IFM02B2 2025 Chapter 5: E-Business and B2B PDF

Informatics 2B Chapter 5: E-Business and B2B Learning Objectives In this chapter, you will learn: How businesses use the Internet to improve purchasing, logistics, and other support activities How the Internet facilitates implementation of outsourcing and offshoring business strategies H...

Informatics 2B Chapter 5: E-Business and B2B Learning Objectives In this chapter, you will learn: How businesses use the Internet to improve purchasing, logistics, and other support activities How the Internet facilitates implementation of outsourcing and offshoring business strategies How electronic data interchange works and how it has evolved using Internet technologies 2 Learning Objectives (cont’d.) What supply chain management is and how businesses are using Internet technologies to improve it How the various types of online business marketplaces operate to make B2B transactions easier and more efficient 3 Purchasing Activities Identify and evaluate vendors, select specific products, place orders, resolve any issues after receipt of goods or services Supply chain is the part of industry value chain preceding a particular strategic business unit – Includes all activities undertaken by every predecessor in the value chain to design, produce, promote, market, deliver, support each individual component of a product or service Traditionally purchasing department buys components at lowest price possible via bidding 5 Purchasing Activities (cont’d.) Procurement includes – All purchasing activities – Monitoring all purchase transaction elements – Managing and developing supplier relationships – Also called supply chain management Procurement staff have high product knowledge to identify and evaluate appropriate suppliers – Sourcing is identifying suppliers and determining qualifications – e-sourcing is the use of Internet technologies in sourcing activities 6 Direct vs. Indirect Materials Purchasing Direct materials become part of finished product Direct materials purchasing – Replenishment purchasing (contract purchasing) Company negotiates long-term material contracts – Spot purchasing Purchases made in loosely organized market (spot market) If demand exceeds contract purchasing estimates Indirect materials are all other materials company purchases – Includes factory supplies and replacement parts for machinery 8 Direct vs. Indirect Materials Purchasing (cont’d.) Maintenance, repair, and operating (MRO) supplies are indirect materials purchased on a recurring basis – Standard items (commodities) with price as main criterion Purchasing cards (p-cards) allow managers to make multiple small purchases with cost-tracking information sent to procurement Leading suppliers – MRO: McMaster-Carr, W.W. Grainger, – Office Depot, Staples, Digi-Key, Newark.com 10 Logistics Activities Classic objective is to provide the right goods in the right quantities in the right place at the right time Managing materials, supplies and finished goods Includes: – Receiving – Warehousing – Inventory control – Scheduling and controlling vehicles – Distribution 11 Logistics Activities (cont’d.) Web and the Internet providing increasing number of opportunities to better manage activities – Lower transaction costs – Constant connectivity Third-party logistics (3PL) provider operates a customer’s materials movement activities Marriage of GPS and portable computing with the Internet is an example of second-wave e-commerce Third-wave e-commerce supported by smart phones 15 Business Process Support Activities Finance and administration, human resources (HR), technology development – Human resources, payroll, retirement plan servicing often outsourced by small/midsized companies Common support activity is training – May be handled by HR or individual departments Knowledge management is the intentional collection and classification; dissemination of information about a company and its products and processes 16  © Cengage Learning 2017 FIGURE 5-2 Categories of support activities Network Model of Economic Organization in Purchasing: Supply Webs Trend in purchasing, logistics, and support activities is the shift from hierarchical structures toward network structures – Procurement departments being given new tools to negotiate and possibly form strategic alliances Supply Web is replacing the term “supply chain” – Web or network of strategic alliances 18 Electronic Data Interchange Computer-to-computer business information transfer using a standard format – Businesses exchanging info are trading partners EDI compatible firms exchange data in specific standard formats – Often transaction data but can include other information related to transactions Most B2B e-commerce adapted from EDI or based on EDI principles Dominant technology for electronic B2B transactions 19 Early Business Information Interchange 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 flows between companies on paper which was slow, inefficient, redundant and unreliable In the 1960s businesses with volume transactions exchanged info on punched cards or magnetic tape – In the 1960s and 1970s technologies improved and intercompany information could be transferred over telephone lines 20 Early Business Information Interchange Efforts (cont’d.) Information transfer agreements between trading partners increased efficiency but not ideal – Incompatible data translation limited participation Freight and shipping companies joined together in 1968 to create a standardized information set – Used a computer file transmittable to any freight company adopting the standard – Benefits limited to members of industries that created standard-setting groups Full realization of EDI economies and efficiencies required standards for all companies in all industries 22 How EDI Works Basic idea: straightforward Implementation: complicated Example: – Company replacing metal-cutting machine Steps to purchase using paper-based system Steps to purchase using EDI 23 Paper-Based Purchasing Process Buyer and vendor not using integrated software for business processes so each information processing step results in paper document Must be delivered to department handling next step – Paper-based information transfer Mail, courier, fax – Information flows shown in Figure 5-5 24 FIGURE 5-5 Information flows in a paper-based purchasing process © Cengage Learning 2017 EDI Purchasing Process Mail service replaced with EDI network data communications – Paper flows within buyer’s and vendor’s organizations replaced with computers running EDI translation software – Information flows shown in Figure 5-6 26 FIGURE 5-6 Information flows in an EDI purchasing process © Cengage Learning 2017 Value-Added Networks Trading partners can implement the EDI network and EDI translation processes in several ways – Two basic approaches (direct & indirect) EDI network key elements – EDI network, – EDI translator computers 28 Value-Added Networks (cont’d.) Direct connection EDI – Each business operates own on-site EDI translator computer Connected directly to each other using leased lines – Few companies use direct connection EDI Dedicated leased lines are expensive 29  © Cengage Learning 2017 FIGURE 5-7 Direct connection EDI Value-Added Networks (cont’d.) Indirect connection EDI – Trading partners use VAN to retrieve EDI-formatted messages – Must install compatible EDI translator software – Trading partners pass messages through the VAN instead of directly connecting computers Value-added network (VAN) – Receives, stores, forwards electronic messages containing EDI transaction sets 31  © Cengage Learning 2017 FIGURE 5-8 Indirect connection EDI through a VAN Value-Added Networks (cont’d.) Advantages of a VAN – Need to support one communications protocol and the VAN provides translation between different transaction sets – VAN performs automatic compliance checking and records message activity in an audit log Helps establish nonrepudiation: ability to establish that a particular transaction actually occurred Cost used to be a disadvantage, now much lower – Internet presents low-cost communications medium used by VAN services 33 Value-Added Networks (cont’d.) EDI on the Internet called Internet EDI, Web EDI, or open EDI – Internet is open architect network EDI exchanges encoded using AS2 (Applicability Statement 2) or AS3 (Applicability Statement 3) – Secure electronic receipts returned to senders for every transaction which helps establish repudiation 34 EDI Payments EDI transaction sets provide instructions to trading partner’s bank – Negotiable instruments – Electronic equivalent of checks Electronic funds transfers (EFTs) is the movement of money from one bank account to another – Executed using an Automated clearing house (ACH) system which is used by service banks to manage accounts with each other 35 Supply Chain Management Using Internet Technologies Supply chain management – Job of managing integration of company supply management and logistics activities – Across multiple participants in a particular product’s supply chain – Ultimate goal is to achieve higher-quality or lower-cost product at the end of the chain 36 Value Creation in the Supply Chain Firms engaging in supply chain management – Reaching beyond limits of their own organization’s hierarchical structure – Creating new network form of organization among members of supply chain – can lead to better, faster, cheaper service to customers Use of technology to improve operational efficiency is supply chain competition – Can help implement management techniques Just-in-time reduces inventory and lean production focus on eliminating waste and unnecessary processes 39 Value Creation in the Supply Chain (cont’d.) Tier-one suppliers – Small number of very capable suppliers – Original business establishes a long-term relationship Tier-two suppliers – Larger number of suppliers who tier-one suppliers develop long-term relationships with for components, raw materials Tier-three suppliers – Next level of suppliers 40 Value Creation in the Supply Chain (cont’d.) Key element: Trust Supply Alliance: long-term relationship among supply chain participants Clear communications and quick response are key elements of successful supply chain management Adaptive supply chain exists when company uses technology to quickly respond to change in market demand and supplier conditions – Leads to higher efficiency, lower costs and greater profits 41  © Cengage Learning 2017 FIGURE 5-9 Advantages of using Internet technologies in supply chain management Increasing Supply Chain Efficiency and Cooperation Using Internet technologies to integrate the design, development, construction, testing, and refinement of products is called collaborative commerce 43 Building and Maintaining Trust in the Supply Chain Major issue: developing trust Key elements: – continual communication and information sharing Internet and the Web provide excellent ways to communicate and share information and offer new avenues for building trust – Provides easy, inexpensive contact with customers – Gives buyers instant access to sales representatives – Provides comprehensive information quickly 44 Materials-Tracking Technologies Challenging task – Track materials as they move from one company to another or within a company Optical scanners and bar codes – Help track movement of materials – Integration with EDI is now prevalent – Manages inventory flows and forecasts materials needs across the supply chain – Real-time location systems (RTLS) are bar code tracking system used by fulfillment centers 45  © Cengage Learning 2017 FIGURE 5-10 Shipping label with bar-coded elements from EDI transaction set 856, Advance Ship Notification Materials-Tracking Technologies (cont’d.) Radio Frequency Identification Devices (RFIDs) – Small chips using radio transmissions track inventory quicker and more accurately than bar codes – Active RFIDs have their own power supply – Passive RFID tags are inexpensive and small and do not need a power source – Goal is to help reduce lost sales from stockouts 47 FIGURE 5-11 Passive RFID Tag © Cengage Learning 2017  © Cengage Learning 2017 FIGURE 5-12 Key features of bar code, passive RFID, and active RFID technologies Online Business Marketplaces and Portals Online Business Marketplaces and Portals Vertical portals are industry-focused hubs – Offer marketplaces and auctions for contact and business transactions – Doorway (or portal) to the Internet for industry members – Vertically integrated: each hub services just one industry 52 Independent Industry Marketplaces First vertical portals were trading exchanges focused on a particular industry Independent industry marketplaces – Industry marketplaces: focused on a single industry – Independent exchanges: not controlled by established buyer or seller in the industry – Public marketplaces: open to new buyers and sellers just entering the industry E.g. Ventro opened industry marketplace Chemdex – Trade in bulk chemicals 53 Private Stores and Customer Portals Large established sellers feared industry marketplaces would dilute their negotiating power Many had already invested heavily in Web sites they believed would meet customer needs better – Password protected private stores for major customers with price reductions on some products – Customer portal sites offer private stores along with other services that would be needlessly duplicated if sellers participated in industry marketplaces 55 Private Company Marketplaces Large companies purchasing from relatively small vendors – exert power in purchasing negotiations – Using e-procurement software Allows companies to manage purchasing function through Web interface Automates authorizations, other steps and usually Includes marketplace functions Initially, large companies were reluctant to abandon their e-procurement software investment – Force suppliers to deal with them on their terms rather than negotiate with industry marketplace 56 Private Company Marketplaces (cont’d.) Private company marketplace – Marketplace providing auctions, request for quote postings, other features similar to those of e-procurement software – Many have expanded to include functions allowing supply chain participants to manage multiple functions Manufacturing, tier-one and tier-two suppliers, distribution centers, transportation, orders, invoicing and payment – Expanded arrangements are called private industrial networks or private trading exchanges 57 Industry Consortia-Sponsored Marketplaces Some companies have strong negotiating positions but not enough power to force suppliers to deal with them through a private company marketplace Industry consortia-sponsored marketplace – Marketplace formed by several large buyers in a particular industry Characteristics of five general marketplace forms in B2B electronic commerce today – Shown in Figure 5-13 59  © Cengage Learning 2017 FIGURE 5-13 Characteristics of B2B marketplaces Summary Using Internet and Web technologies Improves purchasing and logistics primary activities Improves support activities Companies and other large organizations extending reach of enterprise planning and control activities Beyond organization’s legal definitions Emerging network model of organization Describes growth in inter-organizational communications and coordination 61 Summary (cont’d.) History of EDI and how it works Freight companies first introduced electronic commerce Spread of EDI to virtually all large companies Requires smaller businesses to seek an affordable way to participate in EDI Internet providing inexpensive communications channel EDI lacked Important force driving supply chain management technique adoption 62 Summary (cont’d.) Supply chain management Incorporates several elements Implemented, enhanced through Internet and Web use Industry electronic marketplaces led to B2B electronic commerce models Private stores Customer portals Private marketplaces Industry consortia-sponsored marketplace Models coexist with industry marketplace model 63