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Using MIS 2e Chapter 8: E-Commerce and Web 2.0 David Kroenke This presentation has been modified from the original and should be downloaded from the Course.

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Presentation on theme: "Using MIS 2e Chapter 8: E-Commerce and Web 2.0 David Kroenke This presentation has been modified from the original and should be downloaded from the Course."— Presentation transcript:

1 Using MIS 2e Chapter 8: E-Commerce and Web 2.0 David Kroenke This presentation has been modified from the original and should be downloaded from the Course Documents area in Blackboard

2 Study Questions Q1 – How do companies use e-commerce? Q2 – What technology is needed for e-commerce? Q3 – How can IS enhance supply chain performance? Q4 – Why is Web 2.0 important to business? Q5 – How can organizations benefit from social networking? Q6 – How do organizations exchange data? Chapter 8: E-Commerce and Web

3 Electronic commerce (e-commerce) is the buying and selling of goods and services over public and private computer networks. It requires all of the following:  Buyers and sellers  Products and suppliers  A place to “meet”  Marketing to attract the buyer  Accept and process the order All of these elements are present in both e-commerce and traditional commerce Q1 – How do companies use e-commerce (introduction)? Chapter 8: E-Commerce and Web

4 For the Seller  Open 24/7  Shoppers from anywhere  Virtual inventory is cheaper and extensive  Lower transaction costs  Target your customers  Build an order over time For the Buyer  Open 24/7  Never leave home  Easy to view and explore product line  Comparison shop  Web site knows you  Build an order over time Q1 – How do companies use e-commerce (What’s different?)

5 Merchant companies are those companies that take title to the goods they sell; i.e., they buy goods and resell them. Non-merchant companies are those that arrange for the sale of goods without ever owning them or taking title. Q1 – How do companies use e-commerce? Chapter 8: E-Commerce and Web

6 Q1 – How do companies use e-commerce (merchant companies)? Fig 8-2 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. Chapter 8: E-Commerce and Web

7 Q1 – How do companies use e-commerce (non-merchant companies)? There are three types of non-merchant 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. Chapter 8: E-Commerce and Web

8 Q1 – How do companies use e-commerce (improved efficiency)? E-commerce leads to disintermediation, which is the elimination of middle layers in the supply chain  The consumer can buy from a retailer or use e-commerce to go directly to the manufacturer.  E-commerce improves the flow of price information; i.e., you can go to any number of Web sites that offer product price comparisons.  The additional information enables the consumer to pay the lowest price and serves ultimately to remove inefficient vendors. From the seller’s side, e-commerce produces information about price elasticity (the change in demand that accompanies a change in price)  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. Chapter 8: E-Commerce and Web

9 Q1 – How do companies use e-commerce (potential problems)? Businesses need to consider the economic factors that may disfavor their participation in e-commerce such as these:  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. Chapter 8: E-Commerce and Web

10 Q2 – What technology is needed for e-commerce (three-tier architecture)? E-commerce technology uses a three-tier architecture, with each tier using 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. A web farm is a facility that houses numerous Web server computers. 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.  The database tier uses computers that run a DBMS to process SQL requests for retrieving and storing data. Chapter 8: E-Commerce and Web

11 Q2 – What technology is needed for e-commerce (three-tier architecture)? Fig 8-5 Three-Tier Architecture A browser (Internet Explorer or Netscape) is a program that requests and displays Web pages A Web server is a computer that delivers Web pages. The two most popular Web server programs are Apache (used on Linux), and IIS (Internet Information Server), a component of Windows XP. A commerce server receives requests from the Web server Chapter 8: E-Commerce and Web

12 Q2 – What technology is needed for e-commerce (three tiers in action)? Fig 8-6(a) Sample of Commerce Server Pages The browser on the user tier enables you to enter the site. Now shop around, use the shopping cart to check out, then think about what you saw Fig 8-6(b) Shopping Cart Page The Web server is displaying pages about the products you requested The commerce server will process payment and arrange for shipping Chapter 8: E-Commerce and Web

13 Q3 – How can information systems enhance supply chain performance? A supply chain is a network of organizations and facilities that transforms raw materials into products  Customers order from retailers, who 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. Both the distributor and retailer organizations are omitted from its supply chain.  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 and down the chain. An organization can however work with many organizations at each level. Thus, a supply chain is a network. Chapter 8: E-Commerce and Web

14 Q3 – How can information systems enhance supply chain performance? Chapter 8: E-Commerce and Web

15 Q3 – How can information systems enhance supply chain performance? Each of the organizations in the supply chain is an independent company with its own goals and objectives; each has a competitive strategy that may differ from other organizations in the chain. Supply chain profitability is the difference between the sum of the revenue generated by the supply chain and the sum of the costs that all organizations in the supply chain incur to obtain that revenue.  In general, the maximum profit to the supply chain will not occur if each organization in the supply chain maximizes its own profits in isolation.  In other words, the profitability of the supply chain generally increases if one or more of the organizations operates at less than its own maximum profitability. Consider the example for the retailer on the next slide... Chapter 8: E-Commerce and Web

16 Q3 – How can information systems enhance supply chain performance? Distributor 2 loses revenue if boots are unavailable for the finished package but does not suffer any revenue loss from non-sale of skis, bindings, and poles. Thus it may be advantageous for the retailer (REI) to encourage Distributor 1 to carry a higher than normal inventory so that the ski package is always available Chapter 8: E-Commerce and Web

17 Q3 – How can IS enhance supply chain performance (bullwhip effect)? The bullwhip effect was observed in the Proctor and Gamble supply chain for diapers; the consumer demand is constant and does not change with fashion or the season. The retailer waits until inventory falls below the reorder quantity The distributor follows a similar process as the retailer The manufacturer orders raw material the same way Small changes in retail demand are amplified at each successive stage causing larger inventories and lower profits One way to eliminate the bullwhip effect is to give all participants in the supply chain access to consumer demand information from the retailer Chapter 8: E-Commerce and Web

18 Q3 – How can IS enhance supply chain performance (bullwhip effect summary)? The bullwhip effect is a natural dynamic that occurs because of the multistage nature of the supply chain; it is not related to erratic consumer demand.  The large fluctuations of the bullwhip effect force distributors, manufacturers, and suppliers to carry larger inventories than necessary to meet the real consumer demand  The bullwhip effect reduces overall profitability of the supply chain. 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 then plan its inventory or manufacturing based on true demand and not on the observed demand from the next organization up in the supply chain. An inter-organizational information system is necessary to share such data Chapter 8: E-Commerce and Web

19 Q3 – How can information systems enhance supply chain performance? Three information systems are involved in supply chain management: supplier relationship management (SRM), inventory, and customer relationship management (CRM).:  The supplier’s CRM interfaces with the purchaser’s SRM application.  You connect the CRM to the customer’s SRM to automate recurring purchases; the SRM examines inventory, determines required items, and creates an order. Chapter 8: E-Commerce and Web

20 Q4 – Why is Web 2.0 important to business? The first e-commerce applications merely duplicated the experience of shopping in a store front. Amazon.com was the first to recognize the true potential of the Web when it added “Customers who bought this book... “ Web 2.0 refers to a loose cloud of capabilities, technologies, business models, and philosophies that sets e-commerce apart from traditional software. Google, Amazon, and eBay are major winners and distinguished from traditional processing giants such as Microsoft, Oracle, and SAP Web 2.0 relies on software as a service as opposed to software as a product; revenue is derived from advertising rather than sale of software Chapter 8: E-Commerce and Web

21 Q4 – Why is Web 2.0 important to business? Other characteristics of software as a service  The bulk of processing occurs on servers rather than on the user’s own computers. Thus it takes advantage of “thin-client” computing (less powerful PCs)  Value increases with use; e.g., Amazon increases in value as more readers write reviews  It’s perpetually labeled as beta software because its features and functions are constantly changing.  It relies on viral marketing. That is, users spread the word about its virtues rather than the company that provides it. Web 2.0 also provides Social networking services to connect people with similar interests.  Mashups (Web applications that combine data from multiple sources into an integrated tool; e.g., using Google Maps with Craig’s List Chapter 8: E-Commerce and Web

22 Q5 – How do organizations benefit from Social Networking? Social Networking (SN) is the interaction of people connected by friendship, interests, business association, and/or other common traits Social Networking supports N:M communication and social collaboration. SN groups are of three types:  Public – anyone can find the group by searching and join  Invitation – anyone can find the group but must be invited to join  Private –group cannot be found by searching and members must be invited Chapter 8: E-Commerce and Web Traditional Marketing at MRV Social Network Marketing

23 Q5 – How do organizations benefit from Social Networking? Your friends have friends which in turn leads to viral marketing Viral marketing is even more powerful if the message induces your friends and their friends to form a direct relationship with the organization; e.g., “look at these photos” and the photos are on the organization’s Web site Chapter 8: E-Commerce and Web

24 Q5 – How do organizations benefit from Social Networking? Benefits of User Generated Content (UGC)  Provides information for product marketing and development  SN users are more likely to trust peer opinion than advertiser claims  Discussion groups share advice and assistance Common types of User Generated Content  Ratings and surveys  Opinions  Customer Stories  Discussion groups  Wikis  Blogs Chapter 8: E-Commerce and Web

25 Q6 – 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  “Low Tech” Telephone Paper (fax, postal mail). FTP  “High Tech” EDI EDI over the Internet XML Chapter 8: E-Commerce and Web

26 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. It was limited to large organizations. “EDI over Internet” improves the flow of HTML documents but other technologies are needed because HTML (the most common Web format) is inadequate to transmit data between businesses.  The HTML language mixes the format, content, and structure of a Web page without allowing data to be defined  HTML only offers a fixed number of tags. The solution is the eXtensible Markup Language (XML) Chapter 8: E-Commerce and Web

27 Q6 – How do organizations exchange data (HTML versus 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 separates data from formatting; it is data about data and the tags are created by the user. The tags occur in pairs Compare XML to HTML where the tags are predefined, rather than user defined, and pertain to formatting rather than data. 2 bedroom/2 bath $600 per month (305) bedroom/2 bath – $600 per month – (305) Chapter 8: E-Commerce and Web

28 XML tags are created by the user they are needed; the language is “extensible” Q6 – How do organizations exchange data (XML)? 2 bedroom/2 bath Immediate Occupancy $600 per month Swimming pool; close to campus (305) month Chapter 8: E-Commerce and Web

29 Q6 – How do organizations exchange data (XML summary)? 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. Chapter 8: E-Commerce and Web

30 Summary E-Commerce is the buying and selling of goods and services over public and private computer networks. It offers tremendous opportunities but organizations should also address four economic factors when considering e-commerce activity: channel conflict, price conflict, logistics expense, and customer service expense. Web 2.0 refers to a loose cloud of capabilities, technologies, business models, and philosophies that sets e-commerce apart from traditional software. A supply chain is a network of organizations and facilities that transforms raw materials into finished goods for customers. Most supply chains have suppliers, manufactures, distributors, and retailers. In general, the maximum profits to the supply chain will not occur if each independent organization within it maximizes its own profit in isolation. Chapter 8: E-Commerce and Web

31 Summary (Continued) The bullwhip effect is a phenomenon in which the variability in the size and timing of orders increases at each stage of the 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. Social Networking (SN) is the interaction of people connected by friendship, interests, business association, or other common traits 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. Chapter 8: E-Commerce and Web

32 Review: Select the appropriate term for each item 1. The elimination of the middle layers in the supply chain Disintermediation 2. The buying and selling of goods and services over public and private computer networks e-Commerce 3. This language describes data but not its formatting XML 4. Interaction of people connected by friendships or common interests Social Networking 5. Network of organizations that transforms raw materials into products delivered to customers Supply chain 6. Process for managing contracts between an organization and its suppliers Supplier Relationship Management (SRM) 7. The electronic transmission of business forms between business partners Electronic Data Interchange (EDI) 8. A measure of how demand for a product rises or falls in response to changes in price Elasticity 9. Phenomenon in which variability in size and timing of orders increases at each stage in the supply chain Bull whip effect Supply chain – e-Commerce – Bull whip effect – Disintermediation SRM – Electronic Data Interchange – XML – Elasticity – Social Networking Chapter 8: E-Commerce and Web


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