INSTITUTE OF AERONAUTICAL ENGINEERING

(Autonomous)
Dundigal, Hyderabad - 500 043
Department of Information Technology

E-Commerce

Prepared by:
D.Rahul
Assistant Professor
IARE

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 Commerce
• COMMERCE : COMMERCE refers to all those activities which help directly or indirectly in
the distribution of goods to the ultimate consumer.
• Functions of commerce :
1.Removes Personal Hindrance
2.Removes Place Hindrance
3.Removes Time Hindrance
4.Removes Finance Hindrance
5.Removes Risk Hindrance
Hindrance: barrier, block, difficulty, drawback, limitation, obstacle restriction, stoppage
Personal Hindrance : Personal Hindrance Removed by Trader manufacturer, wholesaler,
retailer
• Place Hindrance : Place Hindrance Removed by Transport
• TIME HINDRANCE : TIME HINDRANCE Removed by warehousing
• Finance hindrance : Finance hindrance Banks remove this hindrance
• Risk hindrance : Risk hindrance Removed by Insurance

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 Commerce

• Commerce means the whole system of an economy that

constitutes an environment for business.
• The system includes legal, economic, political, social, cultural,
and technological systems that are in operation in any country.
• Commerce is a system or an environment that affects the
business prospects of an economy or a nation-state.
• We can also define it as a second component of business which
includes all activities, functions and institutions involved in
transferring goods from producers to consumers.

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 Overview of e-Commerce

• Commerce
– Conducting business in which buyers and sellers come together in a
market place to exchange information, products, services and payments
– Conducted in buildings, personal interactions also involved

• Electronic Commerce
– Market place is electronic. Business transactions occur across a
telecommunications network (Electronic market place – Market space)
where buyers, sellers and others involved in the business transaction.
– People rarely see / know each other, physically located anywhere in the
world.

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 Overview of e-Commerce

• Electronic commerce is a modern business methodology that

addresses the needs of organizations, merchants and
consumers to cut costs while improving the quality of goods
and services and increasing the speed of service delivery.
• e-commerce is associated with the buying and selling of
information, products and services over the Internet

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 Overview of e-Commerce

• Information processing in e-commerce can be categorized as

– Transactions between a company and the consumer over public networks for the
purpose of home shopping home banking using encryption for security and
electronic cash, credit or debit tokens for payment.
– Transactions with trading partners using Electronic Data Interchange ( EDI).
– Transactions for information gathering such as market research using bar code
scanners, information processing for managerial decision making or organizational
problem solving, and information manipulation for operations and supply chain
management.
– Transactions for information distribution with prospective customers, including
interactive advertising, sales and marketing.

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 e-Commerce – Framework

Common business services infrastructure (security/

authentification, electronic payment),

Messaging and information distribution architecture

Multimedia contents and network publishing

infrastructure

Information superhighway infrastructure

(telecom, cable TV, wireless ,Internet)

• Public policy legal Technical Stds for electronic

and privacy issues docs, multimedia and network protocols

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 e-Commerce – Framework
• Building Blocks in the infrastructure
– Common business Services, for facilitating the buying and
selling processes
– Messaging and information distribution.
– Multimedia contents and network publishing – for creating a
product and a means to communicate about it.
– The Information super high way – for providing the high
way system along which all e-commerce must travel
• Two supporting pillars for e-commerce are
– Public policy to govern such issues as universal access,
privacy and information pricing
– Technical standards, to dictate the nature of information
publishing, user interfaces and transport in the interest of
compatibility across the network.

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 e-Commerce – Framework
• Elements of the framework:
– Any successful e-commerce application will require the I-way
infrastructure in the same way that regular commerce needs the
interstate high way network to carry goods from point to point. The I-
way will be a mesh of interconnected data high ways of many forms:
telephone wire, cable TV wires, radio based wireless- cellular and
satellite.
• On the I-way the nature of vehicular traffic is extremely important.
The information and multimedia content determines what type of
vehicle is needed.
– Movies = Video + Audio
– Digital games = Music + Video + Software
– Electronic Books = Text + data + Graphics + Music +
Photographs + video
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 e-Commerce – Framework
• Elements of the framework:
– On the I- way messaging software moves the information from one
point to another in the form of e-mail, EDI, or point-to-point file
transfers.
– Encryption and decryption methods have been developed to ensure
security of the contents while traveling the I-way and at their
destination and numerous electronic payment schemes are being
developed to handle highly complex transactions with high reliability.
– In information traffic, public policy issues deal with the cost of
accessing information, regulation to protect consumers from fraud and
to protect their right to privacy and the policing of global information
traffic to detect information pirating
– Standards are crucial in the world of global e-commerce to ensure not
only seamless and harmonious integration across the transportation
network but access of information on any type of device the consumer
chooses and on all types of operating systems.
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 The Anatomy of e-Commerce Applications

• Multimedia Contents for e- Commerce Applications

– Multimedia is the use of digital data in more than one format, such as the
combination of text, video, audio, and graphics in a computer file/document.

images
text
audio
graphics
MULTIMEDIA
Numerical data video

hologram animation

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 The Anatomy of e-Commerce Applications
– Multimedia mimics the natural way people communicate.
Its purpose is to combine the interactivity of a user
friendly interface with multiple forms of content.
– The success of e-commerce application depends on the
variety and innovativeness of multimedia content and
packaging.
• Multimedia Storage servers and e-commerce applications:
– e-commerce requires robust severs to store and
distribute large amounts of digital content to consumers.
These servers must handle large scale distribution,
guarantee security and complete reliability.

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The Anatomy of e-Commerce Applications
– Client Server Architecture in E-Commerce:
• All e-commerce applications follow the client server model.
• The client server model allows the client to interact with the
server through a request reply sequence governed by a paradigm
known as message passing.
• The server manages applications tasks handles storage and
security and provides scalability – ability to add more clients as
needed for serving more customers – and client devices handle
the user interface.

PROCESSING REQUEST
APPLICATION LOGIC APPLICATION LOGIC

PRESENTATION LOGIC
MULTIMEDIA CONTENT
RESULT
MULTIMEDIA DESKTOP MULTIMEDIA SERVER

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The Anatomy of e-Commerce Applications
– Internal Processes of Multimedia Servers:
• Internal processes involved in the storage, retrieval and
management of multi media data objects are integral to e-
commerce applications. Most multimedia servers provide a core
set of functions to display, create, and manipulate multimedia
documents over computer networks and to store and retrieve
multimedia documents
– A multimedia server must do the following:
• Handle thousands of simultaneous users
• Manage the transactions of these users
• Deliver information streams to consumers at affordable costs.
– For these requirements platform choices include high-end symmetric
multiprocessors, clustered architecture and massive parallel systems.

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 The Anatomy of e-Commerce Applications
• Video Servers and Electronic Commerce:
– Video servers are an important link between the content providers
and transport providers.
– Video Servers are designed to deliver information to hundreds of
consumers simultaneously via public telecommunications and cable
networks
• Information Delivery/ Transport and e-commerce Applications
– Transport providers are principally telecommunications, cable, and
wireless industries, computer networks.
– Different route providers are
• Telecon based including long-distance and local telephone
service providers. It cannot handle live-transmissions and the
picture it produces is not as clear as that provided by a well
tuned cable hookup.

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The Anatomy of e-Commerce Applications

– Different route providers are

• Cable based : Depend on coaxial cable as transport
roads and will help determine which broadband
application and services the viewing public prefers.
• Computer network based: These providers are often
dial-up linkages of lower bandwidth when compared
to telecom and cable high ways.
• Wireless: Are typically radio based cellular, satellite
and light based.
• Currently about 65% of e-commerce applications are
delivered on-line via computers equipped with
modems.
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The Anatomy of e-Commerce Applications
– Consumer Access Devices:
• How the majority of users will access e-commerce applications is
heavily linked to the access device they opt to use.
• Number of devices can provide access to information: Video
phones, PCs capable of handling multimedia, personal digital
assistants, televisions capable of two-way transmission, cellular
phones, mobile and portable computers.

Information consumers Access Devices

Computers with audio and video Personal/Desk top computing mobile
capabilities computing
Consumer ElectronicsTelevision + Set- Television + Set-top box game
top box game systems systems
Personal digital assistants (PDAs), Pen Pen based computing
based computing Voice driven Voice driven computing, Software
computing, Software agents agents

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 Architectural Framework for Electronic
Commerce

• Electronic commerce application architecture consists of six layers of

functionality or services.
• Applications
• Brokerage services, data or transaction management
• Interface and support layers
• Secure messaging, security and electronic document
interchange
• Middleware and structured document interchange
• Network infrastructure and basic communication services
– These layers cooperate to provide a seamless transition between
today’s computing resources and those of tomorrow by
transparently integrating information access and exchange within
the context of the chosen application
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Architectural Framework for Electronic
Commerce
Application Services Customer –to-business
Business-to-business
Intra-organizational
Brokerage and data management Order Processing-mail-order houses
Payment schemes-electronic cash
Clearing house or virtual mail
Interface layer Interactive Catalogs
Directory Support functions
Software agents
Secure Messaging Secure hypertext transfer protocol
Encrypted e-mail, EDI
Remote Programming (RPC)
Middleware Services Structured documents (SGML,HTML)
Compound documents(OLE,OpenDoc)

Network Infrastructure Wireless – cellular, radio

Wireline –coaxial, fiber optic 19
 Architectural Framework for Electronic
Commerce

• Electronic Commerce Application Services

– Three distinct classes of electronic commerce applications
• Customer to business
• Business to Business
• Intra organization
• Consumer-to-Business Transaction
– This is called market place transaction. In a market place
transaction, customers learn about products differently
through electronic publishing, buy them differently using
electronic cash and secure payment systems and have them
delivered differently.

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Architectural Framework for Electronic Commerce

• Business-to-Business Transactions
– This is called market link transaction. Businesses,
government and other organizations depend on computer-
to-computer communication as a fast, an economical, and a
dependable way to conduct business transactions. Business-
to-Business transactions include the use of EDI and
electronic mail for purchasing goods and services, buying
information and consulting services, submitting requests
for proposals and receiving proposals.

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Architectural Framework for Electronic Commerce

• Intraorganizational Transactions:
– This is called market driven transactions.
– A company becomes market driven by dispersing throughout the firm
information about its customers and competitors; by spreading strategic
and tactical decision making so that all units can participate; and by
continuously monitoring their customer commitment by making
improved customer satisfaction an ongoing objective.
– Three major components of market driven transactions are
• customer orientation through product and service customization;
• cross-functional coordination through enterprise integration
• advertising, marketing and customer service.

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Architectural Framework for Electronic Commerce
Global Suppliers
Classical EDI

Procurement, distribution and logistics

Accounting,
Engineering Manufacturing and
Finance and
and research production
Internal management
Private
commerce publishing

Advertising sales customer service

Consumer Oriented
Electronic Commerce

customers
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Architectural Framework for Electronic Commerce

• Information Brokerage and Management:

– Information brokerage and management layer provides
service integration through the notion of information
brokerages, the development of which is necessitated by
the increasing information resource fragmentation.
– Information brokers are becoming necessary in dealing
with the voluminous amounts of information on the
networks. With the complexity associated with large
number of on-line databases and service bureaus, it is
impossible to expect humans to do searching. Information
broken or software agents that act on the searchers behalf.

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Architectural Framework for Electronic Commerce

• Information Brokerage and Management:

– Ex: In foreign exchange trading, information is
retrieved about the latest currency exchange
rates in order to hedge currency holdings to
minimize risk and maximizing profit.
– Brokerage function supports data management
and traditional transaction services. This is
accomplished by tools such as software agents,
distributed query generator, the distributed
transaction generator, and the declarative
resource constraint base – which describes a
business’s rule and environment information.
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Architectural Framework for Electronic Commerce

• Interface and Support Services

– This layer provides interfaces for electronic commerce
applications such as interactive catalogs and will support
directory services – functions necessary for information search
and access.
– Interactive catalogs are the customized interface to consumer
applications such as home shopping.
– Directories operate behind the scenes and attempt to organize the
enormous amount of information and transactions generated
facilitate electronic commerce.
– The primary difference between the two is that unlike interactive
catalogs, which deal with people, directory support services
interact directly with software applications.

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Architectural Framework for Electronic Commerce

• Secure Messaging and structured Document

Interchange Services
– Messaging is the software that sits between the
network infrastructure and the clients or
electronic commerce applications, masking the
peculiarities of the environment.
– Messaging services offer solutions for
communicating non-formatted data –letters,
memos, reports – as well as formatted data such
as purchase orders, shipping notices, and
invoices.
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Architectural Framework for Electronic Commerce

• Secure Messaging and structured Document Interchange

Services
– Unstructured messaging consists of Fax, e-mail, and form
based systems like Lotus Notes. Structured documents
messaging consists of the automated interchanging
standardized and approved messages between computer
applications. Ex: EDI
– Messaging supports both synchronous and asynchronous
message delivery and processing. It is not associated with
any particular communication protocol. With messaging
tools, people can communicate and work together more
effectively.

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Architectural Framework for Electronic Commerce

• Secure Messaging and structured Document

Interchange Services
– Due to lack of standards, there is often no
interoperability between different messaging
vendors leading to islands of messaging.
– Security, privacy and confidentiality through
data encryption and authentication techniques
are important issues that need to be resolved
for ensuring the legality of the message based
transactions.

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Architectural Framework for Electronic Commerce

• Middleware Services
– With the growth of networks, Client–Server technology,
and all other forms of communicating between / among
unlike platforms, the problems of getting all the pieces
to work together became a necessity.
– Middleware helps to mediate between diverse software
programs that enables them talk to one another. To
achieve data-centric computing, middleware services
focus on three elements; transparency, transaction
security and management and distributed object
management and services.
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Architectural Framework for Electronic Commerce

• Middleware Services
– With the growth of networks, Client–Server technology,
and all other forms of communicating between / among
unlike platforms, the problems of getting all the pieces to
work together became a necessity.
– Middleware helps to mediate between diverse software
programs that enables them talk to one another. To achieve
data-centric computing, middleware services focus on three
elements; transparency, transaction security and
management and distributed object management and
services.
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Architectural Framework for Electronic Commerce

• Middleware Services
• Transparency:
– Transparency implies that users should be unaware
that facilitates a distributed computing environment.
– Transparency is accomplished using middleware
that facilitates a distributed computing environment.
This gives users and applications transparent access
to data, computation, and other resources across
collections of multi vendor, heterogeneous systems.

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Architectural Framework for Electronic Commerce

• Middleware Services
• Transaction Security and Management
– Security and management are essential to all
layers in the electronic commerce model.
– At the transaction security level, two broad
general categories of security services exist;
authentication and authorization. For electronic
commerce, middleware provides the qualities
expected in a standard TP system: ACID
properties.

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Architectural Framework for Electronic Commerce

• Middleware Services
• Distributed Object Management and Services
– Object orientation is proving fundamental to the
proliferation of network based application.
– Instance of an object in electronic commerce is a
document. The term object is being used
interchangeably with document resulting in a new
form of computing called document oriented
computing. The trend is moving from single data
type documents to integrated documents known as
compound architectures

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 e-commerce consumer Applications

• Entertainment on-demand
– Video on-demand
– News on-demand
• Electronic Retailing via catalogs and kiosks
• Home shopping
• Interactive distance education
• Collaboration through desktop video conferencing
• Medical consultations

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 e-commerce Organization Applications
• Changing Business Environment
– The traditional business environment is changing rapidly as
customers and businesses seek the flexibility to change
trading partners, platforms, carriers, and networks at will.
The Information Superhighway allow business to exchange
information among constantly changing sets of customers,
suppliers, and research collaborators in government and
academia on a global basis. It will become a powerful
business tool that no organization can do without.
– Companies are restructuring. Lean and mean is the objective
of companies seeking increased market share to offset
decreasing profit margins and to gain competitive global
positioning through reduced operational costs
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e-commerce Organization Applications

Competitive Pressures from stakeholders

pressures for improved financial Pressure to reduce
performance Inventories and
Production costs

Demanding Changing Internal Global

Customer Structure and business Regulatory’
Practices of firms
requirements changes

Reduced product
Life cycles making new product Problems of keeping up
Development and with changing information
Introduction a priority and communication technology

Pressures influencing business

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 e-commerce Organization Applications
• Electronic Commerce and Retail Industry
– Consumers are pushing retailers to the wall, demanding
lower prices, better quality, a large selection of in-season
goods. Retailers are slashing back-office costs, reducing
profit margins, reducing in times, buying more wisely, and
making huge investments in technology. They are putting
the pressure on the manufacturing and supplier end of the
pipeline

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 e-commerce Organization Applications
• Marketing and Electronic commerce
– Electronic commerce is forcing companies to rethink the
existing ways of doing target marketing, relationship
marketing, and event marketing.
– Interactive marketing is accomplished in electronic markets
via interactive multimedia catalogs that give the same look
and feel as a shopping channel. Consumer information
services are a new type of catalog business.

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 e-commerce Organization Applications
• Inventory Management and Organizational Applications
– One often-targeted business process is inventory management. In the
manufacturing industry, they are known as just-in-time inventory
systems, in the retail industry as quick response programs, and in the
transportation industry as consignment tracking
– Just–in-time Manufacturing - Just-in-time is viewed as an
integrated management system consisting of a number of
different management practices dependent on the
characteristics of specific plants.
– The JIT is based on two principles:
» Elimination of waste
» Empowering workers

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 e-commerce Organization Applications
• Inventory Management and Organizational Applications
– The following management practices are typically associated with JIT
systems
• Focused factors
• Reduced set-up times
• Group technology
• Total productive maintenance
• Multifunction employees
• Uniform workloads
• JIT purchasing
• Total quality control
• Quality circles
• To achieve JIT savings, many large corporations have installed private
communication networks. The I-way makes this practice more affordable
and easily available to a number of small firms.

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 e-commerce Organization Applications
• Inventory Management and Organizational Applications
– Quick Response Retailing:
• Quick Response (QR) is a version of JIT purchasing
tailored for retailing.
• QR provides for a flexible response to product ordering
and lowers costly inventory levels.
• QR retailing focuses on market responsiveness while
maintaining low levels of stocks.
• Supply Chain Management
– Supply Chain Management includes the following
functions.
– Supplier Management: The goal is to produce the number
of suppliers and get them to become partners in a win-win
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relationship.
 e-commerce Organization Applications
• Supply Chain Management
• Inventory Management: The goal is to shorten the
order-ship-bill cycle.
• Distribution Management: The goal is to move
documents related to shipping. Paperwork that typically
took days to cycle in the past can now be sent in
moments and contain more accurate data, thus allowing
improved resource planning.
• Channel Management: The goal is to quickly
disseminate information about changing operational
conditions to trading partners. Electronically linking
production with their international distributor and
reseller networks eliminates thousands of labor hours
per week in the process.
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 e-commerce Organization Applications
• Supply Chain Management
– Payment Management: The goal is to link the company
and the suppliers and distributors so that payments can be
sent and received electronically.
– Financial Management: The goal is to enable global
companies to manage their money in various foreign
exchange accounts.
– Sales Force Productivity: The goal is to improve the
communication and flow of information among the sales,
customer, and production functions.
– Supply chain management process increasingly depends on
electronic markets.
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 e-commerce Organization Applications
• Work Group Collaboration Applications
– For work group applications, e-commerce represents the critical
component of connectivity. A ubiquitous inter-network that enables
easy and inexpensive connection of various organizational segments to
improve communications and information sharing among employees
and to gather and analyze competitive data in real time.
– E-commerce facilitates sales force automation by enabling sales people
to carry product and reference information in one portable device.
– Other application such as video conferencing document sharing, and
multimedia e-mail are expected to reduce travel and encourage
telecommuting.
– Have to meet the challenges of service quality, flexibility and
customization of production

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 Benefits of e-Commerce
• Basic Benefits of e-Commerce
• Increase sales - this is the first thing that people
consider when dealing with e-commerce
• Decreasing costs
• Increase profits
• Expands the size of the market from regional to national
or national to international
• Contract the market
• Reach a narrow market
• Target market segmentation allows you to focus on a
more select group of customers and therefore have a
competitive advantages in satisfying them

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 Benefits of e-Commerce
– Decreasing costs
• Costs of creating the product
– Marketing
– Of promotional material
– Costs of distribution
• e.g. Netscape allowing you to download instead of waiting to get
the CD by mail
– Costs of processing (orders from the customers)
• repeat activities and information processing
• of handling customer phone calls
• of handling sales inquiries
• determine product availability (inventory management)
– Costs of storing information
– Lowers telecommunication costs

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 Benefits of e-Commerce
• Provide price quotes
– With a web site, one can have the prices listed, and change
them
– In a printed catalogue one is stuck with the expense of
printing a new version if one need to change many of the
prices
• Other Benefits ....
– Enables customization of products
– Allows for innovative business models
– Allows for a high degree of specialization
– Reduces the time exposure
– Supports BPR
– Increases productivity
– Improves customer service

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 Benefits of e-Commerce
• A large component of business these days is dealing with other businesses
(B2B) that supply parts and components. Companies supplying services
often have that service broken down into sub-contracting services eg. - a
building maintenance contract can be subdivided into the following services
– Security service
• access control
• alarm response
– Landscaping service
• Summer - grass cutting
• Winter - snow removal
• Heating, ventilation and air conditioning service
• Electrician service
• Plumbing service
• Window washing service

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 Benefits of e-Commerce
• Benefits to organizations that use e-Commerce with their business partners -
manufacturers and service companies
– Minimizes Supply Chain inefficiencies
• reduces inventories
• reduces delivery delays
• enables efficient e-procurement
– Build 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 centers)
• procurement
• replenishment and
• information management.

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 Benefits of e-Commerce
• Benefits to consumers that use e-Commerce (e-Business)
– can buy when you want, from more locations (internet connected
terminals) more choices
– when you have more choices you can decide on a product with better
features at a more competitive price
o sometimes products are less expensive online
o can receive more information about the product, make a more
informed decision
– greater information leads to more confidence to make a purchase
decision
– more info also leads to enhanced customer satisfaction because the
customers has a better idea how to use the product
• Quicker delivery (for online products)
• 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
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 Benefits of e-Commerce

• Benefits to society
(when consumers and business use e-Commerce)
– Cocooning - more individuals can work offsite
– This decreases HR costs for companies because they can
have smaller office buildings, less parking spaces, fewer IT
services, etc.
– Less affluent people can buy more and increase standard of
living
– Facilitates delivery of public services
• Sending out bill payment info is a significant cost for
companies

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 Limitations of e-Commerce
• Not everyone is convinced the internet will be a major way to conduct business

• Technical Limitations
– costs of a technological solution
– some protocols are not standardized around the world
– reliability for certain processes
– insufficient telecommunications bandwidth
– software tools are not fixed but constantly evolving (ie. Netscape
3,4,4.7,4.75 etc.)
– integrating digital and non-digital sales and production information
– access limitations of dial-up, cable, ISDN, wireless
– some vendors require certain software to show features on their pages,
which is not common in the standard browser used by the majority
– Difficulty in integrating e-Commerce infrastructure with current
organizational IT systems

53
 Limitations of e-Commerce
• Non-Technical Limitations
• customer fear of personal information being used wrongly
– customer expectations unmet
– rules and regulations
– security and privacy
• vulnerability to fraud and other crimes
– lack of trust and user resistance
• fear of payment information being unsecured
• legal issues outstanding such as jurisdiction
• legal environment has many new and conflicting laws
• cultural obstacles
• linguistic challenges

54
 Limitations of e-Commerce
• Non-Technical Limitations
– limitations of support services
• financial cost
• sourcing tech support in foreign languages
– lack of critical mass in certain market areas for sellers and buyers
– accessibility outside of urban/suburban and areas effects universality
– people's resistance to change
– people not used to faceless / paperless / non-physical transactions

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 Impact of e-Commerce
• On the Efficiency of the economy
– Falling costs of Information and communication
technologies
– Impact on production costs
• Changing firm’s cost structure
– Cost of executing a sale
» physical establishment, order placement
/execution, customer support and after-sales
service , staffing
– Purchase orders / procurement
» Inventories , distribution

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 Impact of e-Commerce
• On the Efficiency of the economy
– Changing cost structure of the value added chain
• Disintermediation
– Reduction of distributors, retailers
– Displacement of intermediary products –Air Travel, Stock
trading
• Re-intermediation
– Advertising /branding , Secure on-line payments and delivery /
logistics
» Directories, Search Services, Malls, Publishers, Virtual
resellers, Web site evaluators, Financial Intermediaries,
– Impact on Prices
• Different pricing schemes

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 Impact of e-Commerce

• On the Firms Business Model, Sectoral Organization and Market Structure

– E-commerce is transforming the market place by changing firm’s business models, by
shaping the relations among market actors and by contributing to changes in the market
structure
– Cyber Traders play a catalytic role in forcing e-commerce solutions in sectoral and
national contexts
– Changes firm’s competitive advantages, nature of firm’s competition, as well as the
market on which firms compete
– Likely to increase market size and change market structure in terms of number and size
of players
– Flexibility and adaptability of the work force will be crucial for firm to reorganize
– Combination of streamlined business processes, flat organizational hierarchies,
continuous training and skills acquisition, inter-firm collaboration and networking

58
 Impact of e-Commerce

• Societal Impacts
– Access to digital economy
– Education and Training – Change in skill mix
– Pressure to perform quickly on individuals
– Change in work environments
– Creation of “Information haves and have nots”

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 e-commerce in India

• India is currently in the midst of an e-commerce revolution.

The arrival of the Internet followed by the escalating growth of
Web-based businesses is leading to e-commerce both on the
B2B and the B2C sides. The e-commerce trends in India are in
perfect accordance with the sweeping changes taking place in
the global markets. Even the IT friendly Government has taken
significant strides in the past few months to ensure that the
economic climate is ripe for e-business.
• India has the potential to earn revenues worth US$ 10 billion
by 2008 from e-business solutions. (Both the domestic and
export markets put together).

60
 e-commerce in India

• Supply Chain Management optimization and Customer Relation

Management are going to be one of the strongest drivers of the global e-
commerce solutions market. And more than 72 percent of Indian software
houses were found to possess strong expertise in Supply Chain
Management and CRM.
• Some of the areas of e-commerce services available are:
– Legacy application integration
– Internet application integration
– EDI
– Migration to Web-based models
– New IT frameworks
– Integration with business strategies
– E-commerce training services

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 e-commerce in India
• Nasscom has recommended a five-year moratorium on e-
commerce transactions and also suggested a comprehensive
study on the various issues involved, before a decision is taken
to tax e-commerce.
• Due to the global nature of e-commerce, it is suggested that
India should support a permanent ban on taxes on Internet
access, a permanent ban on custom duties on electronic
transmissions, international tax rules that are neutral, simple
and certain; and simplification of state and local sales taxes.

62
 e-commerce in India

• Issues
– Still to take full advantage of e-commerce
– Lack of computing power – less number of computers
– Access to internet
– Less usage of credit cards
– Lack of adequate Communication Infrastructure

63
 Prospects
• Business-To-Consumer
– A number of markets are sprouting in the business-to-consumer
category. Such markets include shopping malls, single-vendor retail
stores and electronic software delivery.
– It has been estimated that the world-wide e-Commerce market will
exceed $46 billion in consumer transactions and 15% of all WWW
users have used it to purchase a product or service online
– It is estimated that 75% of WWW sites are sponsored by advertising,
while only 25% are supported by customers. With more than 50 million
users world-wide, the Internet has become a attractive market for
advertisers.
• Business-To-Business
– According to recent projections by industry analysts, Business-to-
Business E-Commerce may exceed $176 billion in business
transactions

64
UNIT- II

65
• Consumer Oriented Electronic Commerce
• Mercantile Process Models

66
 Consumer-oriented Electronic Commerce

• Consumer-Oriented Services:
Consumer Life-style needs Complementary Multimedia
Services
Entertainment Movies on demand, video
cataloging, interactive ads,
multiuser games, on-line
discussions
Financial Services and information Home banking, financial services,
financial news
Essential Services Home shopping, electronic
catalogs, telemedicine, remote
diagnostics
Education and training Interactive education,
multiuser games, video
conferencing, on-line
databases
67
 Consumer-oriented Electronic Commerce

• Consumer-Oriented Services:
– Consumer applications can be classified into entertainment, financial
services, information, essential services, and education and training.
– Four types of application areas can be envisaged.
– Personal Finance Management (Remote Banking)
• Home banking services are often categorized as basic, intermediate, and
advanced.
– Basic Services relate to:
» Account statement reporting
» Round the clock banking with automated teller machines
(ATM)
» Funds Transfer

68
 Consumer-oriented Electronic Commerce

• Consumer-Oriented Applications:
• Basic Services relate to:
– Bill Payment
– Account reconciliation
– Status of Payments or “stop payment requests”
• Banks introduced ATMs in the 1970s to automate deposits and cash
extraction. As the ATM network expanded, customer loyalty
became a thing of the past as customers began to look at technology
and service as the differentiation, not the individual bank’s name.
• The ATM network can be thought of as analogous to the Internet,
with banks and their associations being the routers and the ATM
machines being the heterogeneous computers on the network.
Today the ATM interface is an integral part of a bank’s
communications and market strategy.

69
 Consumer Oriented e-commerce

ATM Bank switching

center
Association
switching
center Inter
Bank switching association
ATM center switching
center

Association
Bank switching switching
ATM center center

Structure of ATM network

70
 Consumer-oriented Electronic Commerce

• Intermediate Services
– Include a growing array of home financial management services like
• Household budgeting
• Updating stock portfolio values
• Tax return preparation
– For the sophisticated customer, home banking offers the facility of paying bills,
transferring funds, and opening new accounts from home. As the equipment
becomes less and less expensive and as banks offer a broader array of services,
home banking could develop into a comprehensive package that include such
non bank activities as insurance, entertainment, travel and business news.

71
 Consumer-oriented Electronic Commerce

• Advanced Services
– There is a growing push in the banking and brokerage community to develop
systems that support advanced services. They require extra-ordinary integration
of computer systems at the branch, central office, and partners’ levels. The
companies offering these services have to provide incentives such as low fees
to customers to use the service.
Third party
On-line services
Shopping (Purchasing traveler’s
checks, air line tickets)
Services
Bill Payment
Interbank
Consumer Clearing house
with
Real-time
computer Financial
at home information
BANK Server
Investment vehicles
(stocks, bonds ,
mutual funds)

72
 Consumer-oriented Electronic Commerce

• Home Shopping
– Home shopping can be categorized as
• Television based Shopping:
– TV shopping has evolved over the years to provide a wide
variety of goods ranging from collectibles, clothing, small
electronics, house wares, jewelry and computers.
– A customer uses remote control to shop different channels
with the touch of a button. To target customers, channels
are often specialized like fashion channel, style channel,
spot light channel etc.

73
 Consumer-oriented Electronic Commerce
• Home Shopping
• Catalog Based Shopping
– Using a computer connected to the internet, an enquiry can be
made to search various vendor catalogs which are available on
line.
– The on-line catalog business consists of brochures, CD-ROM
catalogs and on-line interactive catalogs. Most on-line catalogs
are some form of electronic brochures.
– An extension of the electronic brochure concept is a multi
product comprehensive on-line catalog system typically put in
kiosks. Some kiosk catalogs also incorporate order taking
through an in-store electronic data interchange (EDI).

74
 Consumer-oriented Electronic Commerce
• Home Shopping
– Home Entertainment
• In the entire home entertainment area, the key element is the notion
of customer control over programming. Entertainment services are
expected to play a major role in e-commerce. Entertainment market
is potentially a multibillion dollar one.
• To serve the information needs of the customer, service provides
whose product is information delivered over the I-way are creating
an entirely new industry.
• One significant change in traditional business forced by the on-line
information business is the creation of a new transaction category
called small fee transactions for micro-services.

75
 Mercantile Process Models
• Mercantile processes define interaction models between consumers and
merchants for on-line commerce. A common way of doing business over
the I-way will be essential to the future growth of e-commerce.
Establishment of a common mercantile process is expected to increase
convenience for consumers who won’t have to figure out a new business
process for every single vendor.
• Prepurchase, purchase consummation and post-purchase interaction
– Prepurchase preparation phase includes research and discovery for a set
of products in the larger information space capable of meeting customer
requirements and product selection from the smaller set of products
based on attribute comparison.
– The purchase consummation phase includes mercantile protocols that
specify the flow of information and documents associated with
purchasing and negotiation with merchants for suitable terms.
– The post purchase interaction phase includes customer service and
support to address customer complaints, product returns and product
defects.
76
 Mercantile Process Models
Product / Service search
and discovery in the
information space
Prepurchase determination
Comparison shopping and
product selection based
on various attributes

Negotiation of terms e.g.,

price, delivery times

Placement of order

Purchase Consummation
Authorization of payment

Receipt of product

Customer service and support Post purchase interaction

(if not satisfied in X rays,
return product
Mercantile model from the consumer’s perspective 77
 Mercantile Process Models
• Repurchase preparation
• In general consumers can be categorized as
– Impulsive buyers, who purchase products quickly
– Patient Buyers, who purchase products after making some
comparisons
– Analytical buyers, who do substantial research before making
the decision to purchase products or services.
• In most retailing sectors, impulse/unplanned purchasing is a major factor.

78
 Mercantile Process Models
• Prepurchase preparation
– Marketing researchers have isolated several types of purchasing.
• Specially planned Purchase: The need was recognized on entering
the store and shopper bought the exact item planned.
• Generally Planned Purchase: The need was recognized, but the
shopper decided in store on the actual manufacturer of the item to
satisfy the need.
• Reminder Purchases: The shopper was reminded of the need by
some store influence.
• Entirely Unplanned Purchases: The need was not recognized till
entering the store

79
 Mercantile Process Models
• Prepurchase preparation
– Consumer Information Search Process
• Information search is defined as the degree of care, perception and effort
directed toward obtaining data or information related to the decision
problem. In the context of e-commerce, information search can be
classified into two categories – Organizational and consumer search.
– Organizational Search Process:
• Organization search can be viewed as a process through which an
organization adapts to such changes in its external environment as new
suppliers, new products, and new services.
• The organizational search process is determined in part by market
characteristics and by certain aspects of a firm’s present buying situation.
• The rate of information change in the market place imposes additional
demands on a firm’s search process.

80
 Mercantile Process Models
• Prepurchase preparation
• Information Brokers and Brokerages
– To facilitate better consumer and organizational search, intermediaries
called information brokers or brokerages are coming into existence.
– Information brokerages are needed for three reasons – compassion
shopping, reduced search costs and integration. Information formerly
found at more or less the same high prices on all the on-line database
search services can sometimes be found at other service bureaus at
minute fractions of those charges.

81
 Mercantile Process Models
• Purchase Consummation
A mercantile transaction is defined as the exchange of
information between the buyer and seller followed by the
necessary payment.
A Simple mercantile model would require the following
transactions.
1. Buyer contacts vendor to purchase product or service. This
dialogue might be interactive on-line-through world wide web
(WWW), e-mail, off-line through an electronic catalog and
telephone.
2. Vendor states price.
3. Buyer and vendor may or may not engage in negotiation
4. If satisfied, buyer authorizes payment to the vendor with an
encrypted transaction containing a digital signature for the agreed
price.
82
 Mercantile Process Models
• Purchase Consummation
5. Vendor contacts his or her billing service to verify the encrypted
authorization for authentication.
6. Billing service decrypts authorization and checks buyer’s account
balance or credit and puts a hold on the amount of transfer.
7. Billing service gives the vendor the “green light” to deliver product and
sends a standardized message giving details of transaction for merchants
records.
8. On notification of adequate funds to cover financial transaction, vendor
delivers the goods to buyer or in the case of information purchase
provides a crypto key to unlock the file.
9. On receiving the goods, the buyer signs and delivers receipt. Vendor
then tells billing service to complete the transaction.
10. At the end of the billing cycle, buyer receives list of transactions. Buyer
can either deny certain transactions or complain about over billing.

83
Mercantile Process Models

(1) (2)
Customer Payment
Merchant
with need Institution
(4) (3)
(5)

1. Buy Request
2. Remittance Request
3. Approval
4. Delivery
5. Monthly Statement
On-line Mercantile Model 84
 Mercantile Process Models
• Mercantile Process Using Digital Cash
Electronic cash is similar to paper currency and has the benefits of being
anonymous and easily transmitted electronically. The following is a generic
mercantile protocol based on the use of e-cash.
1. Buyer obtains anonymous e-cash from issuing bank.
2. Buyer contacts seller to purchase product
3. Seller states price.
4. Buyer sends e-cash to seller
5. Seller contacts his bank or billing service to verify the validity of the e-cash.
6. Bank gives okay signal to seller after ensuing that the e-cash hasn’t been
duplicated or spent as other products.
7. Seller delivers the product to buyer
8. Seller then tells the bank to mark the e-cash as “used” currency.

85
 Mercantile Process Models
• Mercantile Transaction Using Credit Cards
– Two major components comprise credit card transactions in the
mercantile process - Electronic authorization and settlement.
– In retail transaction, a Third Party Processor (TPP) captures
information at the point of the sale, transmits the information to the
credit card issuer for authorization, communicates a response to the
merchant, and electronically stores the information for settlement
and reporting.
– Steps involved in a retail transaction:
• A customer presents a credit card for payment at a retail location.
The point of sale device scans the information on the card’s
magnetic stripe.
• The point-of-sale software directs the transaction to the local
network access point.

86
 Mercantile Process Models
• Mercantile Transaction Using Credit Cards

– Steps involved in a retail transaction:

• Once in the network, the system verifies the source of the
transaction and routes it to the appropriate authorization source,
where the cardholder’s account record is reviewed. An
authorization code is then sent back through the network for
display on the point-of-sale device.
• Periodically the retail location initiates a “close-out” transaction
that bundles completed transaction information into a “batch”.
• The system gathers all completed batches and processes the data
in preparation for settlement.

87
 Mercantile Process Models
• Mercantile Transaction Using Credit Cards
– Steps involved in a retail transaction:
• The pricing of electronic transaction services provided by TPP to
merchant clients takes one of two forms.
– In the first form, merchants are charged a flat fee per
transaction for authorization and data capture services.
– The other form of billing allows merchants to pay a
“bundled” price for authorization, data capture and settlement
• Postpurchase Interaction:
– As long as there is payment for services, there will be refunds,
disputes, and other customer service issues that need to be
considered.
– Returns and claims are an important part of the purchasing process
that impact administrative costs, scrap and transportation expenses
and customer relations.
88
 Mercantile Process Models
• Other challenges that may arise are:
– Inventory Issues: If the item is in stock, a company must be able to
assign that piece to the customer and remove it form available
inventory. Otherwise the disappointed customer tries to find
alternative products.
– Data Base and compatibility Issues: User can be able to access
instantly the information from the vendor computers
– Customer service issue: Customer’s questions should be resolved on
on-line basis for a better service.

89
 Mercantile Process Models
• Mercantile Models - Merchant’s Perspective
– To fully realize and maintain a competitive advantage in the on-line
environment, a company must build a robust vision of what its order-
to-delivery cycle, and all the business processes that support it.
– The order management cycle (OMC) includes eight distinct
activities. OMC has the following generic steps.
• Order Planning and Order Generation:
– Order planning leads to order generation. Orders are
generated in a number of ways in the e-commerce
environment. The sales force broadcasts ads, sends
personalized e-mail to customers or creates a WWW page..

90
 Mercantile Process Models
• Mercantile Models - Merchant’s Perspective
• Cost Estimation and Pricing:
– Pricing is the bridge between customer needs and company
capabilities. Pricing at the individual order level depends on
understanding the value to the customer that is generated by
each order, evaluating the cost of filling each order instituting
a system that enables the company to price each order based
on its value and cost.
• Order receipt and Entry:
– After an acceptable price quote, the customer enters the order
receipt and entry phase of OMC.

91
 Mercantile Process Models
• Mercantile Models - Merchant’s Perspective
• Order Selection and Prioritization:
– Customer service representatives are also often responsible
for choosing which orders to accept and which to decline.
There is little recognition of the importance that should be
placed on order selection and prioritization in e-commerce.
• Order Scheduling:
– During the ordering scheduling phase the prioritized orders
get slotted into an actual production or operational sequence.
• Order Fulfillment and Delivery:
– During the order fulfillment and delivery phase the actual
provision of the product or service is made. Often, order
fulfillment involves multiple functions and locations.

92
 Mercantile Process Models
• Mercantile Models - Merchant’s Perspective
• Order Billing and Account/Payment Management:
– After the order has been fulfilled and delivered billing is
typically handled by the finance staff.
• Postsales Service:
– This phase plays an increasingly important role in all
elements of a company’s profit equation: Customer value,
price and cost.

93
 Mercantile Process Models
Customer inquiry and
order planning generation
Presales interaction
Cost estimation and pricing
of product services

Order receipt
and entry

Order selection and

prioritization

Order scheduling
Product service
Production and delivery
Order fulfillment and
delivery

Order billing and account /

payment management
Post sales interaction
Customer service
and support
Order Management Cycle in e-commerce 94
UNIT- III

95
 Electronic Payment Systems
• Electronic payment systems and e-commerce are intricately linked given
that on-line consumers must pay for products and services.
• An important aspect of e-commerce is prompt and secure payment,
clearing, and settlement of credit or debit claims. On-line sellers face a
problem of paying for goods and services. What currency will serve as the
medium of exchange in this new market place.
• Payment and settlement is a potential bottleneck in the fast-moving
electronic commerce environment if one depends on conventional payment
methods such as cash, checks, bank drafts, or bills of exchange.
• New methods of payment are needed to meet the emerging demands of e-
commerce. These neo-payment instruments must be secure, have a low-
processing cost, and be accepted widely as global currency tender.

96
 Electronic Payment Systems

• Electronic payment systems are getting used in banking, retail,

health care, on-line markets and even government. The
emerging electronic payment technology was labeled as
Electronic Fund Transfer (EFT). EFT is defined as “any
transfer of funds initiated through an electronic terminal,
telephonic instrument, or computer or magnetic tape so as to
order, instruct, or authorize a financial institution to debit or
credit an account”. EFT utilizes computer and
telecommunication components both to supply and to transfer
money or financial assets.

97
 Electronic Payment Systems

• Work on EFT can be segmented into three broad categories:

• Banking and Financial Systems:
– Large scale or wholesale payments

– (Ex: Bank – to- Bank Transfer)

– Small scale or retail payments (Ex: ATM and Cash
dispensers)
– Home banking (Ex: Bill Payment)
• Retailing Payments:
– Credit Cards (Ex: VISA/Master Cards)
– Private label Credit/debit cards (Ex: JcPenny Card)
– Charge Cards (Ex: American Express)

98
 Electronic Payment Systems
• Work on EFT can be segmented into three broad categories:
• On-line electronic Commerce Payments
– Token based payment systems
– Electronic Cash(Ex: Digicash)
– Electronic Cheques ((Ex: Netcheque)
– Smartcards or debit cards
– Credit Card based payment systems
» Encrypted Credit Cards
» Third party authorization numbers
• Digital token-based electronic payment systems
• Non of the banking or retailing payment methods are completely adequate
in their present form for the consumer-oriented e-commerce environment.
Their deficiency is their assumption that the parties will at some time or
other be in each other’s physical presence or that there will be a sufficient
delay in the payment process for frauds, overdrafts, and other undesirables
to be identified and corrected

99
 Electronic Payment Systems
• Digital token-based electronic payment systems
– These assumptions may not hold for e-commerce and so many of these
payment mechanisms are being modified and adapted for the conduct
of business over networks. New forms of financial instruments are
being developed like “electronic tokens” in the form of electronic cash /
money or cheques. Electronic tokens are designed as electronic analogs
of various forms of payment backed by a bank or financial institution.
Electronic tokens are equivalent to cash that is backed by a bank
– Electronic Tokens are of three types:
• Cash or Real time: Transactions are settled with the exchange of
electronic currency.
• Debit or prepaid Card: Users pay in advance for the privilege of
getting information.
• Credit or postpaid: The server authenticates the customers and
verifies with the bank that funds are adequate before purchase

100
 Electronic Payment Systems

• Dimensions that are used for analyzing the different initiatives:

• The nature of the transaction for which the instrument is
designed. The parties involved, the average amounts, and the
purchase interaction are to be identified
• The means of settlement used – tokens must be backed cash,
credit, electronic bill payments etc.
• Approach to security, anonymity and authentication –
encryption can help with authentication and asset management
• The question of risk – who assumes what kind of risk at what
time? Risk arises if the transaction has long lag times between
product delivery and payments to merchants.

101
 Electronic Payment Systems
• Electronic Cash:
• Electronic Cash combines computerized convenience with security and
privacy that improve on paper cash. E-cash focuses on replacing cash as
the principal payment vehicle in consumer oriented electronic payments.
– Properties of Electronic Cash:
• E-cash must have the following four properties:
– Monetary value – E-cash must be backed by either cash, bank
authorized credit or a bank certified cashier’s check.
– Interoperability – E-cash must be exchangeable as payment for other
e-cash, paper cash, goods or services, lines of credit, deposits in
banking accounts, bank notes or obligations, electronic benefits,
transfers and the like.

102
 Electronic Payment Systems
– Properties of Electronic Cash:
• E-cash must have the following four properties:
– Retreivability – E-cash must be storable and retrievable. Remote
storage and retrieval would allow users to exchange e-cash from
home or office or while travelling.
– Security – E-cash should not be easy to copy or transfer with while
being exchanged; this includes preventing or detecting duplication
and double spending.
– Purchasing e-cash from currency servers:
• Electronic cash is based on cryptographic systems called “ digital
signatures” which involves a pair of numeric keys that work in tandem:
one for locking (encoding) and the other for unlocking ( decoding).
Messages encoded with one numeric key can only be decoded with the
other numeric key.

103
 Electronic Payment Systems

– Purchasing e-cash from currency servers:

• The purchase of e- cash from an on-line currency server involves two
steps.
– Establishment of an account and
– Maintaining enough money in the account to back the purchase.
• All customers must have an account with a central on-line bank
• Consumers use the e-cash software on the computer to generate a random
number, which serves as the “note”. In exchange for money debited from
the customer’s account, the bank uses its private key to digitally sign the
note for the amount requested and transmits the note back to the customer.
• Electronic cash can be completely anonymous. Anonymity allows
freedom of usage. When the e-cash software generates a note; it masks the
original number or “blinds” the note using a random number and transmits
it to a bank. The “blinding” carried out by the customer’s software makes it
impossible for anyone to link payment to payer.

104
 Electronic Payment Systems

– Purchasing e-cash from currency servers:

• Using the Digital Currency: Once the tokens are purchased; the e-cash
software on the customer’s PC stores digital money undersigned by a bank.
The user can spend the digital money at any shop accepting e-cash, without
having to open an account.
– Two types of transactions are possible:
• Bilateral -Typically transactions involving cash are bilateral or two party
transactions where by the merchant checks the veracity of the note’s digital
signatures by using the bank’s public key.
• Trilateral Transactions involving financial instruments other than cash are
usually trilateral or three party transactions, where by the “notes” are sent
to the merchant, who immediately sends them directly to the digital bank.
The bank verifies the validity of these “notes” and that they have not been
spent before.

105
 Electronic Payment Systems

• Drawback of e-cash is its inability to be easily divided into smaller amounts.

Customers are issued a single number called an “open check” that contains multiple
denomination values sufficient for transactions up to a pre-described limit. At
payment time, the e-cash software on the client’s computer would create a note of
the transaction value from the “open check”.
• Business Issues and Electronic Cash:
– Electronic cash fulfils two main functions: as a medium of exchange and as a
store of value.
– Controversial aspects of e-cash are those that relate to the store of value. If e-
cash had to be convertible into legal tender on demand, then for every unit
there would have to be a unit of cash reserved in the real economy. This creates
problems, because in an efficient system, if each e-cash unit represents a unit of
real cash, then positive balances of e-cash will earn no interest.

106
 Electronic Payment Systems

• Business Issues and Electronic Cash:

– Currency fluctuations in international finance pose another problem.
Unless, we have one central bank offering one type of electronic currency,
it is very difficult to see e-cash being very prominent except in narrow
application domains.
– If e-cash started to bypass regulated foreign exchange markets by
developing its own grey market for settlement, then governments might be
provoked into trying to clamp down on it.
– Because of these obstacles, e-cash in its early forms may be denominated
in single currencies and exchanged at conventional market rates.

107
 Electronic Payment Systems

• Operational Risk and Electronic Cash:

– Operational risk associated with e-cash can be mitigated by imposing
constraints such as limits on:
• The time over which a given electronic money is valid
• How much can be stored on and transferred by electronic money
• Number of exchanges that can take place before a money needs to be
redeposited with a bank or financial institution
• The number of such transactions that can be made during a given
period of time.
• Exchanges could also be restricted to a class of services or goods.
– The objective of imposing constraints is to limit the issuer’s liability. A well
designed system could enforce a policy involving both transactions size and
value with time. Exchanges could also be restricted to a class of services or
goods.

108
 Electronic Payment Systems

• Legal Issues and Electronic Cash:

• Transaction based taxes account for a significant portion of state and local
government’s revenue. If e-cash really is made to function the way paper
money does, payments could be made in this new forms of currency
because there would be no problems of bulk and no risk of robbery. The
threat to the government’s revenue flow is a very real one, and officials in
government are starting to take cognizance of this development and to
prepare their responses.
• Any thing that makes cash substantially easier to use in a broader range of
transactions holds the potential to expand the underground economy to
proportions posing even more serious threats to the existing legal order.

109
 Electronic Payment Systems

• Electronic Checks:
• Electronic checks are another form of electronic tokens. They are designed
to accommodate the many individuals and entities that might prefer to pay
on credit or through some mechanism other than cash.
• Buyers must register with a third party account server before they are able
to write electronic checks. The accounts server also acts as a billing
service. Once registered a buyer can then contact sellers of goods and
services. To complete a transaction, the buyers send a check to the seller
for a certain amount of money. When deposited, the check authorizes the
transfer of account balances from the account against which the check was
drawn to the account to which the check was deposited.
• On receiving the check, the seller presents it to the accounting server for
verification and payment. The accounting server verifies the digital
signature on the check using the authentication scheme.

110
 Electronic Payment Systems

• Electronic Checks:

• Electronic Checks have the following advantages:

– They work in the same way as traditional checks, thus simplifying
customer education.
– Electronic checks are well suited for clearing micro payments.
– Electronic checks create float and the availability of float is an
important requirement for commerce.
– Financial risk is assumed by the accounting server and may result in
easier acceptance.

111
 Electronic Payment Systems

• Electronic Checks:

Transfer electronic check

Payer Payee

Forward check for payer

authentication
Deposit check
Bank

Accounting Sever
Payment transaction sequence in an electronic check system
112
 Smart card payment Systems

• Smart Cards and Electronic Payment Systems:

• Smart Cards are credit and debit cards and other card products enhanced with
microprocessors capable of holding more informant than the traditional
magnetic stripe.
• Smart card technology is widely used in countries such as France, Germany,
Japan and Singapore to pay public phone calls, transportation and shopper
loyalty programs.
• Smart cards are basically of two types:
• Relationship based smart credit cards
• Electronic purses also known as debit cards.
• Relationship based Smart Cards:
• A relationship-based smart card is an enhancement of existing card services
and/or the addition of new services that a financial institutions delivers to its
customers via a chip based card or other devices.

113
 Smart card payment Systems

– Relationship-based products offer the following:

• Access to multiple accounts, such as debit, credit, investments or stored
value for e-cash, on one card or an electronic device.
• A variety of functions, such as cash access, bill payment, balance inquiry
or funds transfer for selected accounts.
• Multiple access options at multiple locations using multiple device types
such as ATMs, personal computer, Personal Digital Assistant (PDA).
• Electronic Purses and Debit Cards:
– “Electronic Purses” are wallet sized smart cards embedded with programmable
microchips that store sums of money for people to use instead of cash. After the
purse is loaded with money it can be used to pay for in a vending machine
equipped with a card reader.
– When the balance on an electronic purse is depleted, the purse can be recharged
with more money.
– For merchants, smart cards are a very convenient alternative to handling cash.

114
 Smart card payment Systems

• Smart-card readers and smart phones

– Benefits of smart cards will rely on the availability of devices called smart card
readers that can communicate with the chip on a smart card. In addition to
reading from and writing to smart cards, these devices can also support a
variety of key management methods.
– Card readers in the form of screen phones are becoming more prominent. The
phone prompts users through transactions using menus patterned after those
found on automated teller machines
– Smart card readers can be customized for specific environments
• Business issues and smart cards
– For merchants smart cards are a very convenient alternative to handling cash
– Security of smart cards and their ability to authenticate themselves will make
them useful for payments related to electronic commerce services

115
 Credit card payment systems

• Credit Card based Electronic Payment Systems:

– To avoid the complexity associated with digital cash and electronic checks,
consumers and vendors are looking at credit card payments on the Internet as
one possible time-based alternative. If consumers want to purchase a product
or service, they simply send their credit card details to the service provider
involved and the credit card organization will handle this payment like any
other
– Credit Card Payment on on-line networks can be categorized as
• Payments using plain credit card details: The easiest method of payment is
the exchange of unencrypted credit cards over a public network such as
telephone lines or the Internet.The low level of security inherent in the
design of the Internet makes the method problematic. Authentication is
also a significant problem.

116
 Credit card payment systems

– Credit Card based Electronic Payment Systems:

• Payments using encrypted credit card details: Though encryption of credit
card makes sense the cost would prohibit low-value payments by adding
costs to the transaction.
• Payments using third party verification: One solution to security and
verification problems in the introduction of a third party. A company that
collects and approves payments from one client to another.
• Encryption and Credit Cards: To make a credit card transaction truly secure and
non-refutable, the following sequence of steps must occur before actual goods,
services or funds flow:
– A customer presents his or her credit card information securely to the merchant.
– The merchant validates the customer’s identity as the owner of the credit card
account.
– The merchant relays the credit card charge information and signature to its
bank or on-line credit card processors.

117
 Credit card payment systems

– The bank or processing party relays the information to the customer’s

bank for authorization approval.
– The customer’s bank returns the credit card data charge authentication
and authorization
Customer to the merchant.
Merchant’s Server
Send encrypted
Credit card number
Send information

Check for credit card

Monthly
OK Authenticity and
Purchase sufficient funds
statement
Verify

Authorize

Customer’s bank On-line credit card processors

Processing payments using encrypted credit cards

118
 Credit card payment systems

• Third-party processors and credit cards

• In third party processing, consumers register with a third party on the Internet to
verify electronic microtransaction. On-line third party (OTTP) have created a
process that they believe will be a fast and efficient way to buy information on-
line
• The consumer acquires an OTTP account number by filling out a
registration form.
• To purchase an article on-line, the consumer requests the item form the
merchant by quoting the OTTP account number
• The merchant contacts the OTTP payment server with the customer’s
account number
• The OTTP payment server verifies the customer’s account number for
the vendor and checks for sufficient funds
• The OTTP payment server sends an electronic message to the buyer.

119
 Credit card payment systems

• Third-party processors and credit cards

– If the OTTP payment server gets a Yes from the customer, the merchant is
informed and the customer is allowed to get the material
– The OTTP will not debit the buyer’s account until it receives confirmation of
purchase completion
• Pros and Cons of Credit Card based payment:
– Credit cards have advantages over checks in that the credit card company assumes a
larger share of financial risk for both buyer and seller in a transaction.
– Record keeping with credit cards is one of the features consumers value most because
of disputes and mistakes in billing
– Disadvantage to credit cards is that their transaction are not anonymous, and credit
card companies do in fact compile valuable data about spending habits.
– The complexity of credit and processing takes place in the verification, a potential
bottleneck.
– Encryption and transaction speed must be balanced. On-line credit card users must
find the process to be acceptable simple and fast.

120
 Risk in Electronic Payment system

• Risk and Electronic Payment Systems:

• Operation of the payment systems incurs three major risks.
» Fraud or mistake
» Privacy Issues
» Credit Risk
• Risks from Mistake and Disputes:
– All electronic payments systems need some ability to keep automatic records.
Features of these automatic records include
» Permanent storage
» Accessibility and traceability
» A payment system database
» Data transfer to payment maker, bank or monetary authorities
• Anonymity is an issue that will have to be addressed through regulation covering
consumer protection in electronic transactions.

121
 Risk in Electronic Payment system

• Managing Information Privacy:

– The electronic payment system must ensure and maintain privacy. Privacy must
be maintained against eavesdroppers on the network and against unauthorized
insiders. For many types of transactions, trusted third party agents will be
needed to vouch for the authenticity and good faith of the involved parties.
• Managing Credit Risk: Credit or systemic risk is a major concern in net settlement
systems because a bank’s failure to settle its net position could lead to a chain
reaction of bank failures.
• A digital central bank guarantee on settlement removes the insolvency test from the
system because banks will move readily assume credit risks from other banks.
Without such guarantees the development of clearing and settlement systems and
money markets may be impeded

122
 Design of Electronic Payment system

• Designing Electronic Payment Systems: The following factors must be addressed

before any new payment method can be successful.
– Privacy: A user expects to trust in a secure system
– Security: A secure system verifies the identity of two party transactions through
“user Authentication” and reserves flexibility to restrict information/services
through access control.
– Initiative Interface: The payment interface must be an easy to use as a
telephone.
– Database Integration: Banks should integrate all databases together and to
allow customers access to any of them while keeping the data up-to-data and
error free.
– Brokers: A “network banker” must be in place.
– Pricing: Pricing should be affordable by the consumer and it must be
recognized that without subsidies it is difficult to price all services affordably.
– Standards: Without standards, the welding of different payment users into
different networks and different systems is impossible.

123
UNIT- IV

124
 Electronic Data Interchange (EDI)

• EDI developed as a means of accelerating the movement of documents

pertaining to shipments and transportation. Its use is growing and it is set to
become the standard by which organizations will communicate formally
with each other in the world of electronic commerce
• EDI is a structured document interchange which enables data in the form of
document content to be exchanged between software applications that are
working together to process a business transaction
• EDI techniques are aimed at improving the interchange of information
between trading partners, suppliers, and customers by bringing down the
boundaries that restrict how they interact and do business with each other.
• EDI is aimed at forging boundaryless relationships

125
 Electronic Data Interchange (EDI)

• Definition
– Electronic data interchange is the transmission, in a standard syntax, of
unambiguous information of business or strategic significance between
computers of independent organizations
– Electronic data interchange is the interchange of standard formatted
data between computer application systems of trading partners with
minimal manual intervention
– EDI is the electronic transfer, from computer to computer, of
commercial and administrative data using an agreed standard to
structure an EDI message
– EDI is the electronic transfer from one computer to another of
computer processable data using an agreed standard to structure the
data

126
 EDI Architecture
• EDI architecture specifies four layers: Semantic layer, the standards
translation layer, the transport layer, and the physical network
infrastructure layer
EDI Semantic Layer Application level services
EDI Standard Layer EDIFACT business form Standards
ANSI X12 business form standards
EDI transport layer Electronic Mail -X.435, MIME
(Multipurpose Internet Mail
Extensions)
Point to Point -FTP, TELNET
World Wide Web – HTTP
Physical Layer Dial Up Lines, Internet , I-Way
Layered Architecture of EDI

127
 EDI Architecture
• EDI architecture layers:
– The semantic ( or application layer) describes the business application
that is driving EDI. For a procurement application, this translates into
requests for quotes, price quotes, purchase orders, acknowledgements
and invoices. This layer is specific to a company and the software it
uses
– The information seen at the EDI semantic layer must be translated from
a company-specific form to a more generic or universal form so that it
can be sent to various trading partners, who could be using a variety of
software applications at their end. Two standards are generally followed
- X12 standard developed by American National Standards Institute
(ANSI) and EDIFACT, developed by United Nations Economic
Commission

128
 EDI Architecture
• EDI architecture layers:
– The packing ( or transport) layer corresponds with the non-electronic
activity of sending a business form from one company A to company B.
EDI documents are exchanged using e-mail programs and network
infrastructure. EDI documents are more structured than e-mail and
typically are processed by the sending and receiving software
– The Physical infrastructure layer consisting of Dial-up lines, Internet
etc enable for the transmission of the message

129
 EDI Architecture

Buyer Seller
Purchase request Finance
Initiated in the department Purchase
organization Department

Payment

Purchase Paper based Paper-based Sales

Department mailroom mailroom department
Order
entry Order
confirmation

Receiving Shipping Manufacturing

Inventory and
department department department
warehousing
Product Delivery

Information flow without EDI

130
 EDI Architecture

• Information flow without EDI

– When the buyer sends a purchase order to a seller, the relevant data must be extracted
from the internal database and recorded on hard copy. This hard copy is then forwarded
to the seller after passing through several intermediate steps
– Sellers receive information in the form of letters and in some cases a vast number of
facsimiles
– This information is manually entered into the internal information systems of the
recipient by data entry operators. This process generates a considerable amount of
overhead in labor costs and time delays. The reproduction of information also increase
the risk of errors caused by incorrect data entries
– This practice of converting digital data into hard copy data that is reconverted into
electronic information again on the receiving end generates unnecessary costs.

131
 EDI Architecture

Buyer
Purchase request Finance
Seller
Initiated in the department Purchase
organization Department

Payment Billing
details Purchase order
delivery Details

Purchase EDI capable EDI capable Sales

Department computer computer department
Order
entry
Automated
Order confirmation

Receiving Shipping Manufacturing

Inventory and
department department department
warehousing
Product Delivery

Information flow with EDI

132
 EDI Architecture

• Information flow with EDI

– Buyer’s computer sends Purchase Order to seller’s computer
– Seller’s computer sends Purchase order confirmation to buyer’s computer
– Seller’s computer sends Booking Request to transport company’s computer
– Transport company’s computer sends Booking Confirmation to seller’s computer
– Seller’s computer sends Advance Ship Notice to buyer’s computer
– Transport company’s computer sends Status to seller’s computer
– Buyer’s computer sends Receipt Advice to seller’s computer
– Seller’s computer sends Invoice to buyer’s computer
– Buyer’s computer sends Payment to seller’s computer
• All the interactions occur through EDI forms and in most cases are generated
automatically by the computer

133
 Tangible Benefits of EDI

• Tangible Benefits of EDI

– EDI can be at cost-and time saving system. The automatic transfer of

information from computer to computer reduces the need to rekey information
and as such costly errors to near zero.
– Reduced paper-based systems – EDI can impact the effort and expense a
company devotes to maintaining records, paper-related supplies, filing
cabinets, or other storage systems and to the personnel required to maintain all
of these systems
– Improved problem resolution and customer service.- EDI can minimize the
time companies spend to identify and resolve inter-business problems
– Expanded customer / supplier base – Many large manufacturers and retailers
with the necessary clout are ordering their suppliers to institute an EDI program

134
 EDI Applications in Business

• International Trade
– Benefits for international trade are
• Reduced transaction expenditures
• Quicker movement of imported and exported goods
• Improved customer service through “track and trace” programs which locate the
things or being handled
• Faster customer clearance and reduced opportunities for corruption

• Financial EDI
• Comprises the electronic transmission of payments and remittance information
between a payer, payee and their respective banks
– Types of Financial EDI
• Bank Cheques
• Interbank Electronic Funds Transfer (EFT) which are credit transfers between banks where
funds flow directly from the payer’s bank to the payee’s bank

135
 EDI Applications in Business
– Automated clearing (ACH) transfers which provides for
– Fast transmission of information about their financial balances
throughout the world
– The movement of money internationally at rapid speed for settlement
of debit/credit balances
– Examples
» BankWire a network owned by banks in over 200 American
cities
» FedWire funds transfer system in US
» CHIPS ( Clearing House Interbank Payments System) processes
90 percent of all international dollar transfers made
» SWIFT ( Society for Worldwide Interbank Financial
Telecommunications) which is a leader in providing standard
EDI formats for funds –transfer instructions and administrative
messages

136
 EDI Applications in Business
Goods or services bought

Company X Bank Y Company Y

Bank X
(Payer) (Payee)

Transfer of
Funds
Clearing House
Payment and remittance information flowing together

Remittance Information Remittance Information

Value added
Network

Company X Bank Y Company Y

Bank X (Payee)
(Payer)
Payment
Payment Transfer of Settlement
notice
authorization Funds
Payment and remittance information flowing separately
137
 EDI Applications in Business

• Health care and Insurance EDI

– Medical providers, patients, and payers increasingly process claims via
electronic networks. Electronic claim processing reduces the
administrative costs of health care. EDI enables doctors to communicate
with other physicians, laboratories, hospitals, and other health care
settings leading to better managed care
• Manufacturing/Retail procurement Using EDI
– In manufacturing, EDI is used to support just-in-time
• Companies using JIT and EDI no longer stock thousands of large
parts in advance of their use. Instead they calculate how many parts
are needed each day based on the production schedule and
electronically transmit orders and schedules to suppliers every day.
Parts are delivered to the plant “just in time” for production activity

138
 EDI Applications in Business

• Manufacturing/Retail procurement Using EDI

– In retailing EDI is used to support quick response
• Retailers are redefining practices through the entire supply chain using
quick response systems. For the customers, QR means better service and
availability of a wider range of products.
• Business Information, Product design and procurement
– The development of global sourcing has been closely intertwined with the rapid
evolution of business information. Business information is defined in the broad
sense as all information required by enterprises for the efficient planning,
execution, and monitoring of product manufacturing and marketing. This
includes not only raw data, but also product data for design and engineering.

139
 EDI standards

• Two major EDI standards exist – ANSI X.12 and EDIFACT

– ANSI X.12 committee develops standards to facilitate EDI relating to such business
transactions as order placement and processing for products and services. The
transaction sets generally map a traditional paper document to an electronic format that
can move easily over a telecommunication network e.g. Form 838 Vendor Registration,
840 Request for quotation, 843 Response to request for quotation, 850 Purchase Order
etc.
– EDIFACT was based on TRADECOMS developed by the UK Department of Customs and
Excise. It is becoming widely accepted as the EDI standard
• Structure of EDI transaction
– Transaction Set which is equivalent to a business document such as a purchase order.
Each transaction set is made up of data segments
– Data segments are logical groups of data elements that together convey information,
such as invoice terms, shipping information, or purchase order line
– Data elements are individual fields, such as purchase order number , quantify on order,
unit price

140
 EDI Implementation

• Basic kit necessary for EDI implementation includes

– Common EDI standards which specify transaction sets – complete sets of business
documents ( invoice, purchase order, remittance advice etc)
– Translation Software sends messages between trading partners, integrates data into and
from existing computer applications, and translates among EDI standards
– Trading partners are a firm’s customers and suppliers with whom business is conducted
– Banks facilitate payment and remittance
– EDI value-added network services (VAN) which manages data communications networks
for businesses that exchange electronic data with other businesses
– Proprietary hardware and networking – very large companies very active in EDI, that
facilitate their business partners’ use of EDI.

141
 EDI Implementation
• EDI Software Implementation
– EDI software has four layers – business application, internal format conversion,
EDI translator, and EDI envelope for document messaging
– EDI Business Application Layer
• The first step in the EDI process creates a document in a software
application. The software application then sends the document to an EDI
translator, which automatically reformats the document into the agreed-on
EDI standard. The translator creates and wraps the document in an
electronic envelope “EDI package” that has a mailbox ID for the
company’s trading partner. The EDI wrapper software can be a module to
the translator, a programming tool to write to different communications
protocols, or a separate application.

EDI translator software The translator

Wraps the document
Enter the information Changes the EDI
in an electronic
In the EDI form specified Form to fit the EDI
Envelope “EDI package”
for that particular Standard that the target
that has an ID for the trading
Business transaction application
partner
Can understand

142
 EDI Implementation
• EDI Software Implementation
– EDI Translator Layer
• Translators describe the relationship between the data elements in the
business application and the EDI standards
• The translator ensures that the data are converted into a format that the
trading partner can use.
– EDI Communication Layer
• The communication part dials the phone number for the value-added
network service provider or other type of access method being used.
• On the receiving end, the trading partner’s modem call the network and
retrieves the information
– Implementation Cost
• Expected volume of electronic documents
• Economics of the EDI translation software
• Implementation time

143
 Value Added Networks
• Value-Added Networks (VANs)
– A VAN is a communications network that typically exchanges EDI
messages among trading partners. It also provides other services,
including holding messages in “electronic mailboxes”, interfacing with
other VANs, and supporting many telecommunications modes and
transfer protocols.
Third-Party Value Transport
Added Network company
Company (VAN)

Translate Perform
Incoming Companies
documents checking

Route to
Format
Mailbox
Translation
ID
Financial Manufacturing
Institution

Functions of a third-party VAN 144

 EDI standards
• Value-Added Networks (VANs)
– Company A puts an EDI message for trading partner manufacturing company B
in the VAN mailbox at a date and time of its choosing. The VAN picks up the
message from the mailbox and delivers it to trading partner B’s mailbox, where
it will remain until trading partner B logs on and picks it up. Trading partner B
responds to trading partner A in the same fashion. The cycle repeats itself on a
weekly, daily, or perhaps even hourly basis as needed. This service is generally
referred to as mail-enabled EDI.
– Disadvantage of EDI-enabling VANs is that they are slow and high-priced,
charging by the number of characters transmitted
– VAN Pricing Structure
• VAN services entail three types of costs:
– Account Start-up costs
– VAN Usage costs
– VAN interconnect costs

145
 EDI standards
• Internet based EDI
– Factors that make the Internet useful for EDI
• Flat-pricing – It is not dependent on the amount of information transferred.
It is better for the customer as opposed to the standard VAN approach of
charges per character
• Cheap access with the low cost of connection
• Common mail standards and proven networking and interoperable systems
• Security – public-key encryption techniques are being incorporated in
various electronic mail systems
• Electronic commerce services on the Internet differ from value added network
offerings. They are based on established technologies and applications available
from independent vendors, where as more traditional services are based on
proprietary software and front ends.
• The Internet can be used directly for exchanging EDI messages without going
through a VAN.

146
 EDI standards
• EDI Gateways
– EDI gateways are being built that act as communication hubs between
different sections of the same organization or with outside trading
partners
– Common Gateway facilities are
• EDI message construction and translation
• Translation between application software package standards and some
agreed-on in-house standard
• Translation between the in-house standard and the various EDI
document formats
• Queue management for both inbound and outbound documents
• Compliance checking of arriving messages to ensure correctness
• Session management and directory services maintenance
• Full delivery audit facilities
• Security and management features
• Call-logging facilities designed to enable operation of a service desk
• The creation of trading partner relationships and the establishement
of trading partner profiles 147
 Legal, Security and Privacy Issues

• Messaging systems combine features of instantaneous and delayed

communications. A message’s delay is a function of the specific application,
message routing, network(s) traversed, system configuration, and other technical
factors typically unknown to the user.
• In case of EDI the courts haven’t decided who is liable if an EDI network fails to
transmit a document or transmits a document to the wrong party. There is no legal
precedence in this area
• Digital Signatures and EDI
– Cryptographic community is exploring various technical users of digital
signatures by which messages might be time-stamped or digitally notarized to
establish dates and times at which a recipient might claim to have had access or
even read a particular message. `

148
 Advantages of EDI

• Improvement in overall quality – By better record keeping, fewer errors in data,

reduction in processing time, less reliance on human interpretation of data,
minimized unproductive time
• Inventory reduction – it permits faster and more accurate filling of orders, helps
reduce inventory, assists in JIT inventory management
• Provides better information for management decision making. It provides accurate
information and audit trails for transactions, enabling business to identify areas
offering the greatest potential for efficiency improvement or cost reduction
• Saves time and manpower by avoiding the need to re-key data
• Eliminates the errors introduced by reentry
• Data arrives much faster than it could be by mail, and there is an automatic
acknowledgement
• Imposes a fairly strict discipline on its users

149
 Limitations of EDI

• High Costs – Applications cost high to develop and operate. New entrants find this
more difficult to have EDI
• Limited accessibility – It does not allow consumers to communicate or transact
with vendors in an easy way. A subscriber must subscribe to an online service called
VAN
• Rigid requirements – Needs highly structured protocols, previously established
• EDI applications automate only certain portion of the transactions
• Applications are narrow in scope

150
 Disadvantages of EDI
• Since EDI is a structured way of working, companies usually change
operating procedures
• Responsibility may have changed during the introduction of EDI system.
Unless this system and the links with other systems are managed well, it is
not possible for the data processing department to become involved in
production and purchasing decisions
• Less transparent than paper based systems
• Certain EDI systems are highly in-flexible, others are very simple to
implement
• Users have developed systems to take advantage of the FAX machine
which may avoid portal delays. Acknowledgement could be received
through FAX
• Security of the operation is questionable. Are there standards for the type of
operation we envisage, what happens when telephone lines or computers
fail? How can the backup systems work?

151
UNIT- 5

152
 Intra-organizational Electronic Commerce

• Electronic commerce cannot be fully utilized if it addresses customer-organization

interorganizational, or disconnected internal automation activities. For companies
to be fully effective, these three activities must be integrated and the corresponding
software applications developed together.
• Public commerce built on foundation of World Wide Web and other technologies
over which firms, suppliers, and consumers engage in on-line transactions. The
technologies and methods associated with electronic commerce are used
extensively within firms, like enterprise integration, process control system,
business process reengineering, and work-flow management
• Internal commerce uses methods and technologies for supporting internal business
processes between individuals, departments, and collaborating organizations
• Private commerce is related to market orientation toward creating superior value for
customers.

153
 Intra-organizational Electronic Commerce
• Business has to consistently deliver superior value to its customers
through better coordination and work-flow management, product and
service customization and supply chain management
• Work-flow management concerns with methods to optimize work flows
by pruning unneeded operational steps and moving much of their
internal paper handling onto computer networks.
• Product or service customization focuses on two issues: time-to-market
and flexible operations. Time-to-market depends largely on gathering
the specific consumer preferences and using these preferences to
custom design products or services. Flexible operations depend largely
on implementation details or working practices that make time-to-
market a reality.
• Supply chain is the network of suppliers and customers within which
any business operates. Supply chain management is important as it is
impossible for companies to compete at the business or industrial level
as isolated entities.
154
 Work-flow automation and coordination
• A workflow provides the movement of a business process and its associated
tasks among workers and the operations required to process relevant
information as it moves from initiation to completion.
• Work-flows are decomposed into steps or tasks, which are then ordered to
determine which should be done first, second, and so on. A simple
workflows typically involve one or two tasks. A complex work flow may
involve several other work flows, some of may execute simultaneously
• Organizational integration is complex and typically involve
– Improving existing processes by utilizing technology where appropriate
– Integrating across the business functions after identifying the
information needs for each process
– Integrating business functions, application program interfaces, and
databases across departments and groups.

155
 Work-flow automation and coordination
• Work-flow coordination
– Companies have developed horizontal structures around small
multifunctional teams that can move more quickly and easily than
businesses that use the traditional function-by-function, sequential
approach
• Work-flow-related technology
– Work-flow software electronically supports real-world collaborative
activity. Work can be routed in ways that correspond to interoffice
communications, in sequential routes, alternative routes, routes with
feedback loops, circular routes, and more. Work-flow package lets
users specify acceptance criteria for moving work from one stage to the
next. Work-flow brings the information to the people who can act on it.
It can coordinate existing software and track processes to make sure the
work gets done by the right people

156
 Supply Chain Management (SCM)
• Supply chain management is an integrating process based on the flawless
delivery of basic and customized services.
• SCM optimizes information and product flows from the receipt of the
order, to purchase of raw materials, to delivery and consumption of finished
goods.
• SCM plays an important role in the management of processes that cut
across functional and departmental boundaries
• SCM is important in retailing because it helps manage the demand and
supply functions.
• Supply Chain management has the following characters
– An ability to source raw material or finished goods from anywhere in
the world
– A centralized, global business and management strategy with flawless
local execution
– On-line real-time distributed information processing to the desktop,
providing total supply chain management visibility
157
 Supply Chain Management (SCM)
• Supply Chain management has the following characters
– The ability to manage information not only within a company but
across industries and enterprises
– The seamless integration of all supply chain processes and
measurements, including third-party suppliers, information systems,
cost accounting standards, and measurement system
– The development and implementation of accounting models such as
activity-based costing that link cost to performance are used as tools for
cost reduction
– A reconfiguration of the supply chain organization into high-
performance teams going from the shop floor to senior management

158
 Push-based vs pull based SCM
• Consumer Purchase Merchandise
Manufacturer Retail Store
Financial/ Market driven forecast POS data collection
Master Scheduling Perpetual inventory tracked UPC
Replenishment based on distribution Level
Center inventory Automatic replenishment using
EDI services

Retail distribution center Retail Distribution center

Order point based on warehouse
Inventory and historical forecasts Automatic replenishment
Deals, promotions, and forward buying Shipping container marking
Manual purchase order processing Cross-dock receiving
EDI services

Retail Stores
Manufacturer
Demand driven forecast based on POS data and
Order point based on shelf and forecasts
productMovement
Promotions
Manual entry of itemsto be recorded Micromarket-driven
Short cycle manufacturing
Advanced shipping notice and EDI Services
Barcode scanners and UPC ticketing
Consumers Purchase Merchandise 159
 Supply Chain Management (SCM)
• The model contain three primary elements
– Integrated Logistics and distribution
• Deals with the integration of materials management and
physical distribution. Logistics applies to the
coordination and handling of all aspects of the
movement of raw materials, components, semifinished
goods, and finished goods. When products are
manufactured, the logistics function is involved in
getting them to the customer. Components of logistics
will include handling the movement of raw materials
and goods for resale, warehousing, customs brokerage,
and distribution to a final destination

160
 Supply Chain Management (SCM)
• The model contain three primary elements
– Integrated marketing and distribution
• Deals with integrating customer directly and react to
changes in demand by modifying the supply chain.
Marketing must define the way a company does
business. Technology is changing firms’ marketing edge
in the areas of manufacturing and logistics planning, in
management analysis of new markets, in identifying
and targeting customers, in promotion of the allied areas
of direct marketing and telemarketing and in postsales
through on-line customer service. This is achieved by
efficient customer response systems

161
 Supply Chain Management (SCM)
– Efficient Customer Response ( ECR )
• ECR is expected to reduce costs by reforming the retail
industry’s buying habits and moving toward continuous
product replenishment to get inventory into the stores
faster. ECR uses the data-architecture developed to
make transaction-level data from point-of-sale systems
useful and legible to front-office buyers, logistics
personnel, and senior managers. Effective inventory
management – having just the right amount of the right
merchandise on the shelves for just the right amount of
time – minimizes overstocking and boosts profitability
• Buyers and inventory analysts can look on-line and see
how sales of products peak and trough over a season or
how they vary across regions or stores
162
 Supply Chain Management (SCM)
– Efficient Customer Response ( ECR )
• Better in-house systems enable managers and buyers to
do things like analyzing the performance of standard
and trend items in stores, spot on a daily basis,
upswings and downturns in the performance of trend
merchandise, and replenish or authorize markdowns for
trend items as necessary
• Detailed analysis of item performance, what-if scenario
evaluation, and exception reporting and handling

163
 Supply Chain Management (SCM)
– Agile Manufacturing
• Agile manufacturing calls for flexibility and quick
response to changing market conditions, customer
demands, and competitor actions.
• Agility implies breaking out the mass-production mold
and producing highly customized products – when and
where the customer wants them.
• Agility includes such concepts as rapid formation of
multicompany alliances to introduce new products to
the market

164
 Supply Chain Management (SCM)
– Agile Manufacturing
• Agility requires
– Customers electronically transmitting their
requirements to remote locations capable of quickly
manufacturing and distributing these products
– Companies rapidly form alliances to produce new
products, employing advanced manufacturing
concepts
– Small and medium-sized companies advertise their
manufacturing capabilities over computer networks
and efficiently bid on projects required by other
companies

165
 Supply Chain Management (SCM)
– Agile Manufacturing
• Agility requires
– “Software system brokers” connect users who need
temporary access to sophisticated manufacturing
tools
– Manufactures and suppliers use “ intelligent”
procurement systems to facilitate and speed parts
procurement, billing and payment transactions,
reducing costs, improving accuracy, and meeting
customer demands in a timely manner

166
 Supply Chain Management (SCM)
– Agile Manufacturing
• Agile manufacturing enterprise aim to achieve
– Greater product customization or manufacturing to
order, would come at relatively low unit cost
– Rapid introduction of new or modified products
– Interactive customer relationships transform the
physical production into a platform for providing an
evolving set of value-adding services
– Dynamic reconfiguration of production processes
would accommodate swift changes in product
designs or entire new product lines

167
 Desktop Video Conferencing
Multicast Router
Tunnels

Receiving
Items

Logical Group
Mbone
Island

MBONE configuration
168