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Questions and Answers
How do Electronic Funds Transfer (EFT) systems benefit B2B transactions?
EFT systems streamline payments by allowing immediate transfer of funds, reducing transaction times and enhancing cash flow for businesses.
What role does supply chain integration play in enhancing business efficiency?
Supply chain integration synchronizes various interconnected processes, improving communication and coordination, which leads to reduced operational costs.
Describe a value creation strategy that companies can use in B2B settings.
A value creation strategy involves leveraging technology to enhance product offerings and customer service, ultimately leading to increased customer satisfaction and loyalty.
How does technology influence supply chain management?
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Why is trust and communication essential in supply chains?
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What are private stores and customer portals designed to provide to major customers?
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How do large companies wield power in purchasing negotiations with small vendors?
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What is a private industrial network, and how does it differ from a regular marketplace?
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What role do industry consortia-sponsored marketplaces play in B2B commerce?
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How has the internet influenced the adoption of Supply Chain Management (SCM) among companies?
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In what way does electronic commerce facilitate trust and communication in supply chains?
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What technological advancements have improved purchasing and logistics activities in organizations?
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What challenges do smaller businesses face in participating in Electronic Data Interchange (EDI)?
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How do marketplace functions in e-procurement software benefit large purchasing companies?
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What is the primary force driving the adoption of supply chain management techniques?
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What is the main purpose of Electronic Funds Transfers in relation to EDI transactions?
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How does supply chain integration enhance the efficiency of a business?
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What is a key element of trust in supply chain management?
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What role does technology play in value creation strategies within the supply chain?
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What is the benefit of using Real-Time Location Systems (RTLS) in supply chains?
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In what way does trust influence governance in supply chains?
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How does collaborative commerce use internet technologies to improve supply chains?
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What advantage does an indirect connection EDI have over direct connections?
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Why is knowledge management important in supply chain processes?
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What are the characteristics of tier-one suppliers in the supply chain?
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What is the significance of MRO supplies in indirect materials purchasing?
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How do Optical Scanners and Bar Codes assist in materials tracking?
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What technological advancements supported the development of EDI in the 1960s and 1970s?
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Why is transparency crucial in building trust among supply chain partners?
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Study Notes
Indirect Materials Purchasing
- Direct materials become part of a finished product.
- Indirect materials are all other materials a company purchases.
- Indirect materials include factory supplies and replacement parts for machinery.
Direct vs. Indirect Materials Purchasing
- Replenishment purchasing (contract purchasing): Company negotiates long-term material contracts.
- Spot purchasing: Purchases made in a loosely organized market (spot market).
- Spot purchasing is used when demand exceeds contract purchasing estimates.
- Maintenance, repair, and operating (MRO) supplies are indirect materials purchased on a recurring basis.
- Purchasing cards (p-cards) allow managers to make multiple small purchases- cost-tracking is sent to procurement.
Leading Suppliers
- Leading MRO suppliers include McMaster-Carr, W.W.Grainger, Office Depot, Staples, Digi-Key, and Newark.com.
Logistics Activities
- Classic objective is to provide the right goods in the right quantities in the right place at the right time.
- Includes: receiving, warehousing, inventory control, scheduling and controlling vehicles, and distribution.
Web and the Internet in Logistics
- Provides opportunities to better manage activities.
- Reduces transaction costs.
- Allows for constant connectivity.
- Supports second-wave e-commerce by combining GPS, portable computing, and the internet.
- Supports third-wave e-commerce using smart phones, for example.
Business Process Support Activities
- Includes finance and administration, human resources, technology development, and knowledge management.
- Human resources, payroll, and retirement plan servicing are regularly outsourced by small/midsized companies.
- Training is a common support activity that can be handled by HR or individual departments.
- Knowledge management is the intentional collection and classification of information about a company and its products and processes.
Network Model of Economic Organization
- The trend in purchasing, logistics, and support activities is a shift from hierarchical structures toward network structures.
- Procurement departments are being given new tools to negotiate and possibly form strategic alliances.
- The term “supply chain” is being replaced by “supply web”.
- Supply web refers to a web or network of strategic alliances.
Electronic Data Interchange (EDI)
- Computer-to-computer business information transfer using a standard format.
- Businesses exchanging information are trading partners.
- EDI compatible firms exchange data in specific standard formats.
- Often transaction data, but can include other business-related information.
- EDI is the dominant technology for B2B electronic transactions.
Early EDI Efforts
- The need to create formal business transaction records began in the late 1800s and early 1900s.
- Companies were using computers for recording internal transactions by the 1950s.
- Information flowed between companies on paper which was slow, inefficient, redundant, and unreliable.
- In the 1960s businesses with volume transactions exchanged information on punched cards or magnetic tape.
- Technologies improved in the 1960s and 1970s, allowing intercompany information to be transferred over telephone lines.
How EDI Works
- The basic idea is straightforward, but implementation is complicated.
- EDI replaces paper-based purchasing processes with electronic transfers.
Paper-Based Purchasing Process
- Buyer and vendor do not use integrated software for business processes, so each information processing step results in a paper document.
- Paper documents must be delivered to the department handling the next step.
- Information transfer occurs through mail, courier, or fax.
EDI Purchasing Process
- Mail service is replaced with EDI network data communications.
- Paper flows within companies are replaced with computers running EDI translation software.
Value-Added Networks (VANs)
- Trading partners can implement EDI networks and EDI translation processes in two basic ways: direct and indirect.
- A VAN receives, stores, and forwards electronic messages containing EDI transaction sets.
Advantages of a VAN
- Requires support for only one communications protocol and provides translation between different transaction sets.
- Performs automatic compliance checking and records message activity in an audit log.
- Cost used to be a disadvantage, but is now much lower.
EDI on the Internet
- EDI on the Internet is called Internet EDI, Web EDI, or open EDI.
- AS2 (Applicability Statement 2) and AS3 (Applicability Statement 3) are widely used.
- EDI exchanges encoded using AS2 or AS3 provide secure electronic receipts to senders for every transaction.
EDI Payments
- EDI transaction sets provide instructions to trading partner’s bank for negotiable instruments.
- Electronic funds transfers (EFTs) are executed using an Automated Clearing House (ACH) system.
Supply Chain Management
- Includes a company’s supply management and logistics activities.
- Involves multiple participants in a particular product’s supply chain.
- The ultimate goal is to achieve a higher-quality or lower-cost product at the end of the chain.
Value Creation in the Supply Chain
- Firms engaging in supply chain management create a network form of organization among members of the supply chain.
- This can lead to better, faster, and cheaper service to customers.
- Technology is used to improve operational efficiency, which is a key component of supply chain competition.
- Management techniques, such as just-in-time and lean production are often used to improve supply chain efficiency.
Supply Chain Tiers
- Tier-one suppliers: small number of very capable suppliers, long-term relationships.
- Tier-two suppliers: larger number of suppliers providing tier-one suppliers with components and raw materials.
- Tier-three suppliers: next level of suppliers in the supply chain.
Building and Maintaining Trust in the Supply Chain
- Trust is a key element in successful supply chain management.
- Continual communication and information sharing is key for building trust.
- The internet and the web provide excellent ways to communicate and share information for building trust.
Materials-Tracking Technologies
- Optical scanners and bar codes help track materials, and are now often integrated with EDI.
- Real-time location systems (RTLS) are bar code tracking systems used by fulfillment centers.
- Radio frequency identification devices (RFIDs) use radio transmissions to track inventory quicker and more accurately than bar codes.
Online Business Marketplaces and Portals
- Vertical portals: industry-focused hubs offering marketplaces and auctions.
- Independent industry marketplaces: focused on a single industry.
- Independent exchanges: run by an individual or group outside of established buyers/sellers.
- Public marketplaces: open to new buyers and sellers entering a particular industry.
E-Business and B2B
- Businesses use the internet to improve purchasing, logistics, and support activities.
- Online business marketplaces make B2B transactions easier and more efficient.
- Supply chain is the part of industry value chain preceding a particular strategic business unit.
- Procurement includes all purchasing activities, monitoring all purchase transaction elements, managing and developing supplier relationships.
- Sourcing is identifying suppliers and determining qualifications.
- E-sourcing is the use of internet technologies in sourcing activities.
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Description
Test your knowledge on the principles of indirect materials purchasing. This quiz covers key concepts such as replenishment purchasing, leading suppliers, and logistics activities. Understand the differences between direct and indirect materials in a business context.
