Download Slide 1

Using MIS 2e
Chapter 8
E-Commerce & Supply Chain
Systems
David Kroenke
10/21 – 4:30AM
© Pearson Prentice Hall 2009
8-1
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?
© Pearson Prentice Hall 2009
8-2

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?
© Pearson Prentice Hall 2009
8-3
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
© Pearson Prentice Hall 2009
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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
© Pearson Prentice Hall 2009
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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 bestknown 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.
© Pearson Prentice Hall 2009
8-6
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
© Pearson Prentice Hall 2009
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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.
© Pearson Prentice Hall 2009
8-8


Q1 – How do companies use e-commerce?
Q2 – What technology is needed for ecommerce?

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?
© Pearson Prentice Hall 2009
8-9
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.
© Pearson Prentice Hall 2009
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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.
© Pearson Prentice Hall 2009
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Q2 – What technology is needed for e-commerce?

This figure shows how the three-tier architecture operates.
Fig 8-5 Three-Tier Architecture
© Pearson Prentice Hall 2009
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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.
© Pearson Prentice Hall 2009
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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.
© Pearson Prentice Hall 2009
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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
© Pearson Prentice Hall 2009
Fig 8-6(b) Shopping Cart Page
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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 http://www.prenhall.com/kroenke 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.
© Pearson Prentice Hall 2009
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Q2 – What technology is needed for e-commerce?

Fig 8-7(a) Sample HTML Document
© Pearson Prentice Hall 2009
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
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
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?
© Pearson Prentice Hall 2009
8-18
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
© Pearson Prentice Hall 2009
8-19
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.
© Pearson Prentice Hall 2009
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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.
© Pearson Prentice Hall 2009
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Q3 – Why is Web 2.0 important to business?

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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.
© Pearson Prentice Hall 2009
8-22
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.
© Pearson Prentice Hall 2009
8-23

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?
© Pearson Prentice Hall 2009
8-24
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
© Pearson Prentice Hall 2009
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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
© Pearson Prentice Hall 2009
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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
© Pearson Prentice Hall 2009
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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.
© Pearson Prentice Hall 2009
8-28
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 consumerdemand information
directly from retailers
through interorganizational
information systems
© Pearson Prentice Hall 2009
Fig 8-13 The Bullwhip Effect
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
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?
© Pearson Prentice Hall 2009
8-30
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
© Pearson Prentice Hall 2009
8-31
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 8-15 Summary of SRM Processes
© Pearson Prentice Hall 2009
8-32
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
© Pearson Prentice Hall 2009
8-33

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?
© Pearson Prentice Hall 2009
8-34
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
© Pearson Prentice Hall 2009
8-35
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.
© Pearson Prentice Hall 2009
8-36
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.
© Pearson Prentice Hall 2009
8-37

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?
© Pearson Prentice Hall 2009
8-38
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.
© Pearson Prentice Hall 2009
8-39
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.
© Pearson Prentice Hall 2009
8-40
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
© Pearson Prentice Hall 2009
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