Ecommerce and Supply Chain Systems

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E-commerce and Supply Chain Systems

• Chapter 8

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Learning Objectives

• Define e-commerce and important e-commerce terms.
• Understand the effect of e-commerce on market
  efficiency.
• Learn technology for supporting commerce servers.
• Understand the structure, profitability, and
  dynamics of supply chains.
• Know the purpose, concepts, advantages, and
  disadvantages of EDI.
• Know the purpose, concepts, advantages, and
  disadvantages of XML.

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E-Commerce

• E-commerce is the buying and selling of goods and
  services over public and private computer
  networks.
• The U.S. Census Bureau, which publishes
  statistics on e-commerce activity, defines
  merchant companies as those that take title to
  the goods they sell.
• They buy goods and resell them.
• The U.S. Census Bureau defines nonmerchant
  companies as those that arrange for the purchase
  and sale of goods without ever owning or taking
  title to those goods.
• E-commerce categories

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E-Commerce Merchant Companies

• There are two types of merchant companies those
  that sell directly to consumers and those that
  sell to companies.
• Each uses slightly different information systems
  in the course of doing business.
• B2C, or business-to-consumer, e-commerce concerns
  sales between a supplier and a retail customer
  (the consumer).
• A typical information system for B2C provides a
  Web-based application or Web storefront by which
  customers enter and manage their orders (i.e.,
  Amazon.com, REI.com)
• The term B2B, or business-to-business, e-commerce
  refers to sales between companies (raw materials
  suppliers use B2B systems to sell to
  manufacturers, manufacturers use B2B to sell to
  distributors, and distributors uses B2B systems
  to sell to retailers).
• B2G, or business-to-government, refers to sales
  between companies and government organizations.

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Nonmerchant E-commerce

• The most common nonmerchant e-commerce companies
  are auctions and clearing houses.
• E-commerce auctions match buyers and sellers by
  using an e-commerce version of a standard
  auction.
• This e-commerce application enables the auction
  company to offer goods for sale and to support a
  competitive bidding process.
• The best-known auction company is eBay, but many
  other auction companies exist many serve
  particular industries.
• Clearinghouses provide goods and services at a
  stated price, and they arrange for the delivery
  of the goods but they never take title.
• As a clearinghouse, Amazon matches the seller and
  the buyer and then takes payment from the buyer
  and transfers the payment to the seller, minus
  commission.
• Other examples of clearinghouse are electronic
  exchanges that match buyers and sellers the
  business process is similar to that of a stock
  exchange.

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Why Use E-Commerce?

• Reduce transaction cost
• Speed the flow of goods and services
• Improve level of customer service
• Enable close coordination among manufacturers,
  suppliers, and customers
• Reach worldwide markets
• For example, when Cisco Systems placed its
  procurement operation on-line in 1998, the
  company saved 350 million

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E-Commerce Improves Market Efficiency

• E-commerce leads to disintermediation, which is
  the elimination of middle layers in the supply
  chain.
• You can buy a flat-screen LCD HDTV from a typical
  electronic store or you can use e-commerce to buy
  it from the manufacturer.
• If you take the later route, you eliminate at
  least one distributor, the retailer, and possibly
  more.
• E-commerce also improves the flow of price
  information.
• As a consumer, you can go to any number of Web
  sites that offer product price comparisons. The
  improved distribution of information about price
  and terms enables you to pay the lowest possible
  cost and serves ultimately to remove inefficient
  vendors.
• The market as a whole becomes more efficient.
• From the sellers side, e-commerce produces
  information about price elasticity that has not
  been available before.
• Using an auction, a company can learn not just
  what the top price for an item is, but also learn
  the second, third, and other prices from the
  losing bids.
• Managing prices by direct interaction with
  customers yields better information than managing
  prices by watching competitors pricing.

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Basic Components of a Successful E-Commerce Model
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E-Commerce Economics

• Companies need to consider the following economic
  factors
• Channel conflict
• Price conflict
• Logistics expense
• Customer service expense

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E-Commerce and the World Wide Web

• Most B2C commerce conducted over the World Wide
  Web (WWW) uses Web storefronts supported by
  commerce servers.
• A commerce server is a computer that operates
  Web-based programs that display products, support
  online ordering, record and process payments, and
  interface with inventory-management applications.

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Web Pages and Hypertext Markup Language

• HTTP is used to exchange Web pages over the
  Internet.
• Such pages are documents encoded in a language
  called HTML, or Hypertext Markup Language.
• This language defines the structure and layout of
  Web pages.
• An HTML tag is a notation used to define a data
  element for display or other purposes.
• Web pages include hyperlinks, which are pointers
  to other Web pages.
• A hyperlink contains the URL (Uniform Resource
  Locator) of the Web page to obtain when the user
  clicks the hyperlink.
• The two most popular Web server programs are
  Apache, commonly used on Linux, and IIS (Internet
  Information Server), a component of Windows XP
  Professional and other Windows products.
• A browser is a program that processes the HTTP
  protocol receives, displays, and processes HTML
  documents and transmits responses.
• Common browsers are Internet Explorer, Netscape
  Navigator, and Mozillas FireFox.

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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
• 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.
• Its 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. .

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Mashups

• 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 thats 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.

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Three-Tier Architecture

• Most commerce server applications use what is
  called three-tier architecture (the tiers refer
  to three different classes of computers)
• The user tier consists of computers that have
  browsers that request and process Web pages.
• The server tier consists of computers that run
  Web servers and in the process generate Web pages
  in response to requests from browsers
• Web servers also process application programs.
• To ensure acceptable performance, commercial Web
  sites usually are supported by several or even
  many Web server computers.
• A facility that runs multiple Web servers is
  sometimes called a Web farm.
• Work is distributed among computers in a Web farm
  so as to minimize customer delays.
• The third tier is the database tier.
• The computers at this tier receives and processes
  SQL requests to retrieve and store data.

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Three-Tier Architecture Graphic
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Discussion Trust and BBB Seals

• There is no privacy legislation governing the
  Internet. However, independent, nonprofit groups
  exist that seek to further e-commerce by helping
  consumers trust on-line merchants. For example,
  TRUSTe provides its seal to websites honoring
  specific privacy codes.
• The Better Business Bureau Online Privacy seal
  also identifies sites that honor specific privacy
  principles.

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Discussion How to Protect Your Privacy On-line
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Discussion Security GuideA Trojan Horse?

• Suppose you work for a distributor that manages
  its inventory very closely.
• One of your major manufacturers says that it can
  dramatically shorten the lead time on most of its
  products if your purchasing personnel order
  directly from the manufacturer's CRM.
• To make that possible, the manufacturer needs to
  install some of its programs on the computers in
  your purchasing department.
• You agree to allow the installation.
• The chief information officer (CIO) gets wind of
  this project and refuses to allow the programs to
  be installed on the computers in purchasing.
• He also directs building security personnel not
  to allow anyone from the manufacturer into your
  companys building.
• The two of you have a meeting, and he is furious
  with you.
• Well you counter, I see your point and Im
  sorry we didnt contact you sooner.
• But what can we do now?
• Using their system could mean huge cost savings
  to us.

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Supply Chain Management

• A supply chain is a network of organizations and
  facilities that transforms raw materials into
  products delivered to customers.
• Customers order from retailers, who in turn order
  from distributors, who in turn order from
  manufacturers, who in turn order from suppliers.
• The supply chain also includes transportation
  companies, warehouses, and inventories and some
  means for transmitting messages and information
  among the organizations involved
• Because of disintermediation, not every supply
  chain has all of these organizations.
• Dell, for example, sells directly to the
  customer.
• In other supply chains, manufacturers sell
  directly to retailers and omit the distribution
  level.
• Chain implies that each organization is connected
  to just one company up (toward the supplier) and
  down (toward the customer) the chain.
• Instead, at each level, an organization can work
  with many organizations both up and down the
  supply chain.
• Thus, a supply chain is a network.

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Drivers of Supply Chain Performance

• Facilities concern the location, size and
  operations methodology of the places where
  products are fabricated, assembled or stored.
• Inventory includes all of the materials in the
  supply chain, including raw materials, in-process
  work, and finished goods.
• Transportation concerns the movement of materials
  in the supply chain.
• Information influences supply chain performance
  by affecting the ways that organizations in the
  supply chain request, respond, and inform one
  another.

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The Bullwhip Effect

• The bullwhip effect is a phenomenon in which the
  variability in the size and timing of orders
  increase at each stage up the supply chain, from
  customer to supplier.
• The large fluctuations of the bullwhip effect
  distributors, manufacturers, and suppliers to
  carry larger inventories than should be necessary
  to meet the real consumer demand.
• One way to eliminate the bullwhip effect is to
  give all participants in the supply chain access
  to consumer-demand information from the retailer.
• Each organization can thus plan its inventory or
  manufacturing based on true demand and not on the
  observed demand from the next organization up in
  the supply chain.

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Supplier Relationship Management

• Supplier relationship management (SRM) is a
  business process for managing all contracts
  between an organizational and its suppliers.
• SRM Processes

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Integrating SRM with CRM

• Suppliers CRM application interfaces with the
  purchasers SRM application.
• Both the supplier and the customer want to
  perform the ordering process as cheaply and
  efficiently as possible.
• SRM examines inventory, determines that items are
  required, and automatically creates the order via
  its connection to the suppliers CRM.

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Information Technology for Data Exchange

• Web commerce-server applications are useful for
  B2C, but they are not sufficient for B2B needs.
• In general, organizations need to exchange data
  and messages in more general and flexible ways
  than they can do with commerce servers.
• There are several alternatives for exchanging
  data and messages (Basic Technology)
• The most basic are telephone calls and documents
  exchanged via fax or postal mail.
• Another alternative is to exchange messages and
  documents via email.
• There are alternatives that involve additional
  technology
• Electronic Data Interchange (EDI) is a standard
  for exchanging documents from machine to machine,
  electronically.
• In the past, EDI was used over point-to-point or
  value-added networks.
• Recently, EDI systems have been developed that
  use the Internet as well.
• eXtensible Markup Language (XML), is a standard
  that offers advantages over EDI and that most
  believe will eventually replace EDI

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Electronic Data Interchange

• Electronic Data Interchange (EDI) is a standard
  of formats for common business documents.
• Because the transmissions are electronic, the
  distributors and manufacturers must agree on a
  format for the orders. This format includes
• How many data fields will be sent.
• In what order they will be sent.
• How many characters will be sent in each data
  field, and so forth.
• In the United States, the X12 Committee of the
  American National Standards Institute (ANSI)
  manages EDI standards.
• Today, the EDI X12 standard includes hundreds of
  documents.
• They have standard names like EDI 850 (purchase
  order), EDI 856 (advance ship notices), EDI 810
  (electronic invoice).
• EDIFACT standard is used internationally.
• HIPAA standard is used for medical records.
• Because of the existence of multiple standards,
  when two organizations today wish to exchange
  documents electronically, they must first agree
  on which standard they will use.

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eXtensible Markup Language

• Organizations have used HTML to share documents.
• There are three problems with HTML
• HTML tags have no consistent meaning.
• HTML has a fixed number of tags.
• HTML mixes format, content, and structure.
• To overcome the problems in HTML, the computer
  industry designed a new markup language called
  the eXtensible Markup Language (XML).
• XML is the product of a committee that worked
  under the auspices of the World Wide Web
  Consortium (W3C), a body that sponsors the
  development and dissemination of Web standards.
• XML provides a superior means for organizations
  to exchange documents.
• XML solves the problems mentioned for HTML, and
  has become a significant standard for computer
  processing.

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Application Interaction in the Supply Chain

• The process of a program on one computer
  accessing programs on a second computer is called
  remote computing or distributed computing.
• Several different techniques are used
• Two important ones are the use of proprietary
  designs and Web services

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Distributed Computing Using Proprietary Designs

• One way to develop distributed computer programs
  is to develop proprietary distributed
  applications.
• Proprietary means that the solution is unique to
  and is owned by the organizations that develop
  and pay for the distributed systems.
• To develop a proprietary design, teams of
  developers from the involved companies work
  together using a development process.
• The joint development team designs this
  application to use a particular communications
  capability, particular operating systems, and
  particular distributed computing techniques.
• An alternative proprietary method is for one
  company to develop all necessary programs itself
  and then install some of its programs on another
  companys computers.
• Proprietary solutions are difficult and expensive
  to develop and operate.
• If they provide sufficient business value,
  however, the return on investment can make them
  worthwhile.

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XML Web services

• XML Web services, sometimes called simply Web
  services, are a set of standards that facilitate
  distributed computing using Internet technology.
• Web services are the latest and greatest tool for
  application interaction.
• Every major software vendor has products that
  support Web services
• Microsoft provides .Net development tools
• IBM provides J2EE development tools

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Fundamental Web Services Concepts

• The goal of Web services is to provide a standard
  way for programs to access one another remotely,
  without the need to develop proprietary
  solutions.
• A number of important standards have been defined
  to make Web services possible.
• In general these standards enable programs on one
  computer to obtain a service description that
  details what programs exist on another computer
  and how to communicate with those programs.
• Once the service user has the service
  description, it uses the information it contains
  to invoke the service.
• All Web service data are transmitted in XML
  documents.

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Web Services and the Supply Chain

• Web services have the potential to simplify the
  automation of supply chain interactions.
• Any organization in the supply chain can develop
  Web services and publish those services to other
  organizations in the supply chain.
• Developers in those organizations can access the
  service description and write programs that call
  the Web services.

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Summary

• Organizations should address four economic
  factors when considering e-commerce activity
  channel conflict, price conflict, logistics
  expense, and customer service expense.
• Most B2C commerce is conducted using commerce
  servers.
• A supply chain is a network of organizations and
  facilities that transforms raw materials into
  finished goods for customers.
• The bullwhip effect is a phenomenon in which the
  variability in the size and timing of orders
  increases at each stage up the supply chain.
• Three fundamental supply chain information
  systems are supplier relationship management
  (SRM), inventory, and CRM.
• Organizations can exchange documents and data
  between programs using various alternatives.
• EDI is a standard of formats for common business
  documents.
• XML is a markup language like HTML, but it
  improves upon HTML by requiring standard use of
  XML elements by allowing users to extend the
  elements, and by clearly separating document
  structure, content, and format.

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Discussion Ethics GuideThe Ethics of Supply
Chain Information Sharing

• Suppose that you work for a distributor that has
  developed information systems to read inventory
  data both up and down the supply chain.
• Situation A
• You notice that the store inventories of all
  retailers are running low on items in a
  particular product family.
• Because you believe you have the only supply of
  those items, you increase their price by 15
  percent.
• When the retailers ask why, you claim extra
  transportation costs.
• In fact, all of the increase is going straight
  to your bottom line.
• Situation B
• Unknown to you, one of your competitors has also
  accumulated a large inventory of those same
  items.
• Your competitor does not increase prices on those
  items, and consequently you sell none at your
  increased price.
• You have no direct way to read your competitors
  inventories, but you can infer their inventories
  by watching the decrease of inventory levels on
  the manufacturer side and comparing that decrease
  to the sales on the retail side.
• Using this process, you now can estimate your
  competitors inventories.
• Situation C
• Assume the agreement you have with the retailers
  is that you are able to query all of their
  current inventory levels but only for the orders
  they have with you.
• You are not supposed to be able to query orders
  they have with your competitors.
• However, the information system contains a flaw,
  and by mistake you are able to query everyones
  orders-your own as well as those of your
  competitors.

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Discussion Reflection GuideXML and the Future
of Computing

• Once upon a time, computers were used solely for
  computing. They were valued for their ability to
  perform arithmetic and complex calculations.
  Today, few computers are valued primarily as
  computational tools. Today, they are valued
  because they communicate.
• Whats the primary purpose of an IS in the supply
  chain?
• It is to communicate orders, invoices, or other
  documents or send and receive data among
  programs.
• Communications cannot occur without common
  standards.
• Computers must share standards to communicate.
• Bill Gates called XML the lingua franca of the
  Internet.
• If XML is not yet the language of the Internet,
  it is likely to be that within the next 5 years.
• Today orders may arrive via postal mail, fax, as
  attachments to emails, or through information
  systems. Without XML, everyone of those orders
  must be manually validated.
• A starting possible consequence of the growth of
  XML on future computing relates to databases.
• Databases store tables not XML documents.
• Why not store the XML documents in databases?
  Before this can happen, significant problems must
  be overcome
• How to efficiently query stores of XML documents
• How to process duplicated data
• How to make XML data available to table-oriented
  programs like Excel
• Im willing to bet that by the end of your
  career, relational databases will be the thing of
  the past.
• It will be XML storage all the way!