Lecture concepts in enterprise resource planning (2nd edition) chapter 8 ERP and electronic commerce

Chapter Objectives• Describe business-to-business e-commerce • Explain why ERP is essential to the success of a company engaged in e-commerce • Describe what an application service provi

Chapter Objectives

• Describe business-to-business e-commerce

• Explain why ERP is essential to the success of a

company engaged in e-commerce

• Describe what an application service provider (ASP)

does

• Describe how ERP is delivered to users by an ASP

• Describe Web services and SAP’s NetWeaver

• Describe the unique components of NetWeaver

• Explain why accessing an ERP system through a Web browser is efficient

Electronic Commerce Background

• E-commerce is the conduct of business over the internet

• Most business growth on the Internet has been

business-to-business (B2B) e-commerce, rather than business-to-consumer (B2C) e-commerce

• B2B sales are expected to approach $1 Trillion in

Europe by 2006

• B2B e-commerce is transforming the way companies work with each other—especially for commodity

products

Electronic Data Interchange (EDI)

• Companies have been able to transfer purchase

orders electronically since the 1960s through a

system known as Electronic Data Interchange (EDI), originally using telephone lines

• EDI networks are expensive, so many companies subscribe to value-added networks (VAN), an

intermediary Internet-based network

• EDI messages are standardized business

transactions that follow a specific computer protocol

Electronic Data Interchange (EDI)

• Benefits of EDI include:

• Costs of paper, printing, and postage have almost

disappeared

• Errors are minimized as orders are not manually

entered into the supplier’s information system

• Ordering is fast and efficient

• Large companies may require suppliers to use EDI, and may pay EDI costs for small suppliers

• EDI tends to lock buyers and suppliers into a

long-term relationship

• An advantage as long as both parties remain

Internet-Based Procurement

• Internet-based procurement:

• Is less expensive than private EDI networks

• Reduces purchasing costs further as suppliers

compete for orders on the buyer’s Web site

• Locking in suppliers often does not occur in

Private Exchanges

• Companies like Siemens, Volkswagen and IBM have set

up private exchanges

• Membership is restricted to select participants

• Volkswagen has slashed procurement costs in half and cut negotiations from three months to a day

• Jupiter Research estimates that one-third of all

businesses with revenues over $1 billion will operate private exchanges

Internet Auctions and Reverse Auctions

• Companies can use standard auctions to sell products or obsolete equipment

• Reverse auctions, with one buyer and many sellers, can

be used to purchase commodity products that are widely available at recognized quality standards

• Internet auctions are challenging the role previously filled by traditional intermediaries

• Epsilon Products has used ChemConnect to reduce raw material costs by 5%

• Increased competition from marketplaces creates a new emphasis on supply chain flexibility and costs

Electronic Commerce Security

• E-commerce is threatened by security breaches

• Large firms have been shut down by various types of

system attacks, such as denial-of-service attacks

• Denial-of-service (DoS) attacks occur when attackers block a Web site by a variety of means, including

bombarding the system with messages

• Buy.com, Amazon, CNN.com, eBay E*Trade, ZDNet and Yahoo were all shut down temporarily in February

200 because of DoS attacks

• Yahoo lost approximately $500,000 from a hour attack

three-• Security is an on-going effort

E-commerce and ERP

• E-commerce and ERP technologies are complements

• If the competition is using the Internet effectively, then

a company needs to develop an Internet strategy

• Without integrated information systems, companies cannot support e-commerce effectively

• In 1999, eToys.com announced a week before

Christmas that it would not be able to fill all Web

orders

• Toys were in the warehouse, but the systems were not in place to process orders

Application Service Providers

• An Application Service Provider (ASP) provides

management of application programs over a network

• Companies using the ASP do not have to purchase the hardware or software or higher people to operate

Application Service Providers

Application Service Providers

• ASP Disadvantages:

• Security: Companies turn their critical information

over to a 3rd party

• ASP must be able to insure data integrity

• ASP may have better security and controls than a small company

• Bandwidth/response time: Telecommunications

channel between ASP and company must be able to handle volume of transactions

• Flexibility: The ASP must be flexible in working with users and satisfying requests for modifications

Application Service Providers

• ASP Disadvantages:

• No frills: An ASP may not be willing to support 3rd

party software or develop custom applications (e.g ABAP programs)

• Technical, not business: An ASP may know the

technical aspects of the software but may not be

capable of helping customers with business process and configuration decisions

Another Look—Using ERP through an ASP

• In the 1990s, Universities that joined SAP’s University Alliance program had to purchase a server (costing over

$50,000) and had to train its own system administrators

• SAP had to provide technical support for over 100

university installations

• SAP developed a hosting concept known as the

University Competency Center (UCC)

• Five Universities serve as ASP for other members in the Alliance, providing customer technical support for education—a specialized task

• Web Services is the combination of software tools that lets various programs within an organization

communicate with other applications

• NetWeaver is SAP’s Web services platform

• FedEx built its package tracking system on Web services

• FedEx’s cost per inquiry has been reduced from

$2.14 to $0.04

• Travelers Insurance Company has cut its auto glass

claim processing costs by 30 percent using Web

services

• Enterprise Portal (mySAP.com)

• Gives users complete access (a portal) to all work on

• Provides access to data within SAP and other

company information systems

• A partnership between SAP and VoiceObjects AG will add voice capability to NetWeaver

• Business Intelligence (BI)

• BI incorporates data warehouse and data mining tools

• BI can be delivered in a personalized manner with

• Master Data Management

• Provides data consistency within a company’s SAP system

• The grocery industry could save $25 to $50 billion if suppliers could synchronize their data, such as

product numbers, with retail outlets

• Exchange Infrastructure

• Allows different applications to share data without

writing code

Accessing ERP over the Internet

• ERP vendors offer access to their systems over the

Internet using a Web browser

• Easier to administer than special-purpose GUI

software

• Software upgrades are easier to administer, as only server (and not end-user) software needs to be

upgraded

• Extensible Markup Language (XML) is the new

programming language of the Internet

• XML uses tags to define the data contained in Web

pages

• XML tags give specific meaning to data

• HTML only specifies how information will look on a Web page

• XML-coded data can go directly from a Web page to a database without the need for middleware

• ERP systems are now ready to accept data in XML

format

Another Look—XML, ERP and E-commerce

• OxyChem realized tremendous customer service

benefits when it linked its SAP system with a customer’s SAP system

• This experience caused OxyChem to embark on a

mission to link its SAP system with the information

systems of its 5,000 customers

• OxyChem has developed four linking strategies:

• XML-based ERP to ERP

• Physical probes in customer’s raw material containers

• ChemConnect Web site

• OxyChem’s own Web portal

Radio Frequency Identification

• Radio Frequency Identification (RFID) technology is

becoming an efficient way of tracking items in the supply chain

• An RFID device is a small package, or tag, with a

microprocessor and antenna

• Information from the RFID tag is transmitted via radio

waves to a receiver when interrogated by an RFID

reader

• Does not require line-of-site contact like a bar code reader

Radio Frequency Identification

• Wal-Mart is driving the implementation of RFID with its suppliers

• Wal-Mart will connect RFID data with its Retail Link system, where buyers and suppliers can check

inventory levels, sales and more

• Proctor & Gamble is using RFID technology to improve demand management in its supply chain to avoid the

bullwhip effect

• SAP’s R/3 software is RFID ready

• With NetWeaver, SAP can link RFID with both SAP and non-SAP systems

business Business-to-consumer e-commerce can streamline

a company’s ordering operations and record information

about customers that can be used to plan marketing

campaigns, making the company more competitive.

companies buy and sell goods New forms of procurement such as auctions, reverse auctions, and trading exchanges— all with dynamic pricing—are replacing the traditional

intermediary.

An integrated information system is required to provide

speed and consistency in transaction processing and other back-office operations.

• Application service providers (ASPs) are allowing

companies to use ERP without a large initial investment, making ERP systems available to smaller companies There are risks associated with using an ASP, however, and the decision to buy or lease must be weighed

carefully

• Web Services, a combination of software tools that lets

various programs within an organization communicate with other applications, are gaining popularity

• SAP's Web services platform is NetWeaver, which

includes those tools for seamless Web connectivity, and

• Users of ERP systems often access those systems

through a Web browser rather than the ERP systems' graphical user interface (GUI)

• XML, extensible markup language, defines data on a

Web page ERP systems are using XML to integrate

systems between suppliers and customers for easy data transfer

• RFID devices, or radio frequency identification devices,

are used in tracking items in transit RFIDs are

particularly useful in supply chain processes for

shipping and receiving cases and pallets of items ERP vendors are developing the capability to incorporate