Chapter 5 B2B Strategies

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Chapter 5B2B Strategies

• From Electronic Data Interchange to Electronic
  Commerce

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Purchasing, Logistics Support Activities

• The potential for cost reductions business
  process improvements in these areas are
  tremendous.
• Increase of synergies, which form the basis for
  2nd-wave e-commerce opportunities.
• An emerging characteristic of these activities is
  their flexibility.

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Purchasing Activities

• These activities include
• Identifying vendors
• Evaluating vendors
• Selecting specific products
• Placing orders
• Resolving issues
• In most companies, charged with buying all
  components at lowest possible price.
• Usually more complex than consumer purchasing
  process.

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Typical Business Purchasing Process
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Purchasing Activities (Cont.)

• Requires a large number of people to complete the
  process.
• Spend The total amount of the goods services
  that a company buys in a year.
• In 2002, Motorola implemented a set of Internet
  technologies in the procurement operation.
• Spend 48 Billion
• Estimate savings of 2.5 Billion by using
  technologies to accomplish tasks more efficiently
  at a lower cost.

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Direct vs. Indirect Materials Purchasing

• Direct Materials
• Those materials that become part of the finished
  product in a manufacturing process
• Large Manufacturing Companies have 2 types of
  direct materials purchasing
• Replenishment/Contract purchasing The company
  negotiates long-term contracts for most of the
  needed materials.
• Spot purchasing The company buys direct
  materials in a spot market, which is a loosely
  organized market within a specific industry.
• Indirect Materials
• Materials supplies purchases by the company in
  support of manufacturing an item, but not
  directly used in production of product.
• Often called maintenance, repair, operating
  (MRO) supplies

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Logistics Activities

• Classic objective has been to provide the right
  goods in the right quantities in the right place
  at the right time.
• These activities include
• Managing the inbound movements of materials
  supplies
• Managing the outbound movements of finished goods
  services.
• The Internet is providing an increasing number of
  opportunities to manage these activities better
  by lowering transaction costs providing
  constant connectivity between firms engaged in
  logistics management.
• J. B. Hunt
• FedEx

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Support Activities

• These activities include
• Finance administration
• Human resources
• Technology departments
• Training is another common support activity
• By putting training materials on the companies
  intranet, companies can distribute these
  materials to many different offices, but continue
  to be centrally located.
• Knowledge management is also being collected
  using the Internet

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E-Government

• Governments do not typically sell products or
  services, but they perform many functions for
  their stakeholders.
• Operate businesslike activities
• Employ people
• Buy supplies from vendors
• Distribute benefit payments
• In 2000, U.S. governments Financial Management
  Service opened its Pay.gov web site.
• Allows site visitors pay taxes fees using
  various forms of electronic transfer.
• State local governments are also have web sites
  that offer services to its citizens.

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Network Model of Economic Organization

• Trend is the shift away from hierarchical
  structure toward network structures.
• Procurement departments are being given new tools
  to negotiate with suppliers.
• The result is alliances outsourcing contracts.
• Highly specialized firms can exist trade
  services efficiently using the web.
• The network of firms are more flexible can
  respond to changes in the economic environment
  more quickly that hierarchical structured
  businesses.

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Electronic Data Interchange

• Computer-to-computer transfer of business
  information between 2 businesses that uses a
  standard format of some kind.
• Information is usually
• Transaction data
• Price quotes
• Order status inquiries
• EDI was first form of e-commerce to be widely
  used in business.

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Early Business Information Interchange Efforts

• 1950s Companies began to use computers to store
  process internal transaction records, but info
  flow between businesses used paper
• This process was slow, inefficient, expensive,
  redundant, unreliable.
• 1960s Businesses began to transfer info on
  punched cards or magnetic tape
• Advances during the 60s 70s allowed transfer
  to occur over telephone lines
• 1968 The Transportation Data Coordinating
  Committee was established.
• Explored new ways to reduce the paperwork burden
  that shippers carriers faces.
• Savings from the reduction of paperwork were
  significant.

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Emergence of Broader EDI Standards

• American National Standards Institute (ANSI)
• Created a set of procedures for the development
  of national standards accredit committees that
  follow those procedures.
• 1979 Accredited Standards Committee X12 (ASC
  X12) established, meets 3 times/year to develop
  maintain EDI standards.
• Includes standards for specifications for several
  hundred transaction sets (names of the formats
  for specific data interchanges)
• 1987 United Nations established the EDI for
  Administration, Commerce, Transport
  (UN/EDIFACT)
• Designed a common set of standards to be used
  internationally
• 2000 The ASC X12 UN/EDIFACT agreed to develop
  one common set, but no date for implementation
  has been set.

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Common ASC X12 Transaction Sets
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Common UN/EDIFACT Transaction Sets
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How EDI Works

• Paper-Based Purchasing Process
• No integrated software for internal business
  processes.
• Each step results in production of a paper
  document, which is delivered by mail, courier or
  fax to the next department.

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How EDI Works

• EDI Purchasing Process
• Mail service replaced by EDI data communication
• Paper flows replaced by computers running EDI
  translation software

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Value-Added Networks

• Trading partners can implement the EDI network
  EDI translation process in several ways, but
  every way uses one of two approaches.
• Direct connection EDI
• EDI translator computers at each company are
  linked directly to each other through modems
  dial-up phone lines or leased lines
• Indirect connection EDI
• Each company transmits receives EDI messages
  through a value-added network (VAN)

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Direct Connection EDI
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Indirect Connection EDI through a VAN
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EDI on the Internet

• Trading partners began to view the Internet as a
  potential replacement for expensive leased lines
  slow dial-up connections required for direct
  VAN-aided EDI.
• Major concerns
• Internet security
• Inability to provide audit logs 3rd party
  verification

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Open Architecture of the Internet

• Mid-1990s Many firms began providing EDI
  services on the Internet (Internet EDI, Web EDI,
  or open EDI)
• Allows trading partners virtually unlimited
  opportunities for customization of their info
  interchanges.
• Some firms are extending their internal networks
  to their trading partners, turning intranets into
  extranets.
• Virtual Private Networks (VPN) provides the
  security that makes this process attractive.

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Financial EDI

• These are EDI transactions that provide
  instructions to a trading partners bank.
• EDI-capable banks those that are equipped to
  exchange payment remittance data through VANs.
• Value-added banks those that offer VAN services
  for non-financial transactions.
• Financial VANs These are not banks but can
  translate financial transaction sets into ACH
  formats transmit them to banks that are not EDI
  capable.
• Reluctant because of perceived low security of
  Internet

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Supply Chain Management Using Internet
Technologies

• Supply chain management
• The process of taking an active role in working
  with suppliers other participants in the supply
  chain to improve products processes.
• Ultimate Goal
• To achieve a higher-quality or lower-cost product
  at the end of the chain

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Value Creation in the Supply Chain

• Business work to establish long-term
  relationships with a small number of capable
  suppliers
• Known as supply alliances
• Key element is trust between the parties
• Buyers expect annual price reductions quality
  improvements from suppliers at each stage.
• Clear communication quick responses are
  essential to successful SCM.
• Technologies can be very effective communication
  enhancers.

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Advantages of Using Internet Technologies

• Only disadvantage is the cost of the
  technologies, but in most cases the advantages
  provide a greater value that the cost of
  implementing maintaining the technologies.

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Increasing Supply Chain Efficiencies

• Many companies are using the Internet and web
  technologies to manage supply chains in ways that
  yield increases in efficiency throughout the
  chain.
• Boeing
• Dell
• Use of technologies result in
• Increased process speed
• Reduced costs
• Increased flexibility

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Using Materials-Tracking with EDI E-Commerce

• Integration of use of bar codes EDI has become
  prevalent.
• Allow companies to scan materials as the are
  received to track them as they move from the
  warehouse to production.
• Radio frequency identification devices (RFIDs)
• Small chips that include radio transponders
• Can be used to track inventory as it moves
  through an industry value chain
• Passive RFID tag made cheaply, very small, no
  need for a power source

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Creating an Ultimate Consumer Orientation in the
Supply Chain

• A focus on the needs of the consumer who is at
  the end of an industry value chain.
• Companies with long supply chains have problems
  remembering this focus.
• Internet technologies are tools that improve
  communication at a very low cost.
• Ideal aids for enhancing the creation of a highly
  coordinated effective supply chain.

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Building Maintaining Trust in the Supply Chain

• Major issue in building supply chain alliances
• Continual communication information sharing are
  key elements.
• Internet offers new avenues for building trust
• Vendors are finding the web provides an
  opportunity to stay connected with customers more
  easily less expensively.
• Task of developing info exchange resources that
  provide supplier performance summaries is a
  challenge that B2B e-commerce faces.

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Electronic Marketplaces Portals

• Many business researchers consultants believed
  that the Internet would provide an opportunity
  for companies to establish info hubs for each
  major industry.
• These hubs would be in the form of vertical
  portals.
• Prediction of the success of vertical portals was
  not completely correct.

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Independent Industry Marketplaces

• These are vertical portals that are focused on a
  specific industry.
• First to open was Chemdex in early 1997 to trade
  in bulk chemicals.
• By mid-2000, more than 2200 independent exchanges
  were open.
• Venture capital funding became scarce many
  closed.
• By mid 2002, there were fewer than 100 industry
  marketplaces in operation.
• 4 other B2B models arose to take the place of
  these

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New B2B Marketplaces

• Private Stores
• A password protected area of a web site that
  offers individual customers negotiated price
  reductions on a limited selection of products
  other customized features.
• Customer Portals
• A corporate web site designed to meet the needs
  of customers by offering additional services such
  as private stores, part number cross-referencing,
  product-use guidelines safety info.

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New B2B Marketplaces (Cont.)

• Private Company Marketplaces
• A marketplace that provides auctions, requests
  for quotes postings, other features to
  companies that want to operate their own
  marketplace.
• Industry Consortia-Sponsored Marketplaces
• A marketplace formed by several large buyers in a
  particular industry.

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Characteristics of B2B Marketplaces