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Strategies for Purchasing and Support Activities: From

Electronic Data Interchange to Electronic Commerce

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Purchasing, Logistics, and Support Activities

• Electronic commerce possesses the potential for cost reduction 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.

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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

the ordered goods and services

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Purchasing Activities

• Procurement includes all purchasing activities, plus the monitoring of all elements of purchase transactions.

• By using a Web site to process orders, the vendors in this market can save the cost of printing and shipping catalogs, and the cost of handling telephone orders.

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Purchasing Activities

• Products that companies buy on a recurring basis are called 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 this area.

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Logistic Activities

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

• Businesses have been increasing their use of information technology to achieve this objective.

• FedEx and UPS have freight tracking Web page available to their customers.

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Support Activities

• Online Benefits is a firm that duplicates its clients’ human resource functions on a secure Web site that is accessible to clients’ employees.

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

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Knowledge Management

• Knowledge management is another support activity that intentional collection, classification, and dissemination of information about a company, its products, and its processes.

• BroadVision has installed K-Net, or Knowledge Network, that organizes all information sources that its employees use regularly in their jobs.

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Electronic Data Interchange (EDI)

• EDI is a computer-to-computer transfer of business information between two businesses that uses a standard format.

• Transaction data in B2B transactions includes the information on paper invoices, purchase orders, requests for quotations, bills of lading, and receiving reports.

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Direct Connection between Trading Partners

• Direction connection EDI requires each business in the network to operate its own on-site EDI translator computer.

• These EDI translator computers are then connected directly to each other using modems and dial-up phone lines or dedicated leased lines.

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Indirect Connection between Trading Partners

• Instead of connecting directly to each of its trading partners, a company might decide to use the services of a value-added network.

• 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.

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VAN

• Companies that provide VAN services include General Electric Information Services, GPAS, Harbinger Corp., IBM Global Services, etc.

• Cost is an issue to VAN. Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee.

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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 the expensive leased lines.

• The major roadblocks to conducting EDI over the Internet were security.

• As the TCP/IP was enhanced and SHTTP protocol was developed, businesses worried less about security issues.

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Open Architecture of the Internet

• A number of new firms, such as Commerce One and IPNet, have begun providing EDI services on the Internet.

• EDI on the Internet is also called “open EDI” because the 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 provide instructions to a trading partner’s bank are called financial EDI (FEDI).

• All banks have the ability to perform electronic funds transfers (EFTs).

• Most EFTs are handled through the Automated Clearing House (ACH).

• Security and reliability are issues of FEDI.

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Hybrid EDI Solutions

• Some firms are offering hybrid EDI solutions that use the Internet for part of the transaction.

• Bottomline Technologies’ payBase package is an example.

• Other hybrid solutions include EDI-HTML translation services.

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Supply Chain Management

• The part of an industry value chain that precedes a particular strategic business unit is often called a supply chain.

• The purchasing department has traditionally been charged with buying all of these components at the lowest price possible.

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Value Creation in the Supply Chain

• The process of taking an active role in working with suppliers to improve products and processes is called supply chain management (SCM).

• SCM was originally developed as a way to reduce costs.

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Value Creation in the Supply Chain

• Today, SCM is used to add value in the form of benefits to the ultimate consumer at the end of the supply chain.

• Supply chain members can reduce costs and increase the value of product or service to the ultimate customer.

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Technology in the Supply Chain

• Clear communications, and quick responses to those communications, are a key element of successful SCM.

• Technologies of the Internet and the Web can be very effective communication enhancers.

• Figure 9-10 lists the advantages of using Internet and Web technologies in SCM.

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Technology in the Supply Chain

• Dell Computer has also used technology-enabled SCM to give customers exactly what they want.

• Dell has been able to dramatically reduce the amount of inventory it must hold.

• Dell has also shared this information with members of its supply chain.

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Enterprise Resource Planning Software

• Enterprise resource planning (ERP) software is designed to help a company integrate all of its manufacturing, finance, distribution, and other internal business functions into one information system.

• Major ERP vendors include J.D. Edwards, Oracle, PeopleSoft, and SAP.

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Business-to-Business (B2B) Commerce Software

• B2B commerce software is designed to help companies build Web sites that host catalog and other commercial sales activities.

• Netscape’s SellerXpert and Open Market’s LiveCommerce-Transact combination are full-featured products that help companies put catalogs online.

• The other B2B commerce software packages are toolkits that help the customer custom configure catalog and order management systems.

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Supply Chain Management Software

• Supply chain management software includes demand forecasting tools and planning capabilities to coordinate various activities.

• Currently, the two major firms offering SCM software are i2 Technologies and Manugistics.