Electronic Commerce by dffhrtcv3


									          Electronic Commerce
• Long term evolution of business environment coupled with
  technological developments (i.e. WWW)
• Phenomenon not recent (gradual increase over 25 years)
• Definition: automation of commercial transactions using
  computer and communications technologies
• commercial = transactions that involve the exchange of
  goods, funds or obligations...
• It is a reality in today’s modern environment => must
  become knowledgeable about it
   eBusiness versus eCommerce
• Conducting any kind of business via an electronic channel

             Electronic Commerce          Electronic
        Web            Commerce
Information systems for interacting
      with the environment
• Initial development of the phenomenon of E Commerce
• Attempts to change the nature of the linkage with suppliers /
  customers / competitors
• American Hospital Supply Corporation
• Japanese and American car making and retail industry in the
• Concept of Just In Time (JIT)
          Link with customers:
• 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
   Links with customers and
• 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
• 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:
   –   Meetings and phone calls
   –   purchase orders
   –   invoices
   –   cheques
   –   …………….
   –   Shared systems
• Traditionally, structured exchanges were paper based =>
  slow turnaround time
   Electronic Commerce suggests
            new methods
• Invoice => Electronic Data Interchange instead of postal
• 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
 Framework of generic forms of
     Electronic Commerce

            EDI                          Electronic meeting rooms
Permanent                                computer conferencing
            IOS data retrieval systems

              Electronic catalogues        Electronic Mail
Ad Hoc        WWW home pages               Electronic file transfer

               Structured                   Unstructured
     Electronic Data Interchange
• Creation of inter-organisation networks involving at least 2
• 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
   Important Points about EDI

The definition points our three important issues:

• EDI uses structured data
• EDI uses agreed standards
• EDI uses electronic links
        EDI uses structured data
• EDI messages are processed by a computer not by an
• 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


          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
Multilateral Links:
   A modern solution for EDI
• Join an EDI network run by a VALUE ADDED
• 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


 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
                         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-
   – 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
•   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
• 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
                    Spread of EDI
• EDI was originally limited to the automotive and retail

• now involves virtually every sector of business:
   –   shipping
   –   insurance
   –   banking
   –   government
   –   Customs
   –   Also, HR
            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)
      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

                Other suppliers

                  EIRTRADE VAN             Telecom

                 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
• Now, 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
• Future of E-commerce is based entirely on the
  development of this vast network
        Origins of the Internet
• 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
“The best business opportunity that most people are
  likely to find in a life time”  (Hammond, 1996)
 Number of Computers
Connected to the Internet
       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
         How to make money
• LAYER ONE - The Internet Infrastructure [$200
• LAYER TWO - The Internet Applications
  Infrastructure [$100 billion]
• LAYER THREE - The Internet Intermediary [just
  below $100 billion]
• LAYER FOUR - The Internet Commerce [$171
  billion + fastest growth]
       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
                   As of the end of 1999

•   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
Rank   Nation           Internet population (ms)   Share of world population (%)

1.     United States    135.7                      36.2

2.     Japan            26.9                       7.18

3.     Germany          19.1                       5.10

4.     UK               17.9                       4.77

5.     China            15.8                       4.20

6.     Canada           15.2                       4.05

7.     South Korea      14.8                       3.95

8.     Italy            11.6                       3.08

9.     Brazil           10.6                       2.84

10.    France           9.0                        2.39

11.    Australia        8.1                        2.16

12.    Russia           6.6                        1.77

13.    Taiwan           6.5                        1.73

14.    Netherlands      5.4                        1.45

15.    Spain            5.2                        1.39

       Total            374.9                      100

               Revised statistics (Summer 2000)
       Patterns of Internet browsing in the US

Number of Sessions per Month           18
Number of Unique Sites Visited         10
Time Spent per Site                    57: 02
Time Spent per Month                   9: 40: 53
Time Spent During Surfing Session      31: 32
Duration of a Page viewed              00: 50

      Patterns of Internet browsing in the UK
Number of Sessions per Month           10
Number of Unique Sites Visited         18
Time Spent per Site                    15: 39
Time Spent per Month                   4: 39: 07
Time Spent During Surfing Session      29: 02
Duration of a Page viewed              00: 45
           The Size of the Beast
•   12,844,877 unique domain names registered worldwide
•   1,570,000,000 pages
•   29,400,000,000,000 bytes of text
•   353,000,000 images
•   5,880,000,000,000 bytes of image data
        The Growth of the Beast
For every 24 hours that elapses
• 3,180,000 new pages
• 59,700,000,000 new bytes of text
• 716,000 new images
• 1,900,000,000 new bytes of image data
• Imagine the implications for traffic
• But the capacity of the Internet backbone has doubled
  every 100 days !
     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
          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


(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!
            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
• 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
• more than 50% of users went on-line to make a purchasing
• 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!
•   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

groups are those social aggregates that involve mutual awareness
 • E-Mail has mutual interaction (McGrath, 1984)
and potential the power to change the key parameters in this
                      For example:
   • Instigation of electronic exchanges with emerging nations /
   • 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)
                Some wise words
•   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
• Conducting any kind of business via an electronic channel

             Electronic Commerce          Electronic
        Web            Commerce
       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
• 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
• $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
• 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
• 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
• not compete on every aspect / feature of product service
Important points in establishing a
         Web presence
• ECommerce is not only a matter of interface
• Robust back end must be developed to cope with
  additional volumes of transactions
• Ecom is not a replacement for current business practices:
  rather a new way to do business:
   – Help retain customers
   – Attract new customers
• Data must be totally reliable as web is very visible
• Best practice is not always the best model
• Technological evolution results in pockets of uneven
• Cannot run the risk of excluding customers
• Must run in parallel with existing business practices
                 Technology (2)
•   Breaks down barriers to entry
•   Thus, source of threat as well as opportunity
•   Loss of market by substitution of core competencies
•   Failure to understand / evaluate the impact on market may
    spell disaster
        Customer differentiation
• Develop the web site to learn about customers as well as
  support transactions
   – Login
   – Archive of transactions: basis to learn about patterns and trends +
     who are the best customers
• Use profiles to present a “favourite” view of the web site
• Make sure the best customer gets the best offer
    Constructing a E-Commerce
• 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
• $10 million sales on-line per day! (soon 50% of all DELL
  sales) - Jan 97: $1 million.
• Never been easier to buy a PC
                 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
      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
The ICDT Framework (Angerhn,

       VIS                  VCS

             Market Space

       VTS                  VDS
                    Current Ecom hype
Rate of change / Value

             Rise and Fall of Ecom

                today                Time
 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
• searching for new customers / selling new services to old
  ones is difficult if you do not know who to talk to
• Other side of the coin, underlying technologies make it
  easier to monitor customer behaviour
• Tracking software in web site
• Event-driven marketing
• Up-selling and cross-selling
       E.g. Charles Schwab Ltd.
• Brokerage service for DIY investors
• $200 billions assets
• all contacts through phone => little visibility on
• sales reps + service people do not know enough
• Customer relationship management (CRM): integrating all
  activities involving customers
• All needs addressed together

   Many other such examples of
• 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
   – 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
• 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 Functions
 Marketing         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
• Up to now, emphasis on increasing efficiency
• But “there is nothing more useless than doing
  efficiently what should not be done at all”
                                          Drucker, 1986
• Dramatic improvements require revolutionary moves
• Everything must be questioned
 Information Systems to support
     the e-business strategy

• Enterprise Resource Planning (ERP)
• Customer relationship management (CRM)
• Supply chain management (SCM)
   Enterprise Resource Planning
• Large applications geared towards integrating the essential
  internal processes of an organisation
• e.g. SAP R/3, MFG/PRO, Baan, JD Edwards, Oracle
• Support the transactional backbone of the organisation
• 70% of fortune 500 companies have or are implementing
  ERP systems
• SAP and Oracle have become the second largest software
  producers in the world
          Content of ERP systems
• ERPs are not single systems: series of modules supporting specific
   – admin functions
   – HR
   – manufacturing / MRP
   – order processing etc…
• single point of entry for each item of 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 many back end headaches
• Build upon earlier generation of CIM systems – e.g. MRP
                      E.g. DELL
• three plants are located close to their suppliers and operate in
• Orders follow machines across the floor
• Automated customer requests mean operators are shown by
  flashing colours what type of PC to assemble)
• no finished goods inventory        (cost, obsolescence)
• outsourcing of non-critical components (e.g. screen)
• acceleration of payment cycle (goods paid for before they are
      Introduction to MFG/PRO
• Each student get their own version of the training database
  – Quality Pencil company
• Create a new product and sell it: Packaged Pen
• Not so easy to go around the menus:
   – Codes are used to help users find their way – e.g.: 1.2.1 is product
     line maintenance
   – Users must learn which screens to use to do things
           Computer Integrated
           Manufacturing (CIM)
• Overall computerisation process which started a long time
• Encompasses many different types of applications
• basis was the application of the Materials Requirements
  Planning (MRP) principles (early 70s)
• APICS (American Production/Inventory Control Society)
• All major software houses developed and marketed MRP
               Reasons for MRP
• Snowball effect as companies moving to MRP imposed
  business changes to their partners
• MRP logic was always around, but switching costs in
  manufacturing made it worthwhile:
   – data processing costs decreasing
   – inventory costs rising
• Sophisticated CIM systems easier to justify
• Other external pressures (eg financial / legal) mean that
  tighter control is required
        Reasons for ERP systems
• Search for operational excellence using “best practice”
• cost cutting / rationalisation
• standardisation / compatibility of disparate IT
  infrastructures (e.g. mergers)
• Year 2000?
• 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
      Example (2) Dell case study
•   No stocks (RM not paid for until in the factory)
•   Tracking of WIP on the floor
•   Testing fully automated
•   Impressive AGV for temporary storage of large orders
•   95 fully automated loading bays:
    – main sorting point of output for shipping
    – scanner operated
    – straight from assembly line to trucks
       Example: Colgate Palmolive
• Large corporation with many products:
   Goal: streamlining the business while offering increasing flexibility to
• SAP R/3 to address manufacturing / logistical complexity
• 1996 - 2001 to equip the whole corporation

    75 dataBefore:
            centres                                  After:
                                        2 centres with 40 staff
    1 to 5 days for orders acquisition combined acquisition
    + 1 or 2 days to process them      and processing in 4 hours!
     on-time deliveries = 91.5%                  = 97.5%

                                               Also accounts payable and
                                      HRM consolidated in one
             How to get an ERP
• No real build or buy decision
• try to minimise the high levels of risk:
   – Foxmeyer ($5 billion pharmaceutical comp.) went bankrupt in
   – 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
• 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 firms
• but, selection process is difficult at best:
    –   site visits
    –   presentation
    –   discussion groups
    –   Magazines and newspapers
    Alternative: The Application
      Service Provider 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
• 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 was
    later extended to reach full ERP specification over the following 12 months.
   Groupe Galeries Lafayette with IBM in France (using their own in-house
    developed software not available otherwise!) under the name LASER from July
   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
• others develop interfaces that allow some degree of
  customisation without touching the software
• SAP claim the same margins can be obtain
 Critical Success Factors in ASP
• 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
         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
     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
                   Future trends
• A bit of a jungle - needs for standards
• Risk element is great for all partners involves - especially
• 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 /
        Next steps on this market
• Inclusion of Customer Relationship Management
• 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
   – e.g. business intelligence
   – e.g. balanced scorecard
          Customer Relationship
• 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
• Many companies don’t have proper customer support
                   Why CRM?
• Customers don’t care about their suppliers’ internal
• 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
  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
   – systems in place to collect, store, exploit CRM info
   – active distribution of information about customers
• Offer single point of entry for customer queries
                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
   – 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
            Conclusion on ERP
• Whether traditional or ASP - matching the business
  processes to the functionality
• obtain agreement from all organisational actors
• be ready for fundamental change
• don’t lose sight of the specificity of the firm
• try an incremental implementation rather than a culture
• leave the door open for change after the ERP
      Supply Chain Management
• Increasingly common type of application
• e.g. Bergen Brunswig (pharmaceutical medical product
   – 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
      Complex 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

                                  Information Flows

         Product                 Product               Product           Product
Supplier Flow      Manufacturing Flow      Distribution Flow     Retailer Flow     Consumer

                                   Payment Flows
                    Goal of SCM
Delivering 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
• 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
• lack of process integration with partners
• need for fundamental structural changes
• 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 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
                 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)

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