Chapter 9

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Interorganizational and Global Information Systems

Chapter 9

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Learning Objectives

Define and Classify Interorganizational and virtual

organizations information systems

Describe interorganizational activities, particularly

order fulfillment

Define and classify global information systems

Present the major issues surrounding global

information systems

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Describe Demand-driven networks and RFID as

supply chain factors

Describe B2B exchanges, hubs, and directories

Describe Interorganizational integration issues

Describe EDI and EDI/Internet

Describe extranets, XML and Web services

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Terms related to new business environment

On-demand enterprise

Manufacturing will start only after an order is received.

Build-to-order

On-Demand/Real-time

No production step would be ahead or behind as the

fulfillment cycle would be primed to respond to real-time

conditions.

No backorders

No safety stock, lag time

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Common Interorganizational activities

Buying and Selling

Finding a partner

Viewing catalogs

Negotiating

Order taking

Order fulfillment

Billing

Payment

After sales services n more..

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Common Interorganizational activities

Joint Ventures

 A contractual arrangement whereby two or more

parties undertake an economic activity that is subject to

joint control.

Collaboration

It just means the coming together of 2 or more parties

for the purpose of brainstorming and sharing of

expertise.

Common Interorganizational activities

Other

Working jointly on standards

Conducting research etc.

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Order Fulfillment

It is: Providing customer with what they have ordered On time With all related customer services

Delivery of materials / services at the right time, to the right place and at the right cost

Sometimes includes: Exchange or return of product

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Order Fulfillment

Part of Back-office operations (supporting activities,

e.g. accounting, inventory mgmt)

Also related to Front-office operations (visible to

customers, e.g. sales n advertising)

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Typical order fulfillment process

Step 1: Making sure the customer will pay

Depending on payment method & prior arrangements,

validity of each payment is determined.

In B2B: company’s finance department will do it.

In B2C: customer usually prepay.

Any hold up may cause shipment delay, loss of

goodwill or loss of customer.

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Step 2: Checking for availability

Order information needs to be connected to the

information about in-stock inventory availability.

For small orders, intelligent s/w agent may be

used

Buyers can also check availability

Step 3: Arranging Shipments

If product (digital/physical) available ship to the

customer otherwise go to step 5.

Whether product is available or unavailable

corresponding information needs to flow among

several partners

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Step 4: Insurance

Sometimes contents of a shipment need to be

insured.

Information should flow inside the company as

well as to and from customer & insurance agent.

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Step 5: Replenishment

Some manufacturing or assembly operations may

be required to satisfy needs of customized orders.

If standard items are out of stock they need to be

procured or produced.

Production can be in-house or by contractors/

suppliers.

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Step 6: In-house production

Requires planning of –

People & material

Components & machines.

Financial resources

Suppliers n subcontractors

Also includes services such as collaboration with

business partners, scheduling of people n equipments

etc.

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Step 7: Use suppliers

Buy products /subassemblies from suppliers

If supplier is retailer, he must purchase products

from manufacturers.

Appropriate receiving and quality assurance is

needed

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Step 8: Customer contacts

Constant contacts with customers are required

Starting with notification of order received , ending

with notification of shipment or change in delivery

date

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Step 9: Returns

Customer may want to return or exchange items

Movement of returns from customers back to

vendors is called Reverse Logistics.

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Problems

Delays and transportation Human errors / misunderstanding Over / Under Inventories Misdirected Shipments Late / Incorrect delivery reporting Slow / Incorrect Billing Difficult / Complex Production Incompatibility of systems (communication) High cost of expenditures / shipments

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Why these problems occur?

It involves material, information, money and many people-

Located at different places.

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Solution

Automate as many of the activities as possible using IT

Results: Increased speed Reduced cost of administering the process Reduced errors Minimized delays Reduced inventories

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InterOrganizational Information System (IOS)

Connects two or more organizations.

Mostly sellers and buyers.

Ordering, billing and payment done electronically.

Local or global

Dedicated to one activity (transfer of funds) or

supporting several activities (trade, research,

communication & collaboration)

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Purpose of IOS

To reduce cost

To improve the effectiveness and timeliness

of business processes

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Advantages of IOS

Reduce cost of routine business transaction. Improve quality of information flow by reducing or

eliminating errors Compress cycle time in the fulfillment of business

transaction Eliminates paper processing and its associated

inefficiencies and cost Makes the transfer and processing of information

easy to users Customer-supplier relationship is determined in

advance

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Virtual Corporation

Category of IOS

Two or more business partners at different locations

share cost and produce product / service

Can be temporary or permanent

Each partner creates a portion of product / service in

which they have special advantage

Resources of business partners remain in their location

but are integrated for use

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Types of IOS

B2B trading systems

Facilitate trading between business partners located in same / different

countries

B2B support systems

Nontrading systems like hubs directories and other services

Global systems

Connect two or more companies in one or more countries

Electronics fund transfer (EFT)

Telecommunication networks transfer money among financial institutions

Groupware

Facilitate communication and collaboration between

organizations (email, fax etc.)

Shared databases

Trading partners share databases and other

information to reduce time in communicating

information

System that support virtual companies28

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IOS Infrastructure Technologies

Electronic Data Interchange (EDI)

Extranets

XML

Web Services

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Electronic Data Interchange (EDI)

Communication standard that enables electronic

transfer of routine documents (e.g. purchase

order)

the structured transmission of data between

organizations by electronic means

Documents are formatted according to agreed

upon standards

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Components of EDI

EDI Translators

Convert data into standard format before transmitting

and from standard to original format after receiving

Business Translation Messages

Include purchase orders, invoices, credit approvals,

shipping notices, confirmation etc.

Data Formatting Standards

E.g. ANSI X.12

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Process of EDI

Messages are coded using standards before

transmitting them

These coded messages travel over a Value

Added Network (VAN) or internet

When received, message is automatically

translated into business language.

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Benefits of EDI

Data entry errors are minimized

Length of messages can be shorter and secured

Reduced cost and delay

Enhanced customer services

Minimized paper usage and storage

Increased cash flow

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Limitations of traditional EDI

Significant initial investment

High operating cost due to use of expensive private

VANs

Cost of converter

Not flexible – difficult to make quick changes such as

adding business partners, long start up period

Business processes must be sometimes restructured

to fit EDI requirements

Multiple EDI standards exist. So one company may

have to use several standards to communicate with

different business partners

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Internet based EDI Solution to traditional EDI- Better infrastructure Accessibility

Publicly accessible Large scale connectivity

Reach Global n/w connections makes it to reach widest

possible no. of business partners Cost

40 to 70% lower than VAN

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Use of Web Technology

Consistent with the growing interest of business in

delivering ever increasing variety of products and

services via web

Ease of use

Browsers and search engines are user friendly

Sensitive data can be transmitted with security

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Types of Internet based EDI

Email Extranet Web based EDI hosting service

Prospects of Internet based EDI

Cheaper

Affordable for small transactions

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Extranet

Necessary to connect internal systems of different

business partners which are usually connected to the

partner’s corporate intranet

Intranet of partners accessed via internet

They link business partners over the internet by providing

access to certain areas of each others intranets

Uses virtual private network (VPN) to make

communication over internet more secure

Extranet is open to selected B2B suppliers,

customers and other business partners

Enables them to enter the corporate intranet

via the internet to access data, place orders,

check status, communicate and collaborate

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The structure of extranet

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Types of Extranet

A company , its dealers , customers, suppliers

Centered around one company

An industry’s extranet

Major players in industry team up to benefit all

Joint venture of other business partnerships

Partners in joint venture use it for communication and

collaboration

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Benefits of extranet

Faster processes and information flow

Improved order entry and customer services

Lower cost (for communication, travel,

administrative overhead)

Overall improvement in business

effectiveness

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XML (eXtensible Markup Language)

Extensible Markup Language (XML) is a markup

language that defines a set of rules for encoding

documents in a format that is both human-

readable and machine-readable. 

Improves compatibility between disparate systems of

business partners by defining the meaning of data in

business documents

It is extensible because the markup symbols are unlimited

and self defining

Difference between HTML and XML

HTML helps to build web pages and display

data on web pages (how data can be

displayed)

XML describes data and information (what

data can be send)

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Benefits of XML

Flexibility

Allows new requirements and changes to be

incorporated into messages

Hence not rigid as EDI

Understandability

Message contents can be easily read and

understood using standard browsers

Thus no need of special translators

Benefits of XML (Contd…)

Less specialized

Requires less specialized skills in contrast to EDI

(requires highly specialized knowledge of EDI

translators)

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Web services

Universal prefabricated business process s/w

modules delivered over internet

Users can select and combine them through

almost any device, enabling disparate systems

to share data and services

Support IOS by providing easy integration for

different internal and external systems

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Global Information System (GIS)

Category of IOS

Needed by

Multinational companies

International companies

Virtual global companies

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Multi-national company- company which operates in

more than one country i.e.

Company may have sales offices and/or production

facilities in several countries

International company- company that does business

with other companies in different countries

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MNCs conduct operations where

factory workers are plentiful and inexpensive

Highly skilled employees available at low cost

There is a need to be close to the market

Virtual global companies

Joint venture whose business partners are located

in different countries

Formed for the specific purpose of producing a

product/service

Temporary/Permanent

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Benefits of GIS

Effective communication at reasonable cost

Through email, EDI, web services and

extranet

Intelligent IT systems can provide automatic

language and web page translation

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Benefits of GIS (Contd..)

Effective collaboration to overcome

differences in distance, time, language and

culture

With the help of groupware software, group

decision support system, extranets and

teleconferencing devices

Benefits of GIS (Contd..)

Access to database of business partners and

ability to work on same projects while their

members are in different locations

E.g. video conferencing

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Issues in GIS design & Implementation

Differences in cultures, regulations, economics & politics among parties in different countries.

Cultural Differences:

Culture consists of objects, values & other

characteristics of a particular society

Ranging from traditional to legal & ethical issues

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Localization:

Localization is the process of adapting a product or

service to a particular language, culture, and desired

local "look-and-feel."

Use of different names, colors, sizes and packaging

for overseas products and services

Also should be followed in the design and operation

of supporting IS

E.g. Offer different languages and/ or currency

options as well as special contents

Extensive research and survey is usually done

before launching the product, in order to assess

the opportunities and the obstacles.

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Localization (continued..)

Variables considered in localization: Pricing Promotions (types, discount level) Vendor policies Management programs Consumer characteristics Special demand drivers Competitor characteristics Company’s own stores’ characteristics vs. others

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Economic and political differences:

Results in different information infrastructure from

country to country

Compliance with software copyright is also a major

issue.

Gross violation- illegal copying and use of software.

Some countries control the contents of internet,

some may restrict the language

Legal issues:

Legal systems differ considerably

E.g. copyrights, patents, computer crimes, file sharing,

privacy and data transfer

This affects what is transmitted via Global

IS(transfer of data across international borders)

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Legal issues (cond..)

Countries justify their laws as protecting privacy of their

citizens.

Intellectual property protection

Keeping job within country by requiring that data

processing be done there

Whose laws have jurisdiction when records are in

different countries for reprocessing and retransmission

purpose?

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Designing web sites for global audience:

60% of all internet users are non English speaking

Hence, doing business on internet must include

localization

Globalization and offshoring of s/w and other IT activities:

Initially offshore outsourcing of programming

Now other activities ranging from call centers to s/w

research and development

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Globalization and personnel issues:

Orientation and training of personnel/ hiring them

Companies may need to send their employees to

other countries and also hire local personnel

Use of special s/w for training personnel across

the globe.

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Global Supply Chain

Supply chain that involve suppliers and/or customers in

other countries

Longer and more complex than domestic ones

Issues in GSC are:

Legal issues

Custom fees and taxes

Language and cultural differences

Fast changes in currency exchange rate

Political instabilities

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How IT helps?

IT provides EDI and other communication infrastructures,

online expertise

IT helps to solve language problems through use of

automatic web page translation

E.g. Infoscope : a device by IBM

composed of a digital camera and wireless internet access.

Translate foreign languages by photographing the text then sending

the image to a remote computer via the internet for translation. 

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Demand Driven Supply Networks

Traditional supply chain

Is driven from back- by producers and manufacturers

Driving products to market

Dominant actions are

Forecast demand

Make-to-stock

Push products downstream toward end customer

No view into true market demands

Demand could be unpredictable and hence hard to

predict

Items could undergo under stock or overstock

(bullwhip effect)

No timely and accurate information

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DDSN (Contd..)

Driven from front- by customer demand

Products are pulled to market by customers

DDSN defines that companies in a supply chain will work

more closely to shape market demand by sharing and

collaborating information

DDSN, uses a system of technologies and processes to

sense demand and react to it in real time, across a

network of linked customers, suppliers, and employees.

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Benefits of DDSN

More accurate and detailed demand forecasting

Lower supply chain cost (with reduced inventories)

Order is delivered complete, accurate, on time and in

perfect condition

Reduced days of inventory

avg. days of inventory on hand including raw

materials, components; work in process and

finished goods

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Improved cash to cash performance

Length of time between company spends cash

to buy raw material and the time the cash

flows back into company

Provides customer centric approach and not

factory centric approach

Provides agility, adaptability and alignment

Alignment is Key

DDSN is not something one company can do in isolation.

Some methods businesses can use to promote alignment:

1. Exchange information and knowledge freely with vendors and

customers.

2. Lay down roles, tasks, and responsibilities clearly for suppliers

and customers.

3. Equitably share risks, costs, and gains of improvement

initiatives.74

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Real time Demand Driven Manufacturing

Organizations must respond quickly and efficiently on

demand

Provides customers with what exactly they want, when and

where they want it

Partnership must be focused on

reducing costs through shared quality goals,

shared design responsibilities,

on time deliveries and

continuous performance reviews

What is RFID?

Radio-frequency identification (RFID) is an automatic identification method using radio waves.

RFID also began to see use in wildlife monitoring and research. RFID tags can be used to monitor animal movement without adversely affecting the animal,

Applications Supply chain automation Asset tracking Medical applications People tracking Manufacturing Retail Warehouses Livestock Timing

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The RFID System1. Tag.

2. Reader.

3. Reader antenna.

4. Controller.

5. Host and software system.

6. Communication infrastructure.

Tag

An RFID tag is a device that can store and transmit

data to a reader in a contact less manner using radio

waves.

RFID tags can be classified in three different ways.

Passive

Reader????

An RFID reader can read from and write data to

compatible RFID tags.

A reader thus doubles up as a writer. The act of writing

the tag data by a reader is called creating a tag.

A reader has the following main components:TransmitterReceiverMicroprocessorMemoryController (which may reside as an external component)Communication interfacePower

Working

A radio device called a tag is attached to the

object that needs to be identified.

When this tagged object is presented in front of

a suitable RFID reader, the tag transmits this

data to the reader (via the reader antenna).

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The reader then reads the data and has the

capability to forward it over suitable

communication channels.

This application can then use this unique data

to identify the object presented to the reader.

It can then perform a variety of actions

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RFID in manufacturer-retailer supply chain

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B2B Exchanges

A B2B exchange is an online marketplace, where

buyers, sellers and intermediaries form communities,

exchange views, offer products and services, and

conduct business transactions.

Support B2B supply chains

Can be private (one buyer and many sellers or one

seller and many buyers)

Can be public ( many sellers and many buyers)

In private exchange IOS is controlled by sole

seller or buyer, usually using extranet or EDI

In public exchange IOS can be extranet or

internet

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Interconnected public exchanges

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Electronic hubs Definition

Commercial website that provides coordination and synchronization

services to electronic commerce (e-commerce) its users or partners.

Facilitate communication and collaboration among business

partners along the supply chain

Each partner can access website usually a portal for an

exchange of information

Each partner can deposit new information, make changes and

receive or leave messages

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Directory services

Helps buyers and sellers to find potential partners

Usually include catalogues of product offered by

each sellers, list of buyers and what they want and

other industry or general information

Appear as B2B information portal

Also offering additional services that support trading

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Interorganizational information integration

Most of the companies’ technologies are

proprietary

Hence difficult to connect IS of different

organizations and transfer data in IOS and GIS

Things to be followed while integrating IS are..

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Establish an IT leadership team to direct the

integration

For customer facing applications select the option

with lowest business integration risks

Customer facing applications must have priority over

back-office applications

Offer generous retention package for top talented

IT personnel to ensure they don’t leave

Maintain high morale among IT personnel

Increase the company’s normal level of project

risk to achieve aggressive business integration

goals

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Facilitating IS integration

Steps:

Check the business processes, understand them and make

improvements if necessary

Plan necessary IT infrastructure

Various technologies available for integration are:

EDI, EDI/Internet

Extranet

XML and related Web services

Portals, converters etc.

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Partner Relationship Management

Definition:

Business strategy that recognizes the need to

develop long term relationships with business

partners ,

by providing each partner with the services that

are most beneficial to that partner

PRM solutions connect companies with their business

partners (suppliers, customers, services ) using web

technology to securely distribute and manage

information

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Specific functions of PRM are

Partner profile

Partner communications

Management of customer leads

to generate new potential business clientele

Targeted information distribution etc.

include key features for selling, commission, opportunity, marketing campaigns, inventory access, and other features designed to facilitate the relationship

between manufacturers and their channel partners.

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Supplier Relationship Management (SRM)

major category of PRM where partners are

suppliers

The supply chain processes are connected,

decisions are made collectively,

performance metrics are based on common

understanding,

information flows in real time

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Major steps of SRM Model

Steps in SRM

Access :

Identify all the resources required to meet the product or

service needs of the enterprise

Identify suppliers:

Availability of large pool of suppliers improve options down

the road

Access supplier performance:

Check past performance, testimonials and stated capabilities

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Negotiate:

Prices and other relevant terms count only

when combined

Contract:

Identify and register trading partners. Award

contracts to the appropriate suppliers

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Connect:

Bridge the enterprise and supplier through

procurement procedures. Facilitate

collaboration.

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Engage and share:

Enable interaction between enterprise and

suppliers.

Show suppliers your forecasted needs and their

performance ratings

Look at their inventory and projections.

Transmit purchase orders using tendering and RFQ

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Transact:

Collect orders from across the enterprise.

Create purchase orders and check them

against budgets

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Deliver:

Goods are pulled from supplier’s stock

Wireless barcode readers update inventory level

Shipping invoices are generated

Goods are delivered

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Receive:

Wireless devices help in determining whether

everything ordered arrives as planned, in good

conditions and right quantities

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Resolve:

Resolve any disputes and pay only if satisfied

Explain why payment is withheld

Pay:

Settle up with the supplier and check actual cost against

projected cost

Analyze:

Access results, design improvements and decide which

suppliers to keep109

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Collaborative Commerce (C-Commerce)

Non-selling/buying electronic transactions within,

between and among the organizations

E.g. company collaborating electronically with vendor

that is designing a product or part for the company

Communication, collaboration information sharing

done electronically by means of tools such as

groupware and specially designed collaboration tools

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Some areas of collaboration using IS

Retailer-supplier

Large retailers collaborate with their major supplier to

conduct production and inventory planning and forecasting

of demand

Product design

Parties involved in a specific product design may use s/w

tools that enable them to share data and collaborate in

product design

E.g. of such tool is screen sharing

Collaborative manufacturing

Dynamic collaborative production networks can be

created by manufacturers

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