Topic 5

• Technologies improved and intercompany information could be transferred over telephone lines

  1960s and 1970s
• Information transfer agreements between trading partners increased efficiency but not ideal
• Incompatible data translation limited participation
• Freight and shipping companies joined together in 1968 to create a standardized information set


  Used a computer file transmittable to any freight company adopting the standard
• Benefits limited to members of industries that created standard-setting groups
• Full realization of EDI economies and efficiencies required standards for all companies in all industries
• American National Standards Institute (ANSI)


  Coordinating body for standards in the U.S.
• Accredited Standards Committee X12 (ASC X12)


  Develops and maintains EDI standards
• Data Interchange Standards Association (DISA)


  Administrative body coordinating ASC X12 activities
• Transaction sets


  Names of the formats for specific business data interchanges
• How EDI Works


  1. Basic idea: straightforward

  2. Implementation: complicated
• Paper-Based Purchasing Process


  1. Buyer and vendor not using integrated software for business processes so each information processing step results in paper document

  2. Must be delivered to department handling next step

  3. Paper-based information transfer

  4. Mail, courier, fax
• EDI Purchasing Process


  1. Mail service replaced with EDI network data communications

  2. Paper flows within buyer's and vendor's organizations replaced with computers running EDI translation software
• Direct connection EDI


  • Each business operates its own on-site EDI translator computer
  • Connected directly to each other using leased lines
• Few companies use direct connection EDI because dedicated leased lines are expensive
• Value-Added Network (VAN)


  • Receives, stores, forwards electronic messages containing EDI transaction sets
  • Trading partners use VAN to retrieve EDI-formatted messages
  • Must install compatible EDI translator software
  • Trading partners pass messages through the VAN instead of directly connecting computers
• EDI on the Internet


  • Called Internet EDI, Web EDI, or open EDI
  • Internet is open architecture network
  • EDIINT (Electronic Data Interchange-Internet Integration, EDI-INT) is the most common protocol for Internet EDI transaction sets
  • EDI exchanges encoded using AS2 (Applicability Statement 2) or AS3 (Applicability Statement 3)
  • Secure electronic receipts returned to senders for every transaction which helps establish repudiation
• EDI Payments


  • EDI transaction sets provide instructions to trading partner's bank
  • Negotiable instruments, the electronic equivalent of checks
  • Electronic funds transfers (EFTs) is the movement of money from one bank account to another
  • Executed using an Automated clearing house (ACH) system which is used by service banks to manage accounts with each other
  • Operated by U.S. Federal Reserve Banks, private ACHs
• Supply chain management


  • The job of managing integration of company supply management and logistics activities
  • Across multiple participants in a particular product's supply chain
  • Ultimate goal is to achieve higher-quality or lower-cost product at the end of the chain
• Value Creation in the Supply Chain

  • Engaging suppliers in cooperative relationships can lead to better, faster, cheaper service to customers
  • Company goes beyond its limits and creates a new network form among members of the supply chain
  • Use of technology to improve operational efficiency is supply chain competition
  • Can help implement management techniques like just-in-time and lean production
  • Originally developed as a way to reduce cost, now adds benefits to the ultimate consumer
• Value Creation in the Supply Chain (cont'd.)

  1. Requires establishment of long-term relationship with a small number of capable tier-one suppliers

  2. Tier-one suppliers develop relationships with tier-two suppliers who provide components and raw materials

  3. Tier-three suppliers provide components and raw materials to tier-two suppliers

  4. Key element is trust among the supply alliance

  5. Buyers expect annual price reductions, quality improvements from suppliers at each stage

  6. Ideally each level of supplier can share the benefits of reduced cost and more efficient operations
• Value Creation in the Supply Chain (cont'd.)

  • Key coordination effort is a consistent production strategy adopted by all supply chain participants
  • Clear communications and quick response are key elements of successful supply chain management
  • Adaptive supply chain exists when company uses technology to quick respond to change in market demand and supplier conditions
  • Leads to higher efficiency, lower costs and greater profits
• Adaptive supply chain


  Company uses technology to quick respond to change in market demand and supplier conditions
• Adaptive supply chain


  • Leads to higher efficiency, lower costs and greater profits
• Adaptive supply chain exists when company uses technology to quick respond to change in market demand and supplier conditions
• Internet and Web technologies in supply chain management

  Increase process speed, reduce costs, coordinate design effort and increase manufacturing flexibility
• Collaborative commerce


  Using Internet technologies, as Boeing and other firms do, to integrate the design, development, construction, testing, and refinement of products
• Materials-tracking technologies


  Optical scanners and bar codes track movement of materials and integration with EDI is now prevalent
• Real-time location systems (RTLS)


  Bar code tracking system used by fulfillment centers
• Second wave of electronic commerce


  New types of tracking integrated with Internet-based materials-tracking systems
• Radio Frequency Identification Devices (RFIDs)


  • Small chips using radio transmissions track inventory quicker and more accurately than bar codes
  • Active RFIDs have their own power supply
  • Passive RFID tags are inexpensive and small and do not need a power source
• Goal of RFID tagging in retail

  Help reduce lost sales from stockouts
• Industry observers believe RFID tagging in retail will become widespread starting in 2017 when many retailers plans to have them in all locations
• Ultimate consumer orientation in the supply chain


  One main goal of supply chain management is to help each company focus on meeting needs of consumer at the end of the supply chain
• Building and maintaining trust in the supply chain

  Key elements are continual communication and information sharing
• Vertical portals


  Industry-focused hubs that offer marketplaces and auctions for contact and business transactions
• Independent industry marketplaces


  • First vertical portals were trading exchanges focused on a particular industry
  • Independent exchanges: not controlled by established buyer or seller in the industry
  • Public marketplaces: open to new buyers and sellers just entering the industry
• By mid-2000s, more than 2200 independent exchanges, today fewer than 100 industry marketplaces still operating due to lack of profitability
• By 2010, various forms of B2B marketplace models gradually replaced independent marketplaces
• Private stores and customer portals

  • Password protected private stores for major customers with price reductions on some products
  • Customer portal sites offer private stores along with other services that would be needlessly duplicated in sellers participated in industry marketplaces