Chapter 8

E-commerce and Supply Chain Systems

Agenda• Porters Five Competitive Forces Model• E-commerce• E-commerce and Market Efficiency• E-commerce Economics• Commerce Servers• Supply Chain

– Structure– Performance– Profitability– Bullwhip Effect

• Supplier Relationship Management• Data Exchange

– EDI– XML

• Discussion and Case Study

Porters Five Competitive Forces Model

• Five competitive forces for profitability– Bargaining power of suppliers– Bargaining power of customers– New entrants to the market– Rivalry among firms– Threats of substitutions for products or

services

Porter’s Model of Industry Structure

E-commerce

• Buying and selling of goods and services over public and private computer networks

• Definition of the U.S. Census Bureau – Merchant companies as those that take title to

the goods they sell – Nonmerchant companies as those that

arrange for the purchase and sale of goods without ever owning or taking title to those goods

E-commerce – Merchant

• B2C (business-to-consumer): sales between a supplier and a customer– A Web-based application or Web storefront where

customers enter and manage their orders such as Amazon.com, REI.com, and LLBean.com

• B2B (business-to-business): sales between companies– Suppliers, distributors, and retailers

• B2G (business-to-government): sales between companies and government organizations

E-commerce: B2B, B2G, and B2C

E-commerce – Nonmerchant

• Auction: match buyers and sellers and support goods for sales through a competitive bidding process such as e-Bay

• Clearinghouses (exchanges): provide goods and services at a stated price, and arrange for the delivery of the goods but they never take title such as Amazon and electronic exchanges

E-Commerce Category

E-commerce – Market Efficiency

• Disintermediation: the elimination of middle layers in the supply chain (direct sales form manufacturer to consumer)

• Flow of price information: product price comparison by consumer

• Price elasticity: price change based on the consumer demand

• Market efficiency as a whole

E-commerce Economics

• Channel conflict

• Price conflict

• Logistic expense

• Customer service expense

Commerce Server

• A computer using Web-based programs to support Web storefront – Display products– Support online ordering– Process payments– Interface with inventory-management

• Web technology– SMTP (Simple Mail Transfer Protocol), FTP (File Transfer

Protocol)– HTML (Hypertext Markup Language)– Hyperlink– URL (Uniform Resource Locator)– Web server: Apache of Linux and IIS (Internet Information

Server)– Web browser (Netscape Navigator, Internet Explorer, and

Mozilla’s FireFox)

Internet Protocols and Users

Commerce Server: Three-Tier Architecture

• Three different classes of computers• User tier: browser to request and process

Web pages• Server tier: generating Web pages for

requests from browsers– Web farm (a set of Web servers) to minimize

customer delays for load balancing

• Database tier: processing SQL requests to retrieve and store data

Three-Tier Architecture

Supply Chain - Structure

• Definition: a network of organizations and facilities to transform raw materials into products and deliver products to customers

• Entity: customer, retailer, distributor, manufacturer, supplier, transportation company, and warehouse

• Relationship – Each organization connected to just one level up (toward the

supplier) and one level down (toward the customer)

– An organization can work with many organizations both up and down at each level

Supply Chain Relationships

Supply Chain - Performance

• Facilities: location, size, and operations methodology

• Inventory (raw materials, in-process work, and finished goods): size and management

• Transportation (movement of materials): in-house/outsourced, mode, and routing

• Information (request, respond, and inform one another): purpose, availability, and means

Supply Chain - Profitability

• The difference between the sum of the revenue generated by the supply chain and the sum of the costs that all organizations in the supply chain incur to obtain that revenue

• The maximum profit to the supply chain will not occur if each organization in the supply chain maximizes its own profits in isolation

Supply Chain – Bullwhip Effect

• Definition:– The variability in the size and timing of orders

increase at each stage up the supply chain (from customer to supplier)

– Not related to erratic consumer demand– Reduce the overall supply chain profit

• Elimination:– Every participant in the supply chain has access to

consumer-demand information from the retailer– An inter-organizational information system for sharing

data

Supplier Relationship Management

• SRM: a business process for managing all contracts between an organizational and its suppliers for supplies, materials, or services

• Three basic processes: source, purchase, and settle

SRM - Source

• Find vendors

• Assess capabilities

• Negotiate terms and conditions

• Formalize those terms and conditions

• Make contract

SRM - Purchase

• Request information, quotations, and proposals from would-be suppliers

• Approve purchase

• Create an order

SRM - Settle

• Receive goods and services

• Resolve receivables to order

• Pay according to terms and policy

• Cash management

Summary of SRM Processes

Integration of CRM and SRM

• SRM examines inventory, determines required items, and automatically creates the order via its connection to the supplier’s CRM

• Supplier’s CRM application interfaces with the purchaser’s SRM application to perform the ordering process as cheaply and efficiently as possible

Relationship between CRM and SRM

Data Exchange

• Telephone call for message

• Fax, postal mail, email for message and document

• Electronic Data Interchange (EDI)

• eXtensible Markup Language (XML)

EDI

• A standard of formats for electronically exchanging common business documents – Number of data fields– Sending sequence– Number of characters in each data field

• Standards with various versions

• Point-to-point network, value-added network, or Internet

XML

• A new markup language by World Wide Web Consortium (W3C)

• A superior means for organizations to exchange documents for computer processing

• XML schema– Service description

XML Web Services

• Purpose: a standard way for programs to access one another remotely– Use service description to obtain details of programs existing

on another computer and how to communicate with those programs

– Service user uses the information of service description to invoke the service

– XML format for all service data

• Benefit– The automation of supply chain interactions

• Development tool– Microsoft .Net– IBM J2EE

Web Services for Sharing Sales Data

Discussion

• Problem Solving (235a-b)– State the basic rules to prepare an employee for attending an

inter-organization negotiation or collaboration meeting.

• Ethics (247a-b)– State the basic ethic rule to prepare employees for the supply

chain information sharing.

• Security (251a-b)– State the solution and associated reasons to handle the

installation of another company’s programs in your organization.

• Reflections (253a-b)– State your recommendations to the future business plan for

Oracle and IBM related to the fate of relational database, SQL, and XML five years later.

Case Study

• Case 8-1 (258 – 260) questions 2, 3 and 5

Points to Remember• Porters Five Competitive Forces Model• E-commerce• E-commerce and Market Efficiency• E-commerce Economics• Commerce Servers• Supply Chain

– Structure– Performance– Profitability– Bullwhip Effect

• Supplier Relationship Management• Data Exchange

– EDI– XML

• Discussion and Case Study