Purchasing, logistics and support activities

LECTURER: Olivier Kevin

Email: kishimwe@uok.ac.rw

Labor for the future Lecturer Olivier Angel Kevin

Perspective
• In previous lectures we talked about ways that
goods and services are protected, promoted, and sold.
• In terms of the value chain, this involves:
– Identify customers
– Markets and sells
– Delivery
• We now consider how technology can improve:
– Purchasing
– Logistics
– Support

Labor for the future Lecturer Olivier Angel Kevin

Purchasing
Purchasing activities include:
• Identifying vendors
• Evaluating vendors
• Selecting specific products
• Placing orders
• Resolving issues that arise after receipt of goods
or services:
– Late deliveries
– Incorrect items or quantities shipped
– faulty items

Labor for the future Lecturer Olivier Angel Kevin

 Identifying vendors
Years in business
Ability to constantly supply products or services
Ability to supply all the products required or the complete solution.
Flexibility to allow changes in orders or product lines.
Substantial catalogue of products or range of services.
Appropriate supply of internal experts that can answer questions
you may have.
Testimonials and references.
Sustainability and financial stability.
Prices. Delivery times.
Terms of business. Customer service.

Labor for the future Lecturer Olivier Angel Kevin

Evaluating vendors

1. Establish Performance Indicators

2. Classify Multiple Suppliers and Vendors
3. Devise an Evaluation Method
4. Determine Who's Calling the Shots
5. Maintain Good Relationships

Labor for the future Lecturer Olivier Angel Kevin

 MRO supplies
• Maintenance, repair, and operating (MRO) supplies are commodity
items that companies buy on a recurring basis.
• Price is usually the main selection decisive factor.
• By using a Web site to process orders, vendors in this market can
save the cost of printing and shipping catalogs and the cost of
handling telephone orders.

Labor for the future Lecturer Olivier Angel Kevin

 Logistics
• Objective: Provide the right goods in the right quantity in the right
place at the right time.

• Major transportation companies want to be seen as information

management firms as well as freight carriers.

• Logistics activities include receiving, warehousing, inventory

control, vehicle scheduling and control, and finished goods
distribution.
Labor for the future Lecturer Olivier Angel Kevin
Support activities
Support activities include:
• Finance and administration
• Human resources
• Technology development

Labor for the future Lecturer Olivier Angel Kevin

Finance and administration
• Making payments
• Processing payments received
• Planning capital expenditures
• Budgeting and planning
• Operation of the computing infrastructure
•ETC

Labor for the future Lecturer Olivier Angel Kevin

 Human resources
• Hiring
• Training (not always)
• Evaluating employees
• Complying with government record-keeping
regulations

Labor for the future Lecturer Olivier Angel Kevin

 Developing technology
Activities included here depends on the nature of the business
or organization.

May include:
• Networking of researchers into virtual collaboration
• Posting of research results
• Publishing research papers online
• Providing connections to outside sources of research and
development services
Labor for the future Lecturer Olivier Angel Kevin
 Forms of economic organization
Three different forms of economic organization:
• Markets: Buyers and sellers come together to conduct
transactions
• Hierarchies: Large organizations that conduct many
different business activities entirely within the
structure of the firm
• Networks: Firms coordinate their strategies, resources, and
skills sets by forming long-term, stable relationships
based on a shared purpose.
Labor for the future Lecturer Olivier Angel Kevin
Electronic data interchange
• Electronic data interchange (EDI) is a computer-to-computer
transfer of business information between firms that use a
standard format for representing the information.
• The two businesses trading information are called
trading partners.
• Firms that exchange data in specific standard formats are said
to be EDI-compatible.
• The types of information include invoices, purchase orders,
requests for quotations and receiving reports.

Labor for the future Lecturer Olivier Angel Kevin

 Direct connection
• Each business in the network operates its own on-site EDI
translator computer.
• The EDI translator computers are then connected directly
to each other using modems and dial-up telephone
lines or dedicated leased lines.
• Trading partners using different communication protocols
can make direct connection options difficult to
implement.
Labor for the future Lecturer Olivier Angel Kevin
 Indirect connection
• A value-added network (VAN) is a company that provides
communications equipment, software, and skills needed to
receive, store, and forward electronic messages that contain
EDI transaction sets.
• In an direct connection, the trading partners use the services of a
VAN for communication.
• The VAN often supplies EDI translator software as part of their
package of services.

Labor for the future Lecturer Olivier Angel Kevin

  A VAN (value added network)is also a private
network provider that focuses on offering network
services such as secure email, message encryption
and management reporting. Their goal is to
facilitate EDI (electronic data interchange) among
online companies, providing a convenient way for
e-commerce businesses to securely communicate
and share data.

Labor for the future Lecturer Olivier Angel Kevin

 Advantages
The benefits of using a VAN include:
• Support for only one communications protocol
• The audit log maintained by the VAN can be used to resolve
disputes.
• The VAN can provide translation if the partners use different
transaction sets.
•Faster Transaction Processing
•Better Communications
•Cost of Implementation
•Ongoing Network Support
Labor for the future Lecturer Olivier Angel Kevin
 Disadvantages
The disadvantages of using VAN include:
• Requires an enrollment fee, a monthly maintenance
fee, and a transaction fee.
• Using VAN is cumbersome for companies that want to
do business with a number of trading partners.
– Costs are unpredictable and tend to be higher
– There is not always a clear paper trail

Labor for the future Lecturer Olivier Angel Kevin

 EDI on the Internet
• The Internet was seen as a way to replace dial-up
connections.
• Potential problems include:
– Concerns about security
– Inability to provide audit logs
– Third-party verification of message transmission and
delivery

Labor for the future Lecturer Olivier Angel Kevin

 Financial EDI
• The EDI transaction sets that provide instructions to a trading
partner’s bank are called financial EDI (FEDI).
• EDI-capable banks are those banks that are equipped to
exchange payment and transmittal Of data through VANs.
• Value-added banks offer VAN services for non-financial
transactions.

Labor for the future Lecturer Olivier Angel Kevin

 Perceived risk
• Many companies are reluctant to send over the Internet FEDI
transaction sets that contain transfer instructions for large
amounts of money (in some cases millions of dollars) because
of the perceived low level of Internet security.
• Reliability of FEDI transaction sets is also an issue since a delay in
delivery of $10 million can result in a large loss of interest
income.

Labor for the future Lecturer Olivier Angel Kevin

 Supply chain
• The part of an industry value chain that precedes a particular
strategic business unit is often called a supply chain.
• A company’s supply chain for a product or service includes all the
activities undertaken by every predecessor in the value chain
to design, produce, promote, market, deliver, and support
each component of that product or service.
• Example: Car manufacturer’s supply chain would include engine
manufacturers, steel fabricators, glass manufacturers, etc.

Labor for the future Lecturer Olivier Angel Kevin

 Supply chain management
• In recent years businesses have realized that they can save
money and increase product quality by negotiating more
actively with suppliers.
• Companies can work together with suppliers to identify new
ways to serve customers more quickly and cheaply.
• The process of taking an active role with suppliers to improve
products and processes is called supply chain management.

Labor for the future Lecturer Olivier Angel Kevin

 Levels in the supply chain
• Business develop long-term relationships with a small number of
very capable suppliers, called the tier one suppliers.

• Tier one suppliers work with a select group of their suppliers in the
same way. This second level is called the tier two suppliers.

• Tier two suppliers work with tier three suppliers.

• The long term relationships created are called supply
alliances.

Labor for the future Lecturer Olivier Angel Kevin

 Value creation
• In exchange for stability, buyers expect price reductions and
quality improvements from their suppliers.
• By working together, supply chain members reduce costs and
increase the value of the product or service to the
consumer.
• With clear communication up and down the supply chain, each
participant can know what the ultimate consumer is
demanding and can plot a strategy to meet the demand.

Labor for the future Lecturer Olivier Angel Kevin

 Technology in the supply chain
• Clear communications and quick responses to those
communications are a key element of successful supply chain
management.
• The Internet and the Web can be very effective communication
enhancers.
• Software can help all members of the supply chain review past
performance, monitor current performance, and predict when
and how much of certain products need to be produced.

Labor for the future Lecturer Olivier Angel Kevin

 Advantages
Suppliers can:
• Share information about demand fluctuations
• Receive rapid notification of product design changes and
adjustments
• Provide specifications and drawings more efficiently
• Increase speed of processing transactions
• Reduce cost of handling transactions
• Reduce errors in entering transaction data
• Share information about defect rates and types

Labor for the future Lecturer Olivier Angel Kevin

 Example
• Dell computer has used technology-enabled supply chain
management to give customers exactly what they want.
• It reduced inventories from three weeks’ sales to six days’ sales.
• Dell’s top suppliers have access to a secure Web site that lets
them see:
– The latest sales forecasts
– Planned product changes
– Defect rates and warranty claims
This enables the suppliers to plan better.

Labor for the future Lecturer Olivier Angel Kevin