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

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 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
• Define XML and its significance to ERP
• Define RFID and its future role in logistics and sales
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Introduction
• Competing effectively in high-volume e-commerce may
not be possible without the infrastructure provided by
ERP

• Integrating ERP systems with the Internet is becoming
easier with new technologies like Web services and XML
• ERP systems are becoming more affordable as smaller
companies “rent” ERP services

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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

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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

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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 longterm relationship
• An advantage as long as both parties remain
satisfied
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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 Internetbased procurement
• Internet-based procurement has led to electronic
marketplaces
• Marketplaces provide advantages for both buyers and
sellers
• Exchanges are B2B marketplaces that typically focus
on a single industry
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ChemConnect.com
• Buyers and sellers of chemical products can use the
ChemConnect marketplace
• Buyers can find the best prices without traditional
negotiations
• Contracts are completed faster between buyers and
sellers
• Buyers and sellers can gain access to new worldwide
markets and trading partners
• Instant market information is available to all parties

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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

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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

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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 threehour attack
• Security is an on-going effort

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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

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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
systems
• ASPs can also provide consulting services for software
applications like ERP
• ASPs can provide access to expensive applications like
ERP with much lower startup costs

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Application Service Providers
• ASP Advantages:
• Affordability: Many companies that previously couldn’t
afford ERP systems can now afford to lease it through
an ASP
• Shorter implementation times: Implementation time is
shorter because the company does not have to
purchase hardware and software and train technical
staff
• Expertise: ASPs are more likely to be able to hire
and retain competent technical personnel than a
small company can

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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

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Application Service Providers
• ASP Disadvantages:
• No frills: An ASP may not be willing to support 3 rd
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

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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

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NetWeaver
• 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

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NetWeaver
• NetWeaver is a collection of components that supports
business processes over the Internet
• Modules include:
• Enterprise Portal
• Mobile Infrastructure
• Business Intelligence
• Master Data Management
• Exchange Infrastructure

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NetWeaver
• Enterprise Portal (mySAP.com)
• Gives users complete access (a portal) to all work on
a single screen
• A portal is a customizable Web site that links to:
• Internet
• e-mail
• Calendar
• SAP R/3 system

• Other systems
• Users can access all required information with a
single sign-on
• Provides drag-and-relate capabilities
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NetWeaver
• Mobile Infrastructure
• Allows users to access and work with data through:
• PDAs
• Cell phones
• Pagers
• Provides access to data within SAP and other
company information systems
• A partnership between SAP and VoiceObjects AG will
add voice capability to NetWeaver

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NetWeaver
• Business Intelligence (BI)
• BI incorporates data warehouse and data mining tools
• BI can be delivered in a personalized manner with
Enterprise Portal

• Can integrate information from various sources within
and outside the firm
• BI works with any database management software
and any operating system

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