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Chapter 11

EDI, Supply Chain Management, and Global Information Systems

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Learning Objectives

When you finish this chapter, you will be able to: Explain the difference between vertical and horizontal markets. Describe vertical and horizontal information integration among

companies. Communicate the role electronic data interchange plays in

saving costs on business operations. Recognize the benefits of supply chain management systems Explain the role of global information systems. List the legal, cultural, and other challenges to implementing

information exchange systems.

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Sharing Information Systems: The Rise of E-Commerce Interorganizational Information Systems

Systems shared by two or more organizations to transfer data electronically.

Built and owned by only one organization Increases efficiency and effectiveness Organizations use similar systems to serve

international sites

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Vertical Information Exchange

Vertically relatedOutput of one organization used in processes

of another Integrating ISs between vertically related

organizations highly beneficial Saves time and money Better serves customers

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Vertical Information Interchange

Figure 11.1 Vertical relationships among organizations

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Horizontal Information Interchange Horizontal Information Interchange

Organizations performing similar activities share information

Real estate agencies maintain multiple listing service Financial institutions share financial information Airlines share reservation systems

Oldest type of electronic horizontal information interchange still takes place among financial institutions

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Horizontal Information Interchange

Figure 11.2 Horizontal information interchange

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Electronic Data Interchange

What is EDI?Utilization of telecommunications to exchange

electronic data using interorganizational information systems

Set of hardware, software, and standards that accommodate the EDI process

9Figure 11.3 Benefits of EDI

Electronic Data Interchange

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Electronic Data Interchange

Figure 11.4 Suppliers, manufacturers, and retailers cooperate in some of the most successful applications of EDI.

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Electronic Data Exchange

How does EDI work? Supplier’s proposal sent electronically to purchasing

organization. Electronic contract approved over network. Supplier manufactures and packages goods,

attaching shipping data recorded on a bar code. Quantities shipped and prices entered in system and

flowed to invoicing program; invoices transmitted to purchasing organization.

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Electronic Data Exchange

Manufacturer ships order. Purchasing organization receives packages, scans

bar code, and compares data to invoices actual items received.

Payment approval transferred electronically if there are no discrepancies.

Bank transfers funds from purchaser to supplier’s account using electronic fund transfer (EFT).

None of the documents involved in the process is on paper.

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Electronic Data Interchange

Figure 11.5How EDI works

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Electronic Data Interchange

EDI is conducted in two major forms:Value-added networks (VAN)The Web

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Electronic Data Interchange

Value Added Network EDI (VAN) To use VAN EDI, business partners subscribe to the

service and use: VAN’s private communication lines Mailboxes Special software

Software translating business documents to and from EDI convention strictly conforms to EDI standards

Codes for address lines and product prices and length of text comments in an invoice

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Electronic Data Interchange

VAN EDI provides several advantages:Transaction integrityPrivacy and securityNo repudiationSolid standards

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Electronic Data Interchange

Web EDI Internet is a natural vehicle for EDI

Ease of access Inexpensive implementation

Success largely attributed to XML standards Extranet EDI offers several advantages over VAN

EDI, including: Lower cost More familiar software Worldwide connectivity Fast communication

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Electronic Data Interchange

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Supply Chain Management

Supply Chain Management (SCM)Coordination of purchasing, manufacturing, shipping,

and billing operations Often supported by an enterprise resource planning system ISs that support this type management are called supply

chain management systems SCM applications streamline operations from suppliers to

customers Lower inventories, decrease production costs, and improve

responsiveness to suppliers and clients

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Supply Chain Management

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International and Multinational Organizations For effective management of an international

corporation, executives need: Flow of information across borders essential A number of surveys find that managers are

increasing attention to international IS integration

Some large multinational corporations build their own international ISs. Example: EDS

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Figure 11.8 The importance of international integration to companies with international operations

International and Multinational Organizations

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Using the Web for International Commerce International Web Commerce Benefits

Increased revenues Increased international Web participation Potential Web participation

Cost savings Printing and shipping costs Customer service costs

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Using the Web for International Commerce

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Challenges to Global Information Systems Technological Challenges

Some countries have inadequate information technology infrastructures

Language: how characters are represented There are other points that might sound trivial, but

wreak havoc Example: fields such as telephone numbers (variable

lengths)

Payment Mechanisms Non-uniform preferred payment method

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Challenges to Global Information Systems Language Differences

Translation delaysLaws forbid foreign language accounting and

other systems Cultural Differences

Cultural imperialism

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Challenges to Global Information Systems Conflicting Economic, Scientific, and Security

Interests Government restriction on sharing sensitive

information Varying treatment of trade secrets, patents, and

copyrights

Political Challenges Fear that access to information threatens sovereignty Government pressure to buy only national software

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Challenges to Global Information Systems Lack of standards

Varying standards for date format, measurements, etc.

Legal Barriers Incompatible data privacy laws in U.S. and

many other countries

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The Latecomer Benefit

Countries and companies on the bleeding edge of technologyOften take longer, more expensive road to

advanced technologies Latecomers are more privileged

Learning from predecessors’ mistakesOften taking shortcuts to more advanced

solutions

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Ethical and Societal IssuesLegal Jurisdictions in Cyberspace Legal challenges faced in today’s

electronic global markets are numerousGlobal Free SpeechConsumer Protection by Whom?Two Approaches to Jurisdiction

Country of origin principle Country of destination principle