edi, supply chain & internet

Management Information Systems, 4th Edition 1

Chapter 11Supply Chain Management and

Global Information Systems


Learning Objectives• Explain the difference between vertical and

horizontal markets• Describe vertical and horizontal information

integration among companies• Articulate the differences between traditional and

Web-based EDI• Recognize the benefits of supply chain management

systems• Explain the role of global information systems• Cite the legal, cultural, and other challenges to

implementing international information systems


Sharing Information Systems:The Rise of E-Commerce

• 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


• Vertical market

– A market in which the goods of one business are used as raw materials or components in the production or sale process of another business

• Horizontal market

– All players in the market buy or sell the same products; they are in competition

Sharing Information Systems:The Rise of E-Commerce (Cont.)


Vertical Information Exchange• Vertically 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


Vertical Information Interchange (Cont.)


Horizontal Information Systems

• 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


Horizontal Information Systems (Cont.)


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


Benefits of EDI• Cost Savings

• Speed

• Accuracy

• Security

• System Integration

• Just-in-time Support


Benefits of EDI (Cont.)


1. Supplier’s proposal sent electronically to purchasing organization

2. Electronic contract approved over network

3. Supplier manufactures and packages goods, attaching shipping data recorded on a bar code

4. Quantities shipped and prices entered in system and flowed to invoicing program; invoices transmitted to purchasing organization

How does EDI work?


5. Manufacturer ships order

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

7. Payment approval transferred electronically

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

How does EDI work? (Cont.)


How does EDI work? (Cont.)


Electronic Data Interchange

• All documents are digital

• Most users are health-care, insurance and retailing

• Others are banking, automotive, petroleum and chemical, and transportation companies


• Business partners subscribe to service and use VAN’s private communication lines, mailboxes, and special software

• VAN mediates EDI communication, translates business documents into EDI documents

• Batches transmitted several times per day

Value Added Network EDI


• Advantages:

– Transaction integrity

– Privacy and security

– Nonrepudiation

– Solid standards

Value Added Network EDI (Cont.)


• Majority of EDI still done through VAN lines

• Decreasing rapidly in favor of the Web

• All new EDI implementations use Web technologies

• Reduces cost

• Use of XML standards allows business partners to create their own tags

Web EDI


• Advantages

– Lower cost

– More familiar software

– Worldwide connectivity

– Fast communication

– Real time information exchange

Web EDI (Cont.)


Supply Chain Management

• Less money being tied to inventory

• Management of supplies throughout the manufacturing process, from one organization to the next

• Monitoring and controlling the supply chain is Supply Chain Management (SCM)


Supply Chain Management (Cont.)


Supply Chain Management (Cont.)

• SCM applications streamline operations from suppliers to customers

– Reduction in inventories

– Reduction in cycle time

– Reduction in production cost


• SCM systems most effective when all businesses in the chain link their systems and share all information pertinent to planning production and shipment

• Not all organizations are willing

• Systems can be used beyond the sale

The Importance of Trust


• Saving costs by forcing another business to hold inventory may backfire

• If supply chain is linked through SCM systems, sharing information enables all in the chain to reduce costs

The Musical Chairs of Inventory


• RFID: Radio Frequency Identification

• Very small microprocessor with antennas

• With lower cost, will be embedded in many products for tracking

• Microchips communicate with wi-fi devices when in production lines, packed, shipped, unloaded and more

The Future of SCM: RFID


• Web enables organizations that are not horizontally or vertically related to streamline operations through collaboration

• Examples

– Combine freight with other businesses

– Maximize use of warehouse space

Collaborative Logistics


Multinational Organizations

• Headquarters in a single country, operation of divisions and subsidiaries in different countries

• A company’s nationality is not clear

• NAFTA may result in the internationalization of many corporations


Using the Web for International Commerce

• The Web is important for both B2B and B2C commerce

• Opportunities for businesses all over the world

• Organizations must be sensitive to local audiences (globalization)


Using the Web for International Commerce (Cont.)


• Increased revenues

– Increased international Web participation

– Potential Web participation

• Cost savings

– Printing and shipping costs

– Customer service costs

International Web Commerce Benefits


International Web Commerce Benefits (Cont.)


Challenges to Global Information Systems

• Technological Challenges

– Non-uniform information infrastructures

• Regulations and Tariffs

– Executives concerned about hassle-factor

– Software can reduce confusion

• Differences in Payment Mechanisms

– Non-uniform preferred payment method


Challenges to Global Information Systems (Cont.)

• Language Differences

– Translation delays

– Laws forbid foreign language accounting and other systems

• Cultural Differences

– Cultural imperialism


Challenges to Global Information Systems (Cont.)

• 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


Challenges to Global Information Systems

• Different Standards

– Varying standards for date format, measurements, etc.

• Legal Barriers

– Incompatible data privacy laws in U.S. and Europe


Ethical and Societal IssuesLegal Jurisdiction in Cyberspace

• Global Free Speech

– More than one law may govern a business practice or communication of ideas

– No longer is the legal environment confined to national boundaries

• Consumer Protection by Whom?

• Two Approaches to Jurisdiction


Summary• Markets can be viewed as either vertical or

horizontal, or both

• There are differences between traditional and Web-based EDI

• Supply chain management systems have various benefits

• Global information systems play an important role in business

edi, supply chain & internet

Business

electronic

global information

supply chain

supply chain

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scm systems

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