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Chapter 5

B2B Strategies:From EDI to E-Commerce

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Purchasing, Logistics, andSupport Activities

Electronic commerce possesses the potential for costreduction 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 localservices 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=116&l=2) Usage of eCommerce by Government to improve efficiency of its

support operations such as

ertifikati.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 wardentickets 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

E-procurement for Government departments

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E-Government

Employment, buying supplies, benefit paymentdistribution 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 theordered 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 ofpurchase transactions.

supply chains e-sourcing

By using a Web site to process orders, the

vendors in this market can save the cost ofprinting and shipping catalogs, and the cost ofhandling 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 pricethrough 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 enterprisesunderstand all the costs, benefits and valueassociated with procuring, owning and using

IT components over time.

Example:

How much do you think a networked Window 95 PCwould cost an organisation per year?

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TCO Example

Annual TCO of a networked Window 95 PC hasbeen 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 isconsiderably 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, systemand storage administration labor.

The cost of training and support services.

The cost of system development including applicationand content development, testing and documentation,

new development, customizations of system, andmaintenance.

The cost of communication fees including lease linesand server access charges.

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Most Significant Contributing Factorsto TCO Labor and end user operations.

Non-standard PC configurations.

Information and applications uniquely tied to specificworkstations.

Deploying and maintaining hardware and softwareinfrastructure.

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 attemptingto solve IS problems for themselves or theircoworkers.

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TCO Principles

1. The TCO $ number is meaningless without discussing servicelevels.

2. The more centralized the architecture, the lower the cost.

3. Standardization at the desktop controls costs.

4. Local optimization for a particular application is costly.

5. Attempt to quantify benefits of expenditures or savings whenconsidering acquiring or disposing of technology.

6. Take a long term perspective and use TCO best practice whereverpossible.

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TCO Best Practices1. Maximum consolidation of datacenters, system images, and other resources.

2. Maximize processor and storage capacity.

3. Remove unnecessary portions of system.

4. Use integrated management tools.

5. Automation of system administration, storage, and operational tasks.

6. Streamline datacenter work processes.

7. Limit users ability to get themselves in trouble.

8. Maintain inventory of all hardware and software.

9. Train employees.

10. Replacement of legacy applications.

11. Keep the infrastructure reliable.

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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 arecalled 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 thisarea.

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Logistic Activities

The classic objective of logistics is to providethe right goods in the right quantities in theright place at the right time.

Businesses have been increasing their use ofinformation technology to achieve thisobjective.

FedEx and UPS have freight tracking Webpage 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 stepswhich take place from when the client initiallyaccesses the website to the time the parcel isdelivered

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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 itsclients human resource functions on a secureWeb site that is accessible to clientsemployees.

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Knowledge Management

Knowledge management is the intentional collection,classification, and dissemination of information abouta company, its products, and its processes.

BroadVision has installed K-Net, or KnowledgeNetwork, that organizes all information sources that itsemployees 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

KnowledgeManagement

BusinessTransformation

(BPR, TQM, culture)

IntellectualAssets/Capital

Learning

Organization

Knowledge-based

Systems

Innovation

InformationManagement

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Knowledge is Different

DataInformation

Knowledge

Intelligence /Wisdom

Codifiable, explicit

Easily

transferable

Human, judgemental

Contextual, tacitTransfer needs learning

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Conversion processes

Socialization

Internalization Combination

Externalization

From

To

Explicit

Tacit

ExplicitTacit

Source: The knowledge creating company, I. Nonaka and H. Takeuchi

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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

Create Knowledge

Repository

IdentifyClassify

AccessUse/Exploit

Collect

Organize/

Store

Share/

Disseminate

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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 sponsors3. 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 framework7. 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 actionplans

Using Intranets to share R&D, help approvals Library, document management support

Reoreinted Technical Architecture

Challenge is creating sharing cultureBottom Line - better RoIC

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Glaxo Wellcome - Knowledge Net

KnowledgeNetwork

Architecture

Process Improvements- Quality etc.

Communications

People- manager skills

- Yellow pages

- expertise

Strategy

Learning History

Team Skills

New science

competencies

Marketing products

- customer dialogue

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Price Waterhouse KnowledgeView Knowledge is their business

Systematic processes - sharing bestpractice

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 EconomicOrganization

The trend in purchasing, logistics, and supportactivities is a shift away from hierarchical structurestoward network structures.

The Web is enabling this shift from hierarchical formsof economic organization to network forms.

The roots of Web technology for B2B transactions liein electronic data interchange (EDI).

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Economic Forces of E-Commerce

Transaction costs were the main motivation for moving economic activityfrom markets to hierarchically structured firms

Transaction costs are the total of all costs that a buyer and a seller incurfor 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 ofbusiness information between two businessesthat uses a standard format.

Transaction data in B2B transactions includesthe information on paper invoices, purchaseorders, requests for quotations, bills of lading,

and receiving reports.

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Early Business InformationInterchange Efforts In the 1950s, information flows between businesses

continued to be printed on paper.

By the 1960s, businesses had begun exchangingtransaction information on punched cards or magnetic

tape. Benefits were outweighed by required computing

infrastructure bearable only by large, high-volumecompanies

In 1968, a number of freight and shipping companiesformed the Transportation Data CoordinatingCommittee (TDCC) to create the TDCC standardformat.

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Emergence of Broader Standards

The American National Standards Institute (ANSI) has been thecoordinating 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 StandardsCommittee X12 (ASC X12).

In 1987, the United Nations published its first standards under thetitle 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 ofpaper transaction forms would completely

redesign 30 year old standards which are partand parcel of existing computinginfrastructures

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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 theinterchange of information amongdepartments within a company and between

companies.

Trading partners can implement the EDInetwork and EDI translation processes in

several ways use either direct connection orindirect connection.

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Direct Connection betweenTrading Partners

Direction connection EDI requires eachbusiness in the network to operate its own on-

site EDI translator computer.

These EDI translator computers are thenconnected directly to each other usingmodems and dial-up phone lines or dedicatedleased lines.

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Indirect Connection betweenTrading Partners

Instead of connecting directly to each of itstrading partners, a company might decide touse the services of a value-added network.

A value-added network (VAN) is a companythat provides communications equipment,

software, and skills needed to receive, store,and forward electronic messages that containEDI 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 onecommunication Protocol the VANss

Transaction Audit logs to resolve disputes

Can provide translation between different

transaction sets (e.g. ASC X12 andUn/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 accommodatemultiple clients could be very expensive

Inter-VAN communication not possible or not reliable

Value-Added Services (VASs) are a lower costalternative to VANs. You pay for EDI as you use itrather than making the full investment to have EDIcapability 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 theexpensive leased lines an enabling technology

The major roadblocks to conducting EDI over theInternet were Security Inability to provide audit logs 3rd party verification of message transmission and

delivery

As the TCP/IP was enhanced and SHTTP protocol wasdeveloped, businesses worried less about securityissues.

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Open Architecture of the Internet

A number of new firms, such as Commerce One andIPNet, have begun providing EDI services on theInternet.

EDI on the Internet is also called open EDI becausethe 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 provideinstructions to a trading partners bank arecalled financial EDI (FEDI).

All banks have the ability to perform electronicfunds transfers (EFTs).

Most EFTs between two banks are handledthrough the Automated Clearing House (ACH).

EDI-capable banks are those equipped to workwith VANs

VABanks offer VAN services for nonfinancialtransactions (e.g. remittance advices, addedbenefits)

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Supply Chain Management

The part of an industry value chain thatprecedes a particular strategic business unit isoften called a supply chain.

The purchasing department has traditionallybeen charged with buying all of thesecomponents at the lowest price possible with

the highest quality possible.

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Value Creation in the SupplyChain

The process of taking an active role in workingwith suppliers to improve products and

processes is called supply chain management(SCM).

SCM was originally developed as a way toreduce costs.

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Value Creation in the SupplyChain

Today, SCM is used to add value in the form ofbenefits to the ultimate consumer at the end of

the supply chain.

Supply chain members can reduce costs andincrease the value of product or service to theultimate 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 componentsor raw materials

Tier Three Suppliers Tier three establish long-term relationships with a

larger number of suppliers providing componentsor raw materials

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Flexible or Efficient?

An efficient producer cannot be a flexibleproducer and vice-versa

Members of a supply-chain must all be flexibleor all be efficient

If one member changes, all other members

suffer

Decisions should be made on the ultimatecustomers demands

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Technology in the Supply Chain

Clear communications, and quick responses tothose communications, are a key element ofsuccessful SCM.

Technologies of the Internet and the Web canbe 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 andadjustments

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 errorsshutdown two entire assembly operationscosting Boeing over $1.5 billion over 1million parts per airplane.

Using EDI and Internet links, Boeing is workingwith suppliers so that they can provide theright part at the right time down from 36

months to 10-12 months per plane.

To further benefit customers, Boeing launcheda spare parts Web site, Boeing PART.

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Technology in the Supply Chain

Dell Computer has also used technology-enabled SCMto give customers exactly what they want.

Who are the customers and what they are buying.

Dell has been able to dramatically reduce the amountof inventory it must hold.

Dell has also shared this information with members ofits supply chain.

C ti lti t

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Creating an ultimate consumerorientation One of the main goals of SCM

Help each company in the chain focus on meetingthe needs of the end-consumer

Instead of Meeting the needs of the next member in the supply

chain

Michelin provided BIB NET: an online websiteproviding tyre specs to tyre-vendorsanswering their customers queries.

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Trust in the Supply Chain

Continual Communication

Information Sharing

Staying in contact easily and cheaply via theweb

Developing information exchange resourcesthat can provide supplier performancesummaries is one of the greatest challengesthat B2B commerce faces.

El t i M k t l d

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Electronic Marketplaces andPortals At the beginning of e-Commerce, many

predicted Vortals would change e-Commerce

Vortals are Vertical Portals which offerspecialised information

Also called Independent Industry marketplaces

This change did not happen!

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Questions?