Page 255 - Electronic Commerce

Chapter 5

having them manufactured and assembled in less-developed Asian countries. The
Internet has enabled companies to offshore many nonmanufacturing activities such as
purchasing, research and development, recordkeeping, and information management.
This type of offshoring is often called business process offshoring.Offshoringthatis
done by or through not-for-profit organizations who use the business activity to
support training or charitable activities in less developed parts of the world (such as
the organizations described in the opening case for this chapter) is sometimes called
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impact sourcing or smart sourcing. It can be done in countries that do not yet have
the infrastructure to support manufacturing activities.

Purchasing Activities
Purchasing activities include identifying and evaluating vendors, selecting specific
products, placing orders, and resolving any issues that arise after receiving the ordered
goods or services. These issues might include late deliveries, incorrect quantities,
incorrect items, and defective items. By monitoring all relevant elements of purchase
transactions, purchasing managers can play an important role in maintaining and
improving product quality and reducing costs. In Chapter 1, you learned how
companies can organize their strategic business unit activities using an industry value
chain. The part of an industry value chain that precedes a particular strategic business
unit is called that business unit’s supply chain. A company’ssupplychain fora
particular product or service includes all the activities undertaken by every predecessor
in the value chain to design, produce, promote, market, deliver, and support each
individual component of that product or service. For example, the supply chain of an
automobile manufacturer includes every activity undertaken by each individual
component supplier, including engine manufacturers, steel fabricators, glass
manufacturers, wiring harness assemblers, and thousands of others.
The Purchasing Department within most companies traditionally has been charged
with buying all of these components at the lowest price possible. Usually, Purchasing
staff did this by identifying qualified vendors and asking them to prepare bids that
described what they would supply and how much they would charge. The Purchasing
staff would then select the lowest bid that still met the quality standards for the
component. This bidding process led to a very competitive environment with a large
number of suppliers; this process focused excessively on the cost of individual
components and ignored the total supply chain costs, including the cost to the
manufacturing organization of dealing with such a large number of suppliers. As you
learned in Chapter 1, many managers call this function “procurement” instead of
“purchasing” to distinguish the broader range of responsibilities. Procurement generally
includes all purchasing activities, plus the monitoring of all elements of purchase
transactions. It also includes managing and developing relationships with key suppliers.
Another term that is used to describe procurement activities is supply management.
In many companies, procurement staff must have high levels of product knowledge to
identify and evaluate appropriate suppliers. The part of procurement activity devoted to
identifying suppliers and determining the qualifications of those suppliers is called
sourcing. In Chapter 1, you learned that the use of Internet technologies in procurement

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