ECT 250: Survey of e-commerce technology

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ECT 250 Survey of e-commerce technology

• Purchasing, logistics, and support activities

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Perspective

• In previous lectures we talked about ways that
• goods and services are marketed, promoted,
• and sold.
• In terms of the value chain, this involves
• Identify customers
• Market and sell
• Deliver
• We now consider how technology can improve
• Purchasing
• Logistics
• Support

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Figure 1-10
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Purchasing

• Purchasing activities include
• Identifying vendors
• Evaluating vendors
• Selecting specific products
• Placing orders
• Resolving issues that arise after receipt
• of goods or services
• Late deliveries
• Incorrect items or quantities shipped
• Defective items

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Procurement

• The term procurement refers to all purchasing
• activities, as well as the monitoring of all
• elements of purchase transactions.
• Procurement also includes the management
• and development of relationships with
• suppliers.
• In many case procurement staff must have
• detailed knowledge about products.
• Specialized Web sites can aid in disseminating
• necessary information.
• Example Neoforma

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MRO supplies

• Maintenance, repair, and operating (MRO)
  supplies
• are commodity items that companies buy on a
• recurring basis.
• Price is usually the main selection criterion.
• By using a Web site to process orders, vendors
• in this market can save the cost of printing
• and shipping catalogs and the cost of handling
• telephone orders.
• Examples W.W. Grainger, McMaster-Carr, Office
• Depot, Digi-Key, Global Computer Supplies

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Logistics

• Objective Provide the right goods in the right
• quantity in the right place at the right time.
• Major transportation companies want to be seen
• as information management firms as well as
• freight carriers.
• Example Freight tracking Web pages made
• available by Schneider Logistics, FedEx, UPS.
• Logistics activities include receiving,
  warehousing,
• inventory control, vehicle scheduling and
  control,
• and finished goods distribution.

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Support activities

• Support activities include
• Finance and administration
• Human resources
• Technology development

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Finance and administration

• Making payments
• Processing payments received
• Planning capital expenditures
• Budgeting and planning
• Operation of the computing infrastructure

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Human resources

• Hiring
• Training (not always)
• Evaluating employees
• Benefits administration
• Complying with government record-keeping
• regulations

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Developing technology

• Activities included here depends on the nature of
• the business or organization.
• May include
• Networking of researchers into virtual
  collaboration
• Posting of research results
• Publishing research papers online
• Providing connections to outside sources of
  research
• and development services

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Training

• In some companies training is handled by human
• resources.
• In other organizations it may decentralized and
  be
• done by individual departments.
• Where it occurs can depend on the type of
  training.
• Example At DePaul orientation for benefits and
• for incoming faculty is handled by a centralized
• group. CTI does its own training for advising.

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Examples

• Examples of firms providing support activities
• services
• OnLine Benefits Benefit management
• TheTrip.com Employee travel policies
• CyLex Systems Document storage
• PayMaxx Payroll processing
• Driveway Business Solutions Electronic file
• storage

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Forms of economic organization

• Three different forms of economic organization
• Markets Buyers and sellers come together to
• conduct transactions
• Hierarchies Large organizations that conduct
• many different business activities entirely
• within the structure of the firm
• Networks Firms coordinate their strategies,
• resources, and skills sets by forming long-term,
• stable relationships based on a shared purpose.

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Effect of technology

• One trend in in purchasing, logistics, and
  support
• activities is a move away from hierarchical
• structures toward network structures.
• Highly specialized firms can now exist and trade
• services very effectively on the Web.
• The emerging networks of firms are more flexible
• and can respond to changes in the economic
• environment more quickly than hierarchical
• companies.

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Electronic data interchange

• Electronic data interchange (EDI) is a computer-
• to-computer transfer of business information
• between firms that use a standard format for
• representing the information.
• The two businesses trading information are
  called
• trading partners.
• Firms that exchange data in specific standard
• formats are said to be EDI-compatible.
• The types of information include invoices,
  purchase
• orders, requests for quotations, bills of lading,
  and
• receiving reports.

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Early efforts

• By the 1960s companies began exchanging punch
• cards or magnetic tape with transaction data.
• Data communications improvements resulted in
• phone lines being used to exchange information.
• In 1968 a number of freight and shipping
  companies
• formed the Transportation Data Coordinating
• Committee (TDCC). The TDCC created a format
• including all elements found on bills of lading,
• freight invoices, shipping manifests, and other
• paper forms.
• Standardization across industries remained
  difficult.

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Broader standards

• In 1979, the American National Standards
  Institute
• (ANSI) chartered a new committee, called the
• Accredited Standards Committee X12 (ASC X12)
• to develop uniform EDI standards.
• The ASC X12 standard benefited from member
• participation across a wide variety of
  industries.
• The current standard includes specifications for
• several hundred transaction sets, which are the
• names of the formats for specific business data
• interchanges.

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International standards

• Although the ASC X12 standards were quickly
• adopted by major firms in the U.S., businesses
• in other countries continued to use their own
• standards.
• In 1987, the United Nations published its first
• standards under the title EDI for Administration,
• Commerce, and Transport (UN/EDIFACT).
• The ASC X12 organization has voted to move its
• U.S. standards toward the UN/EDIFACT
• standards, although no date for the final
  migration
• has been set.

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Paper versus EDI

• Example A company that needs to replace one of
• its metal cutting machines.
• Figure 9-5 on page 294 shows the paper version.
• Figure 9-6 on page 298 shows the EDI version.
• The same messages are exchanged between the
• departments, but EDI reduces paper flow and
• streamlines the interchange of information both
• within and outside a company.

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Implementation

• Trading partners can implement the EDI network
• and EDI translation processes in several ways.
• Each of these uses one of two basic approaches
• Direct connection
• Indirect connection

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Direct connection

• Each business in the network operates its own
• on-site EDI translator computer.
• The EDI translator computers are then connected
• directly to each other using modems and dial-up
• telephone lines or dedicated leased lines.
• Trading partners using different communication
• protocols can make direct connection options
• difficult to implement.

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Indirect connection

• 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.
• In an indirect connection, the trading partners
  use
• the services of a VAN for communication.
• The VAN often supplies EDI translator software
• as part of their package of services.

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Advantages

• The benefits of using a VAN include
• Support for only one communications protocol
• The audit log maintained by the VAN can be
• used to resolve disputes.
• The VAN can provide translation if the partners
• use different transaction sets.
• Examples of VAN services include General Electric
• Information Services, IBM Global Services, GPAS,
• and Sterling Software.

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Disadvantages

• The disadvantages of using VAN include
• Requires an enrollment fee, a monthly
  maintenance
• fee, and a transaction fee.
• Using VAN is cumbersome for companies that want
• to do business with a number of trading partners
• using different VANs.
• Costs are unpredictable and tend to be higher
• There is not always a clear paper trail

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EDI on the Internet

• The Internet was seen as a way to replace
• leased lines and dial-up connections.
• Potential problems include
• Concerns about security
• Inability to provide audit logs
• Third-party verification of message
• transmission and delivery

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Open EDI

• EDI on the Internet is called Open EDI.
• Many new firms offer Open EDI including
• Commerce One
• EB2B.com
• VanTree
• The Internet allows customization for data
• exchanges.
• New tools such as XML are helping trading
• partners be 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).
• EDI-capable banks are those banks that are
• equipped to exchange payment and remittance
• data through VANs.
• Value-added banks offer VAN services for non-
• financial transactions.

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Perceived risk

• Many companies are reluctant to send over the
• Internet FEDI transaction sets that contain
• transfer instructions for large amounts of money
• (in some cases millions of dollars) because of
• the perceived low level of Internet security.
• Reliability of FEDI transaction sets is also an
  issue
• since a delay in delivery of 10 million can
  result
• in a large loss of interest income.

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Hybrid solutions

• Hybrid EDI solutions use the Internet for part
  of
• the transaction.
• For example, EDI-HTML translation services
• allow EDI-enabled firms to communicate with
• firms that are non-EDI-enabled.
• EDI-enabled firm transmits document to the
• service
• The service translates this into HTML for the
• non-EDI-enabled partner
• The partners response is translated back

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Supply chain

• The part of an industry value chain that
  precedes
• a particular strategic business unit is often
  called
• a supply chain.
• A companys supply chain for a product or
  service
• includes all the activities undertaken by every
• predecessor in the value chain to design,
  produce,
• promote, market, deliver, and support each
• component of that product or service.
• Example Car manufacturers supply chain would
• include engine manufacturers, steel fabricators,
• glass manufacturers, etc.

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Supply chain management

• In recent years businesses have realized that
  they
• can save money and increase product quality by
• negotiating more actively with suppliers.
• Companies can work together with suppliers to
• identify new ways to serve customers more
• quickly and cheaply.
• The process of taking an active role with
  suppliers
• to improve products and processes is called
• supply chain management.

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Levels in the supply chain

• Business develop long-term relationships with a
• small number of very capable suppliers, called
• the tier one suppliers.
• Tier one suppliers work with a select group of
• their suppliers in the same way. This second
• level is called the tier two suppliers.
• Tier two suppliers work with tier three
  suppliers.
• The long term relationships created are called
• supply alliances.

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Value creation

• In exchange for stability, buyers expect price
• reductions and quality improvements from
• their suppliers.
• By working together, supply chain members
• reduce costs and increase the value of the
• product or service to the consumer.
• With clear communication up and down the
• supply chain, each participant can know
• what the ultimate consumer is demanding
• and can plot a strategy to meet the demand.

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Technology in the supply chain

• Clear communications and quick responses to
• those communications are a key element of
• successful supply chain management.
• The Internet and the Web can be very effective
• communication enhancers.
• Software can help all members of the supply
• chain review past performance, monitor
• current performance, and predict when and
• how much of certain products need to be
• produced.

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Advantages

• Suppliers can
• Share information about demand fluctuations
• Receive rapid notification of product design
• changes and adjustments
• Provide specifications and drawings more
• efficiently
• Increase speed of processing transactions
• Reduce cost of handling transactions
• Reduce errors in entering transaction data
• Share information about defect rates and types

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Example

• Dell computer has used technology-enabled
• supply chain management to give customers
• exactly what they want.
• It reduced inventories from three weeks sales
• to six days sales.
• Dells top suppliers have access to a secure
• Web site that lets them see
• The latest sales forecasts
• Planned product changes
• Defect rates and warranty claims
• This enables the suppliers to plan better.