International Management and E(lectronic)-Business Supply Chain Management & E-Procurement & Business Models (#4) guhr@iwi.uni-hannover.de # 1 Lecturers IWI Prof. Dr. Michael H. Breitner Tel.: (0511) 762 4901 Mail: breitner@iwi.uni-hannover.de Surgery: Tuesday 3-6 pm a.o.a. Tel.: (0511) 762 4979 Mail: guhr@iwi.uni-hannover.de h@i i ih Surgery: on appointment Dipl.-Ök. Lubov Lechtchinskaia Tel.: (0511) 762 4983 Mail: lechtchinskaia@iwi.uni- hi i i i hannover.de Surgery: Wednesday 2-5 a.o.a. # 2 1
Basic Books E-Business ( www., Stud.IP) E-Business and E-Commerce Management Dave Chaffey Prentice Hall; 4 th edition 2009 ISBN: 978-0273719601 What approach to e-business strategy should you follow? How much do you need to invest in e-business? Which processes should be your priorities? Relevant chapters for today: Chapter 6: complete Chapter 7: complete # 3 Topic today () Supply chain management, E-Procurement & Business Models # 4 2
Supply chain management (SCM) some definitions Source: Dave Chaffrey, E-Business and E-C Management, 4 th Edition, Marketing Ins Commerce sights Limited 2009 Supply chain management (SCM): The coordination of all supply activities of an organization from its suppliers and partners to its customers. Upstream supply chain: Transactions between an organization and its suppliers and intermediaries, equivalent to buy-side-e-commerce. Downstream supply chain: Transactions between an organization and its customers and intermediaries, equivalent to sell-side e-commerce. # 5 SCM Five different e-business scenarios # 6 3
Benefits of supply chain management? The benefits of SCM can also be reviewed from the perspective of problems that can occur. F.e.: Reduction in paperwork through electronic transmission of orders, invoices and delivery notes. Reduced inventory holdings needed through better understanding of demand. Reduced time for information and component supply across the supply chain. Lower SCM system purchase and management costs through use of online services (SaaS). Sharing of demand by customers with suppliers as par of efficient consumer response (ECR). Supplier becomes responsible for item availability through vendor-managed inventory. Inventory reduced throughout the supply chain through better demand forecasting and more rapid replenishment of inventory. Source: Dave Chaffrey, E-Business and E-Commerce Management, 4 th Edition, Marketing Insights Limited 2009 # 7 Objectives and strategies for effective consumer response (ECR) ECR is focused on demand management aimed at creating and satisfying customer demand by optimizing product assortment strategies, promotions, and new product introductions. It creates operational efficiencies and costs savings in the supply chain through reducing inventories and deliveries. Source: Dave Chaffrey, E-Business and E-Commerce Management, 4 th Edition, Marketing Insights Limited 2009 # 8 4
Inter-organizational process flow for introduction of a new product Source: excerpted from Towa evidence from the retail and c 2008.Used with permission fro 713-7444, www.aisnet.org. A ard the interorganisational product inform consumer goods industry by C. Legner an om Association for Information Systems, ll rights reserved ation supply chain nd J. Schemm Atlanta, GA, 404- # 9 Push and pull supply chain models (1) Source: Dave Chaffrey, E-Business and Management, 4 th Edition, Marketing 2009 E-Commerce Insights Limited Push supply chain: A supply chain that emphasizes distribution of a product to passive customers. # 10 5
Push and pull supply chain models (2) Source: Dave Chaffrey, E-Business and Management, 4 th Edition, Marketing 2009 E-Commerce Insights Limited Pull supply chain: An emphasis on using the supply chain to deliver value to customers who are actively involved in product and service specification. # 11 Two alternative models of the value chain Source: Dave Chaffrey, E-Business and Management, 4 th Edition, Marketing 2009 E-Commerce Insights Limited Value chain: A model that considers how supply chain activities can add value to products and services delivered to the customers. Debate: The traditional value chain model (a) of Michael Porter is no longer useful as a framework for value chain management. Instead, Figure (b) is more appropriate. # 12 6
Value chain analysis Porter and Millar (1985) propose the following five-step process: Step 1: Assess the information intensity of the value chain. The higher the level of intensity and/or the higher the degree of reliance on good-quality information, the greater the potential impact of new information systems. Step 2: Determine the role of IS in the industry structure. It is also important her to understand the information linkages between buyers and suppliers within the industry and how they and competitors might be affected by and react to new information technology. Step 3: identify and rank the ways in which IS might create competitive advantage. High-cost or critical activity areas present good targets for cost reduction and performance improvement. Step 4: Investigate how IS might spawn new businesses. Step 5: Develop a plan for taking advantage of IS. A plan must be developed which is business-driven rather than technology-driven. The plan should assign priorities to the IS investments. # 13 External value chain or value network Members of the E-Business and Insights Limited e value network of an organization. Sourc ce: Dave Chaffrey, E-Commerce Management, 4 th Edition, Marketing d 2009 (adapted from Deise et al.2000) External value chain or value network: The links between an organization and its strategic and non-strategic partners that form its external value chain. # 14 7
Virtual organization Virtual organization: An organization which uses information and communications technology to allow it to operate without clearly defined physical boundaries between different functions. It provides customized services by outsourcing production and other functions the third parties. Characteristics of virtual organizations: Lack of physical structure Reliance on knowledge Use of communications technologies Mobile work Boundaryless and inclusive Flexible and responsive An alternative viewpoint on features of a virtual organization is (Kraut et al. 1998): Processes transcend the boundaries of a single firm and are not controlled by a single organizational hierarchy. Production processes are flexible with different parties involved at different times. Parties involved in the production of a single product are often geographically dispersed. Given this dispersion, coordination is heavily dependent on telecommunications and data networks. # 15 Options for restructuring the supply chain Source: Dave Chaffrey, E-Business and Management, 4 th Edition, Marketing 2009. E-Commerce Insights Limited Vertical integration: The extent to which supply chain activities are undertaken and controlled within the organization. Virtual integration: The majority of supply chain activities are undertaken and controlled outside the organization by third parties. # 16 8
Benefits of e-supply chain management Typical benefits with respect to a typical B2B company: Increased efficiency of individual processes Benefit: reduced cycle time and cost per order Reduced complexity of the supply chain Benefit: reduced cost of channel distribution and sale Improved data integration between elements of supply chain Benefit: reduced cost of paper processing Reduced cost through outsourcing Benefits: lower costs through price competition and reduced spend on manufacturing Innovation Benefit: better customer responsiveness # 17 IS infrastructure for SCM Source: Dave Chaffrey Marketing Insights y, E-Business and E-Commerce Managem ment, 4 th Edition, Limited 2009 # 18 9
What is e-procurement? E(-lectronic) procurement: The electronic integration and management of all procurement activities including purchase request, authorization, ordering, delivery and payment between a purchaser and a supplier. The five rights of e-procurement at the right price delivered at the right time are of the right quality of the right quantity from the right source. E-procurement system (EPS): An electronic system used to automate all or part of the procurement function by enabling the scanning, storage and retrieval of invoices and other documents; management of approvals; routing of authorization requests; interfaces to other finance systems; and matching of documents to validate transactions. # 19 Key procurement activities within an organization Source: Dave Management, 2009 Chaffrey, E-Business and E-Commerce 4 th Edition, Marketing Insights Limited d # 20 10
Framework for evaluating the benefits of e- procurement Source: Dave Management 2009. Riggins e Chaffrey, E-Business and E-Commerce t, 4 th Edition, Marketing Insights Limite s and Mitra (2007) ed # 21 Implementing e-procurement Source: Dave Management, 2009 Chaffrey, E-Business and E-Commerce 4 th Edition, Marketing Insights Limited d Figure: Use of different information systems for different aspects of the fulfillment cycle # 22 11
The three main e-procurement model alternatives for buyers Source: Dave Management, 2009 Chaffrey, E-Business and E-Commerce 4 th Edition, Marketing Insights Limited d # 23 Integration between e-procurement systems and catalogue data Source: Manage 2009. Dave Chaffrey, E-Business and E-Comme erce ement, 4 th Edition, Marketing Insights Limited # 24 12
Benefits of e-procurement A greater simplification, standardization, and transparency of procurement procedures (leading to a potential in purchasing cycle time or order times). A reduction in duplication of procurement functions and offices (leading to a reduction in costs of operation). Greater transparency and accountability of decision-making; and the potential benefits of scale from consolidation of procurement (including a reduction in the number of suppliers, an increase in the number of products supplied by main suppliers, inventory savings, and potential reductions in purchasing price to the end user). # 25 Barriers to the development and application of e-procurement processes These include: a lack of awareness of and capability to implement e-procurement technologies within the firm; a lack of suppliers within a particular marketplace; and a resistance to change from traditional purchasing methods. For many firms procurement can be based on strong, well-established relationships between buyers and suppliers. Even after integrating key suppliers, companies may still struggle with low user adoption and costly non-catalogue and off-contrast purchases. # 26 13
Definition business model Business model: It represents the architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenues (Timmer 2000, p. 32). According to Elliot (2002, p. 7), Business models specify the relationships between different participants in a commercial venture, the benefits and costs to each and the flows of revenues. # 27 Why business models in e-business? Reasons, e.g.: The rapid development of the Internet and related technologies, combined with the changing nature of the economy and other changes in the business environ- ment, has facilitated the emergence of new business strategies and business models. Results from the identification of factors influencing e-business model adoption can be grouped by thematic priority area as follows : Technology, Individual, Organizational, Industry and Society. Start ups, Spin-Offs as well as established companies need to plan their investments in e-business. The use of formalized e-business models helps managers easily communicate and share their understanding of an e-business among other stakeholders. A formalized e-business model can help to identify the relevant measures to follow in an e-business. # 28 14
Business Model Concept Stack according to Osterwalder, Pigneur, Tucci 2005 # 29 Integrated business model according to Wirtz 2001 # 30 15
A typology of business models on the Internet Degree of virtuality Pure-click Business Business Focus Content Commerce Context Connection e.g. Genios Web Search Brick-and-click Business e.g. Time Inc. e.g. Otto e.g. ebay e.g. Yahoo! e.g. AOL e.g. Stiftung Warentest e.g. Deutsche Telekom Content: The content model covers the collection, selection, systemization, compilation and supply of consumer-referred personal content over networks. Commerce: The commerce model describes the preparation, negotiation and handling of business transactions over networks. Context: The context model covers the classification and systemization of the information which is available in a network. Connection: The connection model aims at an information exchange in networks. # 31 Content model: e.g. Business model FTD.de Adapted from: Wirtz 2000, p. 90 # 32 16
Context model: e.g. Google Aim: Reduction of complexity / navigation Search engines, e.g. metager.de, google.de, yasni.de Web-catalogue, e.g. Yahoo!, dmoz.org # 33 Classification of receipts according to Wirtz 2001 Transaction-dependent Direct revenues Sales revenues Connection fees Download fees e.g. Sciencedirect.com Indirect revenues Commission-based, affiliate model Transaction-independent Set-up (activation) fees Basic (subscription) fees e.g. WllSt Wall Street tjournal Online (Banner) Advertising Data-mining-receipts (sell user data) Sponsorship # 34 17
Business Model Ontology according to Osterwalder 2004 # 35 Short summary Supply chain management involves the coordination of all supply activities of an organization from its suppliers and partners and its customers. Upstream supply chain activities (procurement and inbound logistics) are equivalent to buy-side e-commerce and downstream supply chain activities (sales, outbound logistics and fulfillment) correspond to sell-side e-commerce. There has been a change in supply chain management thinking from a push-oriented supply chain that emphasizes distribution of a product to passive customers to a pull-oriented supply chain to deliver value to customers who are actively involved in product and service specification. The value chain concept is closely allied to supply chain management. It considers how value can be added both between and within elements of the supply chain and at the interface between them. Electronic communications enable value networks to be created that enable the external value chain to be dynamically updated in response to marketplace variables. Supply chains and value chains can be revised by disaggregation or re-aggregation. Dissaggregation may involve outsourcing core supply chain activities to external parties. As more activities are outsourced a company moves towards becoming a virtual organization. Electronic communications have played a major role in facilitating new models of supply chain management. Technology applications that have facilitated supply chain management are: E-mail, Web-based ordering, EDI of invoices and payment, Web-based order tracking. # 36 18
Short summary Benefits of deploying these technologies include: o More efficient, lower-cost execution of processes. o Reduced complexity of the supply chain (disintermediation). o Improved data integration between elements of the supply chain. o Reduced costs through ease of dynamic outsourcing. o Enabling innovation and customer responsiveness. Procurement activities involved with purchasing items from a supplier purchasing, but also transportation, goods-in and warehousing before the item is used. E-Procurement involves the electronic integration of all procurement activities. The number of staff and stages involved in procurement are reduced through e-procurement by empowering the originator of orders and changing the role of buying staff. E-Procurement is intended to achieve reduced purchasing cycle time and cost savings, principally through reduced staff time spent in procurement and lower inventory. Options for introducing e-procurement include: o Sell-side e-procurement purchase direct from a seller`s s web site that is typically not integrated with the buyer`s procurement system. o Buy-side e-procurement integration of sellers`catalogues with the buyer`s procurement system. o Marketplace procurement trading through an intermediary with many suppliers. Remember the benefits and barriers of e-procurement. # 37 Short summary The main technical challenges are the integration or replacement of a range of existing purchasing systems with a variety of supplier or marketplace systems. Wirtz describes an integrated business model consisting of the sub-models: value proposition model, value creation model, procurement model, market model, capital model and distribution model. Wirtz developed the 4C Net Business Model : Content, Commerce, Connection and Context. The 4C internet business model typology is used to classify the different business models found on the web today. There are different types of e-business specific revenues as direct/indirect and transaction dependent/transaction independent. Osterwalder defined a business model as the logic of a business system for creating value, that lies behind the actual processes. A business model needs to address the revenue and product aspects of a business. In order to provide an appropriate foundation for tools that would allow the effective and consistent understanding, sharing and communicating, changing, measuring and simulating of the e-business models, an ontology of e-business models is necessary. An ontology is a rigorously defined framework, that provides a shared and common understanding of a domain that can be communicated between people and heterogeneous and widespread application systems. The ontological framework of the e-business model is based on four main pillars: Product innovations, infrastructure management, customer interface and financial aspects. # 38 19
Thank you for your attention! # 39 20