Operations Management Supplement 11 ECommerce and Operations Management

Operations Management Supplement 11 – E-Commerce and Operations Management Power. Point presentation to accompany Heizer/Render Principles of Operations Management, 6 e Operations Management, 8 e © 2006 Prentice Hall, Inc. © 2006 Prentice S 11 –

Outline þ The Internet þ Electronic Commerce þ E-Commerce Definitions þ Economics Of E-Commerce þ Product Design þ Collaborative Project Management © 2006 Prentice Hall, Inc. S 11 –

Outline – Continued þ E-Procurement þ Online Catalogs þ RFQs and Bid Packaging þ Internet Outsourcing þ Online Auctions þ Inventory Tracking © 2006 Prentice Hall, Inc. S 11 –

Outline – Continued þ Inventory Reduction þ Warehousing for E-Commerce þ Just-in-Time Delivery for ECommerce þ Scheduling And Logistics Improvement þ Coordinated Pickup and Delivery þ Logistics Cost Reduction © 2006 Prentice Hall, Inc. S 11 –

Learning Objectives When you complete this supplement, you should be able to: Identify or Define: þ E-commerce þ B 2 B, B 2 C, C 2 B þ Online catalogs þ Outsourcing þ E-procurement © 2006 Prentice Hall, Inc. S 11 –

Learning Objectives When you complete this supplement, you should be able to: Describe or Explain: þ How E-commerce is changing the supply chain þ Online auctions þ Internet trading exchanges þ Inventory tracking þ Pass-through warehouses © 2006 Prentice Hall, Inc. S 11 –

The Internet þ International computer network þ Connects companies and people around the world þ Enables the integration of internal information systems and enhanced communications between organizations þ Ties together global design, manufacturing, delivery, sales, and after -service © 2006 Prentice Hall, Inc. S 11 –

The Internet þ Reshaping how businesses think about delivering value to customers þ Prime benefits are speed and access þ Important vehicle for change in Operations Management þ Intranets are internal networks not available to external users þ Growing daily with over 300 million domains registered worldwide © 2006 Prentice Hall, Inc. S 11 –

Electronic Commerce þ E-commerce (or e-business) – the use of the internet to buy and sell products and services and exchange information þ Low cost rapid exchanges þ A 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 Gerstner Former Chairman, IBM © 2006 Prentice Hall, Inc. S 11 – 9

E-Commerce Definitions þ Business-to-business (B 2 B) – Both sides of the transaction are businesses, nonprofit organizations, or governments þ Business-to-consumer (B 2 C) – Transactions in which buyers are individual consumers þ Consumer-to-consumer (C 2 C) – Consumers sell directly to each other þ Consumer-to-business (C 2 B) – Individuals sell services or goods to businesses © 2006 Prentice Hall, Inc. S 11 – 10

E-Commerce Transactions Business Consumer Business B 2 B Global Health Care Exchange, Global Net Xchange B 2 C Amazon, Dell, Netgrocer. com Consumer C 2 B Priceline, Travelocity C 2 C e. Bay Figure S 11. 1 © 2006 Prentice Hall, Inc. S 11 – 11

Economics of E-Commerce þ Costs of information exchange are dramatically reduced þ Barriers to entry are lower þ Time constraints almost disappear þ Information and communication is cheap and easy © 2006 Prentice Hall, Inc. S 11 – 12

Types of Information þ Product — drawings, specifications, video, or simulation demonstrations, prices þ Production Processes — capacities, commitments, product plans þ Transportation — carrier availability, lead times, costs þ Inventory — inventory tracking, levels, costs, and location Table S 11. 1 © 2006 Prentice Hall, Inc. S 11 – 13

Types of Information þ Suppliers — product catalog, quality history, lead times, terms, and conditions þ Supply Chain Alliances — key contact, partners’ roles and responsibilities, schedules þ Supply Chain Process and Performance — process descriptions, performance measures such as quality and delivery Table S 11. 1 © 2006 Prentice Hall, Inc. S 11 – 14

Types of Information þ Competitor — benchmarking, product offerings, market share þ Sales and Marketing — point of sale (POS) data entry, promotions, pricing, discounts þ Customer — sales history and forecasts þ Costs — market indexes, auction results Table S 11. 1 © 2006 Prentice Hall, Inc. S 11 – 15

Benefits and Limitations Benefits of E-Commerce þ Improved, lower-cost information that makes buyers and sellers more knowledgeable has an inherent power to drive down costs þ Lower entry costs increase information sharing þ Available 24 hours a day, virtually any place in the world, enabling convenient transactions for those concerned Table S 11. 2 © 2006 Prentice Hall, Inc. S 11 – 16

Benefits and Limitations þ Availability expands the market for both buyer and seller þ Decreases the cost of creating, processing, distributing, storing, and retrieving paper-based information þ Reduces the cost of communication þ Richer communication than traditional paper and telephone communication because of video clips, voice, and demonstrations Table S 11. 2 © 2006 Prentice Hall, Inc. S 11 – 17

Benefits and Limitations þ Fast delivery of digitized products such as drawings, documents, and software þ Increased flexibility of location. (That is, it allows some processes to be located anywhere electronic communications can be established, and allows people to shop and work from home. ) Table S 11. 2 © 2006 Prentice Hall, Inc. S 11 – 18

Benefits and Limitations of E-Commerce þ Lack of system security, reliability, and standards þ Lack of privacy þ Some transactions are still rather slow þ Integrating e-commerce software with existing software and databases is still a challenge Table S 11. 2 © 2006 Prentice Hall, Inc. S 11 – 19

Benefits and Limitations þ Lack of trust in (1) unknowns about the integrity of those on the other end of a transaction, (2) integrity of the transaction itself, and (3) electronic money that is only bits and bytes Security and risk are major factors in E-commerce Table S 11. 2 © 2006 Prentice Hall, Inc. S 11 – 20

Product Design þ Easily shared knowledge and information allows quicker and lower cost design cycles that can involve participants in diverse locations þ Product data can be managed over the Internet þ Engineering changes and configuration management can be extended along the supply chain © 2006 Prentice Hall, Inc. S 11 – 21

Collaborative Project Management þ Project management software allows for establishing intranet sites for sharing documents and maintaining status reports þ Intranets can also be used for document libraries © 2006 Prentice Hall, Inc. S 11 –

E-Procurement þ Purchasing or order release communicated over the Internet þ Online catalogs allow quicker cost comparisons and bidding processes þ Catalogs can be provided by þ Vendors þ Intermediaries þ Buyers © 2006 Prentice Hall, Inc. S 11 – 23

Online Catalogs þ Vendor catalogs provide quick and easy access to the entire product line þ Available to anyone with Internet access þ Quick and easy to customize and adjust þ Reduced paper trails reduce purchasing costs © 2006 Prentice Hall, Inc. S 11 –

Online Catalogs þ Intermediary catalogs facilitate buyers and sellers meeting þ Buyers can find multiple sellers on one site þ Buyer-focused exchanges allow groups of generally similar firms to join together to buy in larger quantities and more efficiently than if they worked independently © 2006 Prentice Hall, Inc. S 11 –

Internet Trading Exchanges Retail goods — setup by Sears and France’s Carrefour; called Global. Net. Xchange for retailers (gnx. com) Health care products — set up by Johnson & Johnson, GE Medical systems, Baxter International, Abbott Laboratories, and Medtronic Inc; called the Global Heath Care Exchange (ghx. com) Table S 11. 3 © 2006 Prentice Hall, Inc. S 11 – 26

Internet Trading Exchanges Defense and aerospace products — created by Boeing, Raytheon, Lockheed-Martin, and Britain’s BAE Systems; called the Aerospace and Defense Industry Trading Exchange (exostar. com) Food, beverage, consumer products — set up by 49 leading food and beverage firms; called Transora (transora. com) Table S 11. 3 © 2006 Prentice Hall, Inc. S 11 – 27

Internet Trading Exchanges Steel and metal products — such as New View Technologies (exchange. e-steel. com); and Metal-Site (metalsite. com) Hotels — created by Marriott and Hyatt, and later joined by Fairmont, Six Continents, and Club Corp: called Aventra (aventra. com) buys for 2, 800 hotels Table S 11. 3 © 2006 Prentice Hall, Inc. S 11 – 28

Medical Supply Chain Current Supply Chain Suppliers Customers H H H H Manual processes, including paper, phone, and fax – Manufacturer H © 2006 Prentice Hall, Inc. – Hospital Figure S 11. 2 – Distributor H H H – Group Purchasing Organizations S 11 – 29

Medical Supply Chain New Supply Chain Suppliers Customers H Online Global Health Care Exchange H H H H Automated Web-based processes – Manufacturer H © 2006 Prentice Hall, Inc. – Hospital Figure S 11. 2 – Distributor H H H – Group Purchasing Organizations S 11 – 30

E-Procurement þ RFQs and Bid Packaging þ Database of history improves vendor selection þ Electronic files speed decisions þ System is faster and less expensive þ Internet Outsourcing þ Outsourcing support systems like payroll, accounting, human resources, and travel © 2006 Prentice Hall, Inc. S 11 – 31

E-Procurement þ Online Auctions þ Maintained by buyers, sellers, or intermediaries þ May be used to sell excess raw material or discontinued or excess inventory þ Low cost and increased access to buyers © 2006 Prentice Hall, Inc. S 11 – 32

Inventory Tracking þ Technologies like bar code scanners, radio frequency, electronic communications can be used by almost any firm to track inventory in transit, on the shop floor, or in a warehouse © 2006 Prentice Hall, Inc. S 11 –

Inventory Reduction þ Warehousing for E-Commerce þ Managed by a logistics vendor þ Pass-through facility rather than storage þ Just-in-Time Delivery for ECommerce þ E-commerce can improve communication and coordination þ E-commerce service companies manage complex transactions © 2006 Prentice Hall, Inc. S 11 – 34

Scheduling and Logistics Improvements þ Coordinated Pickup and Delivery þ Unified view of data þ Shipments can be merged in transit þ Reduced inventory and delays mean lower costs © 2006 Prentice Hall, Inc. S 11 –

Scheduling and Logistics Improvements þ Logistics Cost Reduction þ Carriers with unused capacity can find loads through Internet sites þ Logistics efficiency improves and costs are reduced © 2006 Prentice Hall, Inc. S 11 –