ACS 3907 E-Commerce

©Bowen Hui, Beyond the Cube Consulting Services Ltd.

ACS 3907E-Commerce

Lecture 10

Instructor: Kerry Augustine


BUSINESS VALUE CHAIN

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Managing materials, services and information from suppliers through to the organization’s customers

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Business Value Chain Analysis

Value Chain Analysis (Michael Porter 1985) Is a process of analyzing an organization’s activities to determine where value is added to products and/or services and what costs are incurred in doing so.

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The Business Value Chain - Primary Activities

Functional areas within an organization that process inputs and produce outputs. These activities may vary widely based on the unique requirements of a company’s industry

Primary Activities include:

• Inbound Logistics – receiving and stocking raw materials, parts, products

• Operations/Manufacturing – processing orders and raw materials into finished product

• Outbound Logistics – distribution of the finished product to customers

• Marketing and Sales – creating demand for the product (pre-sales activities)

• Customer Service – providing support for the product or customer (post-sales activities)

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The Business Value Chain - Support Activities

Support activities are business activities that enable Primary Activities. These activities can be unique by industry but are generally more typical across industries.

Support Activities include:

• Infrastructure – hardware and software that must be implemented to support applications for primary activities

• Human Resources – employee management activities: hiring, interview scheduling, and benefits management

• Technology Development – the design and development of applications that support the organization

• Procurement – purchase of goods or services that are required as inputs to primary activities

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A Business Value System – Organizational Focus

Moving the product efficiently from supplier to customer

Supplier Firm Distributor Customer

Logistics

Management

Distribution

Management

Information

Upstream flow is information received from another organization (i.e. from Company A to Company B Downstream Flow is information sent to another organization (i.e. from Company B to Company C )

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A Business Value System – Organizational Focus

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CUSTOMER RELATIONSHIP MANAGEMENT (CRM) SYSTEMS

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Information Systems Roles in the Value Chain

Customer Relationship Management (CRM) Systems

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Value Proposition Revisited

• 3 general categories of value discipline1. Customer intimacy

– Really try to understand individual customer’s needs– Establish one-to-one relationships, very personal– Key: personal service is an expensive commodity

2. Product leadership– State-of-the-art products, leading edge– Keep customers interested and excited– Key: state-of-the-art technology is expensive to produce/achieve

3. Operational excellence– Excels in operational efficiency, but usually no customization or after-

sales support– “if it’s not on time, it’s on us” type slogans– Key: time is very valuable to people

• Understand where your business fits in, and how it interacts with its customers

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Customer Relationship Management

• CRM = strategy for optimizing the lifetime value of customers

• Importance: widely held belief that it costs businesses 10 times more to recruit a new customer than to retain an existing customer

• Net churn metric:# Customers at Year Start – # Customers at Year End

# Customers at Year Start

– Simple (approximate) measure of customers lost

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• Capture and integrate customer data from all over the organization

• Consolidate and analyze the data

• Distribute results to various systems and customer touch points across the enterprise

• Provide a single touch point for the customer.

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CRM systems examine customers from a multifaceted perspective. These systems use a set of integrated applications to address all aspects of the customer relationship, including customer service, sales, and marketing.

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CRM Portal

Portal

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• Array of tools for obtaining useful information from internal

and external systems and big data

• Data warehouses

• Data marts

• Hadoop

Business Intelligence Infrastructure

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A contemporary business intelligence infrastructure features capabilities and tools to manage and analyze large quantities and different types of data from multiple sources. Easy-to-use query and reporting tools for casual business users and more sophisticated analytical toolsets for power users are included.

Business Intelligence Infrastructure

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SUPPLY CHAIN MANAGEMENT (SCM) SYSTEMS

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Information Systems Roles in the Value Chain

Supply Chain Management (SCM) Systems

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Supply Chain Management (SCM)

Objective Applications that accelerate product development and reduce cost associated with procuring raw materials, components, and services from its suppliers

• Supply Chain – the suppliers that an organization purchases from directly • Supply Network – the suppliers that an organization purchases from directly and

its suppliers

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Supply Chain Management applications can help organizations to gain competitive advantage and provide substantial payback in several ways by:

• Streamlining workflow and increasing employee productivity (i.e. efficiently managing business travel, time, and expenses by collaborating with suppliers in real time)

• Accelerating product development (i.e. enabled by the ability of organizations to swiftly react to market conditions)

• Streamlining cost and creating efficiencies across the supply network (i.e., supporting contract negotiation and measuring effectiveness of those agreements)


Procurement

Procurement includes all of the activities involved in acquiring goods or services and managing their flow from the supplier within the company which is purchasing the goods or services to the semi-finished products and support materials which the company uses. It involves establishing a strong working relationship with the company’s supplier network and forms and integral part of the supply chain management process.

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Procurement Process

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Purchasing Activities

• Include: – Identifying vendors, evaluating vendors– Selecting specific products– Placing orders– Resolving issues after receiving ordered goods/services (e.g., late

deliveries, incorrect quantities/items, defective items)

• Direct vs indirect materials purchasing:– Direct materials = those directly involved in production process, become

part of finished product– Cost of direct materials typically large portion of cost of finished product– Replenishing purchasing = companies negotiate long term contracts for

needed materials– Require good demand estimation – Spot purchasing = involves purchase of goods based on immediate needs– Indirect materials = those not directly involved in production process,

such as factory supplies, replacement parts, manufacturing machinery

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Electronic Data Interchange

• EDI = computer-to-computer transfer of business info using a standard format– First example of E-Commerce (in 1960’s)

– Attempts to standardize EDI format

– Information such as transactions, pricing, inventory

• EDI network– Companies may connect directly to each other

– Companies may connect via a value added network (VAN) service that provides communications equipment, software, skills to support EDI network

• See notes for more details

• B2B complexities – yields much potential for cost reduction and process improvement in purchasing, logistics, support activities is tremendous

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Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment. Suppliers can automatically send data about shipments to purchasing firms. The purchasing firms can use EDI to provide production and inventory requirements and payment data to suppliers.

Electronic Data Interchange (EDI)

Electronic Data Interchange

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SCM – Example of a Supply Network

Nike’s Supply ChainThis figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.

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Push- versus Pull-Based Supply Chain Models

The Supply Network

The difference between push- and pull-based models is summarized by the slogan “Make what we sell, versus sell what we make.”

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The Supply Network

• Push-based model (Derived Demand)

– Based on forecasts of demand for products, and products are “pushed” to customers

– suppliers are gaining access to an organization’s supply planning system to assure an ability to fulfill orders

• Pull-based model (Independent Demand)

– Supply chain driven by actual customer orders or purchases

– Producing organization is opening its systems to the customer to allow the customer to view inventory and production levels before placing orders

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Uncertainty In Demand

• Derived demand = demand of raw materials for production and manufacture– Can be met through calculations in manufacturing output, balanced

with demand forecasts for a given product

• Independent demand = consumer demand, more susceptible to market fluctuations and seasonal changes

• By coordinating the supply chain, businesses can reduce uncertainty in this area

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Inventory Costs

1. Carrying costs = costs to carry standard inventories and safety stock– Safety stock = goods needed to be kept on hand to satisfy consumer

demand

2. Ordering and setup costs – Ordering costs include costs for pacing orders, receiving and storage;

transportation and invoice processing– If manufacturing business: include production setup costs

3. Shortfall costs/stockout = lost sales due to lack of supply for consumers– Avoided by keeping an ample safety stock on hand– Tradeoff against carrying costs

• Best way to manage stockout is to determine the acceptable level of customer service for the business balance the need for high satisfaction with the need to reduce inventory costs

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Business-to-Business Commerce

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B2B

• Characteristics:– Repeated sales

– Often fewer customers than B2C

– Buyer can still search for vendors

– Large volume purchases

– More complicated logistics

– Document exchange

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Business Value Chains

• Activities that a firm engages in to create final products from raw inputs

• Each step adds value

• Effect of Internet:

– Increases operational efficiency

– Enables product differentiation

– Enables precise coordination of steps in chain

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E-commerce and Business Value Chains

Figure 2.5, Page 97



Internet-Enabled Value Web

• Networked business ecosystem

• Uses Internet technology to coordinate the value chains of business partners

• Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system



The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand.

Extending the Value Chain: The Value Web

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Industry Value Chains

• Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services

• Internet reduces cost of information and other transactional costs

• Leads to greater operational efficiencies, lowering cost, prices, adding value for customers



B2B Business Models

• Net marketplaces

– E-distributor

– E-procurement

– Exchange

– Industry consortium

• Private industrial network



Two Main Types of Internet-Based B2B Commerce

1. Net marketplaces: – Bring together potentially thousands of sellers and buyers in single

digital marketplace operated over Internet

– Transaction-based

– Support many-to-many as well as one-to-many relationships

2. Private industrial networks: – Bring together small number of strategic business partner firms that

collaborate to develop highly efficient supply chains

– Relationship-based

– Support many-to-one and many-to-few relationships

– Largest form of B2B e-commerce



Net Marketplaces

• Ways to classify Net marketplaces:– Pricing mechanism, nature of market served, ownership

• By business functionality– What businesses buy (direct vs. indirect goods)

– How businesses buy (spot purchasing vs. long-term sourcing)

– Four main types

• E-distributors

• E-procurement

• Exchanges

• Industry consortia



E-distributors

• Most common type of Net marketplace

• Electronic catalogs representing products of thousands of direct manufacturers

• Typically, independently owned intermediaries

• Offer industrial customers single source to purchase indirect goods on spot basis

• Typically, horizontal

• Usually, fixed price—discounts for large customers

• Example: W.W. Grainger



E-distributors



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E-procurement Net Marketplaces

• Independently owned intermediaries

• Connect hundreds of suppliers of indirect goods

• Firms pay fees to join market

• Long-term contractual purchasing of indirect goods

• Revenues from transaction fees, licensing consultation services and software, network fees

• Offer value chain management (VCM) services

• Many-to-many market

• Example: Ariba



E-procurement Net Marketplaces



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https://www.youtube.com/watch?v=NqURqh8Ouzc&feature=youtu.be

https://www.youtube.com/watch?v=WS-DtF5XzPA

https://youtu.be/WscTVZmYn3o


Exchanges

• Independently owned online marketplaces

• Connect hundreds to thousands of suppliers and buyers in dynamic, real-time environment

• Vertical markets, spot purchasing in single industry

• Charge commission fees on transaction

• Variety of pricing models

• Tend to be buyer-biased

• Suppliers disadvantaged by competition

• Many have failed due to low liquidity



Exchanges



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Industry Consortia

• Industry-owned vertical markets

• Purchase of direct inputs from set of invited participants

• Emphasize long-term contractual purchasing, stable relationships, creation of data standards

• Ultimate objective:– Unification of supply chains within entire industries through common

network and computing platform

• Revenue from transaction and subscription fees– Many different pricing mechanisms

• Can force suppliers to use consortia’s networks



Industry Consortia



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Aerospace and Defense Industry

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Pure Types of Net Marketplaces



Partstore.com Merx.com

dgMarket.com

Exostar.comAriba Supplier Network

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Private Industrial Networks

• Private trading exchanges (PTXs)

• Web-enabled networks for coordination of trans-organizational business processes (collaborative commerce)– Direct descendant of EDI; closely tied to ERP systems

– Manufacturing and support industries

– Single, large manufacturing firm sponsors network

• Range in scope from single firm to entire industry

• Example: Procter & Gamble



P&G’s Private Industrial Network



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ACS 3907 E-Commerce

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Transcript of ACS 3907 E-Commerce