Chapter 9 9 Strategies for Purchasing and Support

Chapter 9 9 Strategies for Purchasing and Support Activities Electronic Commerce 1

Objectives u Improving 9 purchasing, logistics, and other support activities u Creating network organizations that extend beyond traditional limits u EDI, how it works, and how it is moving to the Internet u Internet improvements to supply chain management u Software packages for business-to-business e-commerce and supply chain management 2

Purchasing, Logistics, and Support Activities u Purchasing activities include: Identifying and evaluating vendors l Selecting specific products l Placing orders l Resolving issues after receiving the ordered goods or services. These include: l 9 u late deliveries, incorrect quantities shipped, incorrect items shipped, and defective items. 3

Electronic Data Interchange u The 9 computer-to-computer transfer of business information between two businesses that uses a standard format u In the 1950 s, companies began to use computers to store and process internal data and information u By the 1960 s, companies began exchanging transaction information with each other on punched cards or magnetic tape 4

Electronic Data Interchange u Eventually, 9 trading partners transferred data over telephone lines instead of shipping punched cards or tapes to each other u In 1968, the Transportation Data Coordination Committee (TDCC) was formed, and charged with exploring ways to reduce the paperwork burden u Note, since 1918, the American National Standards Institute (ANSI) became the coordinating body for standards in the United States 5

Electronic Data Interchange u In 9 1979, ANSI charted the Accredited Standards Committee X 12 (ASC X 12) to develop EDI standards u The current ASC X 12 standard includes specifications for several hundred electronic transaction sets (the names of the formats for specific business data interchanges) 6

Commonly Used ASC X 12 Transaction Sets Figure 9 -3 9 7

Electronic Data Interchange u Although 9 the ASC X 12 standards were quickly adopted by major U. S. firms, businesses in other countries continued to use their own standard. u In the mid-1980 s, the United Nations (UN) Economic Commission for Europe built a common set of EDI standards based on the U. S. model. u In 1987, the UN published its first standard under the EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT). 8

Commonly Used UN/EDIFACT Transaction Sets Figure 9 -4 9 9

How EDI Works u Paper-Based Purchasing Process: Paper-based purchasing process results in a paper document created at each information processing step (purchase order, shipping document, invoice, receiving, account payable) that must be delivered to the department handling the next step l Paper-based transfers between buyer and vendor can be delivered via mail, courier, or fax l 9 10

The Paper-Based Purchasing Process 9 11

How EDI Works u EDI 9 u In Purchasing Process: this process: Traditional mail service is replaced with the data communications of an EDI network l Flows of paper have been replaced with computers running EDI translation software l 12

The EDI Purchasing Process 9 13

Value Added Networks u Three key elements in EDI purchasing process are: l l 9 l u the EDI network that connects the buyer and the seller the buyer EDI translator computer that converts data from internal format to standard EDI transaction set and vice versa the seller RDI translator computer that converts data from internal format to standard EDI transaction set and vice versa Trading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches l Direct connection l Indirect connection 14

Direct Connection Between Trading Partners u Requires 9 each business in the network to operate its own on-site EDI translator computer u EDI translator computers are connected to each other using modems or dedicated leased lines u Trading partners using different protocols can make direct connection options difficult to implement 15

Indirect Connection Between Trading Partners u Companies 9 use the services of a valueadded network (VAN) u The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction sets u The VAN often supplies the software needed to connect to its services u Examples include General Electric Information Services and IBM Global Services 16

Direct Connection EDI vs. Indirect Connection EDI through a VAN Figure 9 -7 9 17

Advantages of Using a Value Added Network u Users 9 support only one communications protocol u The VAN records activity in an audit log, providing an independent record of transactions u The VAN can provide translation between different transaction sets u The VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format 18

Disadvantages of Using a Value Added Network u Most 9 VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee u VANs can be cumbersome and expensive for companies with trading partners using different VANs u Inter-VAN transfers do not always provide a clear audit trail 19

EDI on the Internet u The 9 Internet is viewed as a replacement for expensive leased lines and dial-up connections u Small companies have the opportunity of selling to large customers that demanded EDI capabilities of their suppliers u Although, concerns about security and lack of audit logs continue to be a major roadblock 20

Open Architecture of the Internet u 9 u The open architecture of the Internet allows trading partners virtually unlimited opportunities to customize their information interchanges A new ASC X 12 Task Group has been charged with several broad objectives: l Converting the ASC X 12 EDI data elements and transaction set structures to XML, retaining one-to -one mapping l Developing XML data element names consistent with existing ASC X 12 transaction sets l Meeting the needs of application-to-application and human-to-application interfaces 21

Financial EDI u 9 u u A trading partner’s bank is called a Financial EDI (FEDI) Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet Companies may opt to establish an indirect connection through a VAN for the added security for FEDI transaction 22

Financial EDI u u 9 u u All banks have the ability to perform electronic funds transfers (EFTs) When EFTs involve two banks, they are executed using a clearinghouse. In the United States, most EFTs are handled through the Automated Clearing House (ACH). EDI-capable banks are those banks that are equipped to exchange payment and remittance data through VANs. Some banks also offer VAN services for nonfinancial transactions. They are called value-added banks (VABs) Nonbank VANs that can translate financial transaction sets into ACH formats and transmit them to banks that are not EDIcapable are sometimes called financial VANs (FVANs). 23

Hybrid EDI Solutions u u 9 u u Utilize the Internet for only part of an EDI transaction Pay. Base package of Bottomline Technologies allows hybrid EDI Net. Transact provides an interface for smaller businesses connected to the Internet, but do not have EDI capability. Net. Transact software can convert an HTMLdocument (used by a small company) into an ASC X 12 formatted document (used by a large EDI firm) and vice versa. 24

Net. Transact EDI-HTML Conversion Service 9 25

Supply Chain Management u Money 9 can be saved and product quality can be improved through active negotiations with suppliers u Businesses that engage in supply chain management work to establish long-term relationships (supply alliances) with a small number of very capable suppliers are called tier one suppliers u For example, a car manufacturer would include partners from engine manufacturers, steel fabricators, glass manufacturers, tire manufacturers, and so on. 26

Supply Chain Management u By 9 working together, supply chain members can reduce costs and increase the value of the product or service to the ultimate customer u With clear communication along the supply chain, each participant can know the demands of the ultimate customer and plot a strategy to meet those demands 27

Technology in the Supply Chain u The 9 Internet and the Web can be very effective communication enhancers u Software can allow members to review past performance, monitor current performance, and predict future production levels of products 28

Advantages of Internet and Web Technologies in Supply Chain Management 9 29

Software for Purchasing, Logistics, and Support Activities u Enterprise 9 resource planning (ERP) software is designed to integrate manufacturing, finance, distribution, and other internal business functions into one information system u Major ERP vendors include Baan, J. D. Edwards, Oracle, People. Soft, and SAP 30

Business-to-Business Commerce Software u Designed 9 to help companies build Web sites that host catalog and other commercial sales activities u Major software packages include: l l l Netscape’s Seller. Xpert Open Market’s Live. Commerce-Transact IBM’s Net. Commerce Microsoft’s Site Server, and Ariba, which provides a way for companies t ostandardize purchase requisitions for office supplies. 31

Supply Chain Management Software u Includes 9 demand forecasting tools and planning capabilities to allow all supply chain members to coordinate their activities and adjust their production levels u Two major firms offer supply chain management software i 2 Technologies RHYTHM l Manugistics l 32