Chapter 5 Supply Chain Simplification
Business-to-Business Strategies: From Electronic Data
✓ The reduction of the size of a firm’s supply chain
Interchange to Electronic Commerce
• Firms work closely with a strategic group of
suppliers to reduce product costs and
administrative costs
Purchasing, Logistics, and Support Activities
• Long term contract purchases containing pre-
✓ Purchasing activities - Include identifying vendors, specified product quality requirements and pre-
evaluating vendors, selecting specific products, and specified timing goals
placing orders • Shown to improve end product quality and
✓ Supply chain - Part of an industry value chain that ensure uninterrupted production
precedes a particular strategic business unit.
Discuss what some simplification strategies would be for:
Ford; Wal-Mart; Macy’s; Wegmans
Electronic Data Interchange
✓ Developed to reduce cost, delays, and errors
inherent in the manual exchanges of documents
• differs from unstructured message because its
messages are organized with distinct field for
each important piece of information
• EDI industry committees define the structure
and information fields of electronic documents
for that industry
✓ Procurement - Includes all purchasing activities, plus
the monitoring of all elements of purchase
transactions
✓ Supply management - Term used to describe
procurement activities.
✓ Sourcing - Procurement activity devoted to
identifying suppliers and determining their
qualifications.
✓ E-procurement or e-sourcing - Use of Internet
technologies in procurement and sourcing
activities.
Trends in Supply Chain Management
✓ Some Supply Chain Management trends include:
• Supply Chain Simplification
• Electronic Data Interchange (EDI)
• Collaborative commerce
• Net Marketplaces and Private Industrial
Networks
EDI on the Internet
✓ Initial roadblocks to conducting EDI over the
Internet included:
• Concerns about security
• The Internet’s inability to provide audit logs and
third-party verification of message transmission
and delivery
✓ Nonrepudiation
• Ability to establish that a particular transaction
actually occurred
✓ Internet EDI or Web EDI
• EDI on the Internet
✓ Open architecture of the Internet allows trading
partners unlimited opportunities for customizing
information interchanges
✓ New tools such as XML help trading partners be even
more flexible in exchanging detailed information
Disadvantages of Using a VAN
✓ Cost
Value-Added Networks
• Most VANs require an enrollment fee, a
✓ Direct connection EDI monthly maintenance fee, and a transaction
fee
• Requires each business in the network to
operate its own on-site EDI translator computer ✓ Using VANs can become cumbersome and expensive
• EDI translator computers are connected directly for companies that want to do business with a
to each other using modems and dial-up number of trading partners, each using different
telephone lines or dedicated leased lines VANs
✓ Indirect connection EDI
Elements of a Collaborative Commerce System
o To send an EDI transaction set to a trading
partner: Using digital technologies to permit organizations to
collaboratively design, develop, build, and manage
• VAN customer connects to the VAN then products through their life cycles
forwards an EDI-formatted message to the
VAN
• VAN logs the message and delivers it to the
trading partner’s mailbox
• Trading partner then dials in to the VAN and
retrieves its EDI-formatted messages
Users need to support only the VAN’s one
communications protocol. The VAN: Records message
activity in an audit log; can provide translation between
different transaction sets used by trading partners; can
perform automatic compliance checking
Net Marketplaces & Private Networks Types of Procurement
✓ Purchases of direct goods
• directly involved in the production process
✓ Purchases of indirect goods
• needed for production process but not directly
involved in creating the end product.
• often called MRO goods -- maintenance, repair,
and operations
✓ Contract purchases
• long-term agreements to buy a specified amount
of a product. Pre-specified quality requirements
& terms
✓ Spot purchases
• meet the immediate needs of a firm.
Main Types of Internet-based B2B Commerce • most often made on a spot purchase basis in a
✓ Net Marketplaces (also referred to as exchanges or large marketplace that includes many suppliers
hubs) Pure Types of Net Marketplaces
• assemble thousands of sellers and buyers in a
single digital marketplace on the Internet
• owned be either the buyer or the seller
• operate as independent intermediaries
between the buyer and seller
✓ Private industrial networks
• bring together a small number of strategic
business partners who collaborate to develop
efficient supply chains and to satisfy customer
demand for product
• by far the largest form of B2B commerce,
presently comprising 93% of the total
computer-assisted inter-firm trade
Two Main Type of Internet-based B2B Commerce Net Marketplaces: E-distributors
✓ Independently owned intermediaries
• offer individual
customers a single
source from which
to make spot
purchases of
indirect or MRO
goods
• operate in a
horizontal market
that serves many different industries with
products from many different suppliers.
Net Marketplaces: E-procurement Net Marketplaces: Industry Consortia
✓ Independently owned intermediaries ✓ Industry-owned vertical markets where long-
term contractual purchases of direct inputs can
• connecting hundreds of online suppliers to
be made from a limited set of invited
business firms who pay a fee to join the
participants
market
• Serve to reduce supply chain
✓ Operate in a horizontal market – use long-term
inefficiencies by unifying the supply chain
contractual purchasing agreements
for an industry through a common
✓ Provide value chain management services network and computing platform
• automation of a firm’s entire procurement
process on the buyer side; automation of the
selling processes on the seller side
Pure Types of Net Marketplaces
Net Marketplaces: Exchanges
✓ Independently owned online marketplaces
• connect hundreds of suppliers to
potentially thousands of buyers in a
dynamic real-time environment
✓ Typically vertical markets in which spot
purchases can be made for direct inputs (both
goods and services)
• make money by charging a commission
on each transaction
Long-term Dynamics of Net Marketplaces ✓ Central purpose is to provide industry-wide
global solutions to achieve the highest levels of
✓ Prototype Internet-based marketplace
efficiency
✓ Several thousand created; however, most did
✓ Generally start with a single sponsoring
not succeed -- did not attract enough players
company that “owns” the network
✓ real value of B2B commerce will only be
✓ Differentiates private industrial networks from
realized when it changes
consortia usually owned collectively by major
• the entire procurement system, firms through equity participation
• supply chain ✓ Transforming the supply chain by focusing on
continuous business process coordination
• collaboration process among firms between companies
✓ Industry consortia sprang up in 1999 and 2000 ✓ Coordination includes product design, demand
✓ Industry consortia are profitable because: forecasting, asset management, and sales and
marketing plans
• charge the large buyer firms transaction
and subscription fees, but .. Proctor & Gamble’s Private Industrial Network
• benefits more than offset the cost of
membership
Net Marketplace Trend
Private Industrial Networks
✓ Dominate B2B commerce
✓ Web-enabled networks for coordinating trans-
organizational business processes
(collaborative commerce)
✓ Range in scope from a single firm to an entire
industry – e.g., automobiles:
• Covisint -- Created in 2000 by a consortium of
DaimlerChrysler, Ford, and General Motors
• In the hotel industry Marriott, Hyatt, and three
other major hotel chains formed a consortium
to create Avendra
Private Industrial Networks & Collaborative Commerce An Industry-wide Private Industrial Network
✓ CPFR or industry collaborative resource planning,
forecasting, and replenishment
• working with network members to forecast
demand, develop production plans, and
coordinate shipping, warehousing, and
stocking activities.
• goal is to ensure that retail and wholesale
shelf space is precisely maintained
✓ Supply chain and distribution chain visibility
• in the past impossible to know where excess
capacity existed in a supply or distribution
chain
• Eliminating excess inventories by halting
production of overstocked goods can raise
the profit margins for all network members
because products will no longer need to be
discounted in order to move them off the
shelves
✓ Marketing and product design collaboration
• can be used to involve a firm’s suppliers in
product design and marketing activities as
well as the related activities of their supply
and distribution chain partners
• can ensure that the parts used to build a
product live up to the claims of the
marketers
✓ Collaborative commerce application used in a private
industrial network
• can also make possible closed loop
marketing in which customer feedback will
directly impact product design
