Chap 8: E-Commerce

& Supply Chain Management

What is E-Commerce?

• E-commerce occurs whenever goods and services are bought and sold over public and private computer networks.

• Merchant companies take title to the goods they sell.

• Nonmerchant companies arrange for the purchase and sale of goods without owning or taking title to those goods

Examples

How do companies use e-commerce?

Example of Use of B2B, B2G, and B2C

B2C transactions occur between a supplier and retail customer. The supplier generally uses a Web storefront.

B2B transactions occur between companies. B2G transactions occur between companies and governmental

organizations.

There are three types of nonmerchant e-commerce companies:

– Auctions match buyers and sellers using the e-commerce version of standard auction where the auction company receives a commission on each product that’s sold. eBay.com is the best-known example.

– A clearinghouse provides goods at a stated price, arranges for delivery but never takes title to the goods. The company receives a commission on each product that’s sold. Amazon.com is the best-known example.

– Electronic exchanges are a type of clearinghouse that’s similar to a stock exchange. Whenever the company matches up buyers and sellers and a transaction occurs, the exchange takes a commission. Priceline.com is the best-known example.

How do companies use e-commerce?

E-Commerce improves market efficiencies in a variety of ways, as this figure shows. Customers benefit from the first two, disintermediation and increased price information. Businesses benefit from increasing their knowledge of price elasticity. Take out the

middleman!

Measures the amount that demand

rises or falls with price changes

Economic Factors that disfavor E-Commerce– Channel conflicts that occur when a manufacturer competes with

its traditional retail outlets by selling directly to the consumer.

– Price conflicts that may occur by a manufacturer selling directly to consumers and undercutting retailers’ prices.

– Logistics expenses increase when a manufacturer must process thousands of small-quantity orders rather than a few large-quantity orders.

– Customer-service expenses increase when a manufacturer must begin dealing directly with customers rather than relying on retailers’ direct relationships with customers.

Technology is needed for e-commerce

• E-commerce technology uses a three-tier architecture. Each tier relates to a particular class of computers.

– The user tier uses personal computers and browser software that requests and processes Web pages. Web page documents are coded in HTML and are transmitted using HTTP protocols.

– The server tier uses Web server computers and processes application programs that help manage HTTP traffic between Web servers and users.

– The database tier uses computers that run a DBMS to process SQL requests for retrieving and storing data.

How Three-tier Architecture Operates

Fig 8-5 Three-Tier Architecture

Technology Required for E-Commerce

• A commerce server, part of the server tier, is an application program that receives requests from users via a Web server. When the program receives a request, it takes some action, like coordinating a customer checkout process, and then returns a response to the user via a Web server.

• A web farm is a facility that houses numerous Web server computers.

Fig 8-6(a) Sample of Commerce Server Pages Fig 8-6(b) Shopping Cart Page

These two figures are samples of Web pages on an e-commerce Web site.

Q2 – What technology is needed for e-commerce?

• Hypertext Markup Language (HTML) is the most common language used to structure the layout of Web pages. It includes these elements:– A tag is a notation that defines a data element. <h2> and </h2> are

tags that indicates the text will be formatted as a level two heading.

– Hyperlinks serve as pointers to other Web pages. They include a URL for another document within the same Web site or a different Web site. In the figure on the next slide, the hyperlink http://www.marvel.com leads a user to another Web site.

– Attributes provide properties for tags. In the sample HTML document on the next slide, the attribute href= provides the value of the hyperlink that follows.

Q2 – What technology is needed for e-commerce?

Fig 8-7(a) Sample HTML DocumentFig 8-7(b) HTML Document in Fig 8-7(a) rendered

using Internet Explorer

THE HTML code on the left produces the Web page on the right.

Why is Web 2.0 important to business?

Comparison of Web 2.0 with Traditional Processing

Web 2.0 is a loose cloud of capabilities, technologies, business models, and philosophies that sets e-commerce apart from traditional software processing. This chart compares the two.

What is Web 2.0?

• Web 2.0 is about linking people….– People Sharing– People Trading – People Collaborating

• Social Networking…..

Why is Web 2.0 important to business?

• Software as a Service, part of the Web 2.0 movement, changes traditional thinking about how software is created, provided to users, and used to create value for the company that owns it. Some of its characteristics include the following:

What is Web 2.0?– It uses thin-client programs

in browsers.– The bulk of processing

occurs on servers throughout the Internet.

– Companies that provide it rely on advertising or revenue other than license fees.

– It’s perpetually labeled as beta software because its features and functions are constantly changing.

– Companies who provide it clash with traditional software vendors who rely on traditional software programs to provide the bulk of their revenue.

– It relies on viral marketing. That is, users spread the word about its virtues rather than the company that provides it.

– The more a Web 2.0-based site is used, the more value it attains

Q3 – Why is Web 2.0 important to business?

• Mashups are output from two or more Web sites combined into a single user experience. Users create their own mashups based on some portion of software that’s provided by a Web 2.0 service and another portion of software. An example is using Google Maps to create a new service that pinpoints motocross trails.

• Participation and Ownership Differences– Traditional sites are all about publishing with legal rights to

using the software locked down. – Web 2.0 sites are all about participation with legal rights

only partially locked down.

Businesses can benefit from offering Web 2.0 services in the following ways:

– Providing advertising that’s specific to user interests. Two popular programs from Google are

• Ad Words in which advertisers pay for particular search words.• Ad Sense in which Google inserts ads on a Web site that match content

on the site. When someone clicks on the ad, Google pays the site owner a fee.

– Providing social networking services that connect people with similar interests.

– Providing mashups between a business and its partners which combine the content of their products. Watch a movie, see a piece of jewelry you like, click on a link, and purchase the product.

How can information systems enhance supply chain performance?

• Supply chains are networks of organizations and facilities that transform raw material into products delivered to customers. The diagram below depicts supply chain relationships.

How can information systems enhance supply chain performance?

• As this figure shows, four factors drive a company’s supply chain performance: facilities, inventory, transportation, and information.

How can information systems enhance supply chain performance?

• Information influences supply chain performance three ways:

– Purpose: Is the purpose of the information transactional or informational?– Availability: Will they have access to the information they need when they need

it?– Means: What means or methods will organizations use to transmit information

with others that need it?

• Supply chain profitability is determined by calculating the difference between revenue generated by a supply chain and the costs that all organizations in the supply chain incur to obtain that revenue.

• The maximum profit to a supply chain will not occur if each organization in a supply chain maximizes its own profits in isolation from the other participants in the supply chain.

How can information systems support supplier relationship management?

• Three information systems are involved in supply chain management:

– supplier relationship management, or SRM, (a business process for managing all contacts between organization and its suppliers),

– inventory,

– and customer relationship management (CRM).

MRP Stands for Materials Requirements Planning

How can information systems support supplier relationship management?

• The term supplier, when used in the context of a supplier relationship management system, refers to any organization that sells something to a company operating an SRM application.

• Information systems support these SRM processes: source, purchase, and settle.

How can information systems support supplier relationship management?

This diagram shows you how an SRM system is integrated with a CRM system: The supplier’s CRM interfaces with the purchaser’s SRM application. Connect the CRM to the customer’s SRM to automate recurring purchases. SRM examines inventory, determines required items, and creates an order.

How do organizations exchange data?

• Companies must communicate with other companies in order to purchase supplies, sell products, or generally do business. Some of the alternative for exchanging data and messages are listed below.

• The first four alternatives require very little technology. The last three require additional technology.

Fig 8-17 Alternatives for Interorganizational Message Exchange

Q6 – How do organizations exchange data?

• Electronic Data Interchange (EDI) has been used for more than 30 years as a way to standardize document formats for common business transactions and is used primarily over point-to-point and PDSN networks. “EDI over Internet” improves the flow of documents but other technologies are even better.

• The eXtensible Markup Language (XML) promises to improve upon EDI and the use of HTML on Web pages.

– Using HTML to create documents that businesses can use to exchange information and transactions presents several problems. • Tags used to format data don’t have consistent meanings between businesses.• HTML only offers a fixed number of tags.• The HTML language mixes the format, content, and structure of a Web page without

allowing data to be defined between businesses.

Q6 – How do organizations exchange data?

• The eXtensible Markup Language (XML) was developed by World Wide Web Consortium (W3C) committee to help solve some of the problems associated with using HTML for B2B e-commerce.

– XML requires placing the content, structure, and format of a Web page into documents separate from the actual data on the page.

– Designers can create their own tags and specify the precise arrangement of the tags in an XML schema document.

– Supply chains processes and activities can obtain document structures from an XML schema and validate them through automation, saving time and labor.

– Documents coded with the XML language contain more accurate and more useful data for business transactions.

How can organizations connect computer programs?

• Some companies find it advantageous to have programs on their computer systems directly access programs on other companies’ computers by using remote computing, also call distributed computing.

• One option is to develop proprietary distributed applications.

– Teams from both entities work together to• Determine application requirements, develop a design, and

write and test the programs. • Decide on communications capabilities, operating systems,

and distributed computing techniques.

– These types of systems are difficult and very expensive to develop and operate because of the vast amount of coordination necessary to make them work.

Q7 – How can organizations connect computer programs?

• An emerging Internet-based technology that companies are turning to for remote/distributed computing is called XML Web services.

• These services use a service-oriented architecture (SOA).

What is SOA?

• Web services offer these advantages:

– They provide a standardized way for programs to access one another remotely without proprietary solutions.

– Standardization leads to the immediate accessibility of the services.

– Service descriptions on one computer provide other computers with information about available programs and how to communicate with them.

– XML documents transmit the service data and define the XML schema; program components of the XML Web services automatically validate the data.

How can organizations connect computer programs?

Web Services simplify the automation of supply chain interactions by providing flexibility and by reducing the costs and time associated with developing inter-organizational information systems.

This figure shows how a retailer publishes a service description and makes it available to others.