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EDI, Supply Chain Management,

and Global Information Systems

Chapter 11

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Sharing Information Systems

Interorganizational Information Systems– Systems shared by two or more

organizations

• Built and owned by one organization

• Increases efficiency and effectiveness

• Organizations use similar systems to serve international sites

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Vertical Information ExchangeVertically related

– Output 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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Electronic Data Interchange

What is EDI?– Exchange of electronic data using

interorganizational information systems

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

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Electronic Data Interchange

Benefits of EDI

– Cost Savings– Speed– Accuracy– Security– System Integration– Just-in-time Support

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

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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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– Manufacturer ships order.

– Purchasing organization receives packages, scans bar code, and compares data to invoices actual items received.

– Payment approval transferred electronically.

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

How does EDI work?

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Electronic Data Interchange

How EDI works

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– EDI requires companies to agree on standards

• Compatible hardware and software

• Agreed upon electronic form format

– Established EDI standards• Automotive Industry Action Group (AIAG)

• X.12 de facto umbrella standard in U.S. and Canada

• EDI for Administration, Commerce, and Trade (EDIFACT) umbrella of standards in Europe

Electronic Data Interchange

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How to Subscribe to EDI:

– Larger companies purchase hardware and software

– Medium and small companies seek third-party service

• Value-added networking (VAN)

• Managed network services available for a fee

Electronic Data Interchange

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EDI on the Web

– Advantages of Web EDI• Lower cost• More familiar software• Worldwide connectivity

– Disadvantages of Web EDI• Low speed• Poor security

Electronic Data Interchange

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Legal Problems of EDI

– Increased risk of unauthorized interception

– Contractual responsibility for incomplete or

– corrupted telecommunications

– Questionable validity of digital contracts

– Protection against the ease of collaborative

– pricing and other activities that may violate antitrust laws

Electronic Data Interchange

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The Importance of EDI

– Need for timely, reliable data exchange in response to rapidly changing markets

– Emergence of standards and guidelines

– Spread of information into many organizational units

– Greater reliability of information technology

– Globalization of organizations

Electronic Data Interchange

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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

– Legal implications and risks similar to those of EDI

16Horizontal information interchange

Horizontal Information Interchange

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International and Multinational Organizations

Multinational organizations need integrated ISs– Flow of information across

borders essential

– Managers increasing attention to international IS integration

– Some large companies build their own international ISs

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International and Multinational Organizations

The importance of international integration to companies with international operations

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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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Challenges to Global Information Systems

Technological Challenges– Non-uniform information

infrastructures

Payment Mechanisms– Non-uniform preferred payment

method

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Language Differences– Translation delays

– Laws forbid foreign language accounting and other systems

Cultural Differences– Cultural imperialism

Challenges to Global Information Systems

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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

Challenges to Global Information Systems

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Standards– Varying standards for date format,

measurements, etc.

Legal Barriers to International Data Transfer– Incompatible data privacy laws in U.S.

and Europe

Challenges to Global Information Systems

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Ethical and Societal IssuesThe Electronic Immigrant

Electronic Immigrant – Telecommutes to company in another country

• Competes with local workers in foreign countries• Often can work for less

– Drawbacks• Reduced government control of foreign labor• Pockets of unemployment in host country

– Advantages• Ultimately benefits consumer by lowering costs• Helps limit ‘physical immigration’• Satisfies unmet demand for developers