© frederic adam, 2000 is 4402: electronic commerce dr. frederic adam department of accounting,...

© Frederic Adam, 2000

IS 4402: Electronic Commerce

Dr. Frederic Adam

Department of Accounting, Finance and Information Systems

University College Cork

Ireland



• Primary aspect of the phenomenon of E Commerce• Attempts to change the nature of the linkage with

suppliers / customers / competitors• SABRE• American Hospital Supply Corporation• Japanese and American car making and retail

industry in the 70s• Concept of Just In Time (JIT)

Information systems for interacting with the environment


• American Hospital Supply Corporation (AHSC): system whereby customers can directly re-order their supplies from terminals located in their hospitals

• Successful because it enabled AHSC’s customers to cut their costs of administration

• originally meant as an INTERNAL systems by AHSC and extended to one main customer

Link with customers:


Links with customers and competitors

• SABRE (American Airlines): first effective electronic reservation systems in the US

• simple one-line database application• available in any travel agent• rented to other airlines• competitive value of system still felt today• in 1988 AA were making more money out of

SABRE than out of flying air planes


Specific Features of Inter-Organisational Systems

• Require co-operation• also some legal implications - e.g. prevention of

computer crimes• nature of the agreement extends beyond the

system itself - e.g. AHSC started from the relationship between a store manager and a customer


Level of Integration between trading partners

• Exchanges of information between partners can be more or less structured:– purchase orders– invoices– cheques– …………….– phone inquiries (not totally reliable)– face-to-face meetings between staff (time consuming)

• Traditionally, structured exchanges were paper based => slow turnaround time


Electronic Commerce suggests new methods

• Invoice => Electronic Data Interchange instead of postal service

• Payments => Electronic Fund Transfer instead of cheque• Short messages => Electronic Mail instead of Phone• Group discussions => Electronic Bulletin Boards or

computer conferencing instead of meetings• Promotion => WWW instead of paper brochure• Customer product query => on-line database instead of

paper catalogue


Framework of generic forms of Electronic Commerce

Permanent

Ad Hoc

UnstructuredStructured

EDIIOS data retrieval systems

Electronic cataloguesWWW home pages

Electronic meeting roomscomputer conferencing

Electronic MailElectronic file transfer


Electronic Data Interchange (EDI)

• Creation of inter-organisation networks involving at least 2 organisations

• can be extended to a very large number of organisations (virtual trading community)

• Often use an intermediary - e.g a Value Added Network (VAN) Service provider


Electronic Data Interchange:

A Formal Definition:

“EDI is the transfer of structured data by agreed message standards from computer to computer by electronic means”


The definition points our three important issues:

• EDI uses structured data• EDI uses agreed standards• EDI uses electronic links

Important Points about EDI


EDI uses structured data

• EDI messages are processed by a computer not by an operator

• it is very different from simple E-Mail• the information received is not displayed to

anyone, but directly used by a program in a computer

• messages are coded


an EDI message:

• Messages are made up of STANDARD LOCATION SEGMENTS (LOC):

TYPE OF TYPE OF PLACE CODE CODE LIST DECODED TEXT DATA

LOC+ POD+ USNYC 01: NEW YORK, NY


EDI uses agreed standards

• Link between commercial partners who agree to do business in a certain way

• preliminary agreement on what data is being transferred and in what order

• Adherence to standards means Open Environment at both ends

• it also requires an universally agreed message structure to operate.


EDI uses electronic links

• in the beginning: EDI used computer tapes– slow– vulnerable– low level of integration across companies

• then EDI used telecommunications– scheduling– cost– compatibility


BILATERAL LINK:


Multilateral Links:


A modern solution for EDI

• Join an EDI network run by a VALUE ADDED NETWORK SERVICE (VANS) supplier

• similar to a postal service• all messages are sent through a delivery service• messages are delivered into people’s post boxes


EDI using a VAN

MAIL BOX

POSTBOX


Advantages of VANS:

• They enables ASYNCHRONOUS COMMUNICATION

• there is no need for DIRECT COMPUTER TO COMPUTER COMPATIBILITY

• PROTOCOL CONVERSION is straight forward• control and security of the messages are easier to

enforce• error handling is done by the carrier


Spread of EDI

• EDI was originally limited to the automotive and retail industries

• now involves virtually every sector of business:– shipping– insurance– banking– government– customs


“The main benefits of EDI stems from receiving orders as quickly as possible after the buying decision has been made. That speed of movement of information means that it is possible to get the right stock in the right place; to deliver quickly; to make sure you have captured the market opportunity and to minimise the working capitals”

PURCHASING DIRECTOR OF A MULTINATIONAL

EDI - a Business Perspective


“I see EDI as reducing the efforts required in entering invoices, with less transcription efforts. We will be able to use the people we have to far greater benefit to the company”

CHAIRMAN OF A LARGE FOOD SUPPLYING COMPANY.

EDI - a Business Perspective


Benefits

• Cost savings - reduction in data entry errors - smaller staff

• reduced lead time for orders• speed up communication• creates stronger ties between partners• improved customer service


Problems

• Set up difficulties:– integration with existing systems– selection of EDI standard

• loss of flexibility resulting from initial choices• requires high levels of commitment from partners• substantial benefits only come with high volumes

of data exchanges


What is wrong without EDI:• Companies use computers to process

transactions and produce paper• Computers produce paper faster than humans

can process it => strain

Result is that processes:

• are Inefficient• are open to errors• are often delayed• generate extra transaction costs


What is wrong without EDI:

• companies are using a combination of the most modern and efficient with the most archaic methods

• postal link or faxes are the wrong media• re-keying of data at the reception is a waste of time• these create bottlenecks in the communication of

organisations


With EDI• Processes can be integrated and computerised fully from

end to end• Data entry error is considerably reduced• Data transfer can be extended to give immediate feed-

back:– order correctly received– goods not available– substitution good suggested

• Other on-line services can be added:– mail distribution list for new products / price changes– special offers


Introduction of EDI:EDI can be introduced in two ways

• pro-active way: company sets out to create a link with its suppliers / customers

• reactive way: company is asked (forced??) to switch to EDI by one of its customer / supplier

• benefits can only be maximised if EDI is introduced in a pro-active way (otherwise, standards are dictated by an organisation’s partners)

• companies need to formulate an EDI strategy - much like BPR (re-design processes to fully exploit EDI)


EDI in Ireland

• Largest VAN in Ireland is called EIRTRADE managed by Eircom

• proposes a variety of services:– EDI trading service– E-Mail between customers

• more than 250 companies use the service in Ireland and the UK

• Linked to other VANs in the world (GEIS, CFM...)


Example of EDI adoption:

• Before Northern Telecom joined Eirtrade

more than 5 days from ordering to delivery


Example of EDI adoption:

• After Northern Telecom joined Eirtrade

EIRTRADE VANNorthernTelecom

Other suppliers

Other customers

Same day delivery


Another example: Hickey and Co.

• Irish clothing company - about 75000 garments a week• formal request to implement EDI from large customer• only superficial at first then integrated with

manufacturing• reduced stock levels, faster turnaround of orders, more

attractive to other customers, easier to audit paper trail• But too small to convince other customers to use EDI


The Internet

• Most of the business to business transactions (including EDI) are carried out on the Net

• Most of the business to customer are carried out on the Web

• Future of E-commerce is based entirely on the development of this vast network


Origins of the Internet Phenomenon

• 30 years in existence - 1969

• Communication network for the US Military!

• Dormant for many years

• Then confined to basic applications, such as FTP and Telnet, by the platforms used


The Explosion of the Internet• Huge growth in the number of machines on the NET

• Widespread coverage in the media - eg: buzzword “Information Superhighway”

• Recognition of new business opportunities provided by the NET

• Role of the WWW is and will be increasingly important

“The best business opportunity that most people are likely to find in a life time” (Hammond, 1996)


Number of Computers Connected to the Internet


Some recent statistics

• 400,000 companies have a web site• 90,000,000 people access the net regularly• Sales over the Net reached $5.1 billions• business to business accounts for 78%• travel is one of the most common type of

transactions


Internet Opportunities

• Like the gold rush of 1849

• A shop in 0.5 m2

• Interactive advertising

• A lot of very optimistic predictions


Internet Threats

• Dangers inherent in a wait and see approach• Companies can be international competitors on the

WWW with little resources• Industries are radically changed by the WWW• WWW is becoming a crucial battleground

The Internet is like a set of cross roads where petrol stations fight a tough price war; except with the Internet, all companies are at the same cross roads


The Internet in Ireland

• Computer industry very important– 13 % of all Irish exports are software– International head-quarters for EMC, Digital, Apple

etc....

• Internet’s significance is recognised– more than 1000 significant WWW server sites– 65,000 corporate users– one of the top 10 countries for WWW development

in the world– Number of Internet Service Providers very high


Finger on the Pulse!!• Number of Sessions per Month 16

• Number of Unique Sites Visited 11

• Time Spent per Site 42: 11

• Time Spent per Month 7: 30: 51

• Time Spent During Surfing Session 28: 18

• Duration of a Page viewed 01: 05

• Active Internet Universe 64,953,584

• Current Internet Universe Estimate 109,993,829

• but double figure growth is over– redistribution towards vertical sites– traffic congestion


Case Study of Web Fortune• Blue Mountain Arts (.com) - on-line postcard service• One of the most highly trafficked sites on the Internet

(16th, but 3rd E-Com site)• 9.2 millions visitors per month• Etoys inc. ready to pay £1 billion for it• but quick response of competitors may spoil deal• AOL, Yahoo and Amazon developed their own• service may be extended to include flower, candy or

fruit delivery!


How trivial can you get?

You have just received an animated greeting card from XXX

You'll see the personal greeting by using the following Web location.

http://www1.bluemountain.com/cards/box6958r/ufe4vyeufagkwy.htm

(Your greeting card will be available for the next 90 days)

There is no charge for this service! :) HAVE a good day and have fun!


Electronic Commerce

• As indicated by spread of EDI, phenomenon not recent (gradual increase over 25 years)

• Interest growing rapidly• Definition: automation of commercial transactions

using computer and communications technologies• commercial = transactions that involve the

exchange of goods, funds or obligations...


Precursors of E-Com

• More than 2000 initiatives introduced over last 20 years

• most successful (still exist besides the Web) was France’s Minitel (1980)– infrastructure made available to companies to sell

services through telephone lines– France Telecom equipped entire user population within

2 years– hundreds of thousands of local and national services

• Most other attempts failed (e.g. Minitel in Ireland)


Key points in the current success

• International, borderless initiative • Technology is mainstream and affordable (e.g GUI)• Flexibility is ensured through the existence of

thousands of existing / developing local networks• Global markets set free from the shackles of 9 to 5

constraints• goes hand in hand with internal re-engineering

carried out in many organisations ...


Fortune 500 E-Com

• All have Web sites• Only 10% conduct transactions• Mostly public relations, customer service and

technical assistance (70% of sites)• marketing and sales (30% of sites)• Illustrates that E-Com is not a silver bullet


Limitations of current sites

• Only 3% of sites for direct sale (9% equipped for on-line transactions)

• more than 50% of users went on-line to make a purchasing decision...

• only 15% bought because sites did not (easily) allowed them to do it on-line

• 2/3 of customers put goods in their trolleys and then fail to complete transaction!


But...• Internet has potential to enable / impose radical changes:• at first, e-mail is a replication of normal mail, just faster• then, it take additional dimensions• i.e. effects that go beyond its technical features (virtual

communities)

• E-Mail has the power to change the key parameters in this definitiongroups are those social aggregates that involve mutual awareness

and potential mutual interaction (McGrath, 1984)


For example:• Instigation of electronic exchanges with emerging

nations / markets• simpler structure• less tradition bound• attracted to novel and efficient ways• little costs in competing in most distant of markets• Other experimentation include letting customers

deciding the price

Internet does create opportunities that could not be exploited otherwise


Types of e-commerce

• Business to business:– EDI– largest in money terms (as in real world)

• business to consumers:– WWW retailing and brokerage services

• consumer to consumer:– free ads services / discussion groups

• attempt to implement single point of entry and limit errors and speed up process

• Also, higher degree of customisation of customer services (e.g. auction markets)


Where does the money go?

• Internet retailing grows 200% per year• top 10 retailers account for 50%• mix retailers (e.g. Dell) account for 60%• portal sites only pocket 30% of E-revenues


E-Commerce Challenges:

• Speed = service is never too fast• Convenient = better integration along the supply

chain (end to end value stream)• Personalised = service is never too personalised• Price = products and services are never too cheap• = View the world from a customer perspective

(visionary?)


Constructing a E-Commerce design

• All about offering new ways to service customer• acquiring the capability to implement these new

ways• e.g. DELL’s BTO model for selling PCs• company does not manufacture a PC before an order

is received• $10 million sales on-line per day! (soon 50% of all

DELL sales) - Jan 97: $1 million.• Never been easier to buy a PC


Step One: Self-diagnosis

• Diagnose the company and its markets– current / recent innovations?– Evolving customer expectations– any way to question industry assumptions– any way to lower costs

• innovator / market leader - early adopter / visionary - silent majority - ...


Step two: reversing the value chain

• Linking emerging technology to new business designs

• More difficult than merely adapting new to current• traditional break down into product and service not

helpful => creating better offering• outside-in approach (better attention to market

changes)• effectively and competitively presenting good

products no longer sufficient


Step three: choosing a narrow focus

• Technology can be enabling, but also distracting• concentration on a key area is required• service excellence (knowing customers better)• operational excellence (having better internal

processes)• continuous innovation excellence (having leading

edge products)• not compete on every aspect / feature of product

service


Example: Dell

• Narrow focus on Supply chain innovation • “quickly manufacturing and delivering inexpensive

top quality PCs”• the three plants are located close to their suppliers

and operate in JIT• Orders follow machines across the floor• Automated customer requests mean operators are

shown by flashing colours what components to use (i.e. what type of PC to assemble)


Critical Success Factors

• Back end systems enable extremely quick transmission of orders to factories

• CIM systems are then used to schedule production• integration of operations with upstream design activities

mean shorter time to market for new pdts• no finished goods inventory (cost, obsolescence)• outsourcing of non-critical components (e.g. screen)• acceleration of payment cycle (goods paid for before

they are built!)


Lessons from the Dell case

• Companies should try to:• increase their ability to respond to the ever

increasing and ever changing needs of customers• requires very flexible business design• based on solid technical foundation• Even though E-Com is an extra-organisational

mode of communication it has crucial implications for internal systems


Managing customer relationship

• E-com presents specific challenge because contact is over the web

• personal relations are excluded• only end of process is (sometimes) done with

human operators• searching for new customers / selling new services

to old ones is difficult if you do not know who to talk to


E.g. Charles Schwab Ltd.• Brokerage service for DIY investors• $200 billions assets• all contacts through phone => little visibility on

transactions• sales reps + service people do not know enough• Customer relationship management (CRM):

integrating all activities involving customers• All needs addressed together

marketing

Service

Sales

CRM


Many other such examples of integration

• Enterprise resource planning (Nestle)• Supply chain (Ford Motors comp)• Selling chain management (Whirlpool)

– pricing system was paper based– spreadsheet with 180,000 cells - many customer types / pricing

strategies– 15 days lead time to print booklets– integrated systems takes into account all parameters

• The e-commerce strategy is then constructed around these core systems


Planning for integration

• Ensure proper knowledge about the end-to-end demand planning function - variations and seasonality

• carry out data consistency and accuracy checks• creating better relationship with partners up-stream

and downstream• envisage structural changes required (e.g. zero

inventories)• Plan for additional skills / re-training (e.g. MRP)


Prepare systems for integration

• Enable information sharing - more robust communication

• create joint performance measurement systems and collaborative planning processes

• exchange / re-distribute responsibilities• redesign products and processes so work is easier

and more efficient (BPR)


Business Process Re-Engineering:

• 90’s buzzword in management

• Redesign the whole organisation to make it more effective rather than efficient

• Based on extensive studies of all processes

• Create new ways to do things that minimise- time spent- number of employee required- costs incurred

• and maximise:– Customer satisfaction– speed of service– profit margin


Process versus FunctionsMarketing Manufacturing Other functions

Production and Sales of Product A

Production and Sales of Product B

Other Vital Process - e.g. dealing with customers


BPR versus Process Rationalisation

• Up to now, emphasis on increasing efficiency• But “there is nothing more useless than doing

efficiently what should not be done at all”

• Dramatic improvements require revolutionary moves

• Everything must be questioned

Drucker, 1986


Information Systems to support the e-business strategy

• Customer relationship management (CRM)• Selling chain management • Enterprise Resource Planning (ERP)• Supply chain management (SCM)


Customer Relationship Management

• Cost of selling to a new customer is six times as high as to existing customer

• Each dissatisfied customer tells 8 to 10 people

• 1 extra % of customer retention can boost turnover by as much as 15%

• Odds of selling to a new customer = 1/7 to an existing customer = 1/2

• 70% of dissatisfied customers will do business again if they feel their complains are handled well

• 90% of companies may not have the customer support required for e-business


Why CRM?

• Customers don’t care about their suppliers’ internal difficulties

• They want to be able to access product and services at the least cost

• They want a single point of entry• Existing loyalty programmes don’t go far enough


The 3 phases of CRM

• Acquiring new customers– by promotion– leading edge product backed by superior service

• Enhancing profitability of existing customers– cross-selling and up-selling (one stop shopping)– additional services

• Retaining most profitable customers– best customer list– customer profitability analysis– make best offer to best customer


Acquiring new customers

• Creating a bit of magic!• E.g. IBM’s new product site• Market research indicates that sales are more

secured in the two or three minutes after the inquiry was made!

• Create a sound relationship from the start may no be so expensive


Enhancing existing relationships

• Listening to customer complains is a key aspect of CRM (better to know)

• e.g. Best Buys (electronic retailer): 3000 calls / day!(average 15 minutes)

• Many different types of inquiries must be dealt with at the same point (call centre)

• Operators must have broad knowledge + access to specific info (e.g. TNT)


Retaining the best Customers

• Selecting best customers (on rigorous basis)– e.g. State Farm insurance offers best products to people

without claims over last five years– already in place in many industries - e.g. car insurance

• Holding on to them using some positive discrimination

• Listening to them should tell you how• provide incentive to salesreps to boost retention

– some companies reward more highly to retain existing customers than for getting new ones


Novelty of the CRM Approach

• Complete and integrated solution - breaks down the walls of conventional functional areas

• Most companies are good at one of the 3 activities - CRM concentrates on all 3

• Overall corporate objective of providing customer satisfaction – systems in place to collect, store, exploit CRM info– active distribution of information about customers

• Not as easy as it looks


Supporting CRM

• Integration of customer content• integration of customer contact• integration of end-to-end business processes• integration of the extended enterprise


Customer contact point

• Move from traditional phone + mail towards Web enabled contact:– how will this affect the content of the communication?– will it be cheaper or more expensive?

• Call centre (70% of all contact points) evolving into a selling channel

• Goals of the contact point– Listening to the customer– creating higher levels of loyalty (HD)– providing a better experience


Selling Chain Management

• Sales information is not always available (e.g. self-service environments)

• sales people sometimes have too much admin to do

• Fragmented order support means multiple contact points

• Legacy systems not integrated


Definition

• An integrated order acquisition strategy• Systems to streamline the set of activities the

business performs to acquire and fulfil orders• see figure attached


Goals of SCM

• Focus on the most appropriate and profitable opportunities

• shorten sales cycles• increase repeat sales• improve visibility on orders• better information / forecasting


Why SCM?

• Increase of self-service ordering (limited choice and interaction - e.g. second hand cars)

• excessive cost of pre-sales technical support• Increasing cost and volume of errors in ordering

cycle• increasing diversity of channels for selling• increasing complexity of products• increasing complexity of markets (deregulation,

mergers etc…)


CISCO and SCM

• CISCO’s customers are resellers who sell networking products

• before: reps would go around visiting shops and fill orders or orders would arrive directly by fax at Cisco’s

• Orders were then re-keyed in the SOP systems• After: automation of the process (see figure attached)


Enterprise Resource Planning (ERP)

• Large application geared towards integrating the essential internal processes of an organisation

• e.g. SAP R/3, MFG/PRO, Baan, JD Edwards• Support the transactional backbone of the

organisation• 70% of fortune 500 companies have or are

implementing ERP systems• SAP has become the second largest software

producer in the world


Example: Colgate Palmolive• Large corporation with many products:

– streamlining the business while offering increasing flexibility to customers

• SAP R/3 to address manufacturing / logistical complexity• 1996 - 2001 to equip the whole corporation

75 data centres / 2 centres with 40 staff1 to 5 days for order acquisition + 1 or 2 days to process it

……… / combined acquisition and processing in 4 hours!on-time deliveries = 91.5% / 97.5%Also accounts payable and HRM were consolidated in one location

Before: After:


Content of ERP systems• ERPs are not single systems: series of modules supporting

specific areas– admin functions– HR– manufacturing / MRP– order processing etc…

• single point of entry for all data: sits on top of a single database of shared data

• data is released from one module into the relevant modules once it has been checked

• ERPs have the potential to solve the back end headaches of e-commerce solutions


Reasons for ERP systems

• Search for operational excellence• cost cutting / rationalisation• standardisation / compatibility of disparate IT

infrastructures (e.g. mergers)• e.g. Ericsson reported following improvements:

– SOP 1 hour to 10 minutes– PO 4 hours to 5 minutes– production scheduling: 18 hours to 30 minutes– 98% of orders delivered on time


Benefits of ERP• Understanding the implications of changes in

production schedule (by de-expediting parts)• Keeping inventory low (25% decreases reported) while

removing risk of stock-outs• Better planning leading to:

– reduction in lead times– better use of capacity– lowered risk of obsolete production (e.g. engineering firms)

• Early warning system: earliest delivery dates are known before promises are made


Different Applications of ERP

• Increased flexibility in design / production in order to serve niche markets (focus on small output) - more Europe

• Better organisation of mass production - more Japan

• Better utilisation of the capacity, optimisation of performance - more US


How to get an ERP

• Build or buy decision• try to minimise the high levels of risk:

– Foxmeyer ($5 billion pharmaceutical comp.) went bankrupt in 1996

– sued SAP’s US subsidiary and Andersen Consult. for a combined $1 billion

– 3 years of implementation destroyed the company– bought by McKesson Drugs - 1997

• Try to get best fit between ERP functionalities and business model


Critical issues in ERP implementation

• High cost and high stakes• Misguided belief that there is an ERP that “does it

all”• difficulty in making a transition from an old

model to an ERP model• overestimation of the pace of change of some

stakeholders (technical change is not sufficient)• difficulty in obtaining any direct ROI


Buying ERPs

• Many suppliers: SAP / Baan / JD Edwards / QAD

• always implemented through a distributor

• advantages are numerous (as against building)– integrate best practice– insurance against obsolescence– cheaper !!??– Software development is not core competency for most

• selection process is difficult at best:– site visits– presentation– discussion groups...


The ASP model

• Over the last two years - Pressure from Y2K?• "An ASP manages and delivers application

capabilities to multiple entities from a data centre across a wide area network.”

• different types of ASP:– horizontal: enterprise / volume or regional ASP– vertical model: task-specific or industry-specific ASP

• solution offered through a Best-of-breed or One-stop-shopping model


The current leaders in the ASP market include: Bull allied with Baan worldwide from June 1999 onwards British Telecom with SAP in the UK from May 1999 Catalyst Solution with JD Edwards in the UK from May 1999 Oracle by themselves in the States and the UK from May 1999 Compaq with SAP in the States and the UK from May 1999 Prologue Software by themselves in France from June 1999 Corio with Peoplesoft and Siebel in the States and the UK from August 1999 IBM with Oracle in Denmark from September 1999 IBM with SAP in Brasil from September 1999 IBM with JD Edwards in North America from September 1999 Symix by themselves worlwide from May 1998 with their Syteweb product which

enables integration with customers and suppliers over the web. This service waslater extended to reach full ERP specification over the following 12 months.

Groupe Galeries Lafayette with IBM in France (using their own in-housedeveloped software not available otherwise!) under the name LASER from July1999

Interpath and Sun for SAP from June 1999 Oracle and HP for SAP from June 1999

Bold indicates primary consortium partner.


ERP and ASP

• As with all ecom systems, service has two parts:– interface (web) or client– back end functionality on a server

• opportunity to differentiate service for ASP + offer additional software in the package

• opportunity for customer to pay far less and to implement far quicker (c.f. SMEs)

• Also, traditional ERP market is contracting• expertise is in short supply


Mechanics of ERP / ASP Services

• 24 to 36 months contracts • 400-500 euros per workstation per month + subscription

fee at start• service includes: technical setup / implementation +

software licences + on-going support + upgrade• some ASPs offer differentiated services for different

industries• others develop interfaces that allow some degree of

customisation without touching the software• SAP claim the same margins can be obtain


Future trends

• A bit of a jungle - needs for standards• Risk element is great for all partners involves -

especially customers• Application Service Provider Industry Consortium

created end of 1999• Code of good practice ready in January 2000• creation of a certification that guarantees service

and gives protection to customer (Ernst / Young and Deloite / Touche)


ERP Capabilities - SAP• Accounting / finance:

– Asset management, cash management, product cost accounting, A/R and A/P…

• Production planning and materials planning– purchasing, inventory management, MRP, production planning

• HR management– travel expenses, payroll, personnel planning

• sales and distribution– sales planning, order management, quality management

• e.g. Microsoft spent 10 months and $25 ms replacing 33 different systems in 26 sites with SAP


Critical Success Factors in ASP model

• Security of the data and application• performance and reliability of application

– at least 98% uptime

• flexibility of the service offered• adaptation of the software• relationship between supplier and customer / user


Potential partners

• Pure play ASPs - 100% new• ISP and Telecom companies - own the

infrastructure• Software vendors - own the licences• Hardware vendors - own the platform• Distributors - own the customers• No one has all the required competence


Nest steps on this market

• All ERPs will include CRM modules• Platform provider for ASP solutions

– e.g. Prologue + Microsoft: biz@large

• HP willing to enter into the capital of any venture if they provide the hardware

• Business Process Outsourcing (BPO)• eXtended Resource Planning (XRP) - support

decision making as well


Conclusion on ERP

• Whether traditional or ASP - matching the business processes to the functionality

• obtain agreement from all actors• be ready for fundamental change• don’t lose sight of the specificities of the firm• try an incremental implementation rather than a

culture shock• leave the door open for change after the ERP

implementation


ERP capability - MFG/PRO

• meant to deal with requirements throughout the entire product supply chain

• multi-location / multi-factory / multi-products etc…• Includes Inventory control Distribution /

Manufacturing / Financial / Field services support / Planning

• Based on a large Progress® relational database and developed in 4th GL


Case Study of SAP implementation

• Vandelay Industries Inc. (95 - 97)• SAP R/3 ERP• Goals:

– end the fragmentation of systems– allow process standardisation– give more visibility on data across entire corporation– give competitive advantage

• much enthusiasm especially amongst plant managers• high expectations / low level of understanding what

ERPs are


Company background• Manufacture and distribute industrial process

equipment• $8 billion turnover• rapid expansion from 1945 to 1985 by opening new

sites and buying smaller firms• 30,000 staff on four continents• find themselves too expensive and too slow• three plant closures and 10,000 staff lost• return to profitability but fear that it may not be enough


Information Systems• Each plant had own systems (MRP, planning,

scheduling…)• corporate finance IS only integrated one• problems resulting:

– integration often impossible– scheduling incompatible => no end-to-end vision of

processes as soon as more than 1 plant involved– no overall planning– order acquisition entirely manual (faxes and phones)– no integration of key functions - e.g. HR– also, processes complex on factory floors


The Team and the Project• SAP - market leader at the time (6000 sites 400,000 users in 1996)• Deloitte and Touche / ICS subsidiary - favourite SAP implementer

– general management consultants– SAP specialists

• 18 months planned with 50 f/t staff• budget $20 million• 50/50 split: designing “to be” processes / implementing SAP

• target sites:– 8 manufacturing– 4 order entry– headquarters


Key issues in the project• Steering committee made up of high level, highly

committed managers - monthly meetings• Pluridisciplinary project team - IS + key functional areas -

full time• centralisation vs autonomy (involvement of users)• standardisation of practices (e.g. part numbers)• Suitability of SAP

– change business to match SAP– interface SAP with other system– extent SAP system to match current practices

• Persuasion of key change agents


Supply Chain Management

• Increasingly common type of application• e.g. Bergen Brunswig (pharmaceutical medical

product distributor):– no longer see themselves as a distribution company but as managing

the medical supply channel on behalf of others– not merely moving products but also managing information and the

ultimate efficiency of the channel

• e.g. Dell• anti e.g.: Boeing wrote off $2.6 billion in Oct. 1997:

– raw material and internal assembly shortages– unhappy customers


DefinitionComplex network of relationships that organisations

maintain with trading partners to source, manufacture and deliver its products

• includes material, information and financial flows as shown below

ProductFlow

ProductFlow

ProductFlow

ProductFlowSupplier Manufacturing Distribution Retailer Consumer

Information Flows

Payment Flows


Goal of SCMDelivering the best value proposition: what the customer

want, how and when it’s wanted, at the lowest possible price

• to achieve this companies need rapid, cost effective and flawless demand fulfilment

• Involves taking responsibility for what happens outside the walls of the organisation

• linkage with suppliers• minimising the cost of order delivery process by trading off

cost of inventory, transport, handling etc...


Obstacles to good SCM

• No player has enough info to synchronise the entire channel

• most SCc contain more than double the required inventory

• products are handled too many times (5/6 average)• Physical carriers struggle to maintain costly

equipment on slim margins


Novelty in SCM - eSCM

• Better techniques and software: e.g. SAP’s Advanced Planning and Optimisation

• Supply Chain planning => for the entire channel• Web-based applications shared by all partners

involved including consumers help both planning and execution + provide greater visibility

• e.g. complex product with fragmented supply in many different countries


Supply Chain Trends

• Increased worldwide dispersion of manufacturing and distribution facilities

• increased channel unpredictability• responsiveness before efficiency: need to be quick

and flexible disrupts existing paradigms• Market share before profit margin (.com)


Key Areas of Investment in SCM

• Inter-enterprise co-ordination of design, manufacturing and business process

• Effective distribution and channel partnership• customer responsiveness and accountability


Different stages in SCM

• Enterprise focus - traditional model– figure 1– characterised by fragmentation– sometimes semi-conflict between links in the chain

• Partner focus - modern vision– figure 2– characterised by collaborative idea

• Direct focus (e.g. Dell) - emerging vision– figure 3– characterised by customer-direct capability– near zero inventories


Service through SCM integration

Inferior integration of SCM results in:– erratic level of service– no vision of future demand– bad/inefficient production planning and scheduling– rising inventory costs

• Good SCM leads to:– Responsive SC (quick and accurate)– Enterprising SC (adaptable)– Intelligent SC (dynamic and visionary)


Elements of SCM

Two key elements are• planning

– forecast of demand,– inventory simulation– manufacturing planning...

• Execution– procurement– manufacturing– distribution...

• Specific software exist to enable those


SC Planning

• Two types of software:– Order commitment (available-to-promise)– Advanced scheduling and manufacturing planning– Demand planning– Distribution planning– Transportation planning

• Understanding the impact of taking additional orders / changing current orders

• Integration with ERP required


SC Execution

• Key differentiator in today’s markets• Planning can help to cut costs, be more efficient• Execution is what truly satisfies customers’ needs• key stages:

– order acquisition– production / purchase of goods– replenishment– distribution– reverse logistics (dealing with returns - up to 14%)


Problems with SC

• Lack of knowledge of the end-to-end demand function

• inconsistent / out-of-date data about SC (poor decision making)

• lack of process integration with partners• need for fundamental structural changes


Solutions

• Enable information sharing– robust communication process

• create joint performance measurement systems• create joint collaborative planning processes• exchange responsibilities / redesign across firms• redesign products and services to facilitate work

and satisfaction of customers• All these are stages of the total solution


Key Questions in sorting out the SCM

• SCM is a business design issue

What is the right e-chain structure?

Does the chain enable us to differentiate ourselves?

Does it facilitate effective order fulfilment?

Is it matched by proper infrastructure / internal processes?


Types of SCM

• Integrated Make-to-stock– smoothing demand in mass production industries– linked to postponement in distribution channel

• Continuous replenishment– customer-demand pull system across firms– ECR, QR

• Build-to-order– efficient SCM allows return to BTO model– inventory substituted with information (Dell)


Example: CVS-McKesson SCM• McKesson occupied key position

– 35000 customers / 60000 orders (1.6 m lines) daily– all orders in electronic forms– target: become the world leader

• CVS has acquired many prime locations on the market– US drug wholesalers down from 180 to 45– top 5 = 57% of market and growing

• Market evolution– market is growing– wholesalers are best distribution channel– manufacturers can concentrate on R&D– wholesalers are transforming their offering into information-based services

• Moves to greater integration between CVS & McKesson– McKesson takes over responsibility for stock levels– measures consumption / plan for demand– replenishes stocks to meet agreed upon levels– High level of inter-firm integration

Continuous replenishment


Moving into E-Business

• Ecom value proposition– what is the customer looking for?– Strategy of the firm

• e-business foundation– blueprint for value creation

• capacity evaluation– current business and capabilities

• e-business design– how the value is packaged into product, services and sites?

• Execution and monitoring


Value proposition

• Knowledge building– much to learn on customers and their perception of value– Why are doing things the way we are?

• Specific questions:– who are my customers? (profile / categories)– What are their priorities?– How can I create value for them?– How does my product reach them?– Who are (will be) my real competitors?– How can we use technology to change these parameters?


Capability evaluation

• What can we do now?– Organisation specific assets– staff

• what do we urgently need?– Staff development / new hiring– investments– plans for acquisition– plans for linkages across functions


E-Business design

• Category killer (first mover)• Channel reconfiguration (change access to customers,

suppliers etc..)• transaction intermediary (internet for operational

support)• Infomediary (reduction of search cost)• self-service innovator (total service to customer)• Supply Chain innovator (integration of SCM agents)• Channel Mastery

CVS


Case Study: E Trade

• Self service innovator• invented on-line trading• strong web presence offering self-directed traders

the best prices• Also, real time access to quality information• New entrant philosophy = clean slate approach and

quick decision making• opposed to current players - e.g. Merril Lynch who

have brand, customers etc...


Traditional versus startup planning

• Analyse trends and compare firm to best practice VS: develop a plan that solves a critical customer pb

• design fundamental change plan VS: design an ebusiness that matches the business model developed + find suitable partners (BOB)

• Implement change VS: deploy electronic architecture to attack new segments. Spend!

Phase 1

Phase 2

Phase 3


E-trade: key to success

• 24 hour service• lower price because of lower transaction costs• instantaneous access to selected sources of info• remove barriers to offer transparency / remove

inefficiency in brokering business• No precedent / no given way to do business


E-trade statistics

• New breed of customers - very active• 25% of customers on-line every day!• Customer trade 25 times / year on average• customer retention rate 96%• create a situation where customer perceives high

switching costs• copy cat: 30 on-line traders (x2 in 1 year)• e.g. eSchwab has 1m on-line customers• traditional agents face challenge of diversification


Etrade: maintaining success

• Maintain momentum + holding on to customers• customer acquisition costs increase as competition

intensifies• first mover advantage• massive advertising• develop partnerships (e.g. franchise in Canada and

Australia)


Etrade - the future

• Quick progression by forging alliances to give additional depth to product range

• Resulting lack of integration of services• no cross selling• need a change of structure to take advantage• has already become a traditional business?


Seminar from M.Fahy - NUI Galway

• Financial markets will not be re-opened so easily• barriers to entry as still strong• markets still highly regulated within geographical

areas• big players have decided to wait, but not for long• At current stage, the kids are playing Ecom!• there may be a big shake-up where large resources

will be needed to survive


Key factors in surviving• Robust back end: the Ecom iceberg• After the novelty has faded, only companies with a sound business

model with succeed• The underlying / support systems and technology that are truly

useful will make the difference:– ERP– c.f. SABRE and AIMS

• ATM model: simple but robust• very moral conclusion that only companies who know what they

are doing will survive• Also current financial madness will not last as shareholders

demand traditional rewards (£££)


Selection of customers

• Ecom breaks barrier to entry for customer as well as supplier

• In a garage, only customers with cars, on the web...• Little info available about customers• how to detect the most profitable ones?• Can companies really turn anyone down?


Adoption of technology

Time

ProductivityGuru claim

Managers’interest

Actualdevelopment


Organisational stages

• Stage 1: rudimentary offering• Stage 2: basic internet banking• Stage 3: clear growth strategy• what stage are we at?


Clive Holtham’ s (City University London) seminar

• Internet growth nothing special• definition of Ecommerce and Ebusiness• fact that non-E Business will virtually disappear• ICDT Model of Ebusiness (Angehrn, 1997)• Point about the crazy market valuations

– disruptive technologies– madness of crowds

• rise and fall of Ecom => post-net society will settle again


EBusiness• Conducting any kind of business via an electronic

channel

WebCommerce

InternetCommerce

Electronic Commerce ElectronicBusiness


ICDT Model:

Virtual

InformationSpace

Virtual

CommunicationSpace

Virtual

DistributionSpace

Virtual

TransactionSpace

Most Ecom Strategies will includeone or more of these aspects


Current Ecom hypeRate of change / Value

Time


Rise and Fall of EcomVisibility

Timetoday

© frederic adam, 2000 is 4402: electronic commerce dr. frederic adam department of accounting,...

Documents

electronic means

customer slide

electronic fund transfer

environment slide

electronic bulletin

structured data edi

paper catalogue slide

transfer of structured