1. Using MIS 2e Chapter 8 E-Commerce & Supply Chain Systems
David Kroenke
10/21 – 4:30AM
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2. Study Questions Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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3. Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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4. Q1 – How do companies use e-commerce?
E-commerce occurs, by the following types of companies, whenever goods and services are bought and sold over public and private computer networks.
Merchant companies take title to the goods they sell or they sell services that they provide.
Non-merchant companies arrange for the purchase and sale of goods without owning or taking title to those goods or they sell services provided by others.
The chart below lists the types of merchant and non-merchant companies. Each uses different information systems.
Fig 8-1 E-Commerce Categories
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5. Q1 – How do companies use e-commerce?
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.
Fig 8-2 Example of Use of B2B, B2G, and B2C
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6. Q1 – How do companies use e-commerce?
There are three types of non-merchant e-commerce companies:
Auctions match buyers and sellers using the e-commerce version of a standard auction where the auction company receives a commission on each product that’s sold. eBay.com is the best-known example.
Clearinghouses provide goods at a stated price and arrange for delivery but never take 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. Sellers offer goods at a given price and buyers make offers to purchase at a given price. Price matches result in transactions from which the exchange takes a commission. Priceline.com is the best-known example.
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7. Q1 – How do companies use e-commerce?
E-Commerce improves market efficiencies as shown below.
Customers benefit from the first two, disintermediation (elimination of middle layers in the supply chain) and increased price information.
Businesses benefit from increasing their knowledge of price elasticity (the amount demand rises and falls with changes in price).
customers
businesses
Fig 8-4 E-Commerce Market Efficiencies
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8. Q1 – How do companies use e-commerce?
Businesses need to consider the following disadvantages in participating in e-commerce:
Channel conflicts occur when a manufacturer competes with its traditional retail outlets by selling directly to the consumer.
Price conflicts occur when a manufacturer sells directly to consumers and undercuts retailers’ prices.
Logistics expenses increase when a manufacturer must process thousands of small-quantity orders rather than a few large-quantity orders (pick-pack-invoice-ship 1 at a time).
Customer-service expenses increase when a manufacturer must begin dealing directly with customers rather than relying on retailers’ direct relationships with customers.
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9. Q2 – What technology is needed for e-commerce?
Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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10. Q2 – What 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 at the application layer.
The server tier uses Web server computers and processes application programs that help manage HTTP traffic between Web servers and users’ computers. The most popular server programs are Apache (runs on the Linux operating system) and IIS (Internet Information Server which runs on Windows XP Professional, Windows Server, and Windows Vista). The most popular browsers are Internet Explorer and Firefox.
The database tier uses computers that run a DBMS to process SQL requests, from the application programs on a Web server, for retrieving and storing data.
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11. Q2 – What technology is needed for e-commerce?
A commerce server application, part of the server tier, is an application program that receives requests from users via a Web server application. When the commerce server application 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 program. Typical commerce server functions are to obtain product data from a database, manage the items in a shopping cart, and coordinate the checkout process.
A web farm is a facility that houses numerous Web server computers. Work is distributed among the computers in a Web farm so as to minimize customer delays. All of these web server computers in a web farm utilize the same database and DBMS, web server programs, and commerce server programs.
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12. Q2 – What technology is needed for e-commerce?
This figure shows how the three-tier architecture operates.
Fig 8-5 Three-Tier Architecture
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13. Q2 – What technology is needed for e-commerce?
Processing e-commerce transactions:
When you enter an address into your browser, your browser sends a request for the default page to a web server computer at that address.
The web server program and the commerce server program, on the web server computer, process your request and the web server program sends back the default page.
As you click pages to find products you want, the commerce server program accesses the database to retrieve data about those products. It creates pages according to your selections and sends the results back to your browser via the web server program.
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14. Q2 – What technology is needed for e-commerce?
Different identical computers and programs at the server tier may process your series of requests and constantly communicate about your activities depending on the distribution of the request workload across the web server farm. The web pages you send and the web pages you receive contain the status data and new information required to coordinate your transaction across different computers.
When you checkout, the commerce server program is called to process payment, schedule inventory processing, and arrange for shipping. The commerce server will interface with CRM applications for processing the order. The web server program will send you the appropriate web pages related to the order.
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15. Q2 – What technology is needed for e-commerce?
These two figures are samples of Web pages on an e-commerce Web site.
Fig 8-6(a) Sample of Commerce Server Pages
Fig 8-6(b) Shopping Cart Page
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16. 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 within angle brackets (<>, </>) that defines a data element. <h2> and </h2> are tags that indicate 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 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.
Some HTML documents contain snippets of program code. That code is sent from the Web server to the user’s browser and is processed by the browser on the user’s computer.
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17. Q2 – What technology is needed for e-commerce?
THE HTML code on the left produces the Web page on the right.
Fig 8-7(b) HTML Document in Fig 8-7(a) rendered using Internet Explorer
Fig 8-7(a) Sample HTML Document
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18. Q3 – Why is Web 2.0 important to business?
Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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19. Q3 – Why is Web 2.0 important to business?
Web 2.0 is a loose cloud of capabilities, technologies, business models, and philosophies that sets Internet applications apart from traditional software processing. This chart compares the two.
Fig 8-8 Comparison of Web 2.0 with Traditional Processing
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20. Q3 – 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.
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21. Q3 – Why is Web 2.0 important to business?
It’s perpetually labeled as beta software because its features and functions are constantly changing.
If a product requires advertising to be successful, then it is not a Web 2.0 product. Web 2.0 software 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. The value of licensed software does not grow with the number of users.
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22. 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 motor-cross trails.
The traditional software model carefully controls the user’s experience. Web 2.0 interfaces are organic and dynamic. The interface evolves almost daily and the user expects this daily change.
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.
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23. Q3 – Why is Web 2.0 important to business?
Businesses can benefit from offering Web 2.0 services in the following ways:
Providing advertising that’s specific to user interests. The cost of reaching a particular, qualified person is much smaller than in the traditional advertising model. Two popular programs from Google are:
Ad Words in which advertisers pay for particular search words. The firm pays only if the user Googles the adword and clicks on the firm’s link in certain geographical areas and at certain times of the day.
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.
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24. Q4 – How can information systems enhance supply chain performance?
Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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25. Q4 – How can information systems enhance supply chain performance?
Supply chains are networks (not chains) of organizations and facilities that transform raw material into products delivered to customers. The diagram below depicts supply chain relationships.
Supply chains also include transportation companies and the means for transmitting information across the network.
Because of disintermediation, not all supply chains have all of the organizations shown below.
The only source of revenue in a supply chain is the end customer.
Fig 8-10 Supply Chain Relationships
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26. Q4 – How can information systems enhance supply chain performance?
The figure below shows a supply chain for a ski equipment retailer.
Fig 8-11 Supply Chain Example
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27. Q4 – How can information systems enhance supply chain performance?
Four factors drive a company’s supply chain performance.
Fig 8-12 Drivers of Supply Chain Performance
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28. Q4 – How can information systems enhance supply chain performance?
Information influences supply chain performance by affecting the ways organizations in the supply chain request, respond, and inform one another.
The attributes of information in supply chains include:
Purpose: Is the purpose of the information transactional or informational?
Availability: Which organizations have access to the information and when?
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 sale to the end-customer 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 sub-optimizes and maximizes its own profits in isolation from the other participants in the supply chain. The profitability of the supply chain increases if one or more of the organizations operates at less than its own maximum profitability by providing resource buffers.
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29. Q4 – How can information systems enhance supply chain performance?
The bullwhip effect in supply chains occurs when the variability in size and timing of orders increases at each stage up the chain because each stage orders more than it expects to sell to avoid shortages. You avoid this effect by using the true demand (the demand of the end customer) and not the demand from the next organization down the supply chain. You must have inter-organizational information systems to share this data.
The bullwhip effect causes distributors, manufacturers, and suppliers to carry larger inventories than necessary to meet real demand because of the large fluctuations in orders.
The bullwhip effect reduces the overall
profitability of a supply
chain.
The bullwhip effect can be eliminated by
giving all supply chain
participants consumer-
demand information directly from retailers through inter- organizational
information systems
Fig 8-13 The Bullwhip Effect
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30. Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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31. Q5 – How can information systems support supplier relationship management?
Three information systems are involved in supply chain management: SRM systems, inventory management systems, and CRM systems.
A supplier relationship management (SRM) system is a cross-functional business process for managing all contacts between an organization and its suppliers. It supports both the inbound logistics primary activity and the procurement activity.
Fig 8-14 B2B in One Section of the Supply Chain
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32. Q5 – 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 the following SRM processes: source, purchase, and settle.
SRM includes support for procurement auctions where an organization indicates its desire to purchase a product/service and invites suppliers to submit bids.
By limiting purchases to a few vendors and by automating the procurement process, companies can operate with a procurement cost about 70% lower than average.
Fig Summary of SRM Processes
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33. Q5 – 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.
SRM examines the inventory management system, determines required items, and creates an order.
Fig 8-16 The SRM and CRM Interface
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34. Q6 – How do organizations exchange data?
Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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35. Q6 – How do organizations exchange data?
Web commerce-server applications are useful for B2C, but they are not sufficient for B2B needs. Companies need to exchange data and messages in more specific and flexible ways. For example, they need to exchange orders, order confirmations, requests for bids, inventory status, accounts receivable, accounts payable data, etc. Some of the alternatives for exchanging data and messages are listed below.
It is important to have collaboration agreements in place when developing inter-organizational systems.
The first four alternatives require very little technology. The last three require additional technology.
Low tech
High tech
Fig 8-17 Alternatives for Interorganizational Message Exchange
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36. 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 PSDN networks. “EDI over Internet” improves the flow of documents but other, newer technologies are 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.
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37. 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 rules defining 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 chain processes and activities can obtain prescribed 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 EDI documents because of the standardization and customization.
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38. Q7 – How can organizations connect computer programs?
Q1 – How do companies use e-commerce?
Q2 – What technology is needed for e-commerce?
Q3 – Why is Web 2.0 important to business?
Q4 – How can information systems enhance supply chain performance?
Q5 – How can information systems support supplier relationship management?
Q6 – How do organizations exchange data?
Q7 – How can organizations connect computer programs?
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39. Q7 – 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 one or 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.
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40. 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).
The key SOA concept is that a computing system uses a standard method to declare the services it provides and the interface by which those services can be requested and consumed so firms do not need to develop proprietary solutions.
Microsoft provides .Net development tools and IBM provides J2EE development tools, and applications developed by these different tools will work together.
Web services (SOA) 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.
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41. Q7 – 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 interorganizational information systems.
Any organization in the supply chain can develop Web services and publish those services to other organizations in the supply chain. Developers in those other organizations can access the service description and write programs that call the Web services.
Service requests are transmitted to the service provider and processed by Web service programs. The Web service programs call applications which read data in a database and respond to the Web service program. The Web service program formats a response in an XML document and sends the response to the requester.
Fig 8-19 Example of Web Services for Sharing Sales Data
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