Chapter 9

Strategies for Purchasing

and Support Activities

Electronic Commerce

Objectives

Improving purchasing, logistics, and other support activities

Creating network organizations that extend beyond traditional limits

EDI, how it works, and how it is moving to the Internet

Internet improvements to supply chain management

Software packages for business-to-business e-commerce and supply chain management

Purchasing, Logistics, andSupport Activities

Purchasing activities Identifying and evaluating vendors Selecting specific products Placing orders Resolving issues after receiving the

ordered goods or services Specialized Web sites exist that offer

high levels of product knowledge

Neoforma Product Sourcing Web SiteFigure 9-1

Neoforma Product Sourcing Web Sitehttp://www.neoforma.com/corp/solutions/prods/marketplace.html

Logistic Activities

Providing the right goods in the right quantities in the right place at the right time

Managing the inbound movements of materials and supplies and the outbound movements of finished goods and services

Support Activities

Includes the general categories of Finance and administration

Making payments, processing customer payments, budgeting and planning

Human resources Hiring, training, evaluating employees, benefits

administration

Technology development Networking, published research, connecting

outside sources of R&D services

DigitalWork Small Business Support Activities PageFigure 9-2

DigitalWork Small Business Support Activities Pagehttp://www.digitalwork.com/launch.html

Electronic Data Interchange

The computer-to-computer transfer of business information between two businesses that uses a standard format

In the 1950s, companies began to use computers to store and process internal data and information

By the 1960s, companies began exchanging transaction information with each other on punched cards or magnetic tape

Electronic Data Interchange Standards

In the mid-1980s, the United Nations Economic Commission for Europe built a common set of EDI standards based on a US ANSI model

In 1987, the EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT) was developed

UN/EDIFACThttp://www.unece.org/trade/untdid/welcome.htm

Commonly Used UN/EDIFACT Transaction SetsFigure 9-4

Paper-Based Purchasing Process

Paper-based purchasing process results in a paper document created at each information processing step that must be delivered to the department handling the next step

Paper-based transfers between buyer and vendor can be delivered via mail, courier, or fax

The Paper-Based Purchasing ProcessFigure 9-5

EDI Purchasing Process

Mail service is replaced with the data communications of an EDI network

Flows of paper have been replaced with computers running EDI translation software

The EDI Purchasing ProcessFigure 9-6

Value Added Networks

Trading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches

Direct connection Indirect connection

Direct Connection EDI vs. Indirect Connection EDIthrough a VAN

Figure 9-7

Direct Connection BetweenTrading Partners

Requires each business in the network to operate its own on-site EDI translator computer

EDI translator computers are connected to each other using modems or dedicated leased lines

Trading partners using different protocols can make direct connection options difficult to implement

Indirect Connection BetweenTrading Partners

Companies use the services of a value-added network (VAN)

The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction sets

The VAN often supplies the software needed to connect to its services

Advantages of Using aValue Added Network

Users support only one communications protocol

The VAN records activity in an audit log, providing an independent record of transactions

The VAN can provide translation between different transaction sets

The VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format

Disadvantages of Using aValue Added Network

Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee

VANs can be cumbersome and expensive for companies with trading partners using different VANs

Inter-VAN transfers do not always provide a clear audit trail

EDI on the Internet

Viewed as a replacement for expensive leased lines and dial-up connections

Small companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliers

Concerns about security and lack of audit logs continue to be a major roadblock

EDI instruction sets that provide instructions to banks are called 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

Financial EDI

Supply Chain Management

Money can be saved and product quality can be improved through active negotiations with suppliers

Supply chain management is used to establish long-term relationships (supply alliances) with a small number of very capable suppliers (tier one suppliers)

Supply Chain Management

By working together, supply chain members can reduce costs and increase the value of the product or service to the ultimate customer

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

Technology in the Supply Chain

The Internet and the Web can be very effective communication enhancers

Software can allow members to review past performance, monitor current performance, and predict future production levels of products

Interesting paper on car spares: http://www.supplychain-forum.com/doc/1-automotive-EXEL.pdf

Advantages of Internet and Web Technologies in Supply Chain Management

Figure 9-9

But is it all good news?http://www.covisint.com/

Software for Purchasing, Logistics, and Support Activities

Enterprise resource planning (ERP) software is designed to integrate manufacturing, finance, distribution, and other internal business functions into one information system

Major ERP vendors include Oracle and SAP

Supply Chain Management Software

Includes demand forecasting tools and planning capabilities to allow all supply chain members to coordinate their activities and adjust their production levels

Summary

Improving purchasing, logistics, and other support activities

Creating network organizations that extend beyond traditional limits

EDI, how it works, and how it is moving to the Internet

Internet improvements to supply chain management

Software packages for business-to-business e-commerce and supply chain management