ACCA P3 Business Analysis - 2010 - Study text

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Chapter 12: Information technology solutions

2.3 Intranets and extranets

An intranet is the use of internet technology within one entity. For example, a

company can set up its own intranet, which allows its employees to exchange and

share information with each other. Customer information and product information

are usually available on intranets, together with other shared data files, newsletters,

company procedures, and so on.

 An intranet uses the public communications network to provide this in-house

communications network. In this respect it is the same as the internet. It also

creates a risk of unauthorised access into the intranet by users of the internet.

 Users of an intranet can access the external internet as well as the in-house

intranet files and software.

 Security for an intranet against unauthorised access by external internet users is

provided by firewall hardware and software.

The benefits of an intranet are:

 better communication within the organisation

 access to more information and better information within the organisation for

senior management

 Internet access (access to external information on other websites) and e-mail.

An extranet is a network in which the intranet of one company can connect with the

intranet of another company, usually a supplier or customer. An example of an

extranet is a buyer’s purchasing system communicating electronically with a seller’s

sales order system, through their intranets, to generate a purchase order and order

delivery.

2.4 Designing a website for e-commerce

The design of a website is extremely important, for persuading customers to use the

site and buy from it.

 The website must be easy to use. The user must be able to navigate though the

site easily. Icons must be clear. Users should be able to select goods for

purchasing without any difficulty or possible confusion. Any forms must be

easy to fill in.

 Screens should also be visually attractive, to encourage users to browse through

the site.

 Design features such as the ability to enlarge images of products, or obtain

additional information about a product, may also be very useful.

 The system must allow users to interact with it, so that the users can choose their

own route through the website easily.

 The website must be kept up to date. For example, the availability of products

must be kept up to date, so that buyers know whether a product is available for

purchase or not. If a website is not kept up to date, users will lose confidence in it.

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 The website is an advertising medium as well as an electronic store. It can be

designed in such a way that the user’s attention is drawn to additional products

that he or she might be interested in buying.

 The website must be available ‘all the time’ to users. Downtime must be kept to

an absolute minimum.

 The system must integrate with the company’s other transaction processing

systems, such as its customer database, accounting system and inventory control

system.

 The system must be able to reassure users that it is secure. The website should be

designed with security in mind, and also with providing reassurance to users

that it is a secure site.

Chapter 12: Information technology solutions

E-business and the supply chain

 The supply chain and the value network

 The push and pull models of the supply chain

 E-procurement

 Benefits of e-procurement

 E-procurement and collaboration with major suppliers

3 E-business and the supply chain

3.1 The supply chain and the value network

E-commerce involves making agreements to buy and sell goods and services

through electronic dealing. E-commerce transactions can occur at any stage of the

supply chain, from the supplier of raw materials to the end consumer of the finished

consumer goods.

E-business is a method of increasing value by reducing costs, and also by improving

the value of benefits offered to customers.

 Added value can be created at any stage in the supply chain and at any link in

the supply chain between a company and a supplier.

 The value chain and value network have been described in an earlier chapter. E-

business provides opportunities for improvements throughout a company’s own

value chain and within its entire value network.

The virtual supply chain

A virtual supply chain consists of electronic communications links between

suppliers and customers in the supply chain. The links may be made via websites,

extranet links or electronic data interchange (EDI) links. The role of a virtual supply

chain may be either to:

 improve information flows with suppliers and customers, and so improve the

efficiency and effectiveness of the physical supply chain, or

 replace some of the ‘traditional’ links in the supply chain, to provide a more

efficient and effective supply chain.

A virtual supply chain makes use of web-based technology and facilities such as the

internet, intranets and extranets, e-mail, e-purchasing and electronic order-tracking

systems.

A virtual supply chain can improve the efficiency and effectiveness of the physical

supply chain, by improving the information flow from customers back through the

supply chain to suppliers.

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Creating a virtual supply chain might be essential for a manufacturer, in order to

remain competitive. To be competitive, a manufacturing company must try to

reduce the cycle times or lead times that:

 cost money at all stages in the supply chain, and

 may persuade customers to buy what they want somewhere else.

Improving the responsiveness of a supply chain to the demands (and changing

requirements) of customers should be a key strategic target for many businesses. To

do this, they need an interactive and collaborative approach between all the main

suppliers in the supply chain and the end-customer.

Information about changes in demand or supply conditions should be

communicated along the virtual supply chain. Customers and suppliers at each link

in the chain should then collaborate to respond to the new supply or demand

conditions.

For example, suppose that a business customer places an order for a new item of

machinery with a manufacturer. If the manufacturer has an EDI or extranet link

with its key suppliers, details of the materials and components requirements can be

transmitted back through the supply chain immediately. This will speed up the

delivery time to the customer.

3.2 The push and pull models of the supply chain

There are two methods or models for selling through the supply chain: a push

model and a pull model.

 With a push model, a company markets its goods and services to potential

customers, and tries to persuade customers about the merits of its products

compared with those of competitors. For example, a manufacturer of tyres can

try to sell its goods to motor car manufacturers by persuading them that their

tyres offer the best value. Similarly a producer of canned beans can try selling its

goods to companies operating supermarket chains, by persuading them that

their product offers better value to the supermarkets than other brands of

canned beans.

 With a pull model, a company tries to sell its products to its own customers by

encouraging the customers at the end of the supply chain to demand their

products. The company’s customers are persuaded to buy the company’s

products because their own customers want them. For example, the

manufacturers of Michelin tyres or Bridgestone tyres could (if they wished) try

to sell their tyres to car manufacturers by encouraging the buyers of cars to

demand their branded tyres on the cars that they buy. Car manufacturers would

be persuaded to buy tyres from a particular manufacturer because their own

customers want those tyres. Similarly, the manufacturer of a particular brand of

canned beans could persuade supermarkets to buy their product because of

demand from shoppers in the supermarkets to buy it.

Advertising and sales promotion can be important in a pull strategy by creating

demand for a product from the consumer at the end of the supply chain.

Chapter 12: Information technology solutions

In practice, manufacturers of consumer products normally use a combination of a

push strategy and a pull strategy in its sales and marketing strategy.

E-business and push and pull strategies

A push strategy or a pull strategy can also be used for e-commerce, but in a slightly

different way.

 With a push strategy, a company uses the internet to try to persuade customers

to buy its products or services. To use a push strategy, a company needs to

identify customers or potential customers, and send out a marketing

communication. Typically, companies acquire a customer list and send out e-

mail marketing messages to the e-mail addresses on the list.

 Selling goods through the internet, particularly to consumers, is largely a pull

strategy. This is because a company relies on customers coming to its website (or

to the websites of intermediaries) and asking for product information and/or

placing an order.

For companies that are used to selling through sales representatives and sales

agents, selling through the internet can require a major re-think of the supply chain.

3.3 E-procurement

The term ‘procurement’ refers to all the activities involved in purchasing items from

a supplier. Procurement activities include:

 Identifying the need to purchase a quantity of an item (initiating a request to

purchase or a ‘materials requisition’)

 Identifying one or more possible suppliers for the materials

 Negotiating a price and other contract details with one or more suppliers

 Placing the purchase order with the chosen supplier

 Receiving and checking the goods on delivery

 Recording receipts of purchased items in inventory records

 Storing the items

 Paying the supplier.

Procurement can also be summarised as the ‘five rights of purchasing’:

 right price

 right quality

 right quantity

 right time

 right place.

Components of e-procurement

E-procurement is a term used to describe the electronic methods used in any stage

of the procurement process, from identification of the requirement to purchase

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through to the payment to the supplier. There are three areas in particular where e-

procurement methods can improve efficiency in the supply chain:

 e-sourcing

 e-purchasing

 e-payment.

E-sourcing

E-sourcing is the use of electronic methods for finding new suppliers and

negotiating terms for purchase agreements. The internet can be used to identify

potential new suppliers, and to find out more about the business of potential

suppliers by visiting their websites.

Communications can be established, initially perhaps by telephone or letter, but

subsequently by e-mail. Negotiations about the terms of purchase agreements can

be conducted electronically, through e-mail.

E-purchasing

E-purchasing is the process of making purchase orders electronically. The process of

making a purchase might involve:

 submitting requests for quotations to suppliers, inviting them to submit a

quotation for the supply of goods or services

 receiving quotations/tenders from potential suppliers

 placing the order electronically.

E-payment

E-payment is the use of electronic methods for payment, such as electronic

invoicing and self-billing. Many companies also arrange to pay suppliers by sending

electronic payment instructions to their bank. In the UK, electronic payments are

made through BACS (the Bankers Automated Clearing Services).

3.4 Benefits of e-procurement

The ability to source products and services electronically can be extremely cost

effective, saving time and money. These improvements in efficiency can be shared

between suppliers and customers, adding value to the supply chain.

Benefits of e-sourcing

E-sourcing enables companies to purchase more easily from other countries or new

suppliers that they have not considered previously. It might be possible to find

suppliers who can offer better value, in terms of lower prices or better-quality

products.

Chapter 12: Information technology solutions

Benefits of e-purchasing

Electronic purchasing methods reduce the time for suppliers to respond and a

purchase to be made. Savings in time and the use of electronic communications can

save costs and improves efficiency in the purchasing process.

Purchasing efficiency is improved still further if suppliers link their purchasing

system to a computerised order fulfilment and delivery system.

Some form of e-purchasing arrangements are needed to make a system of just-in-

time purchasing feasible.

Benefits of e-payment

E-payment can streamline the payment processes for both the purchaser and

supplier, reducing costs and errors that can occur as a result of information being

transferred manually from and into their respective accounting systems. These

efficiency savings can translate into cost reductions that can be shared by both

parties.

3.5 E-procurement and collaboration with major suppliers

As well as providing opportunities to choose from a larger number of different

suppliers, e-procurement methods can also provide opportunities for achieving a

competitive advantage through collaboration with suppliers.

Effective collaboration with major suppliers involves the joint design of new

materials and components, and new product design. It can also include

collaboration between a company and key suppliers for improving efficiency in

purchasing.

One method of improving purchasing efficiency is to exchange information directly

between the computer system of a company and its supplier. The electronic

exchange of information with a supplier might simply involve sending e-mails with

documents attached. Close collaboration with a supplier, however, goes much

further, because the output from the supplier’s computer system can be fed directly

into the company’s computer system, without human intervention. Similarly,

information output automatically from a company’s computer system can be read

directly by the supplier’s computer system, without human intervention.

There are several benefits of direct communication between computer systems.

Removing the need for human input to computer systems saves time and reduces

the risk of error. Purchase orders sent by a company can be read and processed by

the supplier’s system. Similarly delivery notices and purchase invoices from the

supplier can be read directly into the company’s own system and processed

automatically.

Any of the following methods can be used for linking computer systems of a

company and a supplier:

 Extranets (described earlier)

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 Electronic data interchange or EDI, which is a system for the electronic

translation of data from one computer system so that it can be read by a different

system. EDI is fairly expensive and is only used by large companies.

 A supplier can be given direct access to a company’s intranet. It can use this

access to obtain information about inventory levels, and recognise when a re-

supply of materials will be required. Taking this arrangement to its extreme

possibility, it would be possible to give a supplier the responsibility for deciding

when to re-supply an item to the company, and the quantity to supply.

Example

The US stores group WalMart has provided an excellent example of EDI. WalMart set

up EDI arrangements with its key suppliers that allowed the suppliers to access its

inventory control system. When inventory levels fell to a pre-set level, the supplier

had to provide a fresh delivery of the item automatically, without the need for a

formal order from WalMart. The responsibility for supply therefore passed from the

customer (WalMart) to the supplier, but for the benefit of both organisations.

Chapter 12: Information technology solutions

Marketing concepts: the 7Ps

 Marketing and e-marketing: the marketing mix

 Product strategy

 Price strategy

 Place strategy

 Promotion strategy

 Physical environment strategy

 People strategy

 Processes strategy

4 Marketing concepts: the 7Ps

4.1 Marketing and e-marketing: the marketing mix

Marketing is concerned with persuading customers to buy products or services by

offering them a unique value proposition that meets their needs better than the

products or services offered by any other competitor. Marketing strategy is

concerned with the methods that should be used to do this.

E-marketing is the use of electronic methods for marketing. The general concepts of

marketing apply to all methods of marketing, including e-marketing. Marketing

strategy is based on the ‘4 Ps’. These have been described in an earlier chapter, in

the context of providing value to customers by meeting their needs effectively.

With the growth in service industries, the 4Ps have been extended to the 7Ps:

 Product

 Price

 Place

 Promotion

 Physical environment

 People

 Processes

Together, these aspects of marketing are called the marketing mix. These basic

concepts of marketing strategy will be explained in some detail, because an

understanding of marketing generally is needed for a proper understanding of e-

marketing.

4.2 Product strategy

‘Product’ is a key element in the marketing mix. Value is provided to a customer by

the product or service itself. Value comes from a combination of different factors,

such as:

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 The features of the product or service. What is it used for? What does it do?

Does it do what customers want it to do? It is also important to remember that

the product is more than just the actual physical product itself. It also includes

other factors such as warranties and guarantees, and after-sales service.

 Accessories. Customers might be attracted by the accessories that are available

with a product. For example, customers wanting to buy a personal computer

might be attracted by the software that is provided with the computer (within

the purchase price).

 Convenience of use. How is it used? For example, a mobile telephone that fits

into a pocket or a small handbag has the attribute of convenience. Ready-to-cook

meals are convenient for people who do not want to cook meals themselves, or

who do not have time to cook.

 Design. Is the design attractive? Does the design make the product easy to use?

 Quality. How reliable is the product or service. What standard of performance

does it achieve? Quality can be assessed by the components elements of a

product: for example gold is valued more than silver in jewellery products and

diamonds are valued more than gold. Quality can also be assessed by the

frequency of break-down or expected useful life. In service industries, some

business entities develop a reputation for quality and professional service.

 Packaging. Is the packaging attractive and convenient? Is the packaging suitable

for the way in which the product will be used?

 Brand name. The value of a product to the consumer can be enhanced by a

recognised brand name, which is an intangible product feature or quality.

 Safety features. With some products, health and safety issues might be

important - for example, some consumers are concerned about the healthiness of

food products.

 Uniqueness. Some customers will buy an entirely new product or a low-volume

production item, for the prestige of being one of the few owners.

Within a marketing mix strategy, product strategy is concerned with:

 designing new products

 designing new variations of existing products, to sell to a different market

segment, or to renew customer interest in a product (if demand is falling), or to

create new demand.

For marketing purposes, product design should be related to what customers want

and need. The starting point for designing a new product or a new design of an

existing product is therefore to assess customer needs and preferences, to establish

what aspects of a product are valued more than others, by customers in each

segment of the total market.

Differentiation and product strategy

Product design can be used as a part of marketing strategy to create a differentiated

product, even if the measure provides only a short-term advantage. For example a

manufacturer might offer special versions of a product, a new edition or a change in

packaging as a way of creating differentiation.

ACCA P3 Business Analysis - 2010 - Study text - Emile Woolf Publishing

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