Session 1 Notes

Lecturer: Ellis E. Confer E-mail: [email protected]

Office Hours: Tuesday 4:15 – 5:45 pm

Internet Supply Chain Management –

ECT 581 Winter 2003

Session Number: 1

Session Date: January 7, 2002 Session Objectives:

Introductions & Administrative Items Course Overview Initial Course Topics Assignments

Session Topics: Introduction to Supply Chain Management & B2B Systems

Course Administration & Overview Historical Perspective on Internet & Ecommerce Evolution B2B Ecommerce Overview Supply Chain Management Overview

ECT 581 Course Objectives

To examine the links between business strategy, information system technology architecture, and technical platform implementation as it relates to Business-to-Business E-Commerce.

Course Description

ECT 581 - Extranet Systems

This course examines e-business strategies, architectures, technologies, approaches, and infrastructure requirements in the context of supply chain management (SCM). The focus is on the design, development, and implementation of e-business systems that facilitate the collaboration of an enterprise with its buyers and suppliers. Topics include SCM, global logistics management, messaging-based collaboration framework, extensible markup language (XML), extensible style sheet language (XSL), document type definition (DTD), and message queuing software. This course also examines the integration of e-business systems and back-end systems such as enterprise resource planning (ERP) systems, Web services, virtual private networks (VPN), and e-business security. Students will implement a collaborative extranet system component in team projects. Prerequisite: ECT 555 and programming knowledge with Java and Visual Basic.

Prerequisites & Text and Supplementary Reading Materials

Prerequisites: ECT555, Design and Strategies for Internet Commerce, is a required prerequisite. D5420, Foundations of Distributed Systems, is recommended. Programming proficiency is required. It is very important that you have a good understanding of programming using Visual Basic and Java. Experience with VBScript is recommended.

1. Building B2B Applications with XML by Michael Fitzgerald published by John Wiley & Sons, Inc., Wiley Computer Publishing 2001, ISBN: 0-471-40401-2.

2. Introduction to Supply Chain Management, by Robert B. Handfield and Ernest L. Nichols, Jr., Prentice Hall, 1999, ISBN: 0-13-621616-1

3. Other books will be referred to and handouts and web-links will be given as appropriate.

Grading Procedure

The student’s final grade will be based on a weighted average of the exam score, the project report & deliverables, project presentation, and class participation. Weights are as follows:

WeightHW Assignments 15%Project 20%Initial Exam 20%Midterm Exam 20%Final Exam 20% Class Participation 5%

Grades will be determined as follows:

90% - 100% A 87% - 89% A-80% - 86% B 77% - 79% B-70% - 76% C 67% - 69% C-60% - 66% D 0 % - 60% F

Procedures and policies:

1. No makeup exams will be given.

2. Homework assignments must be turned in on time.*

3. Late homework assignments will not be accepted.

*Turning in a hard copy version of an assignment is the most reliable way to ensure that assignments are received on time. When transmitting a soft copy of an assignment via email, make sure to give yourself adequate time for the mail to be delivered by no later than the day when the assignment is due. Email delivery problems do occur, please ask for a receipt of delivery.

ECT 581 Tentative Schedule of DiscussionsJanuary 7 Course Administration & Overview

Supply Chain Management Overview B2B Ecommerce Overview Business Trends: Opportunities & Challenges

January 14 Supply-Chain Management & ERP

Supply Chain & Value Chain Considerations (continued) Enterprise Requirements Planning Architectural Considerations

January 21 B2B Systems Architecture & Key Technology

Architectural Considerations (continued) Design & Development Processes Key Technology

XML Middleware VPNs

ECT 581 Tentative Schedule of Discussions (continued)

January 28 ******** INITIAL EXAM *********** 1st Homework Assignment Due **

XML XML as a Content Development Tool & Internet-based EDI Syntax & Document Structure

February 4 XML (continued)

******** Project Abstracts Due *******

February 11 XML (continued)Middleware

February 18 ******** MIDTERM EXAM *********Middleware (continued)

ECT 581 Tentative Schedule of Discussions (continued)

February 25 Security Considerations

March 4 Security Considerations (continued)

Future Trends: Emerging Techniques and Technology

Web services, etc..

March 11 ******** Project Final Reports Due *******

Project Presentations

Future Trends: Emerging Techniques and Technology (continued)

March 18 ******** FINAL EXAM *********

Instructor backgroundProfessional experience:

20+ years experience as consultant and entrepreneur Stints with Accenture, IBM, Sybase, Tandem, CNA Financial Presently senior executive with consultancy & software development

firms

Educational training BSEE from University of Michigan

Concentration in digital design and solid state physics MBA from Indiana University

Concentration in finance & operations research

One Favorite site: www.allmusic.com (one of many)Leisure interests/hobbies: gardening, music, fine dining, motorcycling, reading (non-fiction)

Logistics

Class time – Tuesday evenings from 5:45 pm to 9:00 pm.

Class location – Loop Campus (TBD)

Rest periods (two options to choose from) Option 1: One thirty (30) minute break @ 7:30 pm Option 2: Two fifteen (15) minute breaks @ 7:15 pm &

8:30 pm

Office hours - Tuesday, 4:15 pm – 5:45 pm in room TBD

Email address: [email protected]

Class Roster Info Sheets

Send a note to the instructor’s email address including the following:Your NameYour MajorProfession (student or other)Favorite site (with url, if available)Favorite leisure interest or hobby (movies, music, dining, live entertainment, gardening, sport, etc.)Objectives for taking the course.

• Objectives

• Discussion Baseline

• Evolutionary Perspectives & Industry Comparisons

• Brief History of Ecommerce & B2B Systems

• The BIG Picture: B2B Market Perspective

Discussion Agenda

E-commerce & B2B Marketplaces: Origins and Evolution

Discussion Objectives

• Establish a discussion context regarding Ecommerce & B2B marketplaces.

• Discuss historical and market perspective for the evolution of Ecommerce & B2B marketplaces.


Mission Critical (Important) Terminology:

E-Commerce

Business-to-Consumer (B2C)

Business-to-Business (B2B)

Supply Chain Management

Business Process Re-engineering (BPR)

Electronic Data Interchange (EDI)

Intranet

Extranet

Security

Firewall

Virtual Private Network

Discussion Baseline: Terminology Defined

• Electronic Commerce or E-commerce - the conduct of a financial transaction by electronic means; more recently, the purchase of goods and services over the Internet’s World Wide Web. Includes the following types:

• Business-to-Business or B2B E-commerce - inter-organizational E-commerce

• Business-to-Consumer or B2C E-commerce - electronic commercial interaction between the enterprise and the end consumer.

• Business-to-Employee or B2E E-commerce- intra-organizational E-commerce.

• Supply Chain - all organizations and processes related to products and services sourced by buying organizations, typically from raw materials through consumption.


Supply Chain Context of E-commerce

• Product design• Product

development• Vendor capacity• Quality• Sample

management• New product

introduction

• Invoice processing• Payment• RFI/RFP• Catalog development• Vendor certification• Item management• Product availability• Production planning• Technical

specifications• Second- and third-

tier suppliers

• Order management

• Product tracking• Capacity

management• consolidation• Replenishment• Reverse logistics

ProductDevelopmentManagement

E-ProcurementSoftware

Supply ChainManagement

• Goods-in scheduling

• New product introduction

• Planning for seasons and events

• Allocation

CategoryManagement

B-to-B B-to-C

ProductDevelopment

Supplier Management

TransportWarehouse and

Inventory Management

Category Management Store Management

Customer Relationship Management


There is no new thing under the sun

Ecclesiastes, Chapter 1, Verse 9

He who forgets the past is condemned to repeat it.

Jorge Santayana


Evolutionary Perspectives & Industry Comparisons

"Let us not forget that the value of this great system does not lie primarily in its extent or even in its efficiency. Its worth depends on the use that is made of it.…….For the first time in human history we have available to us the ability to communicate simultaneously with millions of our fellowmen, to furnish entertainment, instruction, widening vision of national problems and national events. An obligation rests on us to see that it is devoted to real service and to develop the material that is transmitted into that which is really worthwhile."

Who said this? Bill Gates? Newt Gingrich? Al Gore? Alvin Toffler?

An Interesting Quote

Perspective on the Internet, Ecommerce and Earlier Technology Innovations

Internet is a change agent in global commerce.

There have been comparable periods of industrial change.

Internet and Ecommerce evolution & expansion is similar when compared and contrasted with:

railroad, telegraph, telephone, and radio.

In all cases, early pioneers (practitioners, inventors, etc.) knew they were on to something.


Parallels between the evolution of telegraph, radio, and the Internet.

• Each transmits intangible items (i.e., information).• Each shortened the time to transfer info.• Their utility (i.e., their ability to deliver products & services) is dependent on the efficacy and efficiency of their underlying network. • All had initial usability, training, & infrastructure problems.• All have or are experiencing the S-curve in lifecycle product development.

Brief History of E-commerce and B2B marketplaces.

• E-commerce and B2B are not new concepts.

• Current systems emanated more directly from Electronic Data Interchange (EDI).

• EDI provides for the exchange transaction information over proprietary Value-Added Networks (VAN’s).

•EDI participants realized benefits such as:

• reduction in process costs, and

• enhanced profitability.

• EDI participants also incurred significant expenditure in

• EDI deployment costs

• VAN charges.

• EDI limited to a few very large & wealthy organizations.


Enter the Internet, B2B Marketplaces & Internet-based EDI!


• B2B extranet system deployment on the rise.

• Third-party B2B Market Makers are key movers in evolution of internet-based ‘EDI’.

Distinguishing B2B & B2C

B2B E-commerce is the exchange of products, services, or information between businesses rather than between businesses and consumers.

e-Business. Suppliers and ‘Big C’s’ - transactions between businesses. Focus on transaction efficiency.

B2C E-commerce the retailing of goods and services directly to end consumers via the Internet.

Suppliers & ‘little C’s – transactions between goods and service providers and end consumers.

Dis-intermediation. (theoretically) lowers inventory and distributions costs.

Electronic Data Interchange (EDI) defined:

EDI – Inter-company, computer-to-computer communication of data which permits the receiver to perform the function of a standard business transaction and is in a predefined standard format.

‘Old-school’ B2B E-commerce.

Enables electronic intra-company exchange of purchase orders and other transaction documents.

EDI based on standards-based protocols.

Distinguishing Intranet & Extranet

Intranet defined An intranet is a corporate LAN or WAN that functions with Internet

technologies behind the company’s firewall.

Extranet defined An extranet is a network that links the intranets of business partners using

a virtually private network on the Internet. Designing extranets is difficult. Complexities of security, performance, management and policy.

Extranet and B2B are not synonymous. Extranets can apply to B2C as well.

The BIG Picture: B2B Current Market Perspective

• B2B E-commerce participants include:

• Sellers and Buyers.

• Existing prominent, well-established firms that sell directly to business customers.

• Emerging Market Makers – a new breed of intermediaries

Market Makers further segmented as:

• Vertical hubs – industry-specific focus.

• Functional hubs – business process focus.

• Catalog models – demand/supply aggregation.

• Auction & exchange models – engaging in matching buyers & sellers.

• Barter models – reciprocal value exchange.


The BIG Picture: Market Projections

•B2B worldwide revenue estimated to grow from $282 billion in 1999 to $4.3 trillion by 2005.

• United States will remain the largest region for B2B e-commerce, with purchases increasing at a compound annual growth rate of 68 percent from 2001 to 2005.

• Overwhelming majority of revenue growth expected to be derived from direct seller sites.

• Market maker subset will account for 15-20% of B2B e-Commerce, generating an estimated $400-500 billion by 2003.

• Market cap for market makers estimated at revenue multiple of 2X-3X suggest B2B market maker capitalization of $560 billion to $13 trillion.

Sources: International Data Corp., March 2002

Merrill Lynch B2B Market Maker Book, February 2000


Emergence of online exchanges - three forces shaping the B2B marketplace

Industry-Centric Exchanges

• Aerospace (Boeing)• Automotive (GM/Ford)• Agricultural (Cargill)• Chemical (DuPont)• Foods (GMA)• Retailing (Sears/Carrefour,

and WorldWide Retail)• Utilities

AribaCommerce One

OracleSAP

i2Manugistics

AribaCommerce One

OracleSAP

i2Manugistics

Market Makers

Vertical• ProduceOnline.com• Foodbuy.com

Horizontal• MRO.com• PurchasePro.com

Technology Providers and “Engines”

0

500

1000

1500

2000

1999 2000 2001 2002 2003

B2B Market Opportunity:$2.5 trillion by 2003

B2C (Business to Consumer)B2B (Business to Business)


(1/9/01) Electronic business-to-business (B2B) sales will reach more than $5.2 trillion in 2004 through several different channels, including Internet marketplaces, electronic data interchange (EDI), hybrid EDI/Internet electronic trading networks (ETNs), Internet company-to-company links, extranets, and private e-markets, according to Giga Information Group. Giga had forecast an estimated $3.3 trillion in B2B e-commerce sales for 2000, most throughtraditional EDI networks. “As business-to-business e-commerce matures, there will be no single ‘magic channel’ that meets all companies’ needs,” said Andrew Bartels, a Giga Information Group VP and research leader. “The B2B e-commerce market --which will account for approximately 38 percent of all B2B sales in 2004 --will get complicated because there will be a need for a variety of electronic interactions, each with its own set of strengths and weaknesses, particularly in the areas of reliability, security, customizability, and cost. Because the lines between traditional EDI and Internet channels are dissolving, companies now have the flexibility to use different e-channels for different customers or suppliers based on strategic business goals.”

B2B Projections Remain High Despite Obstaclesby CyberAtlas Staff

B-to-B Commerce Will Reach $5.4 Trillion in 2006

$5,450

$4,111

$2,688

$1,515

$793$466$343

3% 4%7%

12%

20%

29%

36%

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2000 2001 2002 2003 2004 2005 2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

Total B2B Goods- Billions Total Penetration

Per

cen

tag

e o

f T

ota

l P

enet

rati

on

Per

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tag

e o

f T

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on

To

tal

B-t

o-B

Co

mm

erce

To

tal

B-t

o-B

Co

mm

erce

(in billions)(in billions)

Source: 2001 Jupiter Internet B-to-B Commerce Model, (US only)

Greatest Increases in B-to-B Commerce from Computer/Telecom, Aerospace

0%

10%

20%

30%

40%

50%

60%

70%

Computer and telecomequipment

8% 8% 15% 30% 41% 52% 60%

Aerospace and defense 8% 11% 17% 26% 35% 45% 54%

Motor vehicles and parts 7% 10% 16% 24% 33% 42% 50%

Metals and mining 6% 6% 11% 21% 28% 36% 43%

Chemicals 6% 7% 8% 12% 26% 33% 39%

2000 2001 2002 2003 2004 2005 2006

Source: 2001 Jupiter Internet B-to-B Commerce Model, (US only)

Ariba was First B2B Firm

to Profitability!

Wall Street Journal

Friday, January 12, 2001


So what should we expect?

• Currently experiencing the ‘pause that refreshes’.• E-commerce will become mainstream and internalized by “old economy” firms.• B2B uptake will continue with improved economy, probably tied to supply chain management improvements.• Some signs that the ‘pause’ may be coming to an end, particularly with respect to SCM.• A number of small technological, micro-improvements will impact the E-commerce and the internet over the short-term.• “Last-mile” infrastructure improvements will have significant impact on level of usage.• Security will be of paramount concern and will garner significant expenditure.

Key Technology

Key Ecommerce technology architecture components include the following: web browsers application servers secure file transfer servers customer account management systems remote administration tools directory servers authentication systems commerce systems distributed computing infrastructures and databases messaging systems & middleware firewalls and proxies security scanners

Remaining Mission Critical Terms

Business Process Re-engineering (BPR) - fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical performance measures such as cost, quality, service, speed.

Security – the combination of technology and policies designed to protect sensitive business information and to prevent fraud.

Firewall – a security screen placed between an organization’s internal network and the external Internet.

Virtual Private Network – a wide-area network (WAN) created to link a company with external users (including mobile users, field representatives, or strategic allies).

B2B Supplier Marketplace Model Characteristics

•Supplier offers an e-store to promote sales.

•Customers are both consumers and business buyers.

•Popular type of initial e-marketplace.

•Auctions are becoming popular; used to clear surplus inventories.

ordered information.

B2B Buyer Marketplace Model Characteristics

•Buying company opens a bidding site to enhance its purchasing procedure.

•Model is unique to B2B; not found in B2C.

•Online bidding can reduce the purchasing cost and cycle time.

B2B Intermediary-oriented Marketplace Model Characteristics

• Third-party for buyers and sellers opens an intermediary e-store.

• E-store may be used for consumers and business buyers.

• Auction and bidding sites are gaining in popularity.

• Example might include an assembly company acting as an intermediary between allied customers and suppliers.

B2B Critical Success Factors

• Plenty of buyers and sellers – you need both to make a market.

• Liquidity – value of a market make r is a multiple of the value of the transactions flowing through it; market makers (MM’s) must be focused on generating industry-leading liquidity.

• Fragmentation – MM’s add most value in highly fragmented markets.

• Inefficiency – MM’s must add value to both sides of the trade.

• Management with domain expertise – senior-level industry relationships and creditability facilitate industry ‘buy-in’.

• Early mover advantage – Ebay only had a year head start in the C2C auctions business, but that was enough.

• Partnerships for distribution and logistics – UPS doesn’t transport lumber, resin, or HCL acid.

• Neutrality – few business opt to do business with their competitors or with subsidiaries of competitors; do not sacrifice liquidity to gain neutrality.

• Public currency – with a billion dollar market cap, if you don’t yet have a real business, then go and buy one; in the end, real value/dollars count.

Technology Vendors & Service Providers

B2B Sub-sectors Representative Firms

CRM Commerce/Customer Service Broadvision, Vignette, Silknet

CRM Marketing/Email Kana Communications, e.piphany

Horizontals Ariba, VerticalNet, Commerce One

Verticals/Technology Calico Commerce, pcOrder

Verticals/Healthcare Healtheon/WebMD, Claimsnet.com

Verticals/Life Sciences Chemdex, SciQuest.com

Verticals/Retail Retek

Sales/Employment Services HotJobs.com, Headhunter.net

Sales/Postage E-Stamp, Stamps.com

Miscellaneous Sales Imagex.com, Finet.com, GetThere.com

B2B Business Cycle: Primary B2B Business Processes & Key Applications

B2B Business Processes

• Information Transfer

• Data Sharing

• Ordering

• Payment

• Customer Support & Service

Key Applications

• Distribution Control

• Inventory Management

• Supplier Relationships

• Payment Management

• Channel Management

Evolving B2B Trends: XML

XML (Extensible Markup Language)

• enables sharing of interactive documents across the Internet.

• offers format for representing data, a schema for describing data, and means for extending HTML.

• Key to transition from traditional EDI to Internet-based EDI.

• Processes most affected have been order fulfillment, production, logistics, and inventory.

• Electronics industry has taken the lead in XML use in the supply chain.

• Toshiba, Solectron, Intel, Ingram Micro , American Express, Federal Express, and Cisco are key practitioners.

Supply Chain Considerations

What is the ‘Supply Chain’? All organizations and processes related to products and services sourced by

Buying Organizations, typically from raw materials through consumption.

What is ‘Supply Chain Management’? Supply Chain Management (SCM) is the management of all activities along the

supply chain; from suppliers to internal logistics within a company and to distribution to customers.

Contrasted with the Value Chain Value chain is a series of activities a company performs to achieve its goal by

adding additional values as each activity proceeds to the next one.

• Product design• Product

development• Vendor capacity• Quality• Sample

management• New product

introduction

• Invoice processing• Payment• RFI/RFP• Catalog development• Vendor certification• Item management• Product availability• Production planning• Technical

specifications• Second- and third-

tier suppliers

• Order management

• Product tracking• Capacity

management• consolidation• Replenishment• Reverse logistics

ProductDevelopmentManagement

E-ProcurementSoftware

Supply ChainManagement

• Goods-in scheduling

• New product introduction

• Planning for seasons and events

• Allocation

CategoryManagement

B-to-B B-to-C

ProductDevelopment

Supplier Management

TransportWarehouse and

Inventory Management

Category Management Store Management

Customer Relationship Management

Supply Chain Considerations

SCM Objectives

Optimize the sharing of information across organizational boundaries

Focus on value of time, efficiency.

Attempt to gain time-based competitive advantage.

Potential linkage to greater customer satisfaction, increased sales, enhanced product quality, and profitability.

Supply Chain Performance Metrics

Products & services offeredSalesMarket shareCostQualityDeliveryCycle timesAssets utilizedResponsivenessCustomer service

New Imperatives of Supply Chain Management

Build flexibility.Plan and measure accurately.Develop logistically separate operations where appropriate.Get lean by emphasizing simplicity and speed.Optimize timely information transfer.Mass-customize, treat customers unequally; segment and stratify.Operate globally.Practice virtuality and collaborative management.Exploit electronic commerce.Leverage people,Operationalize new product introductions and phaseouts.

Supply Chain Example – Apparel Industry

Customer

Retailer

Apparel Manufacturer

Textile Producer

Yarn Maker

Information Product

Supply Chain Example – Health Care Products

Customers

Hospitals/Drug Stores

Distributors

End Product Manufacturer

Raw Material Supplier

Information Product

SCM Success Factor: Effective and Timely Information Management

Successful SCM often times tied to coherent information technology strategy and appropriate architecture. information systems that diffuse organizational boundaries.

Supply chain links suppliers, distributors, buyers, assemblers, etc. as virtual organization

Embraces concept of the Inter-organizational Information Systems (IOIS)

Systems that cross organizational boundaries. Requires technology that enables electronic link between organizations. Automates manual and paper-bound work. Earliest forms of these systems were time-sharing services, online

databases, EFT, EDI.

Information and Technology Applications for SCM

Internet-based Ecommerce

EDI

Intranet/Extranet

Traditional EDI

Bar Coding and Scanning

Data Warehouse

Decision Support Systems

Major SCM Service Providers

Deloitte Consulting

Keane Consulting

Price Waterhouse Coopers

IBM Global Services & KPMG

Cap Gemini Ernst & Young

Accenture

Computer Science Corporation

Next Session Highlights:

Review of Supply Chain ConceptsReading Assignment covering first 3 sessions: Introduction to Supply Chain Management;

Handfield & Nichols; Chapters 1 – 5; Building B2B Applications with XML;

Fitzgerald; Chapters 1Also begin review of Microsoft’s MSMQ Review Guide (accessible through the class web site under the Reference Articles link)

Documents

Session 1 Notes