Chapter 8

E-commerce and Supply Chain

Systems
 Agenda
• Porters Five Competitive Forces Model
• E-commerce
• E-commerce and Market Efficiency
• E-commerce Economics
• Commerce Servers
• Supply Chain
– Structure
– Performance
– Profitability
– Bullwhip Effect
• Supplier Relationship Management
• Data Exchange
– EDI
– XML
• Discussion and Case Study
 Porters Five Competitive Forces
Model
• Five competitive forces for profitability
– Bargaining power of suppliers
– Bargaining power of customers
– New entrants to the market
– Rivalry among firms
– Threats of substitutions for products or
services
Porter’s Model of Industry Structure
 E-commerce
• Buying and selling of goods and services
over public and private computer networks
• Definition of the U.S. Census Bureau
– Merchant companies as those that take title to
the goods they sell
– Nonmerchant companies as those that
arrange for the purchase and sale of goods
without ever owning or taking title to those
goods
 E-commerce – Merchant
• B2C (business-to-consumer): sales between a
supplier and a customer
– A Web-based application or Web storefront where
customers enter and manage their orders such as
Amazon.com, REI.com, and LLBean.com
• B2B (business-to-business): sales between
companies
– Suppliers, distributors, and retailers
• B2G (business-to-government): sales between
companies and government organizations
E-commerce: B2B, B2G, and B2C
 E-commerce – Nonmerchant
• Auction: match buyers and sellers and
support goods for sales through a
competitive bidding process such as e-Bay
• Clearinghouses (exchanges): provide
goods and services at a stated price, and
arrange for the delivery of the goods but
they never take title such as Amazon and
electronic exchanges
E-Commerce Category
 E-commerce – Market
Efficiency
• Disintermediation: the elimination of
middle layers in the supply chain (direct
sales form manufacturer to consumer)
• Flow of price information: product price
comparison by consumer
• Price elasticity: price change based on the
consumer demand
• Market efficiency as a whole
 E-commerce Economics
• Channel conflict
• Price conflict
• Logistic expense
• Customer service expense
 Commerce Server
• A computer using Web-based programs to support Web
storefront
– Display products
– Support online ordering
– Process payments
– Interface with inventory-management
• Web technology
– SMTP (Simple Mail Transfer Protocol), FTP (File Transfer
Protocol)
– HTML (Hypertext Markup Language)
– Hyperlink
– URL (Uniform Resource Locator)
– Web server: Apache of Linux and IIS (Internet Information
Server)
– Web browser (Netscape Navigator, Internet Explorer, and
Mozilla’s FireFox)
Internet Protocols and Users
 Commerce Server: Three-Tier
Architecture
• Three different classes of computers
• User tier: browser to request and process
Web pages
• Server tier: generating Web pages for
requests from browsers
– Web farm (a set of Web servers) to minimize
customer delays for load balancing
• Database tier: processing SQL requests to
retrieve and store data
Three-Tier Architecture
 Supply Chain - Structure
• Definition: a network of organizations and
facilities to transform raw materials into products
and deliver products to customers
• Entity: customer, retailer, distributor,
manufacturer, supplier, transportation company,
and warehouse
• Relationship
– Each organization connected to just one level up (toward the
supplier) and one level down (toward the customer)
– An organization can work with many organizations
both up and down at each level
Supply Chain Relationships
 Supply Chain - Performance
• Facilities: location, size, and operations
methodology
• Inventory (raw materials, in-process work, and
finished goods): size and management
• Transportation (movement of materials): in-
house/outsourced, mode, and routing
• Information (request, respond, and inform one
another): purpose, availability, and means
 Supply Chain - Profitability
• The difference between the sum of the
revenue generated by the supply chain
and the sum of the costs that all
organizations in the supply chain incur to
obtain that revenue
• The maximum profit to the supply chain
will not occur if each organization in the
supply chain maximizes its own profits in
isolation
 Supply Chain – Bullwhip Effect
• Definition:
– The variability in the size and timing of orders
increase at each stage up the supply chain (from
customer to supplier)
– Not related to erratic consumer demand
– Reduce the overall supply chain profit
• Elimination:
– Every participant in the supply chain has access to
consumer-demand information from the retailer
– An inter-organizational information system for sharing
data
Supplier Relationship Management
• SRM: a business process for managing all
contracts between an organizational and
its suppliers for supplies, materials, or
services
• Three basic processes: source, purchase,
and settle
 SRM - Source
• Find vendors
• Assess capabilities
• Negotiate terms and conditions
• Formalize those terms and conditions
• Make contract
 SRM - Purchase
• Request information, quotations, and
proposals from would-be suppliers
• Approve purchase
• Create an order
 SRM - Settle
• Receive goods and services
• Resolve receivables to order
• Pay according to terms and policy
• Cash management
Summary of SRM Processes
 Integration of CRM and SRM
• SRM examines inventory, determines
required items, and automatically creates
the order via its connection to the
supplier’s CRM
• Supplier’s CRM application interfaces with
the purchaser’s SRM application to
perform the ordering process as cheaply
and efficiently as possible
Relationship between CRM and SRM
 Data Exchange
• Telephone call for message
• Fax, postal mail, email for message and
document
• Electronic Data Interchange (EDI)
• eXtensible Markup Language (XML)
 EDI
• A standard of formats for electronically
exchanging common business documents
– Number of data fields
– Sending sequence
– Number of characters in each data field
• Standards with various versions
• Point-to-point network, value-added
network, or Internet
 XML
• A new markup language by World Wide
Web Consortium (W3C)
• A superior means for organizations to
exchange documents for computer
processing
• XML schema
– Service description
 XML Web Services
• Purpose: a standard way for programs to access one
another remotely
– Use service description to obtain details of programs existing
on another computer and how to communicate with those
programs
– Service user uses the information of service description to
invoke the service
– XML format for all service data
• Benefit
– The automation of supply chain interactions
• Development tool
– Microsoft .Net
– IBM J2EE
Web Services for Sharing Sales Data
 Discussion
• Problem Solving (235a-b)
– State the basic rules to prepare an employee for attending an
inter-organization negotiation or collaboration meeting.
• Ethics (247a-b)
– State the basic ethic rule to prepare employees for the supply
chain information sharing.
• Security (251a-b)
– State the solution and associated reasons to handle the
installation of another company’s programs in your organization.
• Reflections (253a-b)
– State your recommendations to the future business plan for
Oracle and IBM related to the fate of relational database, SQL,
and XML five years later.
 Case Study
• Case 8-1 (258 – 260) questions 2, 3 and 5
 Points to Remember
• Porters Five Competitive Forces Model
• E-commerce
• E-commerce and Market Efficiency
• E-commerce Economics
• Commerce Servers
• Supply Chain
– Structure
– Performance
– Profitability
– Bullwhip Effect
• Supplier Relationship Management
• Data Exchange
– EDI
– XML
• Discussion and Case Study