“Business applications of E- commerce” Academic Year 2015

Categories of Ecommerce Applications E-commerce systems include commercial transactions on the net and can be classified by application type: 1.Electronic Markets 2.Electronic Data Interchange 3.Internet Commerce

1. Electronic Market Use of information and communications technology to present a range of offerings available in market segment so that the purchaser can compare the prices of the offerings and make purchase. E.g. Airline booking system

2. Electronic Data Interchange (EDI) Efficient transactions of recurrent trade exchanges between commercial organizations

3. Internet Commerce Term covering all commercial activity on the Internet including auctioning, placing orders, making payments, transferring funds etc. Note: not a synonym for e-commerce but one of its subsets

Trade Cycle Trade - the transfer of the ownership of goods or services from one person or entity to another in exchange for other goods or services or for money. Trade Cycle - Series of exchanges between a customer and supplier that take place when a commercial exchange is executed. Conducting a commercial transaction involves the following steps: 1.Pre-Sales 2. Execution 3. Settlement 4. After-Sales

Phases of trade cycle 1.Pre-Sale: Search - finding a supplier Negotiate – agreeing the terms of trade 2.Execution: Order – selecting goods Delivery 3.Settlement: Invoice (if any) Payment 4.After-Sales: Following up complaints or providing maintenance

Example As an example of the trade cycle, a consumer will go to Amazon to find a specific product. This is the identification of a supplier. Once the product is added to the shopping basket, the consumer will check out using Amazon’s specific ecommerce software, and pay for it while specifying an address at which to take delivery, combining the second and third phases. Once the product arrives, and if it is unsatisfactory, the customer returns it to Amazon, who then will provide a refund, a replacement or another service, thereby fulfilling the fourth phase of the ecommerce trade cycle

Generic trade cycles (dependency) The trade cycle varies depending on: – The nature of the parties to the transaction – The frequency of trade between partners who are doing the exchange – The nature of the goods or services being exchanged.

Types of Generic Trade Cycles Three generic trade cycles can be identified: 1.Repeat – Regular repeated series of transaction between Partners 2.Credit - Irregular transactions between commercial trading partners where execution and settlement are separated 3.Cash - Irregular transactions in once-off trading relationships (commercial or retail) where execution and settlement are typically combined together

Generic trade cycles

Electronic markets An inter-organizational information system that allows participating buyers, and sellers to exchange information about price and product offerings.” The particular strength of an electronic market is that it facilitates the search phase of the trade cycle. It is about finding the best buy (on whatever criteria the customer may wish to apply). Having found an appropriate offerings the electronic market will then, normally, include facilities for the execution and settlement of the transaction E.g. – airline booking system, where use of electronic market is to locate available seat for intermediaries not customers

Electronic Data Interchange Used for standardised, repeat, inter- organisational transactions Notable users of EDI are vehicle assemblers, component supplier’s, and supermarkets (and other multiple retailers), ordering the goods to restock their shelves.

Internet commerce Used for once-off transactions – consumer or inter-organisational transactions. Can apply to Sale/ Execution / Settlement and / or After Sales. Consumers pay at time of ordering – businesses may have credit arrangements with the suppliers.

Supply chain Supply chain is a network of facilities and distribution options that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products and distribution of these finished products to customers

Value Chain What is value? – E.g. Water (Subjective experience + dependent on context) A series of value generating activities through which a company develops a competitive advantage and creates shareholder value

Porter’s Value Chain Model Also known as Generic Value Chain model Porter’s model – idea of seeing a manufacturing (or service) organization as a system made up of subsystems each with inputs, transformation processes and outputs. Products pass through activities of a chain in order and at each activity the product gains some value. E.g. the activity of a diamond cutter – cutting activity may have low cost but the activity adds much value to the end product

Porter’s Value Chain Model (contd.) A firm’s value chain forms a part of a larger system of activities called value system. Every company must understand every component of this value system to remain competitive Primary activities of the product process: 1.Inbound Logistic – All those activities concerned with receiving and storing externally sourced materials 2.Operations – Production process (the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products)) 3.Outbound Logistics – All those activities associated with getting finished goods and services to buyers.

Porter’s Value Chain Model (Contd) 4.Marketing and Sales – Finding out the requirements of potential customers and letting them know of the products and services that can be offered 5.Service – All those activities associated with maintaining product performance after the product has been sold

Porter’s Value Chain Model (Contd) To support these functions there will be a company infrastructure that performs a number of support activities. 1.Procurement: This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) 2.Technology Development: Activities concerned with managing information processing and the development and protection of "knowledge" in a business 3.Human Resource Management: Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business 4.Firm Infrastructure: Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Porter’s Value Chain Model

Why this matters The generic value chain is just the starting point to constructing a specific value chain Having identified the component activities and linkages each component can be analyzed in terms of cost and value added Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced"). Profits depend on how well firms execute these activities in the value chain