com presents specific challenge because contact is over
the web
• personal relations are excluded
• only end of process is (sometimes) done with human
operators
• searching for new customers / selling new services to old
ones is difficult if you do not know who to talk to
But…
• Other side of the coin, underlying technologies make it
easier to monitor customer behaviour
• Tracking software in web site
• Event-driven marketing
• Up-selling and cross-selling
E.g. Charles Schwab Ltd.
• Brokerage service for DIY investors
• $200 billions assets
• all contacts through phone => little visibility on
transactions
• sales reps + service people do not know enough
• Customer relationship management (CRM): integrating all
activities involving customers
• All needs addressed together
Sales
Service
marketing
CRM
Many other such examples of
integration
• Enterprise resource planning (Nestle)
• Supply chain (Ford Motors comp)
• Selling chain management (Whirlpool)
– pricing system was paper based
– spreadsheet with 180,000 cells - many customer types / pricing
strategies
– 15 days lead time to print booklets
– integrated systems takes into account all parameters
• The e-commerce strategy is then constructed
around these core systems
Planning for integration
• Ensure proper knowledge about the end-to-end demand
planning function - variations and seasonality
• carry out data consistency and accuracy checks
• creating better relationship with partners up-stream and
downstream
• envisage structural changes required (e.g. zero inventories)
• Plan for additional skills / re-training (e.g. MRP)
Prepare systems for integration
• Enable information sharing - more robust communication
• create joint performance measurement systems and
collaborative planning processes
• exchange / re-distribute responsibilities
• redesign products and processes so work is easier and
more efficient (BPR)
Business Process Re-Engineering:
• 90’s buzzword in management
• Redesign the whole organisation to make it more effective rather
than efficient
• Based on extensive studies of all processes
• Create new ways to do things that minimise
- time spent
- number of employee required
- costs incurred
• and maximise:
– Customer satisfaction
– speed of service
– profit margin
Process versus Functions
Marketing
Manufacturing
Other functions
Production and Sales of Product A
Production and Sales of Product B
Other Vital Process - e.g. dealing with customers
BPR versus Process
Rationalisation
• Up to now, emphasis on increasing efficiency
• But “there is nothing more useless than doing
efficiently what should not be done at all”
Drucker, 1986
• Dramatic improvements require revolutionary moves
• Everything must be questioned
Information Systems to support
the e-business strategy
• Enterprise Resource Planning (ERP)
• Customer relationship management (CRM)
• Supply chain management (SCM)
Enterprise Resource Planning
(ERP)
• Large applications geared towards integrating the essential
internal processes of an organisation
• e.g. SAP R/3, MFG/PRO, Baan, JD Edwards, Oracle
• Support the transactional backbone of the organisation
• 70% of fortune 500 companies have or are implementing
ERP systems
• SAP and Oracle have become the second largest software
producers in the world
Content of ERP systems
• ERPs are not single systems: series of modules supporting specific
areas
– admin functions
– HR
– manufacturing / MRP
– order processing etc…
• single point of entry for each item of data: sits on top of a single
database of shared data
• data is released from one module into the relevant modules once it
has been checked
• ERPs have the potential to solve many back end headaches
• Build upon earlier generation of CIM systems – e.g. MRP
E.g. DELL
• three plants are located close to their suppliers and operate in
JIT
• Orders follow machines across the floor
• Automated customer requests mean operators are shown by
flashing colours what type of PC to assemble)
• no finished goods inventory
(cost, obsolescence)
• outsourcing of non-critical components (e.g. screen)
• acceleration of payment cycle (goods paid for before they are
built!)
Introduction to MFG/PRO
• Each student get their own version of the training database
– Quality Pencil company
• Create a new product and sell it: Packaged Pen
• Not so easy to go around the menus:
– Codes are used to help users find their way – e.g.: 1.2.1 is product
line maintenance
– Users must learn which screens to use to do things
Computer Integrated
Manufacturing (CIM)
• Overall computerisation process which started a long time
ago
• Encompasses many different types of applications
• basis was the application of the Materials Requirements
Planning (MRP) principles (early 70s)
• APICS (American Production/Inventory Control Society)
• All major software houses developed and marketed MRP
systems
Reasons for MRP
• Snowball effect as companies moving to MRP imposed
business changes to their partners
• MRP logic was always around, but switching costs in
manufacturing made it worthwhile:
– data processing costs decreasing
– inventory costs rising
• Sophisticated CIM systems easier to justify
• Other external pressures (eg financial / legal) mean that
tighter control is required
Reasons for ERP systems
• Search for operational excellence using “best practice”
models
• cost cutting / rationalisation
• standardisation / compatibility of disparate IT
infrastructures (e.g. mergers)
• Year 2000?
• e.g. Ericsson reported following improvements:
–
–
–
–
SOP 1 hour to 10 minutes
PO 4 hours to 5 minutes
production scheduling: 18 hours to 30 minutes
98% of orders delivered on time
Example (2) Dell case study
•
•
•
•
•
No stocks (RM not paid for until in the factory)
Tracking of WIP on the floor
Testing fully automated
Impressive AGV for temporary storage of large orders
95 fully automated loading bays:
– main sorting point of output for shipping
– scanner operated
– straight from assembly line to trucks
Example: Colgate Palmolive
• Large corporation with many products:
Goal: streamlining the business while offering increasing flexibility to
customers
• SAP R/3 to address manufacturing / logistical complexity
• 1996 - 2001 to equip the whole corporation
75 dataBefore:
centres
2 centres withAfter:
40 staff
1 to 5 days for orders acquisition combined acquisition
+ 1 or 2 days to process them
and processing in 4 hours!
on-time deliveries = 91.5%
= 97.5%
Also accounts payable and
HRM consolidated in one
location
How to get an ERP
• No real build or buy decision
• try to minimise the high levels of risk:
– Foxmeyer ($5 billion pharmaceutical comp.) went bankrupt in
1996
– sued SAP’s US subsidiary and Andersen Consult. for a combined
$1 billion
– 3 years of implementation destroyed the company
– bought by McKesson Drugs - 1997
• Try to get best fit between ERP functionalities and
business model
Critical issues in ERP
implementation
• High cost and high stakes
• Misguided belief that there is an ERP that “does it all”
• difficulty in making a transition from an old model to an
ERP model
• overestimation of the pace of change of some stakeholders
(technical change is not sufficient)
• difficulty in obtaining any direct ROI
Buying ERPs
• Many suppliers: SAP / Baan / JD Edwards / QAD
• always implemented through a distributor
• advantages are numerous (as against building)
–
–
–
–
integrate best practice
insurance against obsolescence
cheaper !!??
Software development is not core competency for most firms
• but, selection process is difficult at best:
–
–
–
–
site visits
presentation
discussion groups
Magazines and newspapers
Alternative: The Application
Service Provider model
• Over the last two years - Pressure from Y2K?
• "An ASP manages and delivers application capabilities to
multiple entities from a data centre across a wide area
network.”
• different types of ASP:
– horizontal: enterprise / volume or regional ASP
– vertical model: task-specific or industry-specific ASP
• solution offered through a Best-of-breed or One-stopshopping model
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The current leaders in the ASP market include:
Bull allied with Baan worldwide from June 1999 onwards
British Telecom with SAP in the UK from May 1999
Catalyst Solution with JD Edwards in the UK from May 1999
Oracle by themselves in the States and the UK from May 1999
Compaq with SAP in the States and the UK from May 1999
Prologue Software by themselves in France from June 1999
Corio with Peoplesoft and Siebel in the States and the UK from August 1999
IBM with Oracle in Denmark from September 1999
IBM with SAP in Brasil from September 1999
IBM with JD Edwards in North America from September 1999
Symix by themselves worlwide from May 1998 with their Syteweb product which
enables integration with customers and suppliers over the web. This service was
later extended to reach full ERP specification over the following 12 months.
Groupe Galeries Lafayette with IBM in France (using their own in-house
developed software not available otherwise!) under the name LASER from July
1999
Interpath and Sun for SAP from June 1999
Oracle and HP for SAP from June 1999
Bold indicates primary consortium partner.
ERP and ASP
• As with all ecom systems, service has two parts:
– interface (web) or client
– back end functionality on a server
• opportunity to differentiate service for ASP + offer
additional software in the package
• opportunity for customer to pay far less and to implement
far quicker (c.f. SMEs)
• Also, traditional ERP market is contracting
• expertise is in short supply
Mechanics of ERP / ASP Services
• 24 to 36 months contracts
• 400-500 euros per workstation per month + subscription
fee at start
• service includes: technical setup / implementation +
software licences + on-going support + upgrade
• some ASPs offer differentiated services for different
industries
• others develop interfaces that allow some degree of
customisation without touching the software
• SAP claim the same margins can be obtain
Critical Success Factors in ASP
model
• Security of the data and application
• performance and reliability of application
– at least 98% uptime
• flexibility of the service offered
• adaptation of the software
• relationship between supplier and customer / user
Potential partners
•
•
•
•
•
•
Pure play ASPs - 100% new
ISP and Telecom companies - own the infrastructure
Software vendors - own the licences
Hardware vendors - own the platform
Distributors - own the customers
No one has all the required competence
ERP Capabilities - SAP
• Accounting / finance:
– Asset management, cash management, product cost accounting, A/R
and A/P…
• Production planning and materials planning
– purchasing, inventory management, MRP, production planning
• HR management
– travel expenses, payroll, personnel planning
• sales and distribution
– sales planning, order management, quality management
• e.g. Microsoft spent 10 months and $25 ms replacing 33
different systems in 26 sites with SAP
ERP capability - MFG/PRO
• meant to deal with requirements throughout the entire
product supply chain
• multi-location / multi-factory / multi-products etc…
• Includes Inventory control Distribution / Manufacturing /
Financial / Field services support / Planning
• Based on a large Progress® relational database and
developed in 4th GL
Future trends
• A bit of a jungle - needs for standards
• Risk element is great for all partners involves - especially
customers
• Application Service Provider Industry Consortium created
end of 1999
• Code of good practice ready in January 2000
• creation of a certification that guarantees service and gives
protection to customer (Ernst / Young and Deloite /
Touche)
Next steps on this market
• Inclusion of Customer Relationship Management
• Platform provider for ASP solutions
– e.g. Prologue + Microsoft: biz@large
• HP willing to enter into the capital of any venture if they
provide the hardware
• Business Process Outsourcing (BPO)
• eXtended Resource Planning (XRP) - support decision
making as well
– e.g. business intelligence
– e.g. balanced scorecard
Customer Relationship
Management
• Cost of selling to a new customer is six times as high as to
existing customer
• Each dissatisfied customer tells 8 to 10 people
• 1 extra % of customer retention can boost turnover by as
much as 15%
• Odds of selling to a new customer = 1/7 to an existing
customer = 1/2
• 70% of dissatisfied customers will do business again if
they feel their complains are handled well
• Many companies don’t have proper customer support
Why CRM?
• Customers don’t care about their suppliers’ internal
difficulties
• They want to be able to access product and services at the
least cost
• They want a single point of entry
• Existing loyalty programmes don’t go far enough
The 3 phases of CRM
• Acquiring new customers
– by promotion
– leading edge product backed by superior service
• Enhancing profitability of existing customers
– cross-selling and up-selling (one stop shopping)
– additional services
• Retaining most profitable customers
– best customer list
– customer profitability analysis
– make best offer to best customer
Novelty of the CRM Approach
• Complete and integrated solution - breaks down the walls
of conventional functional areas
• Most companies are good at one of the 3 activities - CRM
concentrates on all 3
• Overall corporate objective of providing customer
satisfaction
– systems in place to collect, store, exploit CRM info
– active distribution of information about customers
• Offer single point of entry for customer queries
Supporting CRM
•
•
•
•
Integration of customer content
integration of customer contact
integration of end-to-end business processes
integration of the extended enterprise
Customer contact point
• Move from traditional phone + mail towards Web enabled
contact:
– how will this affect the content of the communication?
– will it be cheaper or more expensive?
• Call centre (70% of all contact points) evolving into a
selling channel
• Goals of the contact point
– Listening to the customer
– creating higher levels of loyalty (HD)
– providing a better experience
Conclusion on ERP
• Whether traditional or ASP - matching the business
processes to the functionality
• obtain agreement from all organisational actors
• be ready for fundamental change
• don’t lose sight of the specificity of the firm
• try an incremental implementation rather than a culture
shock
• leave the door open for change after the ERP
implementation
Supply Chain Management
• Increasingly common type of application
• e.g. Bergen Brunswig (pharmaceutical medical product
distributor):
– no longer see themselves as a distribution company but as managing the
medical supply channel on behalf of others
– not merely moving products but also managing information and the
ultimate efficiency of the channel
• e.g. Dell
• anti e.g.: Boeing wrote off $2.6 billion in Oct. 1997:
– raw material and internal assembly shortages
– unhappy customers
Definition
Complex network of relationships that organisations maintain
with trading partners to source, manufacture and deliver
its products
• includes material, information and financial flows as
shown below
Information Flows
Product
Supplier Flow
Product
Manufacturing Flow
Product
Distribution Flow
Payment Flows
Product
Retailer Flow
Consumer
Goal of SCM
Delivering the best value proposition: what the customer want,
how and when it’s wanted, at the lowest possible price
• to achieve this companies need rapid, cost effective and
flawless demand fulfilment
• Involves taking responsibility for what happens outside the
walls of the organisation
• linkage with suppliers
• minimising the cost of order delivery process by trading off
cost of inventory, transport, handling etc...
Obstacles to good SCM
• No player has enough info to synchronise the entire
channel
• most SCc contain more than double the required inventory
• products are handled too many times (5/6 average)
• Physical carriers struggle to maintain costly equipment on
slim margins
Novelty in SCM - eSCM
• Better techniques and software: e.g. SAP’s Advanced
Planning and Optimisation
• Supply Chain planning => for the entire channel
• Web-based applications shared by all partners involved
including consumers help both planning and execution +
provide greater visibility
• e.g. complex product with fragmented supply in many
different countries
Supply Chain Trends
• Increased worldwide dispersion of manufacturing and
distribution facilities
• increased channel unpredictability
• responsiveness before efficiency: need to be quick and
flexible disrupts existing paradigms
• Market share before profit margin (.com)
Key Areas of Investment in SCM
• Inter-enterprise co-ordination of design, manufacturing and
business process
• Effective distribution and channel partnership
• customer responsiveness and accountability
Different stages in SCM
• Enterprise focus - traditional model
– figure 1
– characterised by fragmentation
– sometimes semi-conflict between links in the chain
• Partner focus - modern vision
– figure 2
– characterised by collaborative idea
• Direct focus (e.g. Dell) - emerging vision
– figure 3
– characterised by customer-direct capability
– near zero inventories
Service through SCM integration
Inferior integration of SCM results in:
–
–
–
–
erratic level of service
no vision of future demand
bad/inefficient production planning and scheduling
rising inventory costs
• Good SCM leads to:
– Responsive SC (quick and accurate)
– Enterprising SC (adaptable)
– Intelligent SC (dynamic and visionary)
Elements of SCM
Two key elements are
• planning
– forecast of demand,
– inventory simulation
– manufacturing planning...
• Execution
– procurement
– manufacturing
– distribution...
• Specific software exist to enable those
SC Planning
• Two types of software:
–
–
–
–
–
Order commitment (available-to-promise)
Advanced scheduling and manufacturing planning
Demand planning
Distribution planning
Transportation planning
• Understanding the impact of taking additional orders /
changing current orders
• Integration with ERP required
SC Execution
•
•
•
•
Key differentiator in today’s markets
Planning can help to cut costs, be more efficient
Execution is what truly satisfies customers’ needs
key stages:
–
–
–
–
–
order acquisition
production / purchase of goods
replenishment
distribution
reverse logistics (dealing with returns - up to 14%)
Problems with SC
• Lack of knowledge of the end-to-end demand function
• inconsistent / out-of-date data about SC (poor decision
making)
• lack of process integration with partners
• need for fundamental structural changes
Solutions
• Enable information sharing
– robust communication process
•
•
•
•
create joint performance measurement systems
create joint collaborative planning processes
exchange responsibilities / redesign across firms
redesign products and services to facilitate work and
satisfaction of customers
• All these are stages of the total solution
Key Questions in sorting out the
SCM
• SCM is a business design issue
What is the right e-chain structure?
Does the chain enable us to differentiate ourselves?
Does it facilitate effective order fulfilment?
Is it matched by proper infrastructure / internal processes?
Types of SCM
• Integrated Make-to-stock
– smoothing demand in mass production industries
– linked to postponement in distribution channel
• Continuous replenishment
– customer-demand pull system across firms
– ECR, QR
• Build-to-order
– efficient SCM allows return to BTO model
– inventory substituted with information (Dell)
•
•
•
•
Example: CVS-McKesson SCM
McKesson occupied key position
– 35000 customers / 60000 orders (1.6 m lines) daily
– all orders in electronic forms
– target: become the world leader
CVS has acquired many prime locations on the market
– US drug wholesalers down from 180 to 45
– top 5 = 57% of market and growing
Market evolution
– market is growing
– wholesalers are best distribution channel
– manufacturers can concentrate on R&D
– wholesalers are transforming their offering into information-based services
Moves to greater integration between CVS & McKesson
– McKesson takes over responsibility for stock levels
– measures consumption / plan for demand
– replenishes stocks to meet agreed upon levels
– High level of inter-firm integration
Continuous replenishment
CISCO and SCM
• CISCO’s customers are resellers who sell networking products
• before: reps would go around visiting shops and fill orders or
orders would arrive directly by fax at Cisco’s
• Orders were then re-keyed in the SOP systems
• After: automation of the process (see figure attached)