E- BusinessNinth EditionChapter 6 Selling to Businesses Online

E- Business, Ninth EditionLearning ObjectivesIn this chapter, you will learn about:How businesses use the Internet to improve purchasing, logistics, and other support activitiesElectronic data interchange and how it worksHow businesses have moved some of their electronic data interchange operations to the InternetSupply chain management and how businesses are using Internet technologies to improve it

E- Business, Ninth Edition

*Learning Objectives (contd.)Electronic marketplaces and portals that make purchase-sale negotiations easier and more efficientE- Business, Ninth Edition

E- Business, Ninth Edition

*Purchasing, Logistics, and Support ActivitiesRecapStrategy issues arise when informing potential customersValue chain model primary activitiesIdentify customers, market and sell, and deliverMany business models for selling on the WebUsed in B2B e-commerceApply to B2C e-commerceE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionPurchasing, Logistics, and Support Activities (contd.)Companies use electronic commerce to:Improve purchasing and logisticsImprove all support activitiesProvide potential cost reductions, business process improvementse-governmentCollective set of government e-commerce activitiesPotential for synergy increasesAs Internet technology use becomes commonplaceNecessary characteristic: flexibility

E- Business, Ninth Edition

Purchasing ActivitiesSupply chainPart of industry value chain preceding a particular strategic business unitIncludes all activities undertaken by every predecessor in the value chain to: Design, produce, promote, market, deliver, support each individual component of a product or serviceTraditionallyPurchasing department buys components at lowest price possibleBidding process focus: individual component costE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionPurchasing Activities (contd.)Procurement includes:All purchasing activitiesMonitoring all purchase transaction elementsManaging and developing supplier relationships Procurement also called supply managementProcurement staff have high product knowledge Identify and evaluate appropriate suppliersSourcing procurement activityIdentifying suppliers, determining qualifications

E- Business, Ninth Edition

E- Business, Ninth EditionPurchasing Activities (contd.)e-sourcingUsing Internet technologies in sourcing activitiesBusiness purchasing processMore complex than most consumer purchasing processesSpendTotal yearly dollar amount for goods and services purchased Institute for Supply Management (ISM)Main organization for procurement professionals

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-1 Steps in a typical business purchasing process

E- Business, Ninth Edition

E- Business, Ninth EditionDirect vs. Indirect Materials PurchasingDirect materialsBecome part of finished productDirect materials purchasing: two typesReplenishment purchasing (contract purchasing)Company negotiates long-term material contractsSpot purchasingPurchases made in loosely organized market (spot market)Indirect materialsAll other materials company purchases

E- Business, Ninth Edition

E- Business, Ninth EditionDirect vs. Indirect Materials Purchasing (contd.)Maintenance, repair, and operating (MRO) suppliesIndirect material purchased on a recurring basisStandard items (commodities) with price as main criterionPurchasing cards (p-cards) provide:Managers an ability to make multiple small purchasesCost-tracking information to procurementExamples: McMaster-Carr, W.W. Grainger, Office Depot, Staples, Digi-Key, Newark.com

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-2 Grainger.com Web store

E- Business, Ninth Edition

Logistics ActivitiesClassic objectiveProvide the right goods in the right quantities in the right place at the right timeImportant support activity for sales and purchasingIncludes managing the movements of:Inbound materials and suppliesOutbound finished goods and servicesWeb and the InternetProviding increasing number of opportunities to better manage activitiesE- Business, Ninth Edition

E- Business, Ninth Edition

Logistics Activities (contd.)Example: Schneider Track and Trace systemReal-time shipment information: customers browsersThird-party logistics (3PL) providerOperates all (large portion) of customers materials movement activitiesExamples: Ryder and Whirlpool, FedEx, UPSExcellent example of second-wave e-commerceMarriage of GPS and portable computing technologies with the Internet*E- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionSupport ActivitiesGeneral categoriesFinance and administration, human resources, technology developmentExample: Allegiance and A.D.A.M. Web siteFIGURE 6-3 Categories of support activities

E- Business, Ninth Edition

Electronic Commerce, Ninth Edition*Support Activities (contd.)Common support activity: trainingUnderlies multiple primary activitiesPutting training materials on company intranetCan distribute materials to many different sales officesCan coordinate materials in corporate headquartersKnowledge managementIntentional collection, classification, dissemination of informationAbout a company, its products, and its processesExamples: Ericson, BroadVisions K-Net

E- Business, Ninth EditionE-Governmente-governmentUse of electronic commerce by governments and government agenciesEnhances functions performed for stakeholdersEnhances businesslike activity operationsU.S. government examplesFinancial Management Service (FMS): Pay.gov siteBureau of Public Debt: TreasuryDirect siteDepartment of Homeland Security (DHS)Internet technology use initiatives

E- Business, Ninth Edition

E- Business, Ninth EditionE-Government (contd.)Examples in other countriesUnited KingdomDepartment for Work and Pensions Web siteSingapore Government Online siteExamples in state governmentCalifornias one-stop portal site: my.ca.govNew York State Citizen Guide siteExamples in local government Large cities: Minneapolis, New Orleans sitesSmall cities: Cheviot, Ohio Web site

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-4 State of California portal site my.ca.gov

E- Business, Ninth Edition

Network Model of Economic Organization in PurchasingTrend in purchasing, logistics, and support activitiesShift from hierarchical structuresToward network structuresProcurement departments new tools (technology)To negotiate with suppliers and form strategic alliancesNetwork model of economic organizationOther firms perform various support activitiesSupply Web: term replacing supply chainDue to parallel lines interconnected in a Web or network configurationE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionElectronic Data InterchangeComputer-to-computer business information transferBetween two businesses using a standard formatTrading partnersTwo businesses exchanging informationEDI compatibleFirms exchanging data in specific standard formatsReasons to be familiar with EDI:Most B2B e-commerce adapted from EDI or based on EDI principlesCurrent method for most electronic B2B transactions

E- Business, Ninth Edition

E- Business, Ninth EditionEarly Business Information Interchange Efforts1800s and early 1900sNeed to create formal business transactions records1950sComputers store, process internal transaction recordsInformation flows: printed on paper1960s: large volume transactions Exchanged on punched cards or magnetic tape1960s and 1970sTransferred data over telephone linesEfforts increased efficiency, reduced errors

E- Business, Ninth Edition

E- Business, Ninth EditionEarly Business Information Interchange Efforts (contd.)Issue: incompatible data translation programs1968: freight, shipping companies joined togetherCreated standardized information setUsed a computer fileTransmittable to any freight company adopting the standardBenefits limited to members of industries that created standard-setting groupsFull realization of EDI economies and efficienciesRequired standards for all companies in all industries

E- Business, Ninth Edition

E- Business, Ninth EditionEmergence of Broader EDI StandardsAmerican National Standards Institute (ANSI)United States coordinating body for standardsAccredited Standards Committee X12 (ASC X12)Develops and maintains EDI standardsData Interchange Standards Association (DISA)Administrative body coordinating ASC X12 activitiesTransaction sets: names of the formats for specific business data interchangesEDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT)

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-5 Commonly used ASC X12 transaction sets

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-6 Commonly used UN/EDIFACT transaction sets

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E- Business, Ninth EditionHow EDI WorksBasic idea: straightforwardImplementation: complicatedExample:Company replacing metal-cutting machineSteps to purchase using paper-based systemSteps to purchase using EDI

E- Business, Ninth Edition

E- Business, Ninth EditionHow EDI Works (contd.)Paper-based purchasing processBuyer and vendor Not using integrated software for business processesEach information processing step results in paper documentMust be delivered to department handling next stepPaper-based information transferMail, courier, faxInformation flows shown in Figure 6-7

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-7 Information flows in a paper-based purchasing process

E- Business, Ninth Edition

E- Business, Ninth EditionHow EDI Works (contd.)EDI purchasing processMail service replaced with EDI network data communicationsPaper flows within buyers and vendors organizations replaced with computersRunning EDI translation softwareInformation flows shown in Figure 6-8

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-8 Information flows in an EDI purchasing process

E- Business, Ninth Edition

Value-Added NetworksEDI network key elementsEDI network, two EDI translator computersDirect connection EDIBusinesses operate on-site EDI translator computersConnected directly to eachFew companies use direct connection EDIDedicated leased lines: expensiveModems and dial-up telephone lines: slow, unreliableE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-9 Direct connection EDI

E- Business, Ninth Edition

Value-Added Networks (contd.)Value-added network (VAN)Receives, stores, forwards electronic messages containing EDI transaction setsIndirect connection EDITrading partners use VAN to retrieve EDI-formatted messagesCompanies providing VAN servicesAdvanced Data Exchange, Behr Technologies, GXS, Inovis, Kleinschmidt, Promethean Software Services, SPS Commerce, and Sterling Commerce*E- Business, Ninth Edition

E- Business, Ninth Edition

*FIGURE 6-10 Indirect connection EDI through a VANE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionValue-Added Networks (contd.)Advantages:Support one communications protocol (VAN)VAN records message activity in audit logBecomes independent transactions recordVAN provides translation between different transaction setsVAN performs automatic compliance checking

E- Business, Ninth Edition

Electronic Commerce, Ninth Edition*Value-Added Networks (contd.)Disadvantages:Cost (fees)Internet provides a low-cost communications mediumCumbersome, expensive (if using different VANs)Inter-VAN transfers do not always provide a clear audit trailMay affect dispute resolution

E- Business, Ninth EditionEDI PaymentsEDI transaction setsProvide instructions to trading partners bankNegotiable instrumentsElectronic equivalent of checksElectronic funds transfers (EFTs)Movement of money from one account to anotherAutomated clearing house (ACH) systemService banks use to manage accountsOperated by U.S. Federal Reserve Banks, private ACHs

E- Business, Ninth Edition

E- Business, Ninth EditionEDI on the InternetPotential replacement of expensive leased lines, dial-up connectionsRequired to support direct and VAN-aided EDIInitial roadblock concernsSecurity Inability to provide audit logs and third-party verification of message transmission and deliveryTCP/IP structure relieved security issuesIssue of nonrepudiation continued

E- Business, Ninth Edition

E- Business, Ninth EditionEDI on the Internet (contd.)NonrepudiationAbility to establish that a particular transaction actually occurredPrevents either party from repudiating (denying) the transactions validity or existencePreviously provided by:VANs audit logs (indirect connection EDI)Comparison of trading partners message logs (direct connection EDI)

E- Business, Ninth Edition

*EDI on the Internet (contd.)Internet EDI or Web EDI (open EDI)EDI on the InternetElectronic Data Interchange-Internet Integration (EDIINT)Also abbreviated EDI-INTProtocol set for exchanging data (EDI, XML, and other formats) over the InternetE- Business, Ninth Edition

E- Business, Ninth Edition

*EDI on the Internet (contd.)EDIINT exchanges todayMost encoded using Applicability Statement 2 (AS2) specificationExample: Wal-MartSome companies using Applicability Statement 3 (AS3)EDIINT using AS2 or AS3 provides secure transmissionResolves issue of nonrepudiationAllows companies to preserve their EDI investmentsE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionSupply Chain Management Using Internet TechnologiesSupply chain managementJob of managing integration of company supply management and logistics activitiesAcross multiple participants in a particular products supply chainUltimate goal Achieve higher-quality or lower-cost product at the end of the chain

E- Business, Ninth Edition

E- Business, Ninth EditionValue Creation in the Supply ChainFirms engaging in supply chain managementReaching beyond limits of their own organizations hierarchical structureCreating new network form of organization among members of supply chainOriginally developed to reduce costsToday: value added in the form of benefits to the ultimate consumer Requires more holistic view of the entire supply chain

E- Business, Ninth Edition

E- Business, Ninth EditionValue Creation in the Supply Chain (contd.)Tier-one suppliersSmall number of very capable suppliersOriginal business establishes a long-term relationshipTier-two suppliersLarger number of suppliers who tier-one suppliers develop long-term relationships with for components, raw materialsTier-three suppliersNext level of suppliersKey element: trust

E- Business, Ninth Edition

E- Business, Ninth EditionValue Creation in the Supply Chain (contd.)Supply alliancesLong-term relationships among participants in the supply chainMajor barrierLevel of information sharingExample:Dell ComputerReduced supply chain costs by sharing information with suppliersBuyers expect annual price reductions, quality improvements from suppliers

E- Business, Ninth Edition

E- Business, Ninth EditionValue Creation in the Supply Chain (contd.)Marshall Fisher 1997 Harvard Business Review articleDescribed two types of organization goalsEfficient process goalsMarket-responsive flexibility goalsSuccessful supply chain management key elements Clear communicationsQuick responses to those communicationsInternet and Web technologiesEffective communications enhancers

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-11 Advantages of using Internet technologies in supply chain management

E- Business, Ninth Edition

Increasing Supply Chain EfficienciesInternet and Web technologies managing supply chains can:Yield increases in efficiency throughout the chainIncrease process speed, reduce costs, increase manufacturing flexibility Allows response to changes in quantity and nature of ultimate consumer demandExample: BoeingInvested in new information systems increasing production efficiency of the supply chainAlso launched spare parts Web siteE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionIncreasing Supply Chain Efficiencies (contd.)Example: Dell ComputerFamous for use of Web to sell custom-configured computersAlso used technology-enabled supply chain management Give customers exactly what they wantReduced inventory amount (three weeks to two hours)Top suppliers have access to secure Web siteTier-one suppliers better can plan their productionDell accesses suppliers information

E- Business, Ninth Edition

E- Business, Ninth EditionUsing Materials-Tracking Technologies with EDI and Electronic CommerceTroublesome taskTracking materials as they move from one company to anotherOptical scanners and bar codesHelp track movement of materialsIntegration of bar coding and EDI: prevalentSecond wave of electronic commerce Integration of new types of tracking into Internet-based materials-tracking systems

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-12 Shipping label with bar-coded elements from EDI transaction set 856, Advance Ship Notification

E- Business, Ninth Edition

E- Business, Ninth EditionUsing Materials-Tracking Technologies with EDI and Electronic Commerce (contd.)Radio Frequency Identification Devices (RFIDs)Small chips using radio transmissions to track inventoryOlder RFID technologyEach RFID required its own power supplyRFIDs read much more quickly, with higher degree of accuracy than bar codesImportant development: passive RFID tagMade cheaply and in very small sizesNo power supply required

E- Business, Ninth Edition

E- Business, Ninth EditionUsing Materials-Tracking Technologies with EDI and Electronic Commerce (contd.)Example: 2003 (Wal-Mart)Tested RFID tag use on merchandise for inventory tracking and controlInitiated plan to have all suppliers install RFID tags in goods they shippedReduced incidence of stockoutsRetailer loses sales because it does not have specific goods on its shelvesGeneral acceptance of RFID tagging will not occur in most industries until 2014

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-13 Passive RFID tag

E- Business, Ninth Edition

E- Business, Ninth EditionCreating an Ultimate Consumer Orientation in the Supply ChainUltimate consumer orientationCustomer focus difficult to maintainMichelin North AmericaPioneered use of Internet technologyTo go beyond next step in its value chain1995: launched electronic commerce initiativeBIB NET extranet Allowed dealer access to tire specifications, inventory status, and promotional information Through simple-to-use Web browser interface

E- Business, Ninth Edition

E- Business, Ninth EditionBuilding and Maintaining Trust in the Supply ChainMajor issue: developing trustKey elementsContinual communication and information sharingInternet and the Web Provide excellent ways to communicate and share informationOffer new avenues for building trustStay in contact with their customersBuyers get instant access to their sales representativesCan provide comprehensive information quickly

E- Business, Ninth Edition

E- Business, Ninth EditionElectronic Market Places and PortalsVertical portals (vortal)Industry-focused hubsOffer marketplaces and auctions for contact and business transactionsDoorway (or portal) to the Internet for industry membersVertically integrated

E- Business, Ninth Edition

Independent Industry MarketplacesFirst vertical portalsTrading exchanges focused on a particular industryIndependent industry marketplacesIndustry marketplaces: focused on a single industryIndependent exchanges: not controlled by established buyer or seller in the industryPublic marketplaces: open to new buyers and sellers just entering the industryVentro opened industry marketplace ChemdexTrade in bulk chemicalsE- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionIndependent Industry Marketplaces (contd.)SciQuest founded industry marketplace in life science chemicalsBy mid-2000: more than 2200 independent exchangesBy 2010: fewer than 70 industry marketplaces still operatingDue to lack of venture capital and profitsB2B marketplace models gradually replaced independent marketplaces

E- Business, Ninth Edition

E- Business, Ninth EditionPrivate Stores and Customer PortalsLarge established sellers feared industry marketplaces diluting powerLarge sellers have customer portal B2B sitesOffer private stores along with servicesB2B private store has password-protected entranceOffers negotiated price reductions on limited product selectionIf large established sellers participated in industry marketplacesServices would have been needlessly duplicated

E- Business, Ninth Edition

E- Business, Ninth EditionPrivate Company MarketplacesLarge companies purchasing from relatively small vendorsExert power in purchasing negotiationsUsing e-procurement software:Offered from companies: Ariba and CommerceOneAllows companies to manage purchasing function through Web interface Automates authorizations, other stepsIncludes marketplace functions

E- Business, Ninth Edition

E- Business, Ninth EditionPrivate Company Marketplaces (contd.)Larger companies:Reluctant to abandon investments in e-procurement softwareMake software work with industry marketplaces softwarePrivate company marketplaceMarketplace providing auctions, request for quote postings, other featuresFor companies who want to operate their own marketplaces

E- Business, Ninth Edition

E- Business, Ninth EditionIndustry Consortia-Sponsored MarketplacesCompanies with strong negotiating positions in their industry supply chainsNot enough power to force suppliers to deal with them through a private company marketplaceIndustry consortia-sponsored marketplaceMarketplace formed several large buyers in a particular industryCovisint (2000)Consortium of DaimlerChrysler, Ford, General Motors

E- Business, Ninth Edition

E- Business, Ninth EditionIndustry Consortia-Sponsored Marketplaces (contd.)Avendra marketplace Consortium formed by Marriott, Hyatt, three other major hotel chainsExostar marketplace Boeing led group of aerospace industry companiesLarge part of market taken from industry marketplaces by:Consortia-based marketplacesPrivate company marketplacesPrivate Web stores, customer portals

E- Business, Ninth Edition

E- Business, Ninth EditionIndustry Consortia-Sponsored Marketplaces (contd.)Supplier concern when using an industry marketplaceOwnership structureIndependent operators for fair bargaining (Covisint)Including industry participants may be helpful (ChemConnect)

E- Business, Ninth Edition

E- Business, Ninth EditionFIGURE 6-14 Characteristics of B2B marketplaces

E- Business, Ninth Edition

SummaryUsing Internet and Web technologiesImproves purchasing and logistics primary activitiesImproves support activitiesGovernments extending reach of enterprise planning and control activitiesBeyond organizations legal definitionsEmerging network model of organizationDescribes growth in interorganizational communications and coordinationE- Business, Ninth Edition

E- Business, Ninth Edition

Summary (contd.)History of EDI and how it worksFreight companies first introduced e-commerceSpread of EDI to virtually all large companies Requires smaller businesses to seek an affordable way to participate in EDIInternet providing inexpensive communications channel EDI lackedImportant force driving supply chain management technique adoption*E- Business, Ninth Edition

E- Business, Ninth Edition

E- Business, Ninth EditionSummary (contd.)Supply chain managementIncorporates several elementsImplemented, enhanced through Internet and Web useIndustry electronic marketplaces led to B2B electronic commerce modelsPrivate storesCustomer portalsPrivate marketplacesIndustry consortia-sponsored marketplaceModels coexist with industry marketplace model

E- Business, Ninth Edition

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