© 2006 Prentice Hall, Inc. S11 – 1

Operations ManagementOperations ManagementSupplement 11 – E-Commerce and Operations Management

Supplement 11 – E-Commerce and Operations Management

© 2006 Prentice Hall, Inc.

PowerPoint presentation to accompanyPowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 6ePrinciples of Operations Management, 6eOperations Management, 8e Operations Management, 8e

© 2006 Prentice Hall, Inc. S11 – 2

OutlineOutline

The InternetThe Internet

Electronic CommerceElectronic Commerce E-Commerce DefinitionsE-Commerce Definitions

Economics Of E-CommerceEconomics Of E-Commerce

Product DesignProduct Design

Collaborative Project Collaborative Project ManagementManagement

© 2006 Prentice Hall, Inc. S11 – 3

Outline – ContinuedOutline – Continued

E-ProcurementE-Procurement Online CatalogsOnline Catalogs

RFQs and Bid PackagingRFQs and Bid Packaging

Internet OutsourcingInternet Outsourcing

Online AuctionsOnline Auctions

Inventory TrackingInventory Tracking

© 2006 Prentice Hall, Inc. S11 – 4

Outline – ContinuedOutline – Continued

Inventory ReductionInventory Reduction Warehousing for E-CommerceWarehousing for E-Commerce

Just-in-Time Delivery for E-Just-in-Time Delivery for E-CommerceCommerce

Scheduling And Logistics Scheduling And Logistics ImprovementImprovement Coordinated Pickup and DeliveryCoordinated Pickup and Delivery

Logistics Cost ReductionLogistics Cost Reduction

© 2006 Prentice Hall, Inc. S11 – 5

Learning ObjectivesLearning Objectives

When you complete this supplement, When you complete this supplement, you should be able to:you should be able to:

Identify or Define:Identify or Define:

E-commerceE-commerce

B2B, B2C, C2C, C2BB2B, B2C, C2C, C2B

Online catalogsOnline catalogs

OutsourcingOutsourcing

E-procurementE-procurement

© 2006 Prentice Hall, Inc. S11 – 6

Learning ObjectivesLearning Objectives

When you complete this supplement, When you complete this supplement, you should be able to:you should be able to:

Describe or Explain:Describe or Explain:

How E-commerce is changing the How E-commerce is changing the supply chainsupply chain

Online auctionsOnline auctions

Internet trading exchangesInternet trading exchanges

Inventory trackingInventory tracking

Pass-through warehousesPass-through warehouses

© 2006 Prentice Hall, Inc. S11 – 7

The InternetThe Internet

International computer networkInternational computer network

Connects companies and people Connects companies and people around the worldaround the world

Enables the integration of internal Enables the integration of internal information systems and enhanced information systems and enhanced communications between organizationscommunications between organizations

Ties together global design, Ties together global design, manufacturing, delivery, sales, and manufacturing, delivery, sales, and after-serviceafter-service

© 2006 Prentice Hall, Inc. S11 – 8

The InternetThe Internet

Reshaping how businesses think about Reshaping how businesses think about delivering value to customersdelivering value to customers

Prime benefits are speed and accessPrime benefits are speed and access

Important vehicle for change in Important vehicle for change in Operations ManagementOperations Management

Intranets are internal networks not Intranets are internal networks not available to external usersavailable to external users

Growing daily with over 300 million Growing daily with over 300 million domains registered worldwidedomains registered worldwide

© 2006 Prentice Hall, Inc. S11 – 9

Electronic CommerceElectronic Commerce

E-commerce (or e-business) – the use of E-commerce (or e-business) – the use of the internet to buy and sell products and the internet to buy and sell products and services and exchange informationservices and exchange information

Low cost rapid exchangesLow cost rapid exchanges

A whole new way of doing businessA whole new way of doing business

“… all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.”

Louis GerstnerFormer Chairman, IBM

© 2006 Prentice Hall, Inc. S11 – 10

E-Commerce DefinitionsE-Commerce Definitions

Business-to-business (B2B) – Both sides Business-to-business (B2B) – Both sides of the transaction are businesses, non-of the transaction are businesses, non-profit organizations, or governmentsprofit organizations, or governments

Business-to-consumer (B2C) – Business-to-consumer (B2C) – Transactions in which buyers are Transactions in which buyers are individual consumersindividual consumers

Consumer-to-consumer (C2C) – Consumer-to-consumer (C2C) – Consumers sell directly to each otherConsumers sell directly to each other

Consumer-to-business (C2B) – Consumer-to-business (C2B) – Individuals sell services or goods to Individuals sell services or goods to businessesbusinesses

© 2006 Prentice Hall, Inc. S11 – 11

E-Commerce TransactionsE-Commerce Transactions

Figure S11.1Figure S11.1

BusinessBusiness ConsumerConsumer

BusinessBusiness

B2BGlobal Health

Care Exchange,Global Net Xchange

B2CAmazon, Dell, Netgrocer.com

ConsumerConsumerC2B

Priceline, Travelocity

C2CeBay

© 2006 Prentice Hall, Inc. S11 – 12

Economics of E-CommerceEconomics of E-Commerce

Costs of information exchange are Costs of information exchange are dramatically reduceddramatically reduced

Barriers to entry are lowerBarriers to entry are lower

Time constraints almost disappearTime constraints almost disappear

Information and communication is Information and communication is cheap and easycheap and easy

© 2006 Prentice Hall, Inc. S11 – 13

Types of InformationTypes of Information

Product — drawings, specifications, Product — drawings, specifications, video, or simulation demonstrations, video, or simulation demonstrations, pricesprices

Production Processes — capacities, Production Processes — capacities, commitments, product planscommitments, product plans

Transportation — carrier availability, Transportation — carrier availability, lead times, costslead times, costs

Inventory — inventory tracking, levels, Inventory — inventory tracking, levels, costs, and locationcosts, and location

Table S11.1Table S11.1

© 2006 Prentice Hall, Inc. S11 – 14

Types of InformationTypes of Information

Suppliers — product catalog, quality Suppliers — product catalog, quality history, lead times, terms, and history, lead times, terms, and conditionsconditions

Supply Chain Alliances — key contact, Supply Chain Alliances — key contact, partners’ roles and responsibilities, partners’ roles and responsibilities, schedulesschedules

Supply Chain Process and Performance Supply Chain Process and Performance — process descriptions, performance — process descriptions, performance measures such as quality and deliverymeasures such as quality and delivery

Table S11.1Table S11.1

© 2006 Prentice Hall, Inc. S11 – 15

Types of InformationTypes of Information

Competitor — benchmarking, product Competitor — benchmarking, product offerings, market shareofferings, market share

Sales and Marketing — point of sale Sales and Marketing — point of sale (POS) data entry, promotions, pricing, (POS) data entry, promotions, pricing, discountsdiscounts

Customer — sales history and forecastsCustomer — sales history and forecasts

Costs — market indexes, auction resultsCosts — market indexes, auction results

Table S11.1Table S11.1

© 2006 Prentice Hall, Inc. S11 – 16

Benefits and LimitationsBenefits and Limitations

Benefits of E-CommerceBenefits of E-Commerce

Improved, lower-cost information that Improved, lower-cost information that makes buyers and sellers more makes buyers and sellers more knowledgeable has an inherent power to knowledgeable has an inherent power to drive down costsdrive down costs

Lower entry costs increase information Lower entry costs increase information sharingsharing

Available 24 hours a day, virtually any Available 24 hours a day, virtually any place in the world, enabling convenient place in the world, enabling convenient transactions for those concernedtransactions for those concerned

Table S11.2Table S11.2

© 2006 Prentice Hall, Inc. S11 – 17

Benefits and LimitationsBenefits and Limitations

Availability expands the market for both Availability expands the market for both buyer and sellerbuyer and seller

Decreases the cost of creating, Decreases the cost of creating, processing, distributing, storing, and processing, distributing, storing, and retrieving paper-based informationretrieving paper-based information

Reduces the cost of communicationReduces the cost of communication

Richer communication than traditional Richer communication than traditional paper and telephone communication paper and telephone communication because of video clips, voice, and because of video clips, voice, and demonstrationsdemonstrations

Table S11.2Table S11.2

© 2006 Prentice Hall, Inc. S11 – 18

Benefits and LimitationsBenefits and Limitations

Fast delivery of digitized products such Fast delivery of digitized products such as drawings, documents, and softwareas drawings, documents, and software

Increased flexibility of location. (That is, Increased flexibility of location. (That is, it allows some processes to be located it allows some processes to be located anywhere electronic communications anywhere electronic communications can be established, and allows people can be established, and allows people to shop and work from home.)to shop and work from home.)

Table S11.2Table S11.2

© 2006 Prentice Hall, Inc. S11 – 19

Benefits and LimitationsBenefits and Limitations

Limitations of E-CommerceLimitations of E-Commerce

Lack of system security, reliability, and Lack of system security, reliability, and standardsstandards

Lack of privacyLack of privacy

Some transactions are still rather slowSome transactions are still rather slow

Integrating e-commerce software with Integrating e-commerce software with existing software and databases is still existing software and databases is still a challengea challenge

Table S11.2Table S11.2

© 2006 Prentice Hall, Inc. S11 – 20

Benefits and LimitationsBenefits and Limitations

Lack of trust in (1) unknowns about the Lack of trust in (1) unknowns about the integrity of those on the other end of a integrity of those on the other end of a transaction, (2) integrity of the transaction, (2) integrity of the transaction itself, and (3) electronic transaction itself, and (3) electronic money that is only bits and bytesmoney that is only bits and bytes

Table S11.2Table S11.2

Security and risk are major factors in E-commerce

© 2006 Prentice Hall, Inc. S11 – 21

Product DesignProduct Design

Easily shared knowledge and Easily shared knowledge and information allows quicker and lower information allows quicker and lower cost design cycles that can involve cost design cycles that can involve participants in diverse locationsparticipants in diverse locations

Product data can be managed over the Product data can be managed over the InternetInternet

Engineering changes and configuration Engineering changes and configuration management can be extended along the management can be extended along the supply chainsupply chain

© 2006 Prentice Hall, Inc. S11 – 22

Collaborative Project Collaborative Project ManagementManagement

Project management software Project management software allows for establishing intranet allows for establishing intranet sites for sharing documents and sites for sharing documents and maintaining status reportsmaintaining status reports

Intranets can also be used for Intranets can also be used for document librariesdocument libraries

© 2006 Prentice Hall, Inc. S11 – 23

E-ProcurementE-Procurement

Purchasing or order release Purchasing or order release communicated over the Internetcommunicated over the Internet

Online catalogs allow quicker cost Online catalogs allow quicker cost comparisons and bidding processescomparisons and bidding processes

Catalogs can be provided byCatalogs can be provided by VendorsVendors

IntermediariesIntermediaries

BuyersBuyers

© 2006 Prentice Hall, Inc. S11 – 24

Online CatalogsOnline Catalogs

Vendor catalogs provide quick and Vendor catalogs provide quick and easy access to the entire product easy access to the entire product lineline

Available to anyone with Internet Available to anyone with Internet accessaccess

Quick and easy to customize and Quick and easy to customize and adjustadjust

Reduced paper trails reduce Reduced paper trails reduce purchasing costspurchasing costs

© 2006 Prentice Hall, Inc. S11 – 25

Online CatalogsOnline Catalogs

Intermediary catalogs facilitate Intermediary catalogs facilitate buyers and sellers meetingbuyers and sellers meeting

Buyers can find multiple sellers on Buyers can find multiple sellers on one siteone site

Buyer-focused exchanges allow Buyer-focused exchanges allow groups of generally similar firms to groups of generally similar firms to join together to buy in larger join together to buy in larger quantities and more efficiently than quantities and more efficiently than if they worked independentlyif they worked independently

© 2006 Prentice Hall, Inc. S11 – 26

Internet Trading ExchangesInternet Trading Exchanges

Table S11.3Table S11.3

Retail goods — setup by Sears and France’s Retail goods — setup by Sears and France’s Carrefour; called GlobalNetXchange for Carrefour; called GlobalNetXchange for retailers (gnx.com) retailers (gnx.com)

Health care products — set up by Johnson Health care products — set up by Johnson & Johnson, GE Medical systems, Baxter & Johnson, GE Medical systems, Baxter International, Abbott Laboratories, and International, Abbott Laboratories, and Medtronic Inc; called the Global Heath Care Medtronic Inc; called the Global Heath Care Exchange (ghx.com)Exchange (ghx.com)

© 2006 Prentice Hall, Inc. S11 – 27

Internet Trading ExchangesInternet Trading Exchanges

Table S11.3Table S11.3

Defense and aerospace products — created Defense and aerospace products — created by Boeing, Raytheon, Lockheed-Martin, and by Boeing, Raytheon, Lockheed-Martin, and Britain’s BAE Systems; called the Britain’s BAE Systems; called the Aerospace and Defense Industry Trading Aerospace and Defense Industry Trading Exchange (exostar.com)Exchange (exostar.com)

Food, beverage, consumer products — set Food, beverage, consumer products — set up by 49 leading food and beverage firms; up by 49 leading food and beverage firms; called Transora (transora.com)called Transora (transora.com)

© 2006 Prentice Hall, Inc. S11 – 28

Internet Trading ExchangesInternet Trading Exchanges

Table S11.3Table S11.3

Steel and metal products — such as New Steel and metal products — such as New View Technologies (exchange.e-steel.com); View Technologies (exchange.e-steel.com); and Metal-Site (metalsite.com)and Metal-Site (metalsite.com)

Hotels — created by Marriott and Hyatt, and Hotels — created by Marriott and Hyatt, and later joined by Fairmont, Six Continents, later joined by Fairmont, Six Continents, and Club Corp: called Aventra and Club Corp: called Aventra (aventra.com) buys for 2,800 hotels(aventra.com) buys for 2,800 hotels

© 2006 Prentice Hall, Inc. S11 – 29

Medical Supply ChainMedical Supply Chain

Figure S11.2Figure S11.2

Current Supply ChainCurrent Supply Chain

CustomersCustomers

H

H

H HH

H HH

Manual processes, including Manual processes, including paper, phone, and faxpaper, phone, and fax

SuppliersSuppliers

H

– – ManufacturerManufacturer – – DistributorDistributor

– – HospitalHospitalH H

HGroup Purchasing Group Purchasing OrganizationsOrganizations

––

© 2006 Prentice Hall, Inc. S11 – 30

Medical Supply ChainMedical Supply Chain

Figure S11.2Figure S11.2

New Supply ChainNew Supply Chain

CustomersCustomers

H

H

H HH

H HH

Automated Web-based processesAutomated Web-based processes

OnlineGlobal Health

CareExchange

SuppliersSuppliers

H

– – ManufacturerManufacturer – – DistributorDistributor

– – HospitalHospitalH H

HGroup Purchasing Group Purchasing OrganizationsOrganizations

––

© 2006 Prentice Hall, Inc. S11 – 31

E-ProcurementE-Procurement

RFQs and Bid PackagingRFQs and Bid Packaging Database of history improves vendor Database of history improves vendor

selectionselection

Electronic files speed decisionsElectronic files speed decisions

System is faster and less expensiveSystem is faster and less expensive

Internet OutsourcingInternet Outsourcing Outsourcing support systems like Outsourcing support systems like

payroll, accounting, human payroll, accounting, human resources, and travelresources, and travel

© 2006 Prentice Hall, Inc. S11 – 32

E-ProcurementE-Procurement

Online AuctionsOnline Auctions Maintained by buyers, sellers, or Maintained by buyers, sellers, or

intermediariesintermediaries

May be used to sell excess raw May be used to sell excess raw material or discontinued or excess material or discontinued or excess inventoryinventory

Low cost and increased access to Low cost and increased access to buyersbuyers

© 2006 Prentice Hall, Inc. S11 – 33

Inventory TrackingInventory Tracking

Technologies like bar code Technologies like bar code scanners, radio frequency, scanners, radio frequency, electronic communications can be electronic communications can be used by almost any firm to track used by almost any firm to track inventory in transit, on the shop inventory in transit, on the shop floor, or in a warehousefloor, or in a warehouse

© 2006 Prentice Hall, Inc. S11 – 34

Inventory ReductionInventory Reduction

Warehousing for E-CommerceWarehousing for E-Commerce Managed by a logistics vendorManaged by a logistics vendor

Pass-through facility rather than Pass-through facility rather than storagestorage

Just-in-Time Delivery for E-Just-in-Time Delivery for E-CommerceCommerce E-commerce can improve E-commerce can improve

communication and coordinationcommunication and coordination

E-commerce service companies E-commerce service companies manage complex transactionsmanage complex transactions

© 2006 Prentice Hall, Inc. S11 – 35

Scheduling and Logistics Scheduling and Logistics ImprovementsImprovements

Coordinated Pickup and DeliveryCoordinated Pickup and Delivery Unified view of dataUnified view of data

Shipments can be merged in transitShipments can be merged in transit

Reduced inventory and delays mean Reduced inventory and delays mean lower costslower costs

© 2006 Prentice Hall, Inc. S11 – 36

Scheduling and Logistics Scheduling and Logistics ImprovementsImprovements

Logistics Cost ReductionLogistics Cost Reduction Carriers with unused capacity can Carriers with unused capacity can

find loads through Internet sitesfind loads through Internet sites

Logistics efficiency improves and Logistics efficiency improves and costs are reducedcosts are reduced