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Chapter 11
Supply Chain Management and
Global Information Systems
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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
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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
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Sharing Information Systems:
The Rise of E-Commerce (Cont.)
• 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
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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
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Vertical Information Interchange
(Cont.)
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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
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Horizontal Information Systems
(Cont.)
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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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Benefits of EDI
• Cost Savings
• Speed
• Accuracy
• Security
• System Integration
• Just-in-time Support
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Benefits of EDI (Cont.)
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Benefits of EDI (Cont.)
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How does EDI work?
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
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How does EDI work? (Cont.)
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)
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How does EDI work? (Cont.)
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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
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Value Added Network EDI
• 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
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Value Added Network EDI (Cont.)
• Advantages:
– Transaction integrity
– Privacy and security
– Nonrepudiation
– Solid standards
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Web EDI
• 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
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Web EDI (Cont.)
• Advantages
– Lower cost
– More familiar software
– Worldwide connectivity
– Fast communication
– Real time information exchange
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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)
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Supply Chain Management (Cont.)
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Supply Chain Management (Cont.)
• SCM applications streamline operations from
suppliers to customers
– Reduction in inventories
– Reduction in cycle time
– Reduction in production cost
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The Importance of Trust
• 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
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The Musical Chairs of Inventory
• 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
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The Future of SCM: RFID
• 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
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Collaborative Logistics
• 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
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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
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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)
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Using the Web for
International Commerce (Cont.)
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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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International Web Commerce
Benefits (Cont.)
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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
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Challenges to Global Information
Systems (Cont.)
• Language Differences
– Translation delays
– Laws forbid foreign language accounting and
other systems
• Cultural Differences
– Cultural imperialism
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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
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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
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Ethical and Societal Issues
Legal 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
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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
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