Chapter One

Supply Chain Information Systems

Outline

• Supply Chain Management

• E-SCM
• Value Creation in the Supply Chain
• Building &Maintaining Trust in the Supply Chain
• Technologies
• Electronic Marketplaces and Portals
 Introduction

• Supply chain
– The flow of materials, information, money, and services
from raw material suppliers through factories and

warehouses to the end customers.

• E-supply chain
– A supply chain that is managed electronically, usually
with Web technologies
Nike’s Supply Chain

This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and
downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a
simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker
soles.

4
Introduction

• Supply Chain Management (SCM)

– A complex process that requires the coordination of many
activities so that the shipment of goods and services from
supplier right through to customer is done efficiently and
effectively for all parties concerned.
Introduction

• Why?
– Minimize inventory levels
– Optimize production and increase throughput
– Decrease manufacturing time
– Optimize logistics and distribution
– Streamline order fulfillment
– Reduce the costs associated with these activities
 Introduction

• E-SCM
– The collaborative use of technology to improve the
operations of supply chain activities as well as the
management of supply chains.
• The success depends on:
– The ability of all partners to view partner collaboration as a
strategic asset
– A well-defined supply chain strategy
– Information visibility along the entire supply chain
– Speed, cost, quality, and customer service
– Integrating the supply chain more tightly
Value Creation in the Supply Chain

• Every organisation, whether profit making or not exists to

create value
• Individuals/ businesses make judgments about value
• Value is the capacity of a good, work or service to meet a
particular want
• Value created/ added on a particular product is targeted at the
consumer in every supply chain
Value Creation in the Supply Chain
• Assumption:
– Business organizations are assumed to have profit
maximization as the primary goal for existing
• Maital (1994):
– Profit is based on three (not two) pillars of business – cost, price
and value
– Firms will earn profits and continue in operation provided they
offer value at an acceptable price to the consumer and cost to itself
• Three Models: Porter, Hines and Day
Basic model of Porter’s value chain
Hines’ value chain model
Contrast of Porter and Hines’ models

Porter Hines
• Profitability • Consumer satisfaction
• Push system • Pull system
• Series of chains linking firms • One large flow pointing from
pointing from raw materials consumer to raw material source
source to customer • Teams concerned with
marketing, materials,
• Inbound logistics, operations, engineering quality, R&D and
outbound logistics, marketing & design
sales, service • Activity based costing, HRM/
• Firm structure, HRM, training/ education, TQM, EDI,
technology development, profit
procurement
Day’s value chain

• Day (1990):
– value chain requires a comparison of all the skills and
resources the firm uses to perform each activity
• Useful for comparing relative cost position
• Based on Porter’s framework but differs in that it highlights
marketing as a general management function that ensures
an external orientation to all value creating activities
Day’s value chain
Building &Maintaining Trust in the Supply Chain

• Major issue for most companies

– Developing trust

• Key elements for building trust

– Continual communication and information sharing

Technologies

• Includes:
– Exchange of Electronic Data (EDI)
– Value Added Network EDI
– Web EDI
– Radio Frequency Identification (RFID)
– E-Commerce
Electronic Data Interchange

• What is EDI?

– Exchange of electronic data using inter-

organizational information systems

– Set of hardware, software, and standards that

accommodate the EDI process
Benefits of EDI (Cont.)
How does EDI work?

1. Supplier’s proposal sent electronically to purchasing organization

2. Electronic contract approved over network

3. Supplier manufactures and packages goods, attaching shipping

data recorded on a bar code

4. Quantities shipped and prices entered in system and flowed to

invoicing program; invoices transmitted to purchasing
organization
How does EDI work?

5. Manufacturer ships order

6. Purchasing organization receives packages, scans bar
code, and compares data to invoices actual items
received
7. Payment approval transferred electronically
8. Bank transfers funds from purchaser to supplier’s
account using Electronic Fund Transfer (EFT)
How does EDI work?
Electronic Data Interchange

• All documents are digital

• Most users are health-care, insurance and

retailing

• Others are banking, automotive, petroleum and

chemical, and transportation companies
Value Added Network EDI

• Business partners subscribe to service and use VAN’s

private communication lines, mailboxes, and special
software

• VAN mediates EDI communication, translates

business documents into EDI documents

• Batches transmitted several times per day

Value Added Network EDI

• Advantages:

– Transaction integrity

– Privacy and security

– Non-repudiation(ability to ensure that a party to a

contract must accept the authenticity of the signature
on a document)

– Solid standards
Web EDI
• Majority of EDI still done through VAN lines
• Decreasing rapidly in favor of the Web
• All new EDI implementations use Web technologies
• Reduces cost
• Use of XML standards allows business partners to
create their own tags
Web EDI
• Advantages
– Lower cost

– More familiar software

– Worldwide connectivity
– Fast communication

– Real time information exchange

RFID
• RFID: Radio Frequency Identification

• Very small microprocessor with antennas

• With lower cost, will be embedded in many products for

tracking

• Microchips communicate with Wifi devices when in

production lines, packed, shipped, unloaded and more
 E-Commerce
• E-commerce is defined as the use of the
Internet and the Web to transact business
• Two types of e-commerce are
– Business-to-business (B2B) and
– Business-to-consumer (B2C)
Types of E-commerce

• Business-to-Business (B2B) Evolution:

– Automated order entry systems started in 1970’s
– Electronic Data Interchange (EDI) started in the 1970’s
– Electronic Storefronts emerged in the 1990’s
– Net Marketplaces emerged in the late 1990’s
Types of E-commerce

• Benefits of B2B E-Commerce

– Lower procurement administrative costs,

– Low-cost access to global suppliers

– Lower inventory investment due to price

transparency/reduced response time
– Better product quality because of increased cooperation
between buyers and sellers, especially during the product
design and development
Types of E-commerce

• Business-to-Consumer (B2C):
– On-line businesses try to reach individual consumers
• B2C (revenue model sources)
– Advertising – Web site offers providers and opportunity to
advertise
– Subscription –Web site charges a subscription fee for
access to the site
– Transaction – company receives a fee for executing a
transaction
– Sales – a means of selling goods, information, or service
directly to customers
– Affiliate – companies receive a referral fee for directing
business to an affiliate
 Electronic Marketplaces and Portals
• Vertical portals
– Offer a doorway (or portal) to the Internet for
industry members

– Vertically integrated
Independent Industry Marketplaces

• Industry marketplaces
– Focused on a single industry
• Independent exchanges
– Not controlled by a company that was an
established buyer or seller in the industry
• Public marketplaces
– Open to new buyers and sellers just entering the
industry
Chem Connect Home Page
Private Stores and Customer Portals

• Private store
– Has password-protected entrance

– Offers negotiated price reductions on limited

selection of products

• Customer portal sites

– Offer private stores along with services

Private Company Marketplaces

• E-procurement software
– Allows a company to manage its purchasing
function through a Web interface

• Private company marketplace

– A marketplace that provides auctions request for
quote postings, and other features
Industry Consortia-Sponsored Marketplaces

• Formed by several large buyers in a particular

industry
• Covisint
– Created in 2000 by a consortium of
DaimlerChrysler, Ford, and General Motors
• In the hotel industry
– Marriott, Hyatt, and three other major hotel chains
formed a consortium to create Avendra
 End of the Chapter

NEXT:
CHAPTER 2: VALUE OF INFORMATION