Selling to Business Online
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.
Reference Book By:
Gary Schneider
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Purchasing Activities
• Procurement staff have high product knowledge
–Identify and evaluate appropriate suppliers
• Sourcing procurement activity
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–Identifying suppliers, determining qualifications
• e-sourcing
–E-sourcing involves the strategy development involved in identifying how,
where and from whom the right product, or service, can be obtained.
–It covers those parts of the buying process, which includes knowledge, such
as supply-base analysis, spend analysis, specification, request for
quotation/e-tender/e-auction and contract evaluation/negotiation/realization.
–E-Sourcing is potentially using the internet for spend-analysis, supplier
identification, Rfx, auctions and contract management.
Electronic Commerce, Tenth Edition 2
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Purchasing Activities
• Identify and evaluate vendors, select specific
products, place orders, resolve any issues after
receiving ordered goods or services
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• Procurement: E-procurement is using the internet to
operate the transactional aspects of requisitioning,
authorizing, ordering, receipting and payment processes
for the required products or services
Electronic Commerce, Tenth Edition 3
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Purchasing Activities (cont’d.)
• Business purchasing process
–More complex than most consumer purchasing processes
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–Spend
– Total yearly dollar amount for goods and services
purchased
• Institute for Supply Management (ISM)
–Main organization for procurement professionals
Electronic Commerce, Tenth Edition 4
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Direct vs Indirect Materials
Purchasing
• Direct materials
–Become part of finished product
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• Direct materials purchasing: two types
–Replenishment purchasing (contract purchasing)
–Company negotiates long term contracts for most of the materials.
Example: An automaker estimates the number of cars it will make during a
year and contracts with two or three steel mills to supply most of the steel it
will need to produce those cars. By negotiating contracts in advances and
guaranteeing the purchase, the auto make obtains low prices and good
delivery terms.
–Spot purchasing
– Purchases made in loosely organized market (spot market);
demand exceeds estimates made for contract purchasing
Electronic Commerce, Tenth Edition 5
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Direct vs. Indirect Materials
Purchasing (cont’d.)
• Indirect materials
–All other materials company purchases
• Maintenance, repair, and operating (MRO)
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supplies
–Indirectmaterials purchased on a recurring basis
–Standard items (commodities) with price as main criterion
• Purchasing cards (p-cards) provide:
–Managers ability to make multiple small purchases
–Cost-tracking information to procurement
Electronic Commerce, Tenth Edition 6
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Logistics Activities
The objective of logistics is to provide the right goods in the right
quantities in the right place at the right time. Logistics management is
an important support activity for both sales and purchasing activities.
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Logistics activities include managing inbound movements of materials
and supplies, and the outbound movements of finished goods and
services. Thus, receiving, warehousing, controlling inventory,
scheduling and controlling vehicles, and distributing finished goods are
all logistics activities. The Web and internet technologies are providing
opportunities to manage these activities better as they lower
transaction costs and provide constant connectivity between firms
Example: Schneider National’s Track and Trace system delivers real-
time shipment information to Web browsers on its customers’
computers. This system shows the customer which freight carrier is
transporting a shipment, where it is, and when it should arrive.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Electronic Data Interchange
• Computer-to-computer business information transfer
– Between two businesses using a standard format
• Trading partners
– Two businesses exchanging information
• EDI compatible
– Firms exchanging data in specific standard formats
• Reasons to be familiar with EDI
– Most B2B e-commerce adapted from EDI or based on EDI
principles
– Dominant technology for electronic B2B transactions
Electronic Commerce, Tenth Edition 8
Early Business Information
Interchange Efforts
• 1800s and early 1900s
– Need to create formal business transactions records
• 1950s
– Computers store, process internal transaction records
– Information flows: printed on paper
• 1960s: large volume transactions
– Exchanged on punched cards or magnetic tape
• 1960s and 1970s
– Transferred data over telephone lines
• Efforts increased efficiency, reduced errors
Electronic Commerce, Tenth Edition 9
Early Business Information
Interchange Efforts (cont’d.)
• Issue: incompatible data translation programs
• 1968: freight, shipping companies joined together
– Created standardized information set
– Used a computer file
• Transmittable to any freight company adopting the standard
• Benefits limited to members of industries that created
standard-setting groups
• Full realization of EDI economies and efficiencies
– Required standards for all companies in all industries
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Emergence of Broader Standards:
The Birth of EDI
• American National Standards Institute (ANSI)
– United States coordinating body for standards
– Accredited Standards Committee X12 (ASC X12)
• Develops and maintains EDI standards
– Data Interchange Standards Association (DISA)
• Administrative body coordinating ASC X12 activities
– Transaction sets: names of the formats for specific
business data interchanges
• EDI for Administration, Commerce, and Transport
(EDIFACT, or UN/EDIFACT)
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FIGURE 5-5 Commonly used EDI transaction sets
Electronic Commerce, Tenth Edition 12
How EDI Works (cont’d.)
• Paper-based purchasing process
– Buyer and vendor
• Not using integrated software for business processes
– Each information processing step results in paper
document
• Must be delivered to department handling next step
– Paper-based information transfer
• Mail, courier, fax
– Information flows shown in Figure 5-6
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© Cengage Learning 2013
FIGURE 5-6 Information flows in a paper-based purchasing process
Electronic Commerce, Tenth Edition 14
How EDI Works (cont’d.)
• EDI purchasing process
– Mail service replaced with EDI network data
communications
– Paper flows within buyer’s and vendor’s organizations
replaced with computers
• Running EDI translation software
– Information flows shown in Figure 5-7
Electronic Commerce, Tenth Edition 15
© Cengage Learning 2013
FIGURE 5-7 Information flows in an EDI purchasing process
Electronic Commerce, Tenth Edition 16
Value-Added Networks
• EDI network key elements
– EDI network, two EDI translator computers
• Direct connection EDI
– Businesses operate on-site EDI translator computers
• Connected directly to each
– Few companies use direct connection EDI
• Dedicated leased lines: expensive
Electronic Commerce, Tenth Edition 17
© Cengage Learning 2013
FIGURE 5-8 Direct connection EDI
Electronic Commerce, Tenth Edition 18
EDI: Value Added Network
Instead of connecting directly, the trading partners may use services of a value
added network (VAN). VAN is a company that provides communications
equipment, software, and skills needed to receive, store, and forward electronic
messages that contain EDI transaction sets. To use VAN services, the trading
partners must install EDI translator software.
Supply Chain Management: Internet Technologies
Companies use strategic alliances, long-term contracts to
create relationships with other firms in the supply chain for the
products that they manufacture or sell. These relationships help
companies to save money (reduce cost), increase product
quality and identify new ways to provide customers with faster,
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cheaper and better services.
Example: Dell computer has been able to reduce supply chain
costs by sharing information with its suppliers. The moment Dell
receives an order from a customer, it makes information
available to its tier-one suppliers, who can better plan their
production based on Dell’s exact demands. A supplier of disk
drives can change its production plans immediately when it
sees a shift in Dell’s customer orders from computers with one
size disk drive to another. This prevents overproduction that
reduces the supplier’s costs and costs in supply chain overall.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Supply Chain Management: Internet Technologies
To enable benefits from a supply chain, clear communications
and quick responses to those are key elements. Web and
internet technologies help in this regard.
Software that uses internet can help all members of the supply
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chain review past performance, monitor current performance,
and predict when and how much of certain products need to be
produced.
Advantages of using internet technologies:
Share information about customer demands
Receive rapid notification of product design changes and adjustments
Provide specifications and drawings
Increase the speed transaction processing
Reduce cost of transaction
Reduce error in entering transaction data
Share information about defect rates and types
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Increasing Supply Chain Efficiency
Many companies are using internet and Web technologies to
manage supply chains in ways that yield increases in efficiency
throughout the chain.
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Using EDI and internet links, Boeing works with suppliers so that
they can provide exactly the right part at the exactly right time.
Even before an airplane enters into production, Boeing makes
the engineering specifications and drawing available to its
suppliers through secure internet connections. As work on the
airplane progresses, Boeing keeps every member of the supply
chain continually informed of completion milestones achieved
and necessary schedule changes. This way, customers get
products in a shorter time than before.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Materials Tracking Technologies
• Tracking materials as they move is a challenge
– Expensive, time consuming, customer waiting
– Integration of bar coding and EDI
• Second wave of electronic commerce
– Integration of new types of tracking into Internet-
based materials-tracking systems
• Radio Frequency Identification Devices (RFIDs)
• Optical scanners and bar codes
• GPS
