Business Strategy B2B

b2b

Purchasing, Logistics, and Support Activities

Electronic Data Interchange

EDI on the Internet

Supply Chain Management Using Internet Technologies

Electronic Marketplaces and Portals

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Companies often use e-commerce to improve their purchasing and logistic primary activities, and all of their support activities. These may include financing and administration, human resources, and technology development. There is a huge amount of potential for reducing costs improving business processes. Government agencies use e-commerce to improve effenciency as well. These activities are referred to as e-government. A great characterisitc of using e-commerce for business with purchasing, logistics, and support activities is flexibility.

Purchasing activities include identifying vendors, evaluating vendors, placing orders, and resolving any issues after the orders are received. A purchase manager can maintain and improve quality and reduce costs by monitoring all these elements. A supply chain is a valuable system that includes every activity undertaken by every vendor that had a hand in producing a particular product or service. A supply chain can be extremely long and detailed, but is vital to the success of your product. If a link breaks in your chain, every link after it is affected. One important job of the purchasing department is procurement. This includes all purchasing activities, the monitoring of all transaction elements, and managing and developing relationships with key suppliers. Sourcing is the part of procurement that identifies suppliers and determines their qualifications. By using the Internet to perform this task you are e-sourcing for e-procurement. Another very important task is managing the company's spend. The spend is the total dollar amount of the goods and services that a company buys during a year. This amount is vital to the firm because it directly affects the revenue they can generate.

Businesses use both direct and indirect materials. Direct materials include the materials that become part of the finished product. These materials are very costly and have to be purchased over and over, which leads firms to use replenishment purchasing. This involves negotiating contracts to cover long term relationships. If they need additional materials after the contract terms are met, they can negotiate for more or they can shop in the spot market which is a loosely organized market where firms can get rid of their excess materials. Indirect materials are all other materials purchased by the company including tools, office supplies, etc. Large

companies may use separate departments for these responsibilities and manages each department closely with things like purchasing cards and spending forms.

Logistics provide the right goods in the right quantity at the right time. Logistics management supports the sales and purchasing departments. Activities include managing the inbound movement of materials and supplies and the outbound movement of finished goods and services. The Internet has allowed these activities to be managed better as they lower costs and provide constant connectivity between firms. Third party logistics come into play when a third party is brought into the relationship such as a freight company.
support
Support activities encompass finance and administration, human resources, and technology development. Finance and administration includes making and processing payments, planning capital expenditures, budgeting and planning as well as managing the computer infrastructure of the organization. Human resources activities include hiring, training and evaluation of employees, administering benefits and complying with government activities.

Technology development can vary according to the type of business. It can include knowledge management which is the intentional collections, classification, and dissemination of information about a company and the processes it uses as well as the products it produces.

Electronic data interchange (EDI) is a computer-to-computer transfer of business information between two businesses that uses a standard format. These businesses become trading partners and must be EDI compatible. The data that is transferred is usually transaction data but can also include other information such as price quotes and order status inquiries. It generally includes all the information that would be found on standard paper invoices, purchase orders, requests for quotations, bills of lading, and receiving reports. EDI had been used in business for many years and was standard 20 years before the invention of traditional e-commerce. EDI is extremely important in B2B transactions. These standards are still in place today.

As businesses have developed over the years, the need for standard formats of conducting business has evolved and embraced technology. Freight companies were in the forefront of creating forms that would apply to any business they interacted with. As EDI became more popular, the need for a set format became more necessary. ANSI has been the coordinating body for standards in the US since 1918. In 1979, they chartered a new committee (ASC X12) to develop uniform EDI standards. They meet three times a year and their job is to maintain and develop these standards. The committee includes information systems professionals from all types of businesses

and membership is open to anyone. The standard includes hundreds of transaction set specifications, which include the format for specific business data interchanges. The UN/EDIFACT is the organization that sets the standard for international EDI. These groups are working together to create one international set of standards.
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When you compare a paper-based purchasing process and an EDI purchasing process, you begin tosee the benefits of EDI, including reducing the paper flow, and the ease of information transfer between departments

and businesses. This saves time and money. There are two ways to implement EDI network and translation processes: direct connection and indirect connection. Direct connection EDI occurs when each business in the network operates its own on-site EDI translator computer. These computers are then connected to each other using modems and dial-up. This can become troublesome and expensive. Using indirect connection EDI involves using a value-added network (VAN), which is a company that provides all the equipment and software necessary to provide EDI services. To use the services of a VAN, a company must install EDI translator software that is compatible, but this is usually included as part of the operating agreement. The customer then connects to the VAN and then forwards their information which is then delivered to the recipient. Another advantage of using a VAN is that they keep a log of all transactions, which can give a company a backup of all information. There are also other advantages including translation between different transaction sets, support of more than one protocol and automatic compliance checking. There are disadvantages as well, with the major one being cost. Most require an enrollment fee, a monthly maintenance fee and a transactions fee. VANs become necessary for companies who want to do business with a number of different companies, and sometimes, the cost has to be accepted.

As e-commerce became more and more popular, businesses using EDI began to view the Internet as a replacement for these direct and indirect EDI connections. The cost of these connections was too much for some firms and the ease, popularity, and cost of the Internet started to become an alternative form of conducting business. There were major roadblocks to conducting EDI across the Internet, with the main one being security and lack of logs and message verification.

As the Internet grew and began incorporating TCP/IP structure, the security was enhanced with secure protocols and other encryption schemes. Businesses became more comfortable sending transaction information via the Web. Although, some issues were improved, the lack of third-party verification continues to be an issue. Nonrepudiation is the ability to establish that a particular transaction actually occurred and prevents either party from denying it happened. This function was provided by the firm’s VAN logs or trading log comparisons between firms.

As EDI progressed on the Internet, it became known as Internet or Web EDI. These new EDI offerings help trading partners accomplish information interchanges that are more complex transaction sets. This open architecture allows trading partners unlimited opportunities for customizing their EDI. This progress has led to the formation of the Context Inspired Component Architecture (CICA) which is a set of standards for assembling business messages that offer more flexibility than EDI transaction sets while also providing a predictable structure for the message content. These standards include XML.

Financial EDI (FEDI) refers to the exchange of information between financial institutions. These firms allow electronic fund transfers (EFT). These transfers are possible by using an automated clearing house (ACH) system, which is a service used by banks to communicate with each other. Some banks perform EDI transfers through VANs. These are called EDI-capable banks. Some companies are still reluctant to use FEDI over the Internet transactions involving large

amounts of money because of the perceived security threat. Even though the cost of using a VAN versus FEDI is higher, companies are more likely to use it because of the security that comes along with it.

Relationships are very important to the success of B2B e-commerce. Many companies use strategic alliances, partnerships, and long-term contracts to build these relationships with the companies in their supply chain. These relationships sometimes enable businesses to reduce costs with a small number of suppliers. Supply chain management occurs when firms use these relationships and integrate supply management and logistics activities in with them. The ultimate goal is to achieve higher quality and/or lower cost of their product or service.

Businesses have realized over the years that they can achieve this goal by negotiating more actively with theirsuppliers. When the businesses coordinate with eachother, they can reach beyond the limits of their own organizational structure and create new networks.

Supply chain management is used to add value for the consumer to the final product. Tier-one suppliers work to establish long-term relationships with a small number of very capable suppliers. These tier-two suppliers then provide raw materials and components to them. The tier-two suppliers also manage relationships with the tier-three suppliers who provide the raw materials and components to them. This supply alliance is based primarily on trust. There is a tremendous level of information sharing that goes on and firms don’t want to chance disclosing sensitive information to untrustworthy partners. Clear communication remains a key element to these relationships.

The Internet and new technology are being used to manage supply chains in ways that increase efficiency by leaps and bounds. They have found ways to respond to consumer demand in a rapid and efficient way. One of the technologies used in modern e-commerce is tracking. Companies are now able to track supplies and packages with the touch of a button. Optical scanners and bar codes help with this process and their

integration into EDI has been prevalent. A new type of tracking technology is a radio frequency identification device (RFID). These are small chips that use radio transmissions to track the product. The new RFIDs do not require a power source. They simply use RFID tags which extract power from the frequency they pick up.

Supply chain management has many goals but one of the main ones is to meet the needs of the customer. Achieving this goal is called ultimate consumer orientation. When companies fail to focus on the consumer as they should, they often fall short of their company goals.
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The electronic marketplace started as a idea to create hubs of commerce with vertical portals. These portals were to be a doorway into the Internet and offer access to news, research reports, analysis of trends, and in-depth reports on the companies in the industry. The first companies to do this focused on a particular industry and included industry marketplaces, independent exchanges, or public marketplaces and became known as independent industry marketplace. There were more than 2200 of these businesses by mid-2000, but many of these closed. It did not make sense to have more than one or two independent marketplaces in any particular industry. This inspired new models.

Businesses had spent years developing relationships with others in their supply chain and were concerned that these new business open marketplaces would take business away from them. Many of these businesses already had Websites and began to incorporate a private store. This had a password-protected entrance and offers negotiated price reductions on a limited number of products. Other companies developed customer portal sites that offered private stores as well as other services that

customers might find in the industry marketplace suchas part number cross-referencing, product usage guidelines and safety information.

Private company marketplaces involve businesses buying e-procurement software which allows a company to manage its purchasing functions through a Web interface. It automates many of the steps that are part of the procurement

process such as authorizations. This software has begun to include other functions as well, such as areas for requesting quotes, auctions and integrated support. These features should continue to expand and improve. Usually when a company does business with this software, they require suppliers to bid on their business. Once a business chooses the lowest bidder and a contract is negotiated, the information is entered into the software and business can be conducted via the Web. As the software became more reliable, companies began to form private company marketplaces. These offered auctions and other features similar to the e-procurement software to companies who wanted to operate their own marketplaces.

The marketplace system is all about who has the power. Some businesses held power in their supply chain, but lost this power in the marketplace. These companies formed an industry consortia-sponsored marketplace with other businesses that were in similar situations. All of these marketplaces have taken a lot of business away from the industry marketplaces of before.

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