Day 3

• Inventory Management

• E-Commerce

• PFSWeb • Heineken

• Quiz

• Exercises

Inventory Management

Day 3 – Module 6

ReadingIBM Inventory Management: An executive perspective

Inventory Management

Day 3 – Module 6

Inventory

• Inventory is a stock of anything held to meet some future demand. It is created when the rate of receipts exceeds the rate of disbursements.

ABC Analysis

10 20 30 40 50 60 70 80 90 100

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Class C

Class A

Class B

Q1 – How Often to Order?

Time

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Buying Infrequently• • • •

Q1 – How Often to Order?

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Buying Frequently• • • •

Q1 – How Often to Order – Example #1 Product Data.

Annual Demand, D of 112 unitsCost $5.00Ordering Processing Cost, S of $2.00 per orderAnnual Holding, H cost is 20% of the cost or $1.00 per unit per year

Number of Orders Order Order Average Holding TotalPer Year Cost Quantity Stock Cost Cost

1 $2.00 112.00 56.00 $56.00 $58.002 $4.00 56.00 28.00 $28.00 $32.003 $6.00 37.33 18.67 $18.67 $24.674 $8.00 28.00 14.00 $14.00 $22.005 $10.00 22.40 11.20 $11.20 $21.206 $12.00 18.67 9.33 $9.33 $21.337 $14.00 16.00 8.00 $8.00 $22.008 $16.00 14.00 7.00 $7.00 $23.009 $18.00 12.44 6.22 $6.22 $24.22

10 $20.00 11.20 5.60 $5.60 $25.60

Q1 – How Often to Order – Example #2 Product Data.

Annual Demand, D of 1120 unitsCost $5.00Ordering Processing Cost, S of $2.00 per orderAnnual Holding, H cost is 20% of the cost or $1.00 per unit per year

Number of Orders Order Order Average Holding TotalPer Year Cost Quantity Stock Cost Cost

1 $2.00 1120.00 560.00 $560.00 $562.002 $4.00 560.00 280.00 $280.00 $284.003 $6.00 373.33 186.67 $186.67 $192.674 $8.00 280.00 140.00 $140.00 $148.005 $10.00 224.00 112.00 $112.00 $122.006 $12.00 186.67 93.33 $93.33 $105.337 $14.00 160.00 80.00 $80.00 $94.008 $16.00 140.00 70.00 $70.00 $86.009 $18.00 124.44 62.22 $62.22 $80.22

10 $20.00 112.00 56.00 $56.00 $76.0011 $22.00 101.82 50.91 $57.00 $79.0012 $24.00 93.33 46.67 $58.00 $82.0013 $26.00 86.15 43.08 $59.00 $85.0014 $28.00 80.00 40.00 $60.00 $88.0015 $30.00 74.67 37.33 $61.00 $91.0016 $32.00 70.00 35.00 $62.00 $94.0017 $34.00 65.88 32.94 $63.00 $97.0018 $36.00 62.22 31.11 $64.00 $100.0019 $38.00 58.95 29.47 $65.00 $103.0020 $40.00 56.00 28.00 $66.00 $106.00

Q2 – When to Order?

Various Sales PatternsQ

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Fixed Order Quantity – Q System

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Averagecycleinventory

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Receive order

Inventory depletion (demand rate)

Inventory – Total Cost Analysis

Fixed Order Quantity – Q – Example

• Suppose that you are reviewing the inventory policies on an item stocked at a hardware store. The current policy is to replenish inventory by ordering in lots of 360 units. Additional information given:

• D = 60 units per week, or 3120 units per year• S = $30 per order• H = 25% of selling price, or $20 per unit per year

Inventory – Additional Complexities

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Periodic Review – P System

Inventory Management and Dell

What is Inventory?

Why have Inventory?

Goal of using technology to enable effective inventory management.

Dell Model of B2C E-Commerce

Electronic-Commerce

Day 3 – Module 7

Text MaterialsChapter 5 – Electronic Commerce

The Internet

• Rapidly becoming infrastructure of choice• Universal, easy-to-use set of technologies

and standards• Web sites available 24/7• Extended distribution channels• Reduced transaction costs• Reduced network and coordination costs

Trends

China says it’s poised to be top Internet country

The Associated Press – 1/19/2008The Chinese government said Friday that its internet population has soared to 210 million, putting it on track to surpass the U.S. online community this year to become the world’s largest.

Trends

• Black Friday• Cyber-Monday

Trends

• Dissintermediation

$43 $109$251

$499

$2,500

$200

$1,331

$843

$108$76$52$33$18$8$0

$500

$1,000

$1,500

1998 1999 2000 2001 2002 2003 2007

B to B B to C

Source: e-Marketer, U.S. Dept. of Commerce, Jupiter

$’s in Millions$’s in Millions

$1.78T Growth$1.78T Growth

The - Revolution ContinuesThe - Revolution Continues

Commerce and E-commerce

• E-commerce is changing everything• Electronic commerce (e-commerce) – commerce, but it is

commerce accelerated and enhanced by IT– Build powerful relationships with customers– Build powerful relationships with suppliers– Build powerful relationships with partners

On-line versus In-store models

On-line Model In-Store Model

Creating a Sustainable Competitive Advantage

• Brand-Name Recognition• Best-of-Breed Processes and Features• Creating Repeat Customers• Customization

E-commerce business models

B2B E-Commerce

when a business sells products and services to customers who are primarily other businesses

– Where all the e-commerce money is– Basically, it’s about businesses doing business with other businesses– Supply chain management is a big part of B2B e-commerce

Supply Chain

Upstream Downstream

Potential Benefits

• Faster transactions • Lower cost transactions• Fewer transaction errors• Reduced cycle time• Reduced inventory• Increased information flow• Increased customer satisfaction• Improved cash flows

B2C E-Commerce

$15.7 Billion spent online in December 2002$15.7 Billion spent online in December 2002

Books / Movies

Online Reservations

Apparel / Jewelry

Cons. Electronics

Toys / Video

Other

Source: Goldman sachs, Harris Interactive, and Nielsen/NetRatings

The - ProductsThe - Products

20%

17%

26%

12%

12%13%

Top 10 US Shopping SitesTop 10 US Shopping Sites

0

1000

2000

3000

4000

5000

2001 Holiday Shopping Season0

1000

2000

3000

4000

5000

2001 Holiday Shopping Season

Source: Jupiter Media Metrix – 2001 – 5 Week Average Daily Unique Visitors in US Home/Work combined

Source: Jupiter Media Metrix – 2001 – 5 Week Average Daily Unique Visitors in US Home/Work combined

$’s in Millions$’s in Millions

C2C E-Commerce

B2B and B2C Success Criteria

• Understand your business and your customers• Find and establish relationships with customers• Move money easily and securely

Understand your business and your customers

• Who are your target customers?• What is the value of your products and services as perceived by your customers?

Find Customers and Establish Relationships

B2C• Registering with search engines• Online ads• Viral marketing• Affiliate programs

A blog (a portmanteau of web log) is a website where entries are commonly displayed in reverse chronological order. "Blog" can also be used as a verb, meaning to maintain or add content to a blog.

Many blogs provide commentary or news on a particular subject; others function as more personal online diaries. A typical blog combines text, images, and links to other blogs, web pages, and other media related to its topic. The ability for readers to leave comments in an interactive format is an important part of many blogs. Most blogs are primarily textual, although some focus on art (), photographs (photoblog), sketchblog, videos (vlog), music (MP3 blog), audio (podcasting) are part of a wider network of social media. Micro-blogging is another type of blogging which consists of blogs with very short posts.

As of December 2007, blog search engine Technorati was tracking more than 112 million blogs.[1]

Viral marketing and viral advertising refer to marketing techniques that use preexisting social networks to produce increases in brand awareness, through self-replicating viral processes, analogous to the spread of pathological and computer viruses. It can be word-of-mouth delivered or enhanced by the network effects of the Internet.[1] Viral marketing is a marketing phenomenon that facilitates and encourages people to pass along a marketing message voluntarily.[2] Viral promotions may take the form of video clips, interactive Flash games, advergames, ebooks, brandable software, images, or even text messages.It is claimed that a satisfied customer tells an average of three people about a product or service he/she likes, and eleven people about a product or service which he/she did not like.[3] Viral marketing is based on this natural human behavior.The goal of marketers interested in creating successful viral marketing programs is to identify individuals with high Social Networking Potential (SNP) and create Viral Messages that appeal to this segment of the population and have a high probability of being passed along.The term "viral marketing" is also sometimes used pejoratively to refer to stealth marketing campaigns[4]--the use of varied kinds of astroturfing both online and offline [5] to create the impression of spontaneous word of mouth enthusiasm.

Online Ad Example

Banner ad for a loan lending

services

B2B• Relationships• Supply Chain Management• Information Technology

Find Customers and Establish Relationships

Move Money Easily and Securely

• Secure Sockets Layer (SSL)…– Creates a secure connection between a Web client and

server– Encrypts the information– Sends the information over the Internet

• Denoted by lock icon on browser or https:// (notice the “s”)

Move Money Easily and Securely

The “s” in https and the padlock

B2C Payment Systems

• Credit Cards• Financial cybermediaries• Electronic checks• Electronic bill presentation and payment• Smart Cards

Financial Cybermediaries

– Internet-based company that makes it easy for one person to pay another person or organization over the Internet

– PayPal (www.paypal.com) is the most well-known

Electronic Check

• Electronic check – mechanism for sending money from your checking or savings account to another person or organization

– Many implementations

– Most common implementation is online banking

EBPP

• Electronic Bill Presentment and Payment (EBPP) – system that sends bills over the Internet and provides an easy-to-use mechanism (perhaps a button) to pay for them if the amount looks correct

– Available through Checkfree (www.checkfree.com) and Quicken (www.quicken.com)

Smart Cards

• Smart card – plastic card (the size of a credit card) that contains an embedded chip on which digital information can be stored and updated

– Debit cards are an implementation

B2B Payment Systems

Electronic Data Interchange - EDI

• Electronic data interchange (EDI) – direct computer-to-computer transfer of transaction information in standard business documents, such as invoices and purchase orders, in a standard format– How businesses communicate with each other– Used in e-marketplaces and VANs

Private Network

Value-Added Network

EDI and a VAN

E-Business Trends, Biometrics

E-Business Trends

• “E” is certainly changing many things• Many trends in every part of your life• Three important ones

1. Youth

2. M-commerce

3. The Long Tail

E-Business Trends, Youth

• Screenager – person who spends a lot of time in front of a screen – TV, iPod, computer, cell phone

• Digital native – personal ushered into this world alongside the digital revolution

• Most young people are screenagers and digital natives• They readily embrace technology and therefore are most suited

to running a business in the “e” world

E-Business Trends, M – Mobile Commerce

• Mobile computing – your ability to use technology to wirelessly connect to and use centrally located information and/or application software

• M-commerce – e-commerce conducted over a wireless device– Subset of mobile computing

• Mobility is key for the next generation of e-commerce that will rely on

1.Knowing where we are

2.Our ability to do anything from anywhere

E-Business Trends, M – Mobile Commerce

E-Business Trends, Long Tail

• Long Tail – first offered by Chris Anderson; explains e-commerce profitability in terms of a sales curve

• Brick-and-mortar businesses carry limited inventory, inventory that is popular

• E-businesses can carry huge amounts of “niche” inventory that may only sell a couple of times a year

E-Business Trends, Long Tail

E-Business Trends, Long Tail