B2B Strategies

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Chapter 5

• B2B Strategies
• From EDI to E-Commerce

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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.
• Such as e-Government do you know any local
  services offered?

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Exercise

• What are the benefits of e-Government?
• What are the disadvantages?

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Example (1)

• e-Government (http//www.gov.mt/egovernment.asp?p
  116l2)
• Usage of eCommerce by Government to improve
  efficiency of its support operations such as
• Certifikati.gov.mt Order certificates online
• Servizz.gov.mt e-Customer Care System
• MCAST Short Courses Online application/enrolment
  for these courses
• Exams.gov.mt Examinations Applications
• VAT online services
• eHealth Portal

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Example (2)

• Ird.gov.mt
• Corporate Taxes online services
• Final Settlement System
• FSS-Fringe Benefit Calculator
• Social Security Contributions Calculator
• Map Server
• E-Libraries Service at the National and Public
  Libraries
• Pulizija.gov.mt - Pulizija On-Line
• Gpd.gov.mt - Pay Rent On-Line
• Les.gov.mt - Local Enforcement System - Pay your
  local warden tickets online

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Example (3)

• Justice
• Sentenzi Online
• Civil Cases
• Laws of Malta Online
• Hall Usage
• eServices
• Elderly
• Persons with Special Needs
• - eLicences
• Laws of Malta
• Order of Fiscal Receipts Books

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Example (4)

• Children's Allowance Calculator
• Disabled Child Allowance Calculator
• Retirement Planner
• Buses Route Finder
• Job Vacancies at the Employment Training
  Corporation (ETC)
• Viewing CVs at the ETC
• Renewal of Vehicle Licenses
• Social Security contributions submissions for
  employees
• Unique Notification of change in address
• Online renewal of Passports

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E-Government

• Employment, buying supplies, benefit payment
  distribution etc
• Different levels
• National Governments
• State or Provincial
• Local Governments

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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
• late deliveries
• incorrect quantities
• incorrect or defective items

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Purchasing Activities

• Procurement includes all purchasing activities,
  plus the monitoring of all elements of purchase
  transactions.
• supply chains
• e-sourcing
• 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.

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E-Procurement promises

• Reduction of process costs
• Less capital costs due to reduced inventory
• Increased buying power and better purchase price
  through aggregation
• Increased cost and process transparency
• Better management of decentralized purchasing
• More capacity for strategic procurement

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Snapshot of SMEs using E-Procurement

• 29 of SMEs buy online
• 2 interchange data with suppliers
• 9 buy more than 50 online
• 42 buy less than 5 online
• Favorite Products
• Books
• Office Supplies
• Travel Services
• Soft- Hardware

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E-Procurement benefits

• e-Procurement, when properly implemented should
  provide
• Savings Easy access to contract pricing
• Convenience Online ordering tool, access from
  anywhere
• Speed Automated approvals
• Help Guidance through the tool (make process
  easy to use)
• Improving Service
• Lowering Total Cost of Ownership

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TCO

• A comprehensive process to help enterprises
  understand all the costs, benefits and value
  associated with procuring, owning and using IT
  components over time.
• Example
• How much do you think a networked Window 95 PC
  would cost an organisation per year?

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TCO Example

• Annual TCO of a networked Window 95 PC has been
  estimated at
• 2,859 by Zona Research,
• 2,680 by Forrester Research, Inc.,
• 9,784 by the Gartner Group
• No matter how they calculate the costs the
  conclusion is that this part of cost is
  considerably higher than the capital outlay
• Why so high?

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Budgeted TCO

• The cost of hardware and software.
• The cost of management including network, system
  and storage administration labor.
• The cost of training and support services.
• The cost of system development including
  application and content development, testing and
  documentation, new development, customizations of
  system, and maintenance.
• The cost of communication fees including lease
  lines and server access charges.

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Most Significant Contributing Factors to TCO

• Labor and end user operations.
• Non-standard PC configurations.
• Information and applications uniquely tied to
  specific workstations.
• Deploying and maintaining hardware and software
  infrastructure.
• Manageability is the largest single factor.

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Hidden Costs

• Miscellaneous cost
• The cost of toner, paper, etc.
• License fees/transaction costs
• Energy costs needed to run the technology
• The cost of lost productivity
• The cost of system downtime
• The cost occurred when end users are attempting
  to solve IS problems for themselves or their
  coworkers.

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TCO Principles

• The TCO number is meaningless without
  discussing service levels.
• The more centralized the architecture, the lower
  the cost.
• Standardization at the desktop controls costs.
• Local optimization for a particular application
  is costly.
• Attempt to quantify benefits of expenditures or
  savings when considering acquiring or disposing
  of technology.
• Take a long term perspective and use TCO best
  practice wherever possible.

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TCO Best Practices

• Maximum consolidation of datacenters, system
  images, and other resources.
• Maximize processor and storage capacity.
• Remove unnecessary portions of system.
• Use integrated management tools.
• Automation of system administration, storage, and
  operational tasks.
• Streamline datacenter work processes.
• Limit users ability to get themselves in trouble.
• Maintain inventory of all hardware and software.
• Train employees.
• Replacement of legacy applications.

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Direct Materials Purchasing

• Direct Materials
• materials that become part of the finished
  product
• E.g. Iron Ore in Steel Manufacturing
• Types
• Replenishment Purchasing
• Yearly contracts with particular suppliers
• Spot Purchasing
• For additional purchases during the year

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Indirect 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.

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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.
• Materials Tracking Technologies
• Scanners, Bar Codes and RFIDs

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Exercise

• Consider a parcel delivery service.
• Draw a flowchart which outlines all the steps
  which take place from when the client initially
  accesses the website to the time the parcel is
  delivered

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FedEx
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Support Activities

• Includes
• Finance and Administration
• Human Resources
• Technology Development
• Online Benefits is a firm that duplicates its
  clients human resource functions on a secure Web
  site that is accessible to clients employees.

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Knowledge Management

• Knowledge management is the 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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Working Definition

• Knowledge Management is the explicit
• and systematic management of vital
• knowledge - and its associated processes
• of creation, organisation, diffusion, use and
• exploitation.

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Roots of Knowledge Management
Business Transformation (BPR, TQM, culture)
Learning Organization
Innovation
Knowledge Management
Intellectual Assets/Capital
Information Management
Knowledge-based Systems
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Knowledge is Different
Intelligence / Wisdom
Human, judgemental Contextual, tacit Transfer
needs learning
Knowledge
Codifiable, explicit Easily transferable
Information
Data
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Conversion processes
Source The knowledge creating company, I. Nonaka
and H. Takeuchi
Socialization
Externalization
Tacit
From
Internalization
Combination
Explicit
Explicit
Tacit
To
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What is ... in Practice

• Knowledge Teams - multi-disciplinary,
  cross-functional
• Knowledge (Data)bases - experts, best practice
• Knowledge Centres - hubs of knowledge
• Learning Organization - personal/team/org
  development
• Communities of Practice - peers in execution of
  work
• Technology Infrastructure - Intranets, Domino,
  doc mgt
• Corporate Initiatives Chief Knowledge Officers,
  etc

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Seven Levers

• Customer Knowledge - the most vital knowledge
• Knowledge in Products - smarts add value
• Knowledge in People - but people walk
• Knowledge in Processes - know-how when needed
• Organizational Memory - do we know what we know?
• Knowledge in Relationships - richness and depth
• Knowledge Assets - intellectual capital

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KM Cycle
Collect
Identify
Classify
Organize/ Store
Knowledge Repository
Create
Share/ Disseminate
Use/Exploit
Access
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IT Infrastructure

• A key enabler
• Access anytime, anywhere, anyhow
• Lotus Notes, First Class, Intranets - groupware
• Point solutions e.g. data mining, mapping
• New generation of Knowledge Based systems
• Focus on the I (Information - about Knowledge)
• Hybrid, virtual teams

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Soft Infrastructure

• A culture of sharing - vs. information fiefdoms
• Directors of Knowledge (Intellectual Capital)
• Facilitating knowledge processes
• change teams, development workshops etc.
• Developing personal skills
• info management, dialogue, online techniques
• New measures of human capital, capabilities

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Critical Factors

• Strong link to business imperative
• Compelling vision and architecture
• Knowledge leadership
• Knowledge creating and sharing culture
• Continuous Learning
• Well developed ICT infrastructure
• Systematic knowledge processes

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Action Planning

• 1. Find out where you are!
• do an assessment look for existing practice
• 2. Identify the knowledge champions
• and top level sponsors
• 3. Start the learning process
• attend seminars, site visits, assemble resources
• 4. Understand the seven knowledge levers
• find how knowledge adds value to your business

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Action Planning (cont.)

• 5. Identify Related Initiatives
• an opportunity for collaboration?
• 6. Initiate a Pilot Project
• look for quick wins, within long-term framework
• 7. Assess Organizational Readiness
• assessment plus enablers, levers, foundations
• 8. Develop a road map for knowledge
• vision, goals, strategies, resources, networks.

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KM Case Studies

• Glaxo Wellcome
• Price Waterhouse KnowledgeView
• Buckman Laboratories
• Skandia Life

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Glaxo Wellcome

• A strategy led initiative - learning org. focus
• Workshops to convert rhetoric to action plans
• Using Intranets to share RD, help approvals
• Library, document management support
• Reoreinted Technical Architecture
• Challenge is creating sharing culture
• Bottom Line - better RoIC

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Glaxo Wellcome - Knowledge Net
Learning History
Team Skills
Process Improvements - Quality etc.
Knowledge Network Architecture
New science competencies
Communications
Marketing products - customer dialogue
People - manager skills - Yellow pages -
expertise
Strategy
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Price Waterhouse KnowledgeView

• Knowledge is their business
• Systematic processes - sharing best practice
• Knowledge centres - editors and advisers
• Taxonomy - International Business Language
• Common formats on information
• Lotus Notes for multiple views
• Adding contextual/contact information
• Bottom Line Better solutions in less time

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Buckman Laboratories

• Solutions lie in minds, not databases
• Corporate network (V1 - CIS) - up in 30 days
• Knowledge Transfer department
• CEO monitors and uses the network
• FAQs, virtual conferences, forums
• KNetix (sm) - knowledge sharing Intranet
• Metrics - direct customer engagement
• Bottom line - open, unrestricted communication

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Skandia Life

• First to publish intellectual balance sheet
• Visible assets vs. invisible assets
• Intellectual Capital customer human
  structural
• IT IC values Intelligent organisation
• Not just sums - will drive operating units
• visualise, success factors, indicators,
  development
• Bottom line - ongoing growth and value

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Network Model of Economic Organization

• The trend in purchasing, logistics, and support
  activities is a 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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Economic Forces of E-Commerce

• Transaction costs were the main motivation for
  moving economic activity from markets to
  hierarchically structured firms
• Transaction costs are the total of all costs that
  a buyer and a seller incur for business
• Types of economic organization
• Market form
• Hierarchically-structured form

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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 the 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.
• Benefits were outweighed by required computing
  infrastructure bearable only by large,
  high-volume companies
• 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).

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The Critics say

• Reliance on forms has made it difficult for
  businesses to integrate EDI data flow into their
  business process-oriented information systems
• Switching to business processes instead of paper
  transaction forms would completely redesign 30
  year old standards which are part and parcel of
  existing computing infrastructures

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EDI Elements

• 3 key elements
• EDI network
• Two EDI translator computers
• Translator computers
• Convert data from internal formats to standard
  EDI transaction sets

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2 kinds of connections

• 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.

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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.

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VANs

• Companies that provide VAN services include
• Computer Associates,
• Descartes VAN Services,
• GPAS,
• KleinSchmidt,
• IBM Global Services, etc.

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Advantages

• Users need to support only one communication
  Protocol the VANss
• Transaction Audit logs to resolve disputes
• Can provide translation between different
  transaction sets (e.g. ASC X12 and Un/EDIFACT)
• Automatic compliance checking

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Disadvantages

• Cost is an issue to VAN
• an enrollment fee,
• a monthly maintenance fee
• a transaction fee based on
• Volume and/or Length
• Participating in more than one VAN to accommodate
  multiple clients could be very expensive
• Inter-VAN communication not possible or not
  reliable
• Value-Added Services (VASs) are a lower cost
  alternative to VANs. You pay for EDI as you use
  it rather than making the full investment to have
  EDI capability within your business.

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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 an enabling
  technology
• The major roadblocks to conducting EDI over the
  Internet were
• Security
• Inability to provide audit logs
• 3rd party verification of message transmission
  and delivery
• 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 partners bank are
  called financial EDI (FEDI).
• All banks have the ability to perform electronic
  funds transfers (EFTs).
• Most EFTs between two banks are handled through
  the Automated Clearing House (ACH).
• EDI-capable banks are those equipped to work with
  VANs
• VABanks offer VAN services for nonfinancial
  transactions (e.g. remittance advices, added
  benefits)

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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 with the highest
  quality 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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Supply Alliances

• Tier One Suppliers
• Long-term relationships with small number of very
  capable suppliers
• Tier Two Suppliers
• Tier one establish long-term relationships with a
  larger number of suppliers providing components
  or raw materials
• Tier Three Suppliers
• Tier three establish long-term relationships with
  a larger number of suppliers providing components
  or raw materials

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Flexible or Efficient?

• An efficient producer cannot be a flexible
  producer and vice-versa
• Members of a supply-chain must all be flexible or
  all be efficient
• If one member changes, all other members suffer
• Decisions should be made on the ultimate
  customers demands

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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
• Past performance
• Monitor current performance
• Predict when and how much products to produce

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Advantages

• Share info about customer demand fluctuations
• Receive rapid notification of product design
  changes and adjustments
• Provide specifications and drawings more
  effectively
• Increase transaction processing speeds
• Reduce transaction-handling costs
• Reduce transaction-data entering errors
• Share info about defect rates and types
• DISADVANTAGE Cost !!

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Technology in the Supply Chain

• In 1997, production and scheduling errors
  shutdown two entire assembly operations costing
  Boeing over 1.5 billion over 1 million parts
  per airplane.
• Using EDI and Internet links, Boeing is working
  with suppliers so that they can provide the right
  part at the right time down from 36 months to
  10-12 months per plane.
• 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 technology-enabled
  SCM to give customers exactly what they want.
• Who are the customers and what they are buying.
• 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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Creating an ultimate consumer orientation

• One of the main goals of SCM
• Help each company in the chain focus on meeting
  the needs of the end-consumer
• Instead of
• Meeting the needs of the next member in the
  supply chain
• Michelin provided BIB NET an online website
  providing tyre specs to tyre-vendors answering
  their customers queries.

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Trust in the Supply Chain

• Continual Communication
• Information Sharing
• Staying in contact easily and cheaply via the web
• Developing information exchange resources that
  can provide supplier performance summaries is one
  of the greatest challenges that B2B commerce
  faces.

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Electronic Marketplaces and Portals

• At the beginning of e-Commerce, many predicted
  Vortals would change e-Commerce
• Vortals are Vertical Portals which offer
  specialised information
• Also called Independent Industry marketplaces
• This change did not happen!

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Questions?