Operations Management E-Commerce and Operations Management Supplement 11

1. Operations ManagementE-Commerce and Operations ManagementSupplement 11 © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

2. Outline • THE INTERNET • ELECTRONIC COMMERCE • E-commerce Definitions • ECONOMICS OF E-COMMERCE • PRODUCT DESIGN • E-PROCUREMENT • Online Catalogues • RFQs and Bid Packaging • Internet Outsourcing • On-line Auctions © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

3. Outline - Continued • INVENTORY TRACKING • INVENTORY REDUCTION • Warehousing for E-commerce • Just-in-Time Delivery for E-commerce • SCHEDULING AND LOGISTICS IMPROVEMENT • Coordinated Pickup and Delivery • Logistics Cost Reduction © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

4. Learning Objectives When you complete this supplement, you should be able to : Identify or Define: • E-commerce • E-business • Online catalogues • Outsourcing • E-procurement Describe or Explain: • How E-commerce is changing the supply chain • Online auctions • Pass-through warehouses © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

5. E-Commerce The use of computer networks, primarily the internet, to buy and sell products, services, and information. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

6. E-Business “… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.” Louis Gerstner, Chairman, IBM © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

7. E-Commerce Definitions Business-to business (B2B) Both sides of the transaction are businesses, non-profit organizations, or governments. Business-to-consumer (B2C) E-commerce transactions where customers are individual consumers Consumer-to-consumer (C2C) Consumers sell directly to each other. Consumer-to-business (C2B) Individuals sell services or goods to businesses © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

8. Types of E-Commerce Transactions © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

9. Types of Information Offered by Business-to-Business Applications • Product - drawings, specifications, video or simulation demonstrations, prices • Production Processes - capacities, commitments, product plans • Transportation - carriers, lead times, costs • Inventory - inventory tracking, levels, costs, and location © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

10. Types of Information Offered by Business-to-Business Applications - Continued • Suppliers - product catalogue, quality history, lead times, terms, and conditions • Supply Chain Alliances - key contact, partners’ roles and responsibilities, and schedules • Supply Chain Process and Performance - process descriptions, performance measures such as quality and delivery © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

11. Types of Information Offered by Business-to-Business Applications - Continued • Sales and Marketing - point-of-sale (POS) data entry, promotions, pricing, discounts • Customer - sales history and forecasts © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

12. Security in the E-Commerce Environment • Serious issue! • Multiple deprivation of service attacks on e-commerce web sites 2/6 - 2/11, 2000; also, the attack of October 21, 2002, which flooded all 13 of the root servers of the Internet Domain Name System (DNS) (on main internet servers) • Security of data, proprietary business information • Impact on the volume of sales and on the bottom line. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

13. Benefits of E-commerce • Improved, lower cost information • Lower entry costs • Available 24/7, virtually anywhere in the world • Availability expands markets for both buyers and sellers • Decreases the cost of paper-based information • Reduces the cost of communication • Provides richer communication than traditional means • Fast delivery of digitized products • Increased flexibility of location © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

14. Limitations of E-commerce • Lack of system security, reliability and standards • Lack of privacy • Insufficient bandwidth • Integrating e-commerce software with existing software is still a challenge • Lack of trust in (1) unknowns on the other end of the transaction, (2) integrity of the transaction itself, and(3) electronic money that is only bits and bytes © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

15. Impact on Product Design • Shorter life cycles require faster product development and lead to time-based competition • Greater use of shared knowledge and collaboration - decreased development costs • More data sharing with suppliers and strategic partners © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

16. E-Procurement Purchasing or order release communicated over the internet or via approved online vendor catalogues © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

17. Online Catalogues • Information about products made available in electronic form via the Internet. • Provided by vendors • Developed by buyers • Provided by intermediaries • Often incorporate voice and video © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

18. Internet Trading Exchanges • Health care products: set up by Johnson & Johnson, G.E. Medical Systems, Baxter International, Abbott Laboratories, and Medtronic Inc.; called the Global Health Care Exchange (ghx.com) • Defense and aerospace products: created by Boeing, Raytheon, Lockheed-Martin, and Britain’s BAE Systems; called the Aerospace and Defense Industry Trading Exchange (exostar.com) • Food, beverage, consumer products: set up by 49 leading food and beverage firms; called Transora (transora.com) • Retail goods: setup by Sears and France’s Carrefour; called Global Net Xchange, for retailers (gnx) © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

19. Internet Trading Exchanges - Continued • Steel and metal products: such as New View Technologies (exchange.e-steel.com); and Metal-Site (metalsite.com) • Construction Industry: set up by Bechtel, Flour, and G.E. Power Systems (citadm.com) is one of 5 construction industry exchanges • Hotels: created by Marriott and Hyatt, and later joined by Fairmont, Six Continents, and Club Corp, Called Aventra (aventra.com) – buys for 2,800 hotels © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

20. Manual processes Group purchasing organization for small, independent hospitals Supplier Distributor Hospital Traditional Medical Supply Chain © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

21. Automated web-based processes On-line Global Health Care Group purchasing organization for small, independent hospitals Supplier Distributor Hospital On-Line Medical Supply Chain © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

22. E-Commerce and Requests for Quotes (RFQs) Extensive databases of supplier information, and ability to rapidly transfer specifications to vendors reduces time and costs © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

23. Online Auctions • Useful for disposing of excess raw material, and discontinued and excess inventory • Online auctions lower entry barriers and increase the potential number of customers © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

24. E-Procurement • Significant savings (10%) • Requires new skills and staffing in procurement area © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

25. Inventory Tracking • Mass customization requires knowledge of location of all goods • Requires data collection, barcode technology, RF and electronic communications to track inventory in transit, on the shop floor, and in the warehouse • Customers can learn what is happening with their order © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

26. Warehousing for E-Commerce • E-commerce warehouse is less a warehouse than a “pass through facility.” © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

27. FedEx and Dell Computer • FedEx operates warehouses that pick, pack, test, and assemble products, then handle delivery and even customs clearance • FedEx’s “Virtual Order”integrates different companies web catalogues and customer orders for Dell; and then fulfills orders and delivers them through its fleet of trucks and planes. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

28. E-Commerce and JIT • E-commerce coordinates the supplier’s inventory system with the service capabilities of the delivery firm. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

29. Scheduling and Logistics Improvements • Coordinated pickup and delivery • Fed Ex merges orders in transit • Logistics cost reduction • Greater capacity utilization © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458