Payments and Order Fulfillment

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Payments and Order Fulfillment
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Order Fulfillment
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Order Fulfillment

• All the activities needed to provide customers
  with ordered goods and services, including
  related customer services
• Back-office operationsthe activities that
  support fulfillment of sales, such as accounting
  and logistics
• Front-office operationsthe business processes,
  such as sales and advertising, that are visible
  to customers

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Logistics

• Logisticsthe operations involved in the
  efficient and effective flow and storage of
  goods, services, and related information from
  point of origin to point of consumption
• Delivery of materials or services
• Right time
• Right place
• Right cost

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Order Fulfillment and Logistics Systems
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EC Order Fulfillment Process

• 1. Payment clearance
• 2. In-stock availability
• 3. Arranging shipments
• 4. Insurance
• 5. Production (planning, execution)
• 6. Plant services
• 7. Purchasing and warehousing

• 8. Customer contacts
• 9. Returns (Reverse logisticsmovement of returns
  from customers to vendors)
• 10. Demand forecast
• 11. Accounting, billing

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Order Fulfillment and the Supply Chain

• Order fulfillment and order taking are integral
  parts of the supply chain.
• Flows of orders, payments, and materials and
  parts need to be coordinated among
• Companys internal participants
• External partners
• The principles of supply chain management must be
  considered in planning and managing the order
  fulfillment process

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Problems in Order Fulfillment

• Manufacturers, warehouses, and distribution
  channels were not in sync with the e-tailers
• High inventory costs
• Quality problems exist due to misunderstandings
• Shipments of wrong products, materials, and parts
• High cost to expedite operations or shipments

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Problems in Order Fulfillment (cont.)

• Uncertainties
• Major source of uncertainty is demand forecast
• Demand is influenced by
• Consumer behavior
• Economic conditions
• Competition
• Prices
• Weather conditions
• Technological developments
• Customers confidence

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Problems in Order Fulfillment (cont.)

• Demand forecast should be conducted frequently
  with collaborating business partners along the
  supply chain in order to correctly gauge demand
  and make plans to meet it
• Delivery times depend on factors ranging from
  machine failures to road conditions
• Quality problems of materials and parts (may
  create production time delays)
• Labor troubles (such as strikes) can interfere
  with shipments

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Problems in Order Fulfillment (cont.)

• Order fulfillment problems are created due by
  lack of coordination and inability or refusal to
  share information
• Bullwhip effectlarge fluctuations in inventories
  along the supply chain, resulting from small
  fluctuations in demand for finished products

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Solutions to Order Fulfillment Problems

• Improvements to order taking process
• Order taking can be done on EDI, EDI/Internet, or
  an extranet, and it may be fully automated.
• In B2B, orders are generated and transmitted
  automatically to suppliers when inventory levels
  fall below certain levels.
• Result is a fast, inexpensive, and a more
  accurate process
• Web-based ordering using electronic forms
  expedites the process
• Makes it more accurate
• Reduces the processing cost for sellers

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Solutions to Order Fulfillment Problems (cont.)

• Implementing linkages between order-taking and
  payment systems can also be helpful in improving
  order fulfillment
• Electronic payments can expedite order
  fulfillment cycle and payment delivery period
• Payment processing significantly less expensive
• Fraud can be controlled better

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Inventory Management Improvements

• Inventories can be minimized by
• Introducing a make-to-order (pull) production
  process
• Providing fast and accurate demand information to
  suppliers
• Inventory management can be improved (inventory
  levels and administrative expenses) can be
  minimized by
• Allowing business partners to electronically
  track and monitor orders and production
  activities
• Having no inventory at by digitizing products

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Automated Warehouses

• B2C order fulfillmentsend small quantities to a
  large number of individuals
• Step 1 retailers contract Fingerhut to stock
  products and deliver Web orders
• Step 2 merchandise stored SKU warehouse
• Step 3 orders arrive
• Step 4 computer program consolidates orders from
  all vendors into pick waves

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Automated Warehouses (cont.)

• Step 5 picked items moved by conveyors to
  packing area computer configures size and type
  of packing types special packing instructions
• Step 6 conveyer takes packages to scanning
  station (weighed)
• Step 7 scan destination moved by conveyer to
  waiting trucks
• Step 8 full trucks depart for Post Offices

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Same Day, Even Same Hour Delivery

• Role of FedEx and similar shippers
• From a delivery to all-logistics
• Many services
• Complete inventory control
• Packaging, warehousing, reordering, etc.
• Tracking services to customers

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Same Day, Even Same Hour Delivery (cont.)

• Supermarket deliveries
• Transport of fresh food to people who are in
  homes only at specific hours
• Distribution systems are critical
• Fresh food may be spoiled

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Partnering Efforts

• Collaborative commerce among members of the
  supply chain results in
• Shorter cycle times
• Minimal delays and work interruptions
• Lower inventories
• Less administrative cost
• Minimize bullwhip effect problem

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Order Fulfillment in B2B

• Using e-marketplaces and exchanges to ease order
  fulfillment problems
• Both public and private marketplaces
• E-procurement system controlled by one large
  buyer, suppliers adjust their activities and IS
  to fit the IS of the buyer
• Company-centric marketplace can solve several
  supply chain problems
• Use an extranet
• Use a vertical exchange

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Order Fulfillment in B2B (cont.)

• Shippers (sellers)
• Receivers (buyers)
• Carriers
• Third-party logistics providers
• Warehouse companies

• Vertical e-marketplaces
• Transportation
• e-marketplaces
• Logistics software application vendors

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Handling Returns

• Necessary for maintaining customer trust and
  loyalty using
• Return item to place it was purchased
• Separate logistics of returns from logistics of
  delivery
• Completely outsource returns
• Allow customer to physically drop returned items
  at collection stations

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Electronic Payments
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Electronic Payments

• How do we pay online?
• credit cards?

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Parties Involved in e-payment

• Issuer
• Customers must obtain e-payment accounts from an
  issuer
• Issuers are usually involved in authenticating a
  transaction and approving the amount involved
• Customer/payer/buyer
• Merchant/payee/seller
• Regulator

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Issues in e-payment

• PAIN
• Privacy
• Authentication and authorization
• Integrity
• Nonrepudiation

• Characteristics of successful e-payment methods
• Independence
• Interoperability and portability
• Security
• Anonymity
• Divisibility
• Ease of use
• Transaction fees

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Security for E-Payments

• Public key infrastructure (PKI)a scheme for
  securing e-payments using public key encryption
  and various technical components
• Foundation of a number of network applications
• Supply chain management
• Virtual private networks
• Secure e-mail
• Intranet applications

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Security for E-Payments

• Public key encryption
• Encryption (cryptography)the process of
  scrambling (encrypting) a message in such a way
  that it is difficult, expensive, or time
  consuming for an unauthorized person to
  unscramble (decrypt) it

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Security for E-Payments (cont.)

• Digital signaturesan identifying code that can
  be used to authenticate the identity of the
  sender of a message or document
• Used to
• Authenticate the identity of the sender of a
  message or document
• Ensure the original content of the electronic
  message or document is unchanged

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Security for E-Payments (cont.)

• Digital Signatureshow they work
• Create an e-mail message with the contract in it
• Using special software, you hash the message,
  converting it into a string of digits (message
  digest)
• You use your private key to encrypt the hash
  (your digital signature

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Security for E-Payments (cont.)

• E-mail the original message along with the
  encrypted hash to the receiver
• Receiver uses the same special software to hash
  the message they received
• Company uses your public key to decrypt the
  message hash that you sent. If their hash matches
  the decrypted hash, then the message is valid

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Digital Signatures
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Security for E-Payments (cont.)

• Digital certificatesverification that the holder
  of a public or private key is who he or she
  claims to be
• Certificate authorities (CAs)third parties that
  issue digital certificates

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Standards for E-Payments

• Secure socket layer (SSL)/Transport Layer
  Security (TLS)protocol that utilizes standard
  certificates for authentication and data
  encryption to ensure privacy or confidentiality
• Secure Electronic Transaction (SET)a protocol
  designed to provide secure online credit card
  transactions for both consumers and merchants
  developed jointly by Netscape, Visa, MasterCard,
  and others

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Secure Socket Layer (SSL)

• A protocol that operates at the TCP/IP layer
• Encrypts communications between browsers and
  servers
• Supports a variety of encryption algorithms and
  authentication methods, cipher suite
• Encrypts credit card numbers that are sent from a
  consumers browser to a merchants Web site

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Secure Electronic Transactions (SET)

• A cryptographic protocol to handle the complete
  transaction
• Provides authentication, confidentiality, message
  integrity, and linkage
• Supporting features
• Cardholder registration
• Merchant registration
• Purchase requests
• Payment authorizations
• Payment capture

• Chargebacks
• Credits
• Credit reversal
• Debit card transactions

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Electronic Cards and Smart Cards

• Payment cardselectronic cards that contain
  information that can be used for payment purposes
• Credit cardsprovides holder with credit to make
  purchases up to a limit fixed by the card issuer
• Charge cardsbalance on a charge card is supposed
  to be paid in full upon receipt of monthly
  statement
• Debit cardcost of a purchase drawn directly from
  holders checking account (demand-deposit account)

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Electronic Cards and Smart Cards (cont.)

• The Players
• Cardholder
• Merchant (seller)
• Issuer (your bank)
• Acquirer (merchants financial institution,
  acquires the sales slips)
• Card association (VISA, MasterCard)
• Third-party processors (outsourcers performing
  same duties formerly provided by issuers, etc.)

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Online Credit Card Processing
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Electronic Cards and Smart Cards (cont.)

• Credit card gatewayan online connection that
  ties a merchants systems to the back-end
  processing systems of the credit card issuer

• Virtual credit cardan e-payment system in which
  a credit card issuer gives a special transaction
  number that can be used online in place of
  regular credit card numbers

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Electronic Cards and Smart Cards (cont.)

• Electronic wallets (e-wallets)a software
  component in which a user stores credit card
  numbers and other personal information when
  shopping online the user simply clicks the
  e-wallet to automatically fill in information
  needed to make a purchase
• One-click shoppingsaving your order information
  on retailers Web server
• E-walletsoftware downloaded to cardholders
  desktop that stores same information and allows
  one-click-like shopping

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Electronic Cards and Smart Cards (cont.)

• Security risks with credit cards
• Stolen cards
• Reneging by the customerauthorizes a payment and
  later denies it
• Theft of card details stored on merchants
  computerisolate computer storing information so
  it cannot be accessed directly from the Web

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Electronic Cards and Smart Cards (cont.)

• Purchasing cardsspecial-purpose payment cards
  issued to a companys employees to be used solely
  for purchasing nonstrategic materials and
  services up to a preset dollar limit
• Instrument of choice for B2B purchasing

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E-Cards (cont.)

• Benefits of using purchasing cards
• Productivity gains
• Bill consolidation
• Payment reconciliation
• Preferred pricing
• Management reports
• Control

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Participants Process of Using a Purchasing Card
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Smart Cards

• Smart cardan electronic card containing an
  embedded microchip that enables predefined
  operations or the addition, deletion, or
  manipulation of information on the card

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Smart Cards (cont.)

• Categories of smart cards
• Contact carda smart card containing a small gold
  plate on the face that when inserted in a
  smart-card reader makes contact and so passes
  data to and from the embedded microchip
• Contactless (proximity) carda smart card with an
  embedded antenna, by means of which data and
  applications are passed to and from a card reader
  unit or other device

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Smart Cards (cont.)

• Securing smart cards
• Theoretically possible to hack into a smart
  card
• Most cards can now store the information in
  encrypted form
• Same cards can also encrypt and decrypt data that
  is downloaded or read from the card
• Cost to the attacker of doing so far exceeds the
  benefits

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Smart Cards (cont.)

• Important applications of smart card use
• Loyalty
• Financial
• Information technology
• Health and social welfare
• Transportation
• Identification

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E-Cash and Innovative Payment Methods

• E-cashthe digital equivalent of paper currency
  and coins, which enables secure and anonymous
  purchase of low-priced items
• Micropaymentssmall payments, usually under 10

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E-Coin.net

• System consists of three participants
• User
• Opens an account with eCoin.com
• Downloads a special e-wallet to their desktop PC
• Purchases some eCoins with a credit card
• Merchantembeds a special eCoin icon in its
  payment page
• eCoin serveroperates as a broker
• Keeps customer and merchant accounts
• Accepts payment requests from the customers
  e-wallet
• Computes embedded invoices for the merchant

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E-Cash and Payment Card Alternatives (cont.)

• Wireless payments
• Vodafone m-pay bill system that enables
  wireless subscribers to use their mobile phones
  to make micropayments
• Qpass (qpass.com)
• Charges to qpass account, are charged to a
  specified credit card on a monthly basis

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Stored-Value Cards

• Stores cash downloaded from bank or credit card
  account
• Visa casha stored-value card designed to handle
  small purchases or micropayments sponsored by
  Visa
• Mondexa stored-value card designed to handle
  small purchases or micropayments sponsored by
  Mondex, a subsidiary of MasterCard

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E-Loyalty and Reward Programs

• Loyalty programs online
• B2C sites spend hundreds of dollars acquiring new
  customers
• Payback only comes from repeat customers who are
  likely to refer other customers to a site
• Electronic scripta form of electronic money (or
  points), issued by a third party as part of a
  loyalty program can be used by consumers to make
  purchases at participating stores

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E-Loyalty and Reward Programs (cont.)

• Beenza form of electronic script offered by
  beenz.com that consumers earn at participating
  sites and redeem for products or services
• Consumer earns beenz by visiting, registering, or
  purchasing at 300 participating sites
• Beenz are stored and used for later purchases
• Partnered with MasterCard to offer
  rewardzcardstored-value card used in U.S. and
  Canada for purchases where MasterCard is accepted
• Transfer beenz into money to spend on Web, by
  phone, mail order, physical stores

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E-Loyalty and Reward Programs (cont.)

• MyPoints-CyberGold
• Customers earn cash for viewing ads
• Cash used for later purchases or applied to
  credit card account
• Prepaid stored value cardsused online and
  off-line
• RocketCash
• Combines online cash account with rewards program
• User opens account and adds funds
• Used to make purchases at participating merchants

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Internetcash

• Teenage marketprimary reason for going online
• Communicating with friends via email and chat
  rooms
• homework
• Researching information
• Playing games
• Downloading music or videos

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Internetcash (cont.)

• Why they do not shop online
• Parents will not let them children their (the
  parents) credit cards online
• They cannot touch the products
• It is difficult to return items purchased on the
  Web
• They do not have the money
• Transaction may be insecure

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Internetcash (cont.)

• InternetCash offers prepaid stored-value cards
  sold in amounts of 10, 20, 50, and 100
• Must be activated to work
• Gives the user shopping privileges at online
  stores that carry an InternetCash icon
• Purchases are automatically deducted from the
  value of the card
• InternetCashs transactions are anonymous

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Internetcash (cont.)

• InternetCash is facing obstacles
• First, they have to find retailers willing to
  sell the cards
• Must persuade merchants to accept the card for
  online purchases
• Legal issues

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Person-to-Person Payments

• Person-to-person (P2P) paymentse-payment schemes
  (such as paypal.com) that enable the transfer of
  funds between two individuals
• Repaying money borrowed
• Paying for an item purchased at online auction
• Sending money to students at college
• Sending a gift to a family member

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Global B2B Payments

• Letters of credit (LC)a written agreement by a
  bank to pay the seller, on account of the buyer,
  a sum of money upon presentation of certain
  documents
• TradeCard (tradecard.com)innovative e-payment
  method that uses a payment card

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Electronic Letters of Credit (LC)

• Benefits to sellers
• Credit risk is reduced
• Payment is highly assured
• Political/country risk is reduced

• Benefits to the buyer
• Allows buyer to negotiate for a lower purchase
  price
• Buyer can expand its source of supply
• Funds withdrawn from buyers account only after
  the documents have been inspected by the issuing
  bank

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TradeCard Payments

• TradeCard allows businesses to effectively and
  efficiently complete B2B transactions whether
  large or small, domestic or cross-border, or in
  multiple currencies
• Buyers and sellers interact with each other via
  the TradeCard system
• System
• Checks purchase orders for both parties
• Awaits confirmation from a logistics company that
  deliveries have been made and received
• Authorizes payment completing financial
  transaction between the buyer and seller

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E-Checking

• E-checkthe electronic version or representation
  of a paper check
• Eliminate need for expensive process
  reengineering and takes advantage of the
  competency of the banking industry
• eCheck Secure (from vantaguard.com) and
  checkfree.com provide software that enables the
  purchase of goods and services with e-checks
• Used mainly in B2B