Chapter 5: Key Concept

Chapter 5: Business-to-Business Strategies; From Electronic Data Interchange to Electronic Commerce

Key Concept:
This chapter focuses on companies that use the internet and different technologies to improve their logistics and purchasing activities.

Support Points:
Purchasing, Logistics, and Support Activities
Purchasing Activities
- identifying vendors, evaluating vendors, selecting specific products, placing orders, resolving issues (late deliveries, incorrect quantities, incorrect items, defective items)
- purchasing managers play role in maintaining and improving product quality and reducing costs
- e-sourcing: use of internet technologies in sourcing activities
Direct vs. Indirect Materials Purchasing
- direct: materials that become part of finished product in manufacturing process (cost is large part of cost of finished product
o replenishment purchasing (contract): company negotiates long-term contracts for materials; spot market: loosely organized market within specific industry
- indirect: other materials that are purchased (factory supplies, replacement parts); spot purchasing: direct materials purchasing that occurs within sport market; maintenance, repair, operating (MRO)
Logistic Activities
- managing inbound movements or materials and supplies, outbound movements of finished goods and services; receiving, warehousing, controlling inventory, scheduling and controlling vehicles, distributing finished
Support Activities
- finance and administration (making payments, processing payments, palnning capital expenditures, budgeting and planning); HR (hiring, training, evaluating employees, benefits; technology (network research scientists, posting research results, publishing research papers online, providing connections to outside sources
E-Government
- use of electronic commerce by gov’ts and governing agencies to perform activities (collect taxes and fees)

Electronic Data Interchange (EDI) - echange or transfer of information(not money) between two parties (purchase orders, receipts)How EDI WorksDirect vs. VANs- direct: no intermediary system - you are connecting your EDI comp to someone elses EDI directly - requires leased-line (connection that is always on)- VANs: value added network - intermediary is involved (your system connects to the VAN) - don't need leased-line connection - treating EDI like email (good for companies like Kal Tire, not fortune 500 companies)Internet EDI- VPN: vitural private network, issue of security - ppl don't trust having purchase orders floating across internet unprotectedFinancial EDI- exchange of money, Clearing House (ACH - automated clearing house) - they transfer money from bank to bank using clearing house as intermediary
Supply Chain Management Using Internet Technologies: managing integration of supply management and logistics
Value Creation in the Supply Chain
- tier one suppliers: develop long-term relationships with larger number of suppliers that provide components and raw materials
- tier two: manage relationships with next level of suppliers (tier three suppliers), provide them with components and raw materials
- supply alliance: long-term relationships created among participants in supply chain
Suppliers Can:
- share info about customer demand fluctuations
- receive rapid notification of product design changes and adjustments
- provide specifications and drawings more efficiently
- reduce cost of handling transactions
- reduce errors
Using Materials-tracking Technologies with EDI and electronic Commerce
- radio frequency identification devices: small chips that use radio transmissions to track inventory
Creating an Ultimate Consumer orientation in the supply chain
- ultimate consumer orientation: difficulty in maintaining customer focus
Building and maintaining Trust in the Supply Chain
- continual communication and information sharing key elements
Electronic Marketplaces and Portals:
Independent Industry marketplaces
- industry marketplaces: focus on single industry
- independent exchanges: not controlled by a company that was an established buyer or seller
- public marketplaces: open to new buyers and sellers just entering
- collectively known as independent industry marketplaces
Private Stores and Customer Portals
- private store: password-protected entrance and offers negotiated price reductions on limited selection of products
- customer portal sites: offer private stores along with services (product usage guidelines, safety info)
Private Company Marketplaces
- e-procurement software: allows company to manage its purchasing function through a web interface
- private company marketplace: provides auctions, request for quote postings
Industry Consortia-Sponsored Marketplaces
- formed by several large buyers in particular industry