The Purpose

Dear reader,

The work contained in the following pages represents a project that I had to submit as a
part of my curriculum in college.

The reason why I am uploading this project is that there are whole businesses thriving in
the “project business”. Students can, for a nominal sum, purchase prepared project works.
Most of the projects are sold by printers. Students who compile a project almost always
get it printed by printers. The printers then save these projects and sell them to other
students who do not consider it worthwhile to prepare their own projects. Since the project
is a very small part of the course, rules are not strictly adhered to and hence pirated
projects are common. I am not sure whether this work has already been sold. So, if
anyone wants a readymade project, I would not mind them copying contents from this
project. If you want this project, please do not pay the printer for it. He has not put in any
time or effort into it and hence he does not deserve any payment for it. Besides, this work
is far from original to warrant any payment at all.

In the time I prepared this project, I gained a lot of knowledge and also realised how much
there is to learn. I am a firm believer in open source and open content and I have
benefitted immensely from both. Personally, I have enjoyed preparing this work and I hope
it is of help to you.

Kasturika
 Information Technology
And
Commerce

By

R. Kasturika
B.Com (H) IIIrd Year
(2008-09)

Shaheed Bhagat Singh College

Delhi University
Declaration

This is to certify that the project entitled “Information Technology and Commerce” is based
on my understanding of the subject and has not been copied from any published source or
web site. Where appropriate, the sources of information including other works and
publications have been acknowledged.

R. Kasturika
B. Com (H) IIIrd Year
Roll Number 65
Certificate

This is to certify that R. Kasturika of B. Com. (H) 3rd Year Shaheed Bhagat Singh College
has completed the project entitled “Information Technology and Commerce” under my
guidance and to the fullest satisfaction.

Commerce Department
Shaheed Bhagat Singh College
Delhi University
Acknowledgement

I gratefully acknowledge my indebtedness to Dr. T.K. Nagpal, my project mentor for

offering guidance as well as my past and present college teachers, from whom I have
been able to understand the subject better. I would also like to thank my classmates with
whom I have interacted and who have helped me to think harder. My family has supported
and encouraged me in ways that cannot be put into words and so I am grateful to my
parents and my brother, without whom this project would not have been possible.

R. Kasturika
B. Com (H) IIIrd Year
Roll Number 65
Table of Contents

● Introduction

● The E-Commerce Environment

● Electronic Data Interchange (EDI)

● Electronic Funds Transfer (EFT)

● E-Enterprise Requirements

● E-Commerce Business Models

● Bibliography
Introduction

Human ingenuity resulted in technology. This technology has been refined and advanced
upon over the years and has given birth to a changes in lifestyle like never before.
Perhaps one of the biggest contributors to this change can be attributed to information
and communication technologies (ICT). And it is this ICT that has made possible the
phenomenon we call “E-Commerce”.

E-commerce encompasses a wide range of subjects. This project discusses only some
aspects of how business has been influenced by Information Technology. This project, in
keeping with the theme, draws heavily from on-line sources. These sources have been
listed in the bibliography.

Contents

● What is e-commerce
● Evolution of e-commerce
What is E-commerce?

In the book “E-Commerce in the Asian Context: Selected Case Studies”, the authors have
discussed about the absence of an internationally agreed upon definition of e-commerce.
For some, it can be as narrow a concept as trading over the internet, while for others, it
could mean using any electronic device to purchase goods or services.1

The Organisation for Economic Co-operation and Development (OECD) has defined
an electronic transaction as “the sale or purchase of goods or services, whether between
businesses, households, individuals, governments, and other public or private
organisations, conducted over computer-mediated networks. The goods and services are
ordered over those networks, but the payment and the ultimate delivery of the good or
service may be conducted on or off-line.”2

Yet another definition is provided in “Electronic Commerce : The Strategic Perspective”.

Here, the authors define e-commerce as the use of computer networks to improve
organizational performance. Thus, the scope of e-commerce has been widened to include
all aspects of an organisation's interactions with its stakeholders. These stakeholders
include the suppliers, customers, financial institutions, employees, government regulators,
managers and the public at large.3

Evolution of E-commerce

E-Commerce began to emerge first with the advent of Electronic Funds Transfer and
Electronic Data Interchange. This was followed by e-mail. However, e-commerce as we
know it got its boost due to the Internet and World Wide Web. Together, they provided a
user friendly interface which rendered e-commerce accessible and affordable.

When one talks about e-commerce today, it invariably refers to internet commerce.

The web changed the way information was organised and presented. Web pages were
created using Hypertext Markup Language (HTML). This allowed the creation of
hypertext links within a web page which let one “jump” directly to another web page or
some other information source.4

Several e-commerce sites sprang up within a short time to take advantage of the
“revolutionary” way of conducting business. But this boom turned out to be a short lived
bubble and burst soon. Several companies failed and customers lost money. Within a
span of two years, $5 trillion in paper wealth was wiped out on NASDAQ, the exchange on
which many of these companies were traded. However, as one businessman pointed out,
“There are going to be a lot of flame outs and some spectacular winners, because even in
bubbles some enormous companies that have lasting value were created.” 5 One such
business was that of an on-line book store. The business did not make profits for several
years and it was only in 2003, that amazon.com reported its first full-year profit since it
began operations in 1995.6

Being a part of information technology, the growth of e-commerce is linked to the reach
and advancements in technology. Internet connectivity has improved manifold. Slow Dial-
up connections are a thing of the past. Computers as well as internet connections are now
affordable. Many airports including the airports in New Delhi, Mumbai and Chennai are wi-
fi enabled. Taking advantage of the growing importance of the internet, Café Coffee Day
has wi-fi enabled its outlets.

Today, businesses across the world are realising the importance of ICT in their
organisations. Even pure brick and mortar businesses (with no on-line presence) are
setting up websites as information sources and resorting to on-line advertising. Even the
Government of India has begun to implement ICT in its functioning known more commonly
as e-governance. In fact, it is mandatory for all Companies from 1st April 2008 to pay taxes
(All Direct Taxes e.g. Income Tax, Corporate tax, Fringe Benefit Tax, Tax Deducted at
Source, Advance tax, self assessment tax) through e-payment facility using net banking
account.7
The E-Commerce Environment

The environment in which e-commerce operates can be described through its advantages
and limitations. To better understand the environment, this section includes the common
myths surrounding e-commerce.

Contents

● Benefits of e-commerce
● Limitations of e-commerce
● Common misconceptions surrounding e-commerce
Benefits of E-Commerce

1. Access the global marketplace:

The internet can be accessed from anywhere around the globe. Thus, an e-
commerce site can enter a global market space. Further, unlike traditional
communications methods, users are not charged according to the distance over
which they are communicating.

2. Business can be conducted 24 x 7:

Unlike physical stores which have opening and closing times, E-commerce systems
can operate all day every day. Since the internet can be accessed by anyone from
anywhere, time is no longer a barrier to conduct business. When night falls in New
Delhi, it is daytime in New York.

3. Speed:
Electronic communications enable messages to travel around the world almost
instantaneously.

4. Price quotes:
Businesses can list prices on-line instead of printing catalogues. With a web site,
the business can have the prices listed, and change them by simply editing the web
page. In a printed catalogue the business is stuck with the expense of printing a
new version if many of the prices have to be changed. Customers too can conduct
research on-line and find out the best price at which to purchase.

5. Convenience:
This is seen as one of the biggest advantages of e-commerce. Customers have
access to a host of services literally at the tip of their fingers. Customers can buy
whenever they want, from more locations. This increases choices. When customers
have more choices they can decide on a product with better features at a more
competitive price. Sometimes products are less expensive on-line.

6. Quicker delivery:
E-commerce enables quicker delivery of on-line products such as software, games,
music, which can be downloaded. Quick delivery is important for people who want
to use the product immediately, as opposed to waiting longer. If they have to wait
long, they may pick a competitor's product.

7. Supply chain efficiencies:

The use of internet can lead to a reduction in the inefficiencies relating to supply
chain. Some of the benefits are reduced inventories, reduced delivery delays and
efficient e-procurement. E-commerce also helps in building more collaborative and
stronger relationships with suppliers. This includes streamlining and automating the
underlying business processes, enabling areas such as direct marketing, selling,
customer services, (call centres), fulfilment, procurement, replenishment and
information management.

8. Customer satisfaction:
Via the internet, customers can receive more information about the product and
make a more informed decision. Greater information leads to more confidence to
 make a purchase decision. More information also leads to enhanced customer
satisfaction because the customer has a better idea about how to use the product.
Further, e-commerce enables customization of products so that customers can
have a product that suits their exact needs.

9. Innovative business models:

Due to the significant difference in conducting business electronically as against
conducting business physically, as well as the its relatively recent birth, e-
commerce allows for innovative business models.

10. Opportunity to reduce costs:

E-commerce provides a business to cut costs. Some of the costs that can be cut
include
a) cost of creating the product
b) costs of processing orders from the customers
c) costs of handling customer phone calls
d) cost of promotional material
e) costs of distribution
f) costs of sending out bill payment info
g) costs of handling sales inquiries
h) costs of determining product availability (inventory management)
i) cost of marketing
j) human Resource costs
k) costs of storing information
l) telecommunication costs8

11. Computer platform-independent:

Globally, computers are not run on the same platform. A computer, for instance,
may run on Microsoft Windows, Mac OS, Linux or Solaris operating system.
However, the internet is independent of operating systems and hardware.
Customers are not limited by existing hardware systems.

12. Allowing customer self service and “customer outsourcing”:

People can interact with businesses at any hour of the day that it is convenient to
them, and because these interactions are initiated by customers, the customers
also provide a lot of the data for the transaction that may otherwise need to be
entered by business staff. This means that some of the work and costs are
effectively shifted to customers; this is referred to as “customer outsourcing”.

13. Stepping beyond borders to a global view:

Using aspects of e-commerce technology can mean business can source and use
products and services provided by other businesses in other countries. For
example, a business based in Europe can take advantage of lower labour costs in
Asia by outsourcing manufacturing work to China and outsourcing knowledge
based work to India.

14. A new marketing channel:

The internet provides an important new channel to sell to consumers. As a
marketing channel, the internet exhibits the following characteristics
a) the ability to inexpensively store vast amounts of information at different virtual
 locations
b) the availability of powerful and inexpensive means of searching, organising, and
disseminating such information
c) interactivity and the ability to provide information on demand
d) the ability to provide perceptual experiences that are far superior to a printed
catalogue, although not as rich as personal inspection
e) the capability to serve as a transaction medium
f) the ability to serve as a physical distribution medium for certain goods (e.g.,
software)
g) relatively low entry and establishment costs for sellers
No other existing marketing channel possesses all of these characteristics.9

15. Niche Markets:

Traditionally, entering a narrow or a specialised market segment was not easy,
especially for a new or small business, since customers were few and
geographically displaced. The internet solves this exact problem as it cuts the cost
of accessing a geographically as well as culturally wide market.

16. High degree of specialisation:

Due the particular nature of e-commerce, there is potential of very high level of
competition. In such fierce competition, only that organisation which offers the best
product at the best price will survive. This requires heavy cost cutting as well as
high quality. This can only be achieved by outsourcing business processes to
specialised agencies. Thus, e-commerce promotes specialisation.

17. Overall business profitability:

If an organisation truly takes advantage of the internet, it can reduce costs, increase
productivity, improve quality and thus achieve a higher sales leading to increased
profitability.

18. Social benefits:

Although it is an unlikely and distant possibility, e-commerce can potentially benefit
the society. For instance, if more people work from home, there will be less traffic
congestion. Use of paperless processes is environment-friendly. Public services
can also be delivered electronically. For instance, better and cheaper products can
improve standards of living. Stiff competition and the need to improve quality at
lower costs will lead to more investment in research and development and more
efficient utilisation of scarce resources. A situation similar to what economists call
perfect competition may arise.

Education can be spread free of cost or at reduced cost. There are already very
vast information sites available for free use. There are also several not-for-profit
organisations which provide education on-line. Several leading universities offer on-
line courses -paid as well as free. The OpenCourseWare initiative of the
Massachusetts Institute of Technology is one of the more popular sites of this
kind. Other sites in this league include Managing the Digital Enterprise and
Open Courseware Lab, both of which were created by Michael Rappa in the late
nineties.

The internet can be used as a common platform for persons from every corner of
the globe to share knowledge with the rest of the world. Wikipedia is an example of
such an initiative.
 Not only information, even products such as software are becoming available for
free circulation. Open source is today a reality. “Open source is a development
method for software that harnesses the power of distributed peer review and
transparency of process. The promise of open source is better quality, higher
reliability, more flexibility, lower cost, and an end to predatory vendor lock-in.”10
Under open source, software is circulated for free without any fee or royalty. The
source code of the software is circulated along with the software. Any and every
user is free to modify the code and redistribute the improved/modified software
under the same terms as the license of the original software.

Limitations of E-Commerce

1. Time for delivery of physical products:

When purchases are made in physical stores, the customer gains possession of the
product immediately on purchase. This is not possible over the internet. There are
ways to get around the problem by substituting products such as books and CDs
into downloadable e-books and files. However this cannot be done with every
product.
2. Physical product, supplier & delivery uncertainty:
In some respects e-commerce purchases are made on trust. This is because, firstly,
not having had physical access to the product, a purchase is made on an
expectation of what that product is and its condition. Secondly, because supplying
businesses can be conducted across the world, it can be uncertain whether or not
they are legitimate businesses and are not just going to take your money. Laws
across countries differ and it is pretty hard to seek legal recourse since who is guilty
is not always clear. Another problem is which country's laws have to be applied.
Thirdly, even if the item is sent, it is easy to start wondering whether or not it will
ever arrive.
3. Perishable goods:
E-commerce cannot be used for trading perishable goods. One cannot order
authentic cuisine from a restaurant in Portugal! To circumvent this problem,
specialised or refrigerated transport can, theoretically, be used. However, it would
not be practical as it would cost much more and the food would be stale by the time
it arrives, not to mention that the customer would have in any case satisfied his
hunger by purchasing food locally! E-commerce is most suited to durable and non-
perishable goods.
4. Limited and selected sensory information:
The internet is an effective medium for visual and auditory information - seeing
pictures, hearing sounds and reading text. However it does not allow full scope for
our senses. We can see pictures of the flowers, but not smell their fragrance. We
can see pictures of a hammer, but not feel its weight or balance. Further, when we
pick up and inspect something, we choose what we look at and how we look at it.
This is not the case on the internet. If we were looking at buying a car on the
internet, we would see the pictures the seller had chosen for us to see but not the
things we might look for if we were able to see it personally. And, taking into
account our other senses, we can't test the car to hear the sound of the engine as it
changes gears or sense the smell and feel of the leather seats. There are many
 ways in which the internet does not convey the richness of experiences of the
world. This lack of sensory information means that people are often much more
comfortable buying via the internet generic goods - things that they have seen or
experienced before and about which there is little ambiguity, rather than unique or
complex things.
5. Returning goods:
Returning goods on-line can be an area of difficulty. The uncertainties surrounding
the initial payment and delivery of goods can be exacerbated in this process. Will
the goods get back to their source? Who pays for the return postage? Will the
refund be paid? How long will it take?
6. Privacy, security, payment, identity, contract:
This is by far the biggest limitation of conducting business on-line. Privacy of
information, security of that information and payment details, whether or not
payment details such as credit card details will be misused, identity theft, contract,
and what laws and legal jurisdiction apply, are some of the more serious issues of
on-line trading. The fact that credit card fraud and identity theft are a reality makes
this issue more prominent.
7. Defined services & the unexpected:
E-commerce is an effective means for managing the transaction of known and
established services, that is, things that are everyday. It is not suitable for dealing
with the new or unexpected. For example, a transport company used to dealing with
simple packages being asked if it can transport a hippopotamus, or a customer
asking for a book order to be wrapped in blue and white polka dot paper with a bow.
Such requests need human intervention to investigate and resolve.
8. Personal service:
Although some human interaction can be facilitated via the web, e-commerce can
not provide the richness of interaction provided by personal service. For most
businesses, e-commerce methods provide the equivalent of an information-rich
counter attendant rather than a salesperson. This also means that feedback about
how people react to product and service offerings also tends to be more granular or
perhaps lost using e-commerce approaches. If your only feedback is that people
are (or are not) buying your products or services on-line, this is inadequate for
evaluating how to change or improve your e-commerce strategies and/or product
and service offerings. Successful business use of e-commerce typically involves
strategies for gaining and applying customer feedback. This helps businesses to
understand, anticipate and meet changing on-line customer needs and preferences,
which is critical because of the comparatively rapid rate of ongoing internet-based
change.
9. Size and number of transactions:
E-commerce is most often conducted using credit card facilities for payments, and
as a result very small and very large transactions tend not to be conducted on-line.
The size of transactions is also impacted by the economics of transporting physical
goods. For example, any benefits or conveniences of buying a box of pens on-line
from a US-based business tend to be eclipsed by the cost of having to pay for them
to be delivered in Australia. The delivery costs also mean that buying individual
items from a range of different overseas businesses is significantly more expensive
than buying all of the goods from one overseas business because the goods can be
packaged and shipped together.9
 10. Higher cost:
The cost of technology and infrastructure is a huge disadvantage to organisations
which aim to exploit the on-line opportunities. Another cost is that of training
employees in the technical fields. These higher costs may equal or even exceed the
cost savings mentioned above. A business should carefully weigh the costs against
the potential benefits before making an on-line presence.
11. Cultural and linguistic obstacles:
Internet was born in the United States of America. There was for several years an
American monopoly over the internet. The so-called dot-com boom and burst
affected the Americans. The language of the internet is mainly English and most of
the sites promote American culture. While several people have expressed concern
over the death of national cultures, there have been doubts on the actual reach of
e-commerce. In a country such as India, where English is spoken only in
urban/semi urban areas, it is hard for internet to be comprehended across the
majority of the population. Another problem associated with languages is that most
of the technically trained professionals are trained in the English medium as
programming is possible only in English. Thus, technical support in foreign
languages is difficult to obtain.
12. People's resistance to change:
It is human nature to resist change. On-line trading is no exception. However, over
time, this form of trading will gain popularity. On-line travel services such as
makemytrip.com and cleartrip.com; career services such as those provided by
naukri.com and monster.com; and matrimonial sites such as shaadi.com have
already become very popular.
13. Technical limitations:
There are several technical issues surrounding e-commerce which have to be
solved for e-commerce to become successful. Some of these limitations are as
follows.
a) some protocols are not standardized around the world
b) reliability for certain processes
c) insufficient telecommunications bandwidth
d) software tools are not fixed but constantly evolving
e) integrating digital and non-digital sales and production
f) some vendors require certain software to show features on their pages, which is
not common in the standard browser used by the majority
g) Difficulty in integrating e-Commerce infrastructure with current organizational IT
systems8

Common Misconceptions Surrounding E-Commerce11

The advantages of e-commerce outlined above are true, but not completely practical. The
limitations pointed out are very real and it is important not to ignore them. There are
several misconceptions surrounding e-commerce. It is important to understand the
difference between realities and possibilities. It was these myths which led several
businesses to spring up in the mid-nineties and invest mind boggling amounts of money.
However, by the turn of the century, several of these companies either went bankrupt, or
had to be shut down. Heavyweight Disney had to write off $790 million when it's portal
go.com was shut down in January 2001. Following are common myths surrounding e-
commerce.12

Myth #1: E-commerce is easy

Putting up a website is easy. However, it is only the tip of the iceberg. Conducting
business via the site requires maintenance of huge databases, accurate data, acceptable
response time, customer and supplier relationships, payment procedures, data access,
data ownership, data security and marketing. Building a site is just one piece of the puzzle.

Myth #2: Everyone is doing e-commerce

Practically every company has a web site. But the sites merely list catalogues, information,
contact lists, and store addresses. They do not necessarily engage in commerce on-line.

Myth #3: E-commerce means the end of mass marketing

The web offers cost effective one-to-one marketing on a huge scale. However, it does not
mean the end of mass marketing. To survive, businesses have to first acquire customers.
It can do so only by mass marketing through media such as television advertisements (for
example, naukri.com and monster.com). With millions of web sites, it becomes essential
to grab the attention of potential customers via mass marketing. In fact, there are many
enterprises using the medium of the world wide web as a mass marketing channel. Many
web pages rent out spaces for advertisements to advertisers, much like the way
newspapers do. They are usually at the top of the web pages as banners, or somewhere
in the middle as sponsored links.

Myth #4: E-commerce is inexpensive

Setting up e-commerce site involves costs of infrastructure both relating to, as well as not
relating to IT and costs of marketing. Setting up a web site is the cheapest part of starting
e-commerce.

Myth #5: E-commerce is lucrative

Only a few e-commerce firms have tasted success. But a majority of businesses on-line do
not sell volumes that a physical store sells.

Myth #6: E-commerce eliminates middlemen

Via the internet, a manufacturer can directly sell to the customer (for example, Dell).
However, most successful e-commerce players use the web to enhance their existing
distribution channels, not to circumvent them. Travel sites are an example of middlemen
on-line.

Myth #7: E-commerce provides a level playing field

Except for Amazon and Blue Mountain Arts, the biggest firms on-line are Dell, Cisco,
Microsoft, Disney – all established companies. In theory, anyone can enter any market in
e-commerce. However, brand power, trust and customer confidence will always attract
more customers. All the internet provides is instant access to global markets. There is a
low barrier to doing e-commerce, but a very high barrier to becoming one of the leading
choices.

Myth #8: Price is the guiding force in e-commerce

On-line auction sites such as ebay.com have been successful in selling low price articles.
However, customers also want brands and service they can trust. Price information alone
does not convey anything about reliability, availability etc. Quality is given priority over the
price. Amazon and Dell do not always offer the lowest prices.

Myth #9: E-commerce relies on the same business model for everything
If yahoo.com was successful because of the format of its web page, it does nor imply that
all other businesses will succeed using similar pages. One cannot sell refrigerators as well
garments based on the same business model.

Myth #10: E-commerce is revolutionary

With the advent of e-commerce, nothing has changed. The essence of commerce is
buying and selling. E-commerce is essentially only commerce. The only difference in
conducting business before internet came and e-commerce, is the medium of exchange.
Earlier, there were physical markets, now there are virtual markets.

Myth #11: Customers can be fooled

On the internet, customers can be lured to sites via Hyperlinks and freebies. However,
customer retention is much more difficult as compared to customer acquisition. A customer
may be fooled once, but that customer will never visit the web site again. Moreover, the
customer has the power to spread the word around. The internet provides a platform for
people to communicate with others easily. There are sites dedicated to customer
feedback. For example, if you want to purchase a particular product, all you would have to
do is search for the product reviews and get first hand accounts of other customers'
experiences. On cnet.com one can get reviews of technological products by experts.
Before downloading a software, one can read reviews by other users. So in the case of the
internet, the customer has significant power. Although this power can potentially be
misused, this is not seen often.Thus, building brand loyalty is that much more difficult in e-
commerce. However, once that brand has been built, customers can help make the brand
stronger as well. A customer is likely to return to a vendor if s/he has had a positive
experience.
Electronic Data Interchange (EDI)

Electronic Data Interchange has revolutionised the way business information travels. This
section discusses how EDI has resulted in faster communications between businesses.

Contents

● Meaning
● EDI Architecture
● Standards
● Implementing EDI
● Value Added services
Meaning

Roger Clarke has defined EDI as:

“the exchange of documents in standardised electronic form, between organisations, in an
automated manner, directly from a computer application in one organisation to an
application in another”13

An examination of the above definition brings out the following points:

1. The exchange of documents:

The exchange of documents here refer to formal communication. Pre-EDI, such
exchange would have been via formal letters typed on official letter-heads and sent
via mail or courier. These methods take a longer time and there is a tendency for
errors to creep in.

2. Standardised:
The communication is standardised. Documents such as purchase orders, invoices
etc. are traditionally sent on pre-printed forms. Since each organisation has its own
format of presenting information, different organisations may interpret a given set of
information in their own way. This can potentially lead to confusion and
misinterpretation. Through the use of agreed standards, messages can be
translated, interpreted and checked for compliance with an explicit set of rules.

3. Electronic form:
Since messages are sent electronically, information travels fast with receipt of
document within a few hours or even a few minutes. There is no paper work
involved and so the organisation saves on stationary. The organisation also need
not worry about the amount of information as there is no physical transmission.

4. Directly from a computer application to another application:

When using e-mail, messages are transmitted from one person to another person.
However, in EDI, messages are transferred from a computer application to another
computer application. This is the biggest difference between e-mail and EDI.

EDI Architecture

EDI depends on a moderately sophisticated information technology infrastructure. This

must include data processing, data management and networking capabilities, to enable
the efficient capture of data into electronic form, the processing and retention of data,
controlled access to it, and efficient and reliable data transmission between remote sites.
A common connection point is needed for all participants, together with a set of electronic
mailboxes (so that the organisations' computers are not interrupted by one another), and
security and communications management features. It is entirely feasible for organisations
to implement EDI directly with one another, but it generally proves advantageous to use a
third-party network services provider.
 Source: http://www.edibasics.co.uk/getting_started/gettingStarted_p1.html

EDI transmission typically involves the following process. The sender uses its internal
computer files to assemble the data needed for the transaction, i.e., order processing,
invoicing, etc. This data file then becomes the input for a software module that generates
the transaction into the EDI message standard format. The resulting data file is then
transmitted to the receiver, over a Value-Added Network, or VAN. The VAN is like an
electronic clearing house that ensures information is securely sent and received. At the
receiving end, this data file becomes the input for a software module that translates the
data from EDI format into a file that can be entered into the receiver's computer application
systems.
The above process includes a number of control and security procedures. Data security is
maintained through the use of user identification numbers and passwords. EDI generation/
translation software that is available from commercial suppliers typically includes extensive
data editing and error-checking routines. This facility ensures that the data is valid at the
time of transmission, and that it is also valid when it is received. EDI standards also allow
the receiver to acknowledge successful receipt of the transmission by sending an
acknowledgement message back to the sender. EDI, then, is at least as secure and
accurate as the present method of exchanging paper documents.14

Standards

As mentioned above, one of the features of EDI is that documents are standardised. There
are four major sets of EDI standards:
1. The UN-recommended UN/EDIFACT is the only international standard and is
predominant outside of North America.
2. The US standard ANSI ASC X12 (X12) is predominant in North America.
3. The TRADACOMS standard developed by the ANA (Article Numbering Association)
is predominant in the UK retail industry.
4. The ODETTE standard used within the European automotive industry

EDIFACT stands for Electronic Data Interchange For Administration, Commerce and
Transport. UN/EDIFACT (United Nations rules for Electronic Data Interchange for
Administration, Commerce and Transport) comprises a set of standards, directories
and guidelines for the electronic interchange of structured data, and in particular that
related to trade in goods or services, between independent computerized information
systems. Recommended within the framework of the United Nations, the rules are
approved and published by the UN/ECE (United Nations/Economic Commission for
Europe) in the United Nations Trade Data Interchange Directory (UNTDID) and are
maintained under agreed procedures.15

American National Standards Institute (ANSI) is the national standards body for the United
States. ANSI, through its accredited standards committees, keeps the standards for all
applications of technology and mechanics for U.S. Industry. Business documents in the
U.S are often referred to by their ANSI code such as 850 (Purchase Order), 810 (Invoice)
and 856 (Advance Ship Notice ). ANSI ASC X12 refers to the American National
Standards Institute, Accredited Standards Committee X12, which comprises
government and industry members who create EDI standards for submission to ANSI for
approval and dissemination.16
Developed by the ANA (Article Numbering Association) in 1982 for the UK retail
industry TRADACOMS is currently the most widely used standard in the UK within this
market. It defines standards for 30+ trading documents.

ODETTE stands for Organisation for Data Exchange Through Teletransmission in

Europe. It refers to both the European automotive industry body and the EDIFACT EDI
standard subset for that industry. The ODETTE standard consists of over thirty messages
for deployment in the automotive industry and reflects the industry's use of JIT ("Just in
Time") methods. The messages can use either EDIFACT or TRADACOMS service
segments.
ODETTE International currently has 6 European members including ODETTE UK, which is
managed in association with SMMT (Society of Motor Manufacturers and Traders).17

Implementing EDI18

Before implementing EDI, an organisation should carefully weigh the costs against
benefits it offers. Implementing EDI means a heavy expenditure on technologies such as
Value Added Networks and the software required to convert data into the EDI format and
from EDI format back to the defined file format. This requires full support of the top
management.
Further, such expenditure must be accompanied by changes in the organisational
structure. A full time EDI coordinator will have to be appointed. Large organisations may
even require teams to manage the systems. EDI affects almost all aspects of a business.
Managers have to be explained the purpose as well as the consequences of implementing
EDI. Employees may not appreciate EDI and fear that they may become redundant and
lose their jobs. Thus, they have to be taken into confidence before installing EDI. Costs
relating to training will also have to be incurred.
The extent to which an organisation requires EDI must be studied. For instance, if a small
company is only interested in implementing EDI within the purchasing department, then
the system will have to be designed accordingly.
The management should compare the benefits, costs and savings resulting from
implementing EDI solutions with those of the existing framework. The benefits from
implementing EDI include faster, more accurate and economical transaction processing.
This is especially helpful in managing optimum inventory levels. By collaborating with
suppliers, the company can procure resources and avoid stock-out situations.
EDI is thus ideal for implementing Just-in-Time (JIT) purchasing and production
strategies. JIT is an inventory strategy companies employ to increase efficiency and
decrease waste by receiving goods only as they are needed in the production process,
thereby reducing inventory costs. This method requires that producers are able to
accurately forecast demand.19

Value Added Services

With the advent of Internet, several organisations are now providing Value Added
Services. Such services allow an organisation to reap the benefit of EDI without requiring
to make substantial investments. The company outsources EDI solutions to specialised
organisations for a fee.
To illustrate, let's consider the following:
Company A [CA] has a long term contract with Company B [CB] to supply raw materials. In
the traditional method to order for the raw materials, the Purchasing department of CB
prepares a Purchase Order signed by the purchase manager. The Purchase Order is
mailed to CA which in turn processes the Order and despatches the raw material. This
process would take several days.
In case the two companies have implemented EDI and agreed on a set of standards, then
the same transaction would take place thus:
CB will prepare an order in its purchasing system and have it approved. Next, the EDI
order will be translated into an EDI document format called an 850 purchase order (ANSI
code).
The EDI 850 purchase order will then be securely transmitted to CA through a VAN (Value
Added Network). CB's VAN is a like an electronic post office that interconnects with CA's
VAN. The VANs make sure that EDI transactions are sent and received. CA's VAN
ensures that the order reaches CA. CA's computer system then processes the order. 20
This method will lower transaction costs as well as the lead time in procuring the materials.
In the case the two companies have agreed to utilise the services of a third-party network
services provider the above process will not change but the service provider will provide
VAN transportation as well as servers with all of the software and hardware required to
process EDI documents. Thus the service provider takes care of all of the software, VAN
transmission, hardware, communications, mapping, labour and EDI expertise. The clients
only require internet and email facilities.
Most companies opt for such third party services. Some of the service providers include
GXS International, CovalentWorks, and Softshare.
Some organisations insist on conducting business via EDI. One example is that of retail
giant Wal-Mart. In order to become a supplier an organisation must meet Wal-Mart's
requirements, one of which states:
“EDI has proven to be the most efficient way of conducting business with our product
suppliers. This system of exchanging information-purchase orders, invoices, allows us to
improve customer service, lower expenses and increase productivity. Wal-Mart/Sam's
Club expects its merchandise suppliers to be able to participate in EDI transactions as
soon.
If you become a Wal-Mart/Sam's Club supplier and do not currently have EDI capability,
Wal-Mart will work with you to determine the EDI package that best meets your business
needs, while also meeting our EDI requirements. If you already have an EDI system in
place when you become a Wal-Mart supplier, Wal-Mart will perform tracking tests to make
sure your current system is compatible with Wal-Mart's EDI.”21
Electronic Funds Transfer (EFT)

This section discusses how the payment system has been influenced by technology. Along
with Electronic Data Interchange, Electronic Funds Transfer, introduced the concept of e-
commerce even before the internet and world wide web made it popular.

Contents

● Meaning
● National Electronic Funds Transfer System (NEFT)
● Telephone Bill Payment (TBP)
● Wire Transfer
● Payments via ATM or Magnetic Tape
Meaning

As the name suggests, EFT is the transfer of funds electronically. It does not require the
presence of physical money, or even paper for that matter. Money is transferred from one
bank account to another.

A formal definition may given as follows: EFT is any transfer of funds that is initiated by
electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic
tape.22

National Electronic Funds Transfer System (NEFT)

The Reserve Bank of India has introduced an electronic funds transfer system called
"National Electronic Funds Transfer System" (NEFT). As per the Procedural Guidelines,
“the objects of the NEFT System are:
(1) to establish an Electronic Funds Transfer System to facilitate an efficient, secure,
economical, reliable and expeditious system of funds transfer and clearing in the
banking sector throughout India, and
(2) to relieve the stress on the existing paper based funds transfer and clearing
system.”23

The procedure to transfer funds is as follows:

The bank customer (i.e. sender or originator) desirous of remitting funds under the system
must submit an "NEFT Application Form" (to be designed by the participating bank)
authorising the sending bank to debit the sender's account and transfer funds to the
beneficiary (the person to whose account the payment is directed to be made in the
payment instruction) as specified in the NEFT Application Form.

The application could be submitted either in physical form or electronically. A transaction

within the NEFT system will be said to have been initiated when the sending bank accepts
a payment instruction issued by the sender. One of the requirements of RBI is that the
sending bank must display prominently at its premises the cut-off timings up to which it
shall receive the NEFT Application Forms from its customers for different settlements and
the likely timings of the settlements by the NEFT centre.

Next, the sending bank branch will prepare the Structured Financial Messaging System
(SFMS) message as and when the application for the funds transfer is received and
arrange to send the message to NEFT Service Centre till the cut off time for the batch.

The National Electronic Funds Transfer System Procedural Guidelines issued by Reserve
Bank of India, Department of Payment & Settlement Systems (henceforth referred to as
'The Guidelines') defines “SFMS message" as an electronic SFMS message of a batch of
payment instructions for funds transfers, processed and consolidated in the manner
specified for transmission of consolidated payment instructions and communications
concerning payment instructions.

NEFT Service Centre is defined as “an office or branch of a bank in a centre designated
by that bank to be responsible for processing, sending or receiving NEFT SFMS message
of that bank in that Centre and to do all other functions entrusted to an NEFT Service
Centre by or under these Regulations. NEFT Service Centre is referred to as "Sending
NEFT Service Centre" when it originates an NEFT SFMS message for Funds Transfer.
NEFT Service Centre is referred to as "Receiving NEFT Service Centre" when it receives
NEFT SFMS message from NEFT Centre.”

The sending NEFT Service Centre will then accept/reject the messages received from the
branches/ from internet banking customer through net banking platform.

The sending Service Centre transmits the NEFT SFMS message to the NEFT Clearing
Centre by using the communication network designated by Reserve Bank of India.

The Guidelines define NEFT Clearing Centre as “any office designated by the Nodal
Department in each of the centres to which NEFT system is extended, for receiving,
processing and sending the NEFT SFMS message and the debiting and crediting of
accounts of the participating banks and institutions for settlement of payment obligations or
one or more of these functions. National Clearing Cell, Nariman Point, Mumbai is being
designed as the NEFT Clearing Centre (NCC) for purposes of the NEFT System.”

Nodal Department here refers to The Department of Payment and Settlement Systems of
Reserve Bank of India which is responsible for implementation, administration and
supervision of the NEFT System.

After consolidating all NEFT messages received from originating banks, the NCC will
process the data and generate the settlement of each beneficiary bank which has at least
one inward remittance transaction in a given batch. NEFT messages generated for
destination banks will then be transmitted to the service centre of each receiving banks
using SFMS.

On receipt of the NCC NEFT message, the receiving NEFT Service Centre shall process
these files and forward them to the destination branches using SFMS.

The beneficiary branches will then make payment to the beneficiaries instantly on the
same day by crediting the specified account of the beneficiary or otherwise placing funds
at the disposal of the beneficiary.

The entire Procedure has been summarised in the flow chart on the next page.
 Procedure of National Electronic Funds Transfer System

Sender

Submits "NEFT Application Form"

Bank prepares SFMS Sending Bank

Sends Structured Financial Messaging System (SFMS) message

NEFT Service Centre accepts/rejects Sending NEFT

the messages Service Centre

Transmits the NEFT SFMS message

NCC processes the data and NEFT

generates the settlement of Clearing Centre
each beneficiary bank

Sends the settlement NEFT messages using SFMS

Receiving NEFT
Receiving NEFT Service Centre
processes files Service Centre

Forwards messages

Beneficiary
Bank

Final Payment

Beneficiary
Telephone Bill Payment (TBP)24

Telephone Bill Payment systems allow customers to pay bills using a home telephone to
instruct a bank computer to transfer money from their account to that of a creditor. Some
systems record the customer's verbal instructions on a tape or through the intervention of
a human operator. A major drawback of TBP service is that the customer has no proof that
instructions for payment have been given until a monthly statement is received. This
provides the customer's only proof of payment. In case of a dispute, the customer may find
it difficult to substantiate claims.

Wire Transfer24

Wire transfer is the earliest form of EFT, since funds have been sent by wire since the first
telegraph lines were strung over a century ago. The transfer of funds by telegraph is
chiefly used to move large sums for commercial customers.

Payments via ATM or Magnetic Tape25

The National Electronic Funds Transfer System outlined above requires the customer to fill
out a form and submit at the Bank. Such a process is most suitable for large payments.
However, in case of payments involving small amounts or in case the customer wishes to
avoid going to the Bank, s/he can use Credit cards, Debit cards and ATM cards.

A credit card is a thin plastic card, usually 3-1/8 inches by 2-1/8 inches in size, that
contains identification information such as a signature or picture, and authorizes the
person named on it to charge purchases or services to his account.

According to encyclopaedia Britannica, the use of credit cards originated in the United
States during the 1920s, when individual companies, such as hotel chains and oil
companies, began issuing them to customers for purchases made at those businesses.
This use increased significantly after World War II. Later came the bank credit-card system
(which is what is followed today). Under this plan, the bank credits the account of the
merchant as sales slips are received (this means merchants are paid quickly) and
assembles charges to be billed to the card holder at the end of the billing period. The card
holder, in turn, pays the bank either the entire balance or in monthly instalments with
interest (sometimes called carrying charges).

The back of the credit card contains a stripe called a magnetic stripe or a magstripe. The
magstripe is made up of tiny iron-based magnetic particles in a plastic-like film. Each
particle is really a tiny bar magnet about 20-millionths of an inch long. The magstripe can
be "written" because the tiny bar magnets can be magnetized in either a north or south
pole direction. The magstripe on the back of the card is very similar to a piece of cassette
tape. This is where data such as an encrypted PIN, country code, currency units and the
amount authorized are stored. A magstripe reader can understand the information on the
stripe.
A typical credit card transaction works thus:
After the cashier swipes the credit card through a reader, a software called Electronic Data
Capture software at the point-of-sale (POS) terminal dials a stored telephone number
using a modem to call an acquirer. An acquirer is an organization that collects credit-
authentication requests from merchants and provides the merchants with a payment
guarantee.
When the acquirer company gets the credit-card authentication request, it checks the
transaction for validity and the record on the magstripe for:
1. Merchant ID
2. Valid card number
3. Expiration date
4. Credit-card limit
5. Card usage
A major disadvantage of using credit cards is that it is very easy to overdraw and end up
paying very high rates of interest on the amount unpaid (sometimes as high as 49%)
leading to a debt trap. It has been reported that India’s outstanding credit card debt had
touched Rs. 26,500 crore in May 2008, up by 87% from May 2007. It has also been
estimated that the default rates may increase to 9.5% over the next two years from 7.5%
currently.26 Another issue is that of security of sensitive data. There have been several
instances of credit card fraud in the past. However, with improving encryption and network
security, these thefts are now fewer than before. One common question that bothers
customers is what happens if the credit card gets stolen. To tackle this, banks require that
the customer report the loss to the bank immediately so that the bank can block all
transactions.
HDFC bank for instance, gives the following answer on its site:
“Don't panic if you happen to lose your card. The first thing to do is:
● Call our 24-Hour Customer Call Centre and report the loss.
● Make sure you file a FIR for the lost/stolen card and send us a copy, along with a
written confirmation, to the Manager - Customer Services, HDFC Bank Credit Cards
Division, P.O. Box number-399 Anna Salai, H.P.O, Chennai - 600 002.
This will help us to immediately block all transactions on your card and initiate the process
to deliver a new card to you within the next 3 business days. Any fraudulent transactions
after reporting the loss will be borne by us. If you happen to recover the card after having
reported it lost, please do not use it. Cut it into 4 pieces, cut it especially through the
magnetic strip at least once, and return it to us.”27
Debit cards look much like the standard credit card and have similar magstripes.
However, unlike credit cards, the amount paid is deducted directly from the account of the
card holder. When the debit card is used to make payments, it is swiped against the
scanner that enables the financial institution to verify electronically that adequate funds are
available and approve the transaction. Most debit cards also can be used to withdraw cash
at ATMs (automated teller machines).28
An ATM (automated teller machine) consists of a card reader, a keypad, a speaker, a
display screen, a receipt printer and a cash dispenser. To withdraw money from an ATM,
the Debit/ATM card is inserted in the card reader. The card reader captures the account
information stored on the magnetic stripe on the back of an ATM/debit or credit card. The
host processor uses this information to route the transaction to the card holder's bank. The
keypad lets the card holder tell the bank what kind of transaction is required (cash
withdrawal, balance inquiry, etc.) and for what amount. Also, the bank requires the card
holder's personal identification number (PIN) for verification. The speaker provides the
card holder with auditory feedback when a key is pressed. The display screen prompts the
card holder through each step of the transaction process. The receipt printer provides the
card holder with a paper receipt of the transaction. The heart of an ATM is the safe and
cash-dispensing mechanism. The entire bottom portion of most small ATMs is a safe that
contains the cash.29
Transactions on-line are most commonly paid for via credit /debit cards.
For example, if the customer wants to purchase an airline ticket, then she first visits a
travel site such as cleartrip.com. Here, she can fill out a form with details such as the
date of arrival and departure, origin and destination and number of tickets required. The
site will then generate the results for availability of sites and arrange them according to
airline, fare type, prices or any other option which the consumer opts for. Then the
customer can choose the preferred flight and click “Book”. The site then asks for details
such as address, telephone number and e-mail address. Then the traveller is taken to the
“make payment option”. Here the mode of payment is selected, that is, via Debit Card or
Credit Card. The customer has to give the details such as credit card number, PIN or
password. Finally the customer completes the transaction. The site then processes the
transaction and mails the e-ticket on the e-mail address provided. All the customer now
has to so is print the e-ticket and she is on her way.
An e-commerce site has the option to include on-line payment within its site or outsource
its payment solutions. PayPal is one such provider of payment solutions. The client has to
sign up for a business account and provide details such as account/business owner's
name, address, and email, business name and address and customer service information.
After the account is created, PayPal verifies the email address and bank account details
including bank name, account and routing numbers and name associated with bank
account. The verification process takes up to 3-5 business days, after which the business
can begin to implement the payment solution. As far as the consumer goes, he browses
through the e-commerce site and selects the products to purchase within the site. On
clicking the payment button, he is directed to secure PayPal pages. After the payment, the
customer returns to the main site.30
E-Enterprise Requirements

E-commerce, as observed earlier, is not only about the internet and internet based
enterprises. Technology can and should be incorporated into a normal “brick and mortar”
enterprise as well. If implemented properly, technology can reduce operating costs as well
as time. This can translate into lower prices, or higher profits at existing rates. While the
latter sounds tempting, it is a short-run solution. In the long-run, a competitor is bound to
offer a product at a lower price. Thus, by passing on the savings to the customer, the firm
can take the advantage of acting first and securing a larger market share. Further, it can
help build goodwill as the customer will appreciate that the firm has passed on its savings
to the customer and thus it will increase loyalty towards the enterprise.

Since the growth of ICT, several new terms and “solutions” have sprung up. The following
section deals with some of these terms which affect all businesses – not just internet
based ones.

Contents

● What are Information Systems?

● Meaning of Management Information System (MIS)
● What is Supply Chain?
● Meaning of Supply Chain Management (SCM)
● Customer Relationship Management (CRM)
● Enterprise Resource Planning (ERP)
● Database Management Systems (DBMS)
What are Information Systems?

Information is the most important asset a firm can have. If the firm has knowledge of what
is going to happen in future, it can act appropriately to take advantage of the situation. By
acting swiftly, a firm can outwit its competition. However, in the real world, the future
cannot be predicted – at least not accurately. What can be done is anticipate and predict
what could potentially happen. Such estimation requires information like what happened in
the past, what was the consequence of the actions taken, how did competitors react, what
were the circumstances in which actions were taken, how have the circumstances
changed now and so on. Information begins its journey as raw data. Such data can be
procured via surveys conducted by the firm itself or by an external organisation such as a
research agency or government records. This data has to be processed to be made
meaningful.

For instance, if the firm has access to the demographic information of a locality, it is not
enough in itself. The firm will have to analyse how many persons belong to a particular age
group, what percentage of the population does this age group represent, what is their
combined income etc. For all types of information, such analysis will be required.

After analysis, this information must be used. There is no point in undertaking the entire
exercise of analysis if it is not used. Such use is in decision making. For example, in case
of a firm producing child care products, the decision to market its product in an area will
depend on whether the market is large enough, whether the majority of the population can
afford the products and so on. Such decisions can be taken with the help of the
demographic information processed from raw data.

After decisions are taken, they have to be communicated across the entire organisation.
After communicating, the decision has to be translated into actions. After implementing the
decision, the outcome of the action has to be measured. This is again in the form of raw
material. Thus the entire process begins all over again. This process, if performed
manually would not only involve a lot of labour and consequently increase costs, it would
lose its value because of the time taken. In this information age, information loses its value
very fast and using information at the correct time is critical to every business. This is
where information systems come into the picture.

“Information systems” has been defined by Prof. Anatoly Sachenko as a system that uses
the resources of hardware, software, and people to perform input, processing, output,
storage, and control activities that transform data resources into information products.31

Information Systems are of various types. The broadest classification puts information
systems into five categories viz. Office Information Systems (OIS), Transaction Processing
Systems (TPS), Management Information Systems (MIS), Executive Information Systems
(EIS) and Expert Systems (ES). While OIS uses computer based systems to enhance and
support work flow and facilitate day-to-day operations among employees, TPS captures
and processes the data generated during the day-to-day transactions. Thus, OIS provides
the raw data for TPS to process and convert into information. MIS generates accurate,
timely and organised information so that managers can make decisions, solve problems,
supervise activities and track progress. EIS is designed to support the information needs
of the executive managers. It uses information provided by the MIS and essentially
condenses it to enable the top management to take a larger view of the organisation's
activities. ES is an information system that captures and stores the knowledge of human
experts and then imitates human reasoning and decision making processes for those who
have less expertise. Artificial Intelligence is an example of Expert Systems.32

Meaning of Management Information System (MIS)

Management Information System (MIS) is basically concerned with processing data into
information which is then communicated to the various Departments in an organization for
appropriate decision-making.33

As discussed above, MIS is just one of the several types of Information Systems.
However, it has gained immense popularity especially since it enables managers to take
decisions. Several educational Institutions across the globe are now offering courses on
just MIS. This reflects a growing need felt by organisations all over the world for MIS
professionals. Perhaps one of the reasons for its popularity is that it has an impact on all
aspects of a business. MIS is usually classified according to the various functions of the
organisation viz. Marketing, Personnel, Manufacturing, Accounting and Finance. These
are in fact sub-systems of MIS. And these sub-systems include systems within
themselves. If a business decides to implement MIS, it should ensure that the system is
suited to the organisation's structure, objectives and operations. Since technology keeps
evolving, MIS professionals have to stay in touch with the current trends and accordingly
implement changes in the organisation's system. Further, when implementing MIS, the
costs related to the installation and the benefits accruing to the business from its
installation have to be compared. Only if the benefits are greater than the costs, should the
business adopt MIS. The financial implications of introducing changes in the system
should also be considered. Some of the costs associated with the installation of such a
system and implementing changes include the costs of infrastructure and training to the
existing staff. Thus, for MIS requires sound knowledge of business as well as information
technology.34

What is Supply Chain?

The authors of “Supply Chain Management”35 have discussed the meaning of the term
Supply Chain in detail. They have defined Supply Chain as a set of three or more
companies directly linked by one or more of the upstream and downstream flows of
products, services, finances and information from a source to a customer. A supply chain
thus consists of both supply (upstream) and distribution (downstream). The three parties to
this chain are the organisation, its immediate supplier and its immediate customer. The
concept of supply chain can be extended to more than three players. That is, the chain can
include the supplier of the immediate supplier, and the customer of the immediate
customer.

A supply chain orientation is the recognition by a company of the systematic and strategic
implications of the activities and processes involved in managing the various flows in a
supply chain.
Meaning of Supply Chain Management (SCM)

Simply put, SCM means the management of the supply chain. An accurate definition of
Supply chain management (SCM) is “the oversight of materials, information, and finances
as they move in a process from supplier to manufacturer to wholesaler to retailer to
consumer.”36

The goal of supply chain management is to coordinate activities among suppliers,

production facilities, distribution centres and customers so that the right product is made
and distributed, at the right time to the right location at a minimum cost while maintaining
the desired level of service.37

Traditionally, Supply Chain Management includes managing supply and demand, sourcing
raw materials and parts, manufacturing and assembly, warehousing and inventory
tracking, order entry and order management, distribution across all channels, and delivery
to the customer. However, when applied to e-commerce, supply chain management
mainly focusses on inventory and order management, distribution and delivery to the
customer.

Although supply chain management is not a new term, its importance has grown in recent
years because of businesses conducted over the internet. In e-commerce, it is extremely
important to ensure low costs, high quality and timely delivery. If goods and services are
not delivered properly, it could be disastrous as the customer will visit the competitor's site
the next time.

In the traditional supply chain, the raw material suppliers are at one end of the supply
chain. They are connected to manufacturers and distributors, which are in turn connected
to a retailer and the end customer. Although the customer is the source of the profits, they
are only a part of this "push" model. Driven by e-commerce’s capabilities to empower
clients, many companies are moving from the traditional "push" business model, where
manufacturers, suppliers, distributors and marketers have most of the power, to a
customer-driven "pull" model. In the pull model, customers use electronic connections to
pull whatever they need out of the system.

E-commerce has had a deep impact on supply chain management. Firstly, e-commerce
allows transportation companies of all sizes to exchange cargo documents electronically
over the Internet. E-commerce enables shippers, freight forwarders and trucking firms to
streamline document handling without the monetary and time investment required by the
traditional document delivery systems. Thus, by using e-commerce, companies can
reduce costs, improve data accuracy, streamline business processes, accelerate business
cycles, and enhance customer service.

Secondly, the supply chain is no longer a straight forward line. E-commerce has facilitated
changes in the distribution system by making it more flexible and enabling customers to
manage the increasingly complex movement of products and information through the
supply chain.
Thirdly, e-commerce makes it easier for customers to do business with companies.
Anything that simplifies the process of arranging transportation services will help build
companies' business and enhance shareholder value. By making more information
available about the commercial side of companies, businesses will make their web site a
place where customers will not only get detailed information about the services the
company offers, but also where they can actually conduct business with the company.
Ultimately, web sites can provide a universal, self-service system for customers. Shippers
can order any service and access the information they need to conduct business with
transportation companies exclusively on-line. E-commerce functions are taking companies
a substantial step forward by providing customers with a faster and easier way to do
business with them.
Fourthly, through e-commerce, businesses can allow users to establish an account and
obtain real-time information about cargo shipments.
Fifthly, the amount of paperwork is reduced significantly as standard business documents
can be generated automatically. This reduces the time and cost involved in executing
transactions and at the same time removes any possibility of errors.
Lastly, the internet can be used to give instant shipping information access to anyone in
the company, from any location. Parcel shipments can be tracked and proof of delivery
quickly confirmed. A customer's transportation costs and performance can be analysed,
thus helping the customer negotiate rates and improve service.38

In the traditional approach, everyone was treated as a competitor – even the supplier. The
customer was treated as a group to which products had to be sold. The new approach
involves making allies of suppliers and customers alike, embracing them in value nets
instead of coercing them into precarious supply chains. While traditionally the supply chain
would push out a fixed line of one-size-fits-all items, hoping that customers would buy
them, the new approach allows unique customers to choose product or service attributes
that they value the most; in effect, to design their own product.

In this new situation, it is important that an organization and its suppliers, manufacturers,
customers, and other third-party providers engage in joint strategic planning and
operational execution with an eye to minimizing cost and maximizing value across the
entire supply chain. The underlying enabler of supply chain integration is the fast and
timely exchange of information between supply chain partners. The ubiquity of Internet-
based communication tools now makes it possible for organizations of all sizes to
exchange information. Applications like vendor-managed inventory (VMI), collaborative
planning, e-procurement, shipment tracking and tracing, electronic order management,
and bill presentment and payment can be built upon a core data exchange platform,
enabling companies to reap true cost reduction and service improvement within their
organization.39

An effective SCM can reduce transportation management time and costs and increase
profit margins and overall profitability. It can improve on-time deliveries and customer
service, strengthen relationships with suppliers and carriers, thus enable global supply
visibility and maximum efficiency for competitive advantage.40

Customer Relationship Management (CRM)

Marketing in today's environment of globalisation and high competition, requires that the
customer be treated like a king (or queen). It is not enough for a business to attract
customers and sell products. The business has to retain the customer and ensure that the
customer makes repeat purchases. The business has to make sure that the buyer is
satisfied. A dissatisfied customer will not only shift to the competitor's product, but will also
spread the word about the seller's inability to deliver on promises. This is where customer
relationship management (CRM) comes in.
CRM is a process or methodology used to learn more about customers' needs and
behaviours in order to develop stronger relationships with them. There are many
technological components to CRM, but thinking about CRM in primarily technological
terms is a mistake. The more useful way to think about CRM is as a process that will help
bring together lots of pieces of information about customers, sales, marketing
effectiveness, responsiveness and market trends.
CRM helps businesses use technology and human resources to gain insight into the
behaviour of customers and the value of those customers. Understanding customers is
important for the business because eighty percent of a business' revenue comes from
twenty percent of its customers.41
Using CRM, a business can provide better customer service and discover new customers,
thus increasing customer revenues. An effective CRM can help sales staff close deals
faster and make call centres more efficient, besides simplifying marketing and sales
processes.42
CRM is not just after-sales service. It in fact begins even before the customer has viewed
the web site. Often, attracting a potential customer to a site is easy. A business can
register with a search engine and get a prominent placement in searches. To attract
customers, the business can also request complimentary business sites to include their
links.
However, to ensure that the customer stays on the site is the key. This depends on the
quality of the web site. If the web site takes a very long time to load, or requires the viewer
to install special software, the customer will be long gone. The site should be easy to
navigate and use. It should not put all the information on one page as the information
overload will confuse the viewer. But the excessive use of Hyperlinks is also likely to
irritate the customer. The design of the site should consider these points to incorporate the
correct number of Hyperlinks into the home page.
The site should also anticipate what kind of problems and confusions the customer might
have regarding the site, the business, the product on offer, the payment, delivery and the
legal aspects of the transactions involved. These should be answered on the FAQ page.
E-mail addresses and helpline numbers should also be provided, preferably toll-free. E-
mails should be answered within one or two business days. The customer should be
informed of the time frame within which their mail will answered. Such a commitment must
be honoured. Calls should be answered promptly and the customer should not be required
to hold.
The logistics company DHL emphasised this point through its ad-campaign in which it
stated "Speak to a real person within three rings, every time."43
Once a customer is found, the business must establish a relationship with the customer.
This the business can do by adding value to the products it offers. One way to add value is
to produce newsletters that can be delivered on-line or by mail. Newsletters can be related
to product or service announcements and contain general industry information. E-
newsletters are simple and inexpensive to produce and deliver. As the business builds
relationship with its on-line customer, it will be able to solicit and build more profile
information. Information about product preferences allows the business to offer
complimentary products or give specials on items of interest to a specific set of customers.
With time, long lasting relations can be formed through more sophisticated means.
Customised products and personalised sites will provide additional services to the
customers and at the same time give customers a reason to return regularly to the e-
business site.
The business should, however, obtain the customer's permission before sending any type
of promotional material. If such permission is not sought, the mail will only annoy the
customer and create a negative impression.

Taking care of the customer is one of the foremost functions of the organisation. Effective
CRM is thus critical to the success of the business. Without the customer, the business
cannot exist. There are many software modules that assist enterprises in CRM. Oracle,
Microsoft and SAP are the most popular software vendors.

Enterprise Resource Planning (ERP)

As the name suggests, ERP encompasses the entire organisation. ERP Systems provide
strategic planning capabilities to organisations.
It is a comprehensive tool for integrating accounting, strategic planning, sales order
management, quality control, manufacturing, logistics and warehousing.32
ERP (enterprise resource planning) is an industry term for the broad set of activities
supported by multi-module application software that help a manufacturer or other business
manage the important parts of its business, including product planning, parts purchasing,
maintaining inventories, interacting with suppliers, providing customer service, and
tracking orders. ERP can also include application modules for the finance and human
resource aspects of a business. Typically, an ERP system uses, or is integrated with a
relational database system.44
ERP is a type of management information system that integrates and automates many of
the business practices associated with the operations or production aspects of an
enterprise.
ERP and SCM are related in the sense that both are back office systems. While SCM is a
business to business system, ERP is concerned more with the firm's internal resources.
The internal resource requirements determine the relationships of the firm with suppliers.
That is why many SCM applications rely on the kind of information that is stored in the
most quantity inside ERP software. It is easier for information to flow into SCM systems if
all information is stored in one place. Now, most ERP vendors have SCM modules built
into them, so doing an ERP project may be a way to kill two birds with one stone.45
SAP, Oracle, The Sage Group and Ramco Systems are some of the ERP vendors.

Database Management Systems (DBMS)

Since information is the key to success of an enterprise and all the systems discussed
above utilise information, the important question that arises is how this information has to
be stored. Database management systems offer the solution to this problem. Since it is
based on technology, it has the same advantages over manual methods of storing
information, as other technology based systems, viz. Time savings, accuracy and ease,
translating into lowered costs and increased efficiency. Database systems, like other
enterprise systems, are expensive and so the organisation should undertake a cost-benefit
analysis before implementing the system.
Some of the advantages that DBMS include ease of updating, ease of retrieval and no
duplication. After data is entered into the system, retrieving it does not take much time as
usually only keywords have to be typed to retrieve relevant information. Being in the
electronic form, the data can be arranged and rearranged as per the requirements of the
management. DBMS systems require data to be entered only once. The same information
can then be accessed by all the concerned departments of the business. This ensures that
up-to-date information can be shared throughout the organisation without having to
maintain different sets of files. Dispensing with the different sets of files also ensures data
accuracy.
Sybase and Microsoft SQL are examples of DBMS.

As mentioned in the beginning of this section, various “systems” and “solutions” have
emerged in the recent past. However, even before the spread of technology, data was
recorded and translated into information which was used to take decisions. Strategic
alliances with suppliers and maintaining good relations with customers are essentially
concepts which can be implemented without the use of heavy infrastructure.
Hence, it is important to note that technological advancements are neither indispensable,
nor some magical tools to make a business successful. The technology only makes
business processes simpler and faster. At the end of the day, it is not the technology that
matters, but how it is used. An enterprise cannot invest in these systems and then expect
them to run the business. Decisions at all levels have to be taken by managers.
Technology cannot replace good management and is there only as a tool to aid such
decision making.
E-Commerce Business Models

Several authors have debated on whether the business conducted over the internet is any
different than business conducted off-line. While there are models which are based on off-
line models, there are some models which are peculiar to the environment offered in the
electronic medium. Various business models for e-commerce as given by Michael Rappa
have been included in this section.46 A business may adopt any model, or a combination of
models.

Contents

● Brokerage Model
● Advertising Model
● Infomediary Model
● Merchant Model
● Manufacturer (Direct) Model
● Affiliate Model
● Community Model
● Subscription Model
● Utility Model
Brokerage model

A broker is a middleman or an intermediary between a buyer and seller. Brokers connect

the buyer and seller. In exchange for providing this link, they usually charge a commission.
Some examples of brokerage models include:
1. Demand Collection System:
In traditional methods of conducting business, the customer approaches the seller
and purchases the product at the price settled after negotiations between them.
However, the price is set mostly by the seller. The patented "name-your-price"
model pioneered by priceline.com works in the exact opposite manner. It is
sometimes referred to as reverse auction. The prospective buyer makes a final
(binding) bid for a specified good or service, and the broker arranges fulfilment. This
model could possibly work off-line, but customization would be very costly.
2. Auction Broker:
This model is based on usual off-line methods of conducts auctions. Sites such as
ebay.com provide a platform for sellers (individuals or merchants) to list items on-
line. The broker charges the seller a listing fee and commission scaled with the
value of the transaction. However, unlike traditional methods, the on-line version
enables everyday items of small value to be traded.
3. Transaction Broker:
This system is possible only in e-commerce. Ordinary businesses have no problem
in settling transactions. There is no need for third-party intervention. However,
payment systems over the internet are tricky to implement due to security issues.
Businesses often prefer to outsource payment systems. This is where sites like
PayPal come into the picture.
4. Search Agent:
A search agent is a software agent or "robot" used to search-out the price and
availability for a good or service specified by the buyer, or to locate hard to find
information. This is again suitable for the internet as there are vast amounts of
information available but to find the exact information required by the customer
might require extensive searching which might take a long time.
5. Virtual Marketplace:
This business model is the concept of malls adapted to the internet. A virtual
marketplace or a virtual mall is a hosting service for on-line merchants that charges
set-up, monthly listing, and/or transaction fees. Such a service provider may also
provide automated transaction and relationship marketing services. An example is
that of mall.com.

Advertising Model

The web advertising model is an extension of the traditional media broadcast model. The
broadcaster, in this case, a web site, provides content (usually, but not necessarily, for
free) and services (like email, Instant Messaging, blogs) mixed with advertising messages
in the form of banner ads. The banner ads may be the major or sole source of revenue for
the broadcaster. The broadcaster may be a content creator or a distributor of content
created elsewhere. The advertising model works best when the volume of viewer traffic is
large or highly specialized. This is the most common form of site. Practically every site on
the internet has some kind of advertisement on the page. However, this is often combined
with some other form of revenue stream. While the concept of the advertising model is not
new, some of the applications, as discussed below, are unique to the internet.
1. Portal:
A portal is usually a search engine that may include varied content or services. A
high volume of user traffic makes advertising profitable and permits further
diversification of site services. A personalized portal allows customization of the
interface and content to the user. A niche portal cultivates a well-defined user
demographic. This type of business model, followed by MSN and Rediff, is unique
to the medium of internet.
2. Classifieds:
Like newspaper classifieds, on-line classifieds sites allow people to list items for
sale or wanted for purchase. Portals like Yahoo! also offer classifieds services.
Listing fees on sites are common, but there also may be a membership fee. Info
Edge (India) Ltd is an example of a business which specialises in classifieds. The
Company provides on-line recruitment, matrimonial & real estate classifieds and
related services in India. The business is managed primarily through four divisions,
which comprise on-line recruitment classified division (naukri.com) , on-line
matrimonial classified division (jeevansathi.com) , on-line real estate classified
division (99acres.com) and off-line executive search division (operating through
their Quadrangle division).
3. User Registration:
User registration sites are content-based sites that are free to access but require
users to register. Usually the site provides a preview of services offered and allows
the user to use a part of the service for free. To continue using the service, the site
requires that the users register and provide demographic data. The registration may
be free or paid. Registration allows inter-session tracking of user surfing habits and
thereby generates data of potential value in targeted advertising campaigns. For
example, scribd.com allows users across the globe to view documents uploaded
on the internet by others for free. However, to download or upload documents, it
requires the user to register, which is free.
4. Query-based Paid Placement:
This model is used by search engines like Google. The site sells favourable link
positioning (i.e., sponsored links) or advertising keyed to particular search terms in
a user query.
5. Content-Targeted Advertising:
Pioneered by Google, it extends the precision of search advertising to the rest of
the web. Google identifies the meaning of a web page and then automatically
delivers relevant ads when a user visits that page.
6. Intromercials:
The word intromercial is a combination of the words introduction and commercial.
An intromercial is an animated full-screen advertisement placed at the entry of a
 site before a user reaches the actual site. These intromercials can usually be
skipped by clicking a link provided to go directly to the home page.

Infomediary Model

This model exploits the information requirements of businesses as well as consumers.

While data about consumers and their consumption habits is carefully analysed and used
by organisations to target marketing campaigns, independently collected data about
producers and their products are useful to consumers when considering a purchase. Some
firms function as infomediaries (information intermediaries) assisting buyers and/or sellers
understand a given market. Some of the types of agencies include:
1. Advertising Networks:
This type of agency feeds banner ads to a network of member sites, thereby
enabling advertisers to deploy large marketing campaigns. Advertisement networks
collect data about web users that can be used to analyse marketing effectiveness.
2. Audience Measurement Services:
Extending the concept of research organisations, audience measurement services
are essentially market research agencies functioning on-line. An example is that of
Nielsen.
3. Incentive Marketing:
Some sites offer customer loyalty programs that provide incentives to customers
such as redeemable points or coupons for making purchases from associated
retailers. Data collected about users is sold for targeted advertising.
coolsavings.com is an example of this type of business.
4. Metamediary:
Similar to an intermediary, a metamediary facilitates transactions between buyer
and sellers by providing comprehensive information and ancillary services, without
being involved in the actual exchange of goods or services between the parties.

Merchant Model

The term e-commerce is most commonly associated with this kind of business and some
consider this as the pure internet based commerce. This model follows the traditional
distribution method involving wholesalers and retailers of goods and services. Sales may
be made based on list prices or through auction.
1. Virtual Merchant:
The virtual merchant or e-tailer, is a retail merchant that operates solely over the
web. The leading example is that of Amazon.
2. Catalogue Merchant:
This model is sometimes also referred to as “clicks and flips”. It is mail-order
business with a web-based catalogue. The business combines mail, telephone and
on-line ordering. The major advantage that the on-line version offers is that the
 merchant can update prices in real time. This saves the cost of printing new
catelogues every time prices change.
3. Click and Mortar:
Also known as “brick and click”, click and mortar firms operate through a physical as
well as on-line store. This is usually adopted by already established retail stores. It
solves some of the problems associated with pure on-line stores. For example, the
customer can order for merchandise from the convenience of his house. The firm
will deliver the goods to his house from the nearest physical store. It provides
flexibility in terms of payment as well as delivery. The customer can pay on-line via
credit card, or pay cash on delivery. The customer can also pick it up from the store
directly, thus avoiding shipping costs as well searching the store for the product
manually. Even sales returns are facilitated through this model. Barnes & Noble
has such a model.
4. Bit Vendor
This is the purest form of electronic commerce. The merchant deals strictly in digital
products and services and, in its purest form, conducts both sales and distribution
over the web. There is no physical store at all.

Manufacturer (Direct) Model

The manufacturer or "direct model", is designed to utilise the power of the web to allow a
manufacturer (i.e., a company that creates a product or service) to reach buyers directly
and thereby compress the distribution channel. The manufacturer model can be based on
efficiency, improved customer service, and a better understanding of customer
preferences. This model is followed by Dell. The various kinds of direct models are as
follows:
1. Purchase:
The sale of a product in which the right of ownership is transferred to the buyer.
2. Lease:
In exchange for a rental fee, the buyer receives the right to use the product under a
“terms of use” agreement. The product is returned to the seller upon expiration or
default of the lease agreement. One type of agreement may include a right of
purchase upon expiration of the lease (also called hire purchase system).
3. License:
The sale of a product that involves only the transfer of usage rights to the buyer, in
accordance with a “terms of use” agreement. Ownership rights remain with the
manufacturer (software licensing).

Affiliate Model

In contrast to the generalized portal, which seeks to drive a high volume of traffic to one
site, the affiliate model, provides purchase opportunities wherever people may be surfing.
It does this by offering financial incentives (in the form of a percentage of revenue) to
affiliated partner sites. The affiliates provide purchase-point click-through to the merchant.
It is a pay-for-performance model - if an affiliate does not generate sales, it represents no
cost to the merchant. The affiliate model is inherently well-suited to the web, which
explains its popularity. Variations include, banner exchange, pay-per-click, and revenue
sharing programs.
1. Banner Exchange:
In this, the site trades banner placement among a network of affiliated sites.
2. Pay-Per-Click:
The site that places the advertisement on its site is paid by the advertiser on the
basis of the number of users that are attracted towards the site advertised through
the site on which the advertisement is placed.
3. Revenue Sharing:
In this case the advertiser offers a percent-of-sale commission to the site on which
the advertisement is placed, based on a user click-through in which the user
subsequently purchases a product.

Community Model

The viability of the community model is based on user loyalty. Users have a high
investment in both time and emotion. Revenue can be based on the sale of ancillary
products and services or voluntary contributions; or revenue may be tied to contextual
advertising and subscriptions for premium services. The Internet is inherently suited to
community business models and today this is one of the more fertile areas of
development, as seen in rise of social networking.
1. Open Source:
As explained earlier, open source refers to software developed collaboratively by a
global community of programmers who share code openly. Instead of licensing
code for a fee, open source relies on revenue generated from related services like
systems integration, product support, tutorials and user documentation. Red Hat
(for enterprise solutions) and Ubuntu (for operating systems) are examples of open
source software distributors.
2. Open Content:
Open content is openly accessible content developed collaboratively by a global
community of contributors who work voluntarily. Wikipedia is synonymous with
open content and operates through donations. It has several sister sites based on
open content such as Wikibooks, Wikiversity and Wikimedia Commons.
3. Public Broadcasting:
It is a user-supported model used by not-for-profit radio and television broadcasting
extended to the web. A community of users support the site through voluntary
donations.
4. Social Networking Services:
Social Networking sites have been growing rapidly over the past few years. These
 sites provide individuals with the ability to connect to other individuals along a
defined common interest (professional, hobby, romance). Social networking
services can provide opportunities for contextual advertising and subscriptions for
premium services. There are several such sites like FaceBook, Orkut and Hi5.

Subscription Model

In this model, users are charged a periodic (daily, monthly or annual) fee to subscribe to a
service. It is not uncommon for sites to combine free content with "premium" (i.e.,
subscriber or member-only) content. Subscription fees are incurred irrespective of actual
usage rates. Subscription and advertising models are frequently combined. Some forms of
subscription model include:

1. Content Services:
Such businesses provide text, audio, or video content to users who subscribe for a
fee to gain access to the service. Recently, Reliance launched its BIGFlix [similar
to Netflix in the US] which has this type of a business model.
2. Person-to-Person Networking Services:
These are conduits for the distribution of user-submitted information, such as
individuals searching for former schoolmates.
3. Trust Services:
These sites come in the form of membership associations that abide by an explicit
code of conduct, and in which members pay a subscription fee.
4. Internet Services Providers:
America Online is an example of an Internet service provider offering network
connectivity and related services on a monthly subscription.

Utility Model

The utility or "on-demand" model is based on metering usage, or a "pay as you go"
approach. Unlike subscriber services, metered services are based on actual usage rates.
Traditionally, metering has been used for essential services (e.g., electricity water, long-
distance telephone services). Some Internet service providers operate as utilities, charging
customers for connection minutes, as opposed to the subscriber model.
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cid=1184870283999&pagename=CBSC_AB%2FCBSC_WebPage
%2FCBSC_WebPage_Temp&c=CBSC_WebPage
[Accessed on 22 September 2008]

39. Supply Chain Management

http://www.canadabusiness.ca/servlet/ContentServer?
cid=1184870284023&pagename=CBSC_AB%2FCBSC_WebPage
%2FCBSC_WebPage_Temp&c=CBSC_WebPage
[Accessed on 22 September 2008]

40. Supply Chain Management

http://www.gati.com/services_logistics_warehousing_supply_chain_management.js
p
[Accessed on 16 September 2008]

41. Customer Relationship Management

http://www.e-future.ca/pdf/efc_customer_relationship_management.pdf
[Accessed on 17 September 2008]

42. Customer Relationship Management (CRM) Tutorial

http://crmtutorial.com/CRM/CRM.aspx
[Accessed on 18 September 2008]
43. DHL goes `all the way'
By Ravikumar, The Hindu Business Line Thursday, Mar 08, 2007
Article available at
http://www.thehindubusinessline.com/catalyst/2007/03/08/stories/20070308001603
00.htm
[Accessed on 18 September 2008]

44. ERP-Enterprise Resource Planning

http://www.work911.com/planningmaster/ERP_-_Enterprise_Resource_Planning/
[Accessed on 18 September 2008]

45. An Introduction to Supply Chain Management

http://www.cio.com/article/40940/ABC_An_Introduction_to_Supply_Chain_Manage
ment?contentId=40940&slug=&page=2&#scm_software
[Accessed on 22 September 2008]

46. Business Models On The Web

http://digitalenterprise.org/models/models.html
[Accessed on 26 September 2008]