20/11/2016
ACS 3907
E-Commerce
Instructor: Kerry Augustine
November 21st 2016
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Business-to-Business Commerce
2
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
B2B
• Characteristics:
–
–
–
–
–
–
Repeated sales
Often fewer customers than B2C
Buyer can still search for vendors
Large volume purchases
More complicated logistics
Document exchange
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
3
1
20/11/2016
How the Internet and the Web
Change Business
• E-commerce changes industry structure by changing:
– Rivalry among existing competitors
– Barriers to entry
– Threat of new substitute products
– Strength of suppliers
– Bargaining power of buyers
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
4
Industry Value Chains
• Set of activities performed by suppliers, manufacturers,
transporters, distributors, and retailers that transform raw
inputs into final products and services
• Internet reduces cost of information and other transactional
costs
• Leads to greater operational efficiencies, lowering cost, prices,
adding value for customers
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
5
Business Value Chains
• Activities that a firm engages in to create final products from
raw inputs
• Each step adds value
• Effect of Internet:
– Increases operational efficiency
– Enables product differentiation
– Enables precise coordination of steps in chain
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
6
2
20/11/2016
E-commerce and Business Value Chains
Figure 2.5, Page 97
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
7
Internet-Enabled Value Web
• Networked business ecosystem
• Uses Internet technology to coordinate the value chains of
business partners
• Coordinates a firm’s suppliers with its own production needs
using an Internet-based supply chain management system
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
8
BUSINESS VALUE CHAIN
Managing materials, services and information from suppliers
through to the organization’s customers
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
9
3
20/11/2016
E-Commerce in the Business Value Chain
Supply Chain Management (SCM) Systems
10
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
A Business Value System – Organizational Focus
11
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
SUPPLY CHAIN MANAGEMENT
(SCM) SYSTEMS
Managing materials, services and information from suppliers
through to the organization’s customers
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
12
4
20/11/2016
Supply Chain Management (SCM)
Objective
Applications that accelerate product development and reduce cost associated
with procuring raw materials, components, and services from its suppliers
• Supply Chain – the suppliers that an organization purchases from directly
• Supply Network – the suppliers that an organization purchases from directly and
its suppliers
Supply Chain Management applications can help organizations to gain
competitive advantage and provide substantial payback in several ways by:
• Streamlining workflow and increasing employee productivity (i.e. efficiently
managing business travel, time, and expenses by collaborating with suppliers in real
time)
• Accelerating product development (i.e. enabled by the ability of organizations to
swiftly react to market conditions)
• Streamlining cost and creating efficiencies across the supply network (i.e.,
supporting contract negotiation and measuring effectiveness of those agreements)
13
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Procurement
Procurement includes all of the activities involved in acquiring
goods or services and managing their flow from the supplier
within the company which is purchasing the goods or services to
the semi-finished products and support materials which the
company uses. It involves establishing a strong working
relationship with the company’s supplier network and forms and
integral part of the supply chain management process.
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
14
Procurement Process
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
15
5
20/11/2016
Purchasing Activities
• Include:
–
–
–
–
Identifying vendors, evaluating vendors
Selecting specific products
Placing orders
Resolving issues after receiving ordered goods/services (e.g., late
deliveries, incorrect quantities/items, defective items)
• Direct vs indirect materials purchasing:
– Direct materials = those directly involved in production process, become
part of finished product
– Cost of direct materials typically large portion of cost of finished product
– Replenishing purchasing = companies negotiate long term contracts for
needed materials
– Require good demand estimation
– Spot purchasing = involves purchase of goods based on immediate needs
– Indirect materials = those not directly involved in production process,
such as factory supplies, replacement parts, manufacturing machinery
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
16
Electronic Data Interchange
• EDI = computer-to-computer transfer of business info using a
standard format
– First example of E-Commerce (in 1960’s)
– Attempts to standardize EDI format
– Information such as transactions, pricing, inventory
• EDI network
– Companies may connect directly to each other
– Companies may connect via a value added network (VAN) service that
provides communications equipment, software, skills to support EDI
network
• See notes for more details
• B2B complexities – yields much potential for cost reduction and
process improvement in purchasing, logistics, support activities is
tremendous
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
17
Electronic Data Interchange
Electronic Data Interchange (EDI)
Companies use EDI to automate transactions for B2B e-commerce and continuous inventory
replenishment. Suppliers can automatically send data about shipments to purchasing firms. The
purchasing firms can use EDI to provide production and inventory requirements and payment data
to suppliers.
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
6
20/11/2016
SCM – Example of a Supply Network
Nike’s Supply Chain
This figure illustrates
the major entities in
Nike’s supply chain
and the flow of
information
upstream and
downstream to
coordinate the
activities involved in
buying, making, and
moving a product.
Shown here is a
simplified supply
chain, with the
upstream portion
focusing only on the
suppliers for
sneakers and
sneaker soles.
19
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
The Supply Network
Push- versus Pull-Based Supply Chain Models
The difference between push- and pull-based models is summarized by the slogan “Make what
we sell, versus sell what we make.”
20
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
The Supply Network
• Push-based model
– Based on forecasts of demand for products, and products
are “pushed” to customers
– suppliers are gaining access to an organization’s supply
planning system to assure an ability to fulfill orders
• Pull-based model
– Supply chain driven by actual customer orders or
purchases
– Producing organization is opening its systems to the
customer to allow the customer to view inventory and
production levels before placing orders
21
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
7
20/11/2016
Uncertainty In Demand
• Derived demand = demand of raw materials for production
and manufacture
– Can be met through calculations in manufacturing output, balanced
with demand forecasts for a given product
• Independent demand = consumer demand, more susceptible
to market fluctuations and seasonal changes
• By coordinating the supply chain, businesses can reduce
uncertainty in this area
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
22
Inventory Costs
1. Carrying costs = costs to carry standard inventories and safety
stock
– Safety stock = goods needed to be kept on hand to satisfy consumer
demand
2. Ordering and setup costs
– Ordering costs include costs for pacing orders, receiving and storage;
transportation and invoice processing
– If manufacturing business: include production setup costs
3. Shortfall costs/stockout = lost sales due to lack of supply for
consumers
– Avoided by keeping an ample safety stock on hand
– Tradeoff against carrying costs
• Best way to manage stockout is to determine the acceptable level
of customer service for the business balance the need for high
satisfaction with the need to reduce inventory costs
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
23
Warehouse Management
1. Facility management (location)
2. Slotting optimization
– Search and sort problems
– Consider a bookshelf full of books
– A warehouse is many times more complex!
3. Labour management
– Job scheduling problem (optimal solution is NP-complete!)
• Many other complicated logistics issues in this topic
• These often relate to other computer science topics, mainly
– Algorithms
– Optimization (e.g., in machine learning)
– Decision theory
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
24
8
20/11/2016
Extending the Value Chain: The Value Web
• A firm’s value chain is linked to the value chains of its
suppliers, distributors, and customers.
• Value web
• Collection of independent firms that use information
technology to coordinate their value chains to produce a
product collectively.
• Value webs are flexible and adapt to changes in supply
and demand.
25
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Extending the Value Chain: The Value Web
The value web is a
networked system that can
synchronize the value
chains of business partners
within an industry to
respond rapidly to changes
in supply and demand.
26
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
E-commerce Enablers:
The Gold Rush Model
• E-commerce infrastructure companies have profited the most:
– Hardware, software, networking, security
– E-commerce software systems, payment systems
– Media solutions, performance enhancement
– CRM software
– Databases
– Hosting services, etc.
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
27
9
20/11/2016
Extending the Value Chain: The Value Web
Extended Value Chain – From Suppliers to Customers
28
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
B2B Business Models
• Net marketplaces
– E-distributor
– E-procurement
– Exchange
– Industry consortium
• Private industrial network
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
29
Two Main Types of Internet-Based B2B
Commerce
1. Net marketplaces:
–
–
–
Bring together potentially thousands of sellers and buyers in single
digital marketplace operated over Internet
Transaction-based
Support many-to-many as well as one-to-many relationships
2. Private industrial networks:
–
–
–
–
Bring together small number of strategic business partner firms that
collaborate to develop highly efficient supply chains
Relationship-based
Support many-to-one and many-to-few relationships
Largest form of B2B e-commerce
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
10
20/11/2016
Two Main Types of Internet-Based B2B
Commerce
Figure 12.8, Page 774
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
Net Marketplaces
• Ways to classify Net marketplaces:
– Pricing mechanism, nature of market served, ownership
• By business functionality
– What businesses buy (direct vs. indirect goods)
– How businesses buy (spot purchasing vs. long-term sourcing)
– Four main types
• E-distributors
• E-procurement
• Exchanges
• Industry consortia
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
Table 12.2, p. 775
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
11
20/11/2016
Pure Types of Net Marketplaces
Partstore.com
Merx.com
dgMarket.com
Ariba Supplier Network
Exostar.com
Figure 12.9, Page 776
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
E-distributors
• Most common type of Net marketplace
• Electronic catalogs representing products of thousands of
direct manufacturers
• Typically, independently owned intermediaries
• Offer industrial customers single source to purchase indirect
goods on spot basis
• Typically, horizontal
• Usually, fixed price—discounts for large customers
• Example: W.W. Grainger
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
E-distributors
Figure 12.10, Page 777
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
12
20/11/2016
37
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
E-procurement Net Marketplaces
•
•
•
•
•
Independently owned intermediaries
Connect hundreds of suppliers of indirect goods
Firms pay fees to join market
Long-term contractual purchasing of indirect goods
Revenues from transaction fees, licensing consultation
services and software, network fees
• Offer value chain management (VCM) services
• Many-to-many market
• Example: Ariba
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
E-procurement Net Marketplaces
Figure 12.11, Page 779
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
13
20/11/2016
40
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
Exchanges
• Independently owned online marketplaces
• Connect hundreds to thousands of suppliers and buyers in
dynamic, real-time environment
• Vertical markets, spot purchasing in single industry
• Charge commission fees on transaction
• Variety of pricing models
• Tend to be buyer-biased
• Suppliers disadvantaged by competition
• Many have failed due to low liquidity
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
Exchanges
Figure 12.12, Page 780
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
14
20/11/2016
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
43
44
Industry Consortia
• Industry-owned vertical markets
• Purchase of direct inputs from set of invited participants
• Emphasize long-term contractual purchasing, stable
relationships, creation of data standards
• Ultimate objective:
– Unification of supply chains within entire industries through common
network and computing platform
• Revenue from transaction and subscription fees
– Many different pricing mechanisms
• Can force suppliers to use consortia’s networks
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
15
20/11/2016
Industry Consortia
Figure 12.13, Page 782
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
Aerospace and Defense Industry
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
47
Private Industrial Networks
• Private trading exchanges (PTXs)
• Web-enabled networks for coordination of transorganizational business processes (collaborative commerce)
– Direct descendant of EDI; closely tied to ERP systems
– Manufacturing and support industries
– Single, large manufacturing firm sponsors network
• Range in scope from single firm to entire industry
• Example: Procter & Gamble
©Bowen Hui, Beyond the Cube Consulting Services Ltd. | Copyright © 2013 Pearson Education, Inc.
16
20/11/2016
P&G’s Private Industrial Network
Figure 12.15, Page 787
©Bowen Hui, Beyond the Cube Consulting Services Ltd.
| Copyright © 2013 Pearson Education, Inc.
17