MBUS626-AIE
E-Commerce &
Supply Chain Systems
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business
Gonzaga University
Spokane, WA 99258 USA
chen@jepson.gonzaga.edu
Dr. Chen, Management Information Systems
1
Study Questions
•
•
•
•
•
How do companies use e-commerce?
What technology is needed for e-commerce?
Why is Web 2.0 important to business?
What is a Supply Chain (Network)?
How can information systems enhance supply chain
performance?
• How can information systems support supplier relationship
management?
• How do organizations exchange data?
• How can organizations connect computer programs?
Dr. Chen, Management Information Systems
2
Internet Society –
Each Media Reach to 50 Million
•
•
•
•
Radio 38 years,
Television 13 years,
Cable TV 10 years,
Internet users only took
– 5 years to reach this goal.
Dr. Chen, Management Information Systems
3
BUSINESS VALUE & FOCUS –
IS Perspective
IS/E-BUSINESS
•SCM
•CRM
•BPR
•ERP
Customer
centric
Who are the customers?
Where are the customers?
Their purchasing habits
Dr. Chen, Management Information Systems
Demands
Products/
Services
Value
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
4
Leveraging Internet to Help
Expand
Markets
Fundamental
Business
Drivers Have
Not Changed
Retain
Customers
Dr. Chen, Management Information Systems
Improve
Efficiencies
5
eBusiness Key Concepts
• eBusiness
– The overall strategy of how to automate old business
models with the aid of technology to maximize
customer value and profits.
• eCommerce
– The process of buying and selling products and services
over digital media
• eCRM (eCustomer Relationship Management)
– The process of building, sustaining, and improving
eBusiness relationships with existing and potential
customers through digital media
Dr. Chen, Management Information Systems
6
E-BUSINESS MODELS
• E-business model – an approach to conducting
electronic business on the Internet
Consumer
Consumer
Dr. Chen, Management Information Systems
7
How do companies use e-commerce?
• E-commerce occurs whenever goods and services are bought and
sold over public and private computer networks.
• Merchant companies take title to the goods they sell.
• Nonmerchant companies arrange for the purchase and sale of goods
without owning or taking title to those goods.
• The chart below lists the types of merchant and nonmerchant
companies.
Dr. Chen, Management Information Systems
Fig 8-1 E-Commerce Categories
8
How do companies use e-commerce?



B2C transactions occur between a supplier and retail customer.
The supplier generally uses a Web storefront.
B2B transactions occur between companies.
B2G transactions occur between companies and governmental
organizations.
Fig 8-2 Example of Use of B2B, B2G, and B2C
Dr. Chen, Management Information Systems
9
How do companies use e-commerce?
• There are three types of nonmerchant e-commerce
companies:
– Auctions match buyers and sellers using the e-commerce version
of standard auction where the auction company receives a
commission on each product that’s sold. eBay.com is the bestknown example (or C2C)
– A clearinghouse provides goods at a stated price, arranges for
delivery but never takes title to the goods. The company receives
a commission on each product that’s sold. Amazon.com is the
best-known example.
– Electronic exchanges are a type of clearinghouse that’s similar to
a stock exchange. Whenever the company matches up buyers and
sellers and a transaction occurs, the exchange takes a commission.
Priceline.com is the best-known example (C2B)
Dr. Chen, Management Information Systems
10
Market Efficiencies

E-Commerce improves market efficiencies in a variety of
ways, as this figure shows. Customers benefit from the first
two, disintermediation and increased price information.
Businesses benefit from increasing their knowledge of price
elasticity.
Dr. Chen, Management Information Systems
Fig 8-4 E-Commerce Market Efficiencies
11
Disintermediation
Disintermediation
Supplier
Intermediary
Customer
Why go through a middleman?
Dr. Chen, Management Information Systems
12
Example of Channel Compression (Disintermediation)
Adapted from Kalakota and Robinson, E-Business 2.0, 2001
Dr. Chen, Management Information Systems
13
Economic Factors
• Businesses need to consider the economic factors that
may disfavor their participation in e-commerce such as
these:
– Channel conflicts that occur when a manufacturer competes with
its traditional retail outlets by selling directly to the consumer.
– Price conflicts that may occur by a manufacturer selling directly
to consumers and undercutting retailers’ prices.
– Logistics expenses increase when a manufacturer must process
thousands of small-quantity orders rather than a few large-quantity
orders (e.g., transactions on B2C)
– Customer-service expenses increase when a manufacturer must
begin dealing directly with customers rather than relying on
retailers’ direct relationships with customers.
Dr. Chen, Management Information Systems
14
What technology is needed for e-commerce?
• E-commerce technology uses a three-tier architecture.
Each tier relates to a particular class of computers.
– The user tier uses personal computers and browser
software that requests and processes Web pages. Web page
documents are coded in HTML and are transmitted using
HTTP protocols.
– The server tier uses Web server computers and processes
application programs that help manage HTTP traffic
between Web servers and users.
• A commerce server, part of the server tier, is an application
program that receives requests from users via a Web server
– The database tier uses computers that run a DBMS to
process SQL requests for retrieving and storing data.
Dr. Chen, Management Information Systems
15
The Three-tier architecture
user tier
server tier
database tier
commerce server
Dr. Chen, Management Information Systems
16

This figure shows how the three-tier architecture operates.
Fig 8-5 Three-Tier Architecture
Dr. Chen, Management Information Systems
17
What is Web 2.0?
• Is Web 2.0 a “Technology Evolution” or
“Business Evolution”?
•
•
•
•
•
•
•
•
Web 2.0 (5:19)
http://www.youtube.com/watch?v=nsa5ZTRJQ5w&feature=related
Web 2.0 ... The Machine is Us/ing Us (4:32)
http://www.youtube.com/watch?v=6gmP4nk0EOE&feature=channel
Eric Schmidt, Web 2.0 vs. Web 3.0 (1:51)
http://www.youtube.com/watch?v=T0QJmmdw3b0&feature=related
Dr. Chen, Management Information Systems
18
What is Web 2.0?
• "Web 2.0" refers to the second generation of web
development and web design.
– Web 2.0 is the business revolution (rather than technology
revolution) in the computer industry caused by the move to the
Internet as a platform, and an attempt to understand the rules
for success on that new platform.
– It is characterized as facilitating communication, information
sharing, interoperability, user-centered design and
collaboration on the World Wide Web. It has led to the
development and evolution of web-based communities, hosted
services, and web applications.
– Examples include social-networking sites, video-sharing sites,
wikis, blogs, mashups and folksonomies.
– (? Marketing, see next slide)
Dr. Chen, Management Information Systems
Source: http://en.wikipedia.org/wiki/Web_2.0
19
Why is Web 2.0 important to business?

Web 2.0 is a loose cloud of capabilities, technologies, business
models, and philosophies that sets e-commerce apart from
traditional software processing. This chart compares the two.
SaaS
Dr. Chen, Management Information Systems
Fig 8-8 Comparison of Web 2.0 with Traditional Processing
20
Affiliate Marketing
• Affiliate marketing can be simply defined
as
– A commission based arrangement where
referring sites (affiliates or publishers) receive a
commission on sales or leads by merchants
(retailers)
– Affiliate marketing has provided so popular
since it offers great benefits for both the
affiliate and the merchant
Dr. Chen, Management Information Systems
21
Affiliate Marketing
Figure Affiliate payment and tracking mechanism
Commission Fee
Visit
Visitor
PC
Click
Affiliate
site
Sets time-limited cookie
Checks present on purchase
Dr. Chen, Management Information Systems
Re-direct
Tracking
Software
Merchant
site
Purchase
22
Affiliate Marketing:
Benefits for the Merchant
• ‘zero risk advertising’
– The advertiser does not pay until the product has
been purchased or a lead generated
• expand the merchant’s reach to a wider
audience easily
• Every visitor is a potential revenue source
Dr. Chen, Management Information Systems
23
Viral Marketing
Word-of-Mouth Communications
A recent large-scale study from college students
revealed that the influence of WMC ( 44 % ), is twice
as influential in new-product purchases than either
PRICE ( 22 %) or ADVERTISING( 22 %)
Dr. Chen, Management Information Systems
24
Business Model vs.
Revenue Model
• Business model is the architectural
configuration of the components of
transactions designed to exploit business
opportunities.
• Revenue model refers to “the specific
ways in which a business model enables
revenue generation.”
N
Dr. Chen, Management Information Systems
25
Business vs. Revenue Model
Business Model
Value creation
It describes the way in
which a company
enables transactions
that create value for all
participants, including
partners, suppliers and
customers.
Dr. Chen, Management Information Systems
Revenue Model
Value appropriation
It can be realized through a
combination of
- subscription fees,
- advertising fees,
- transactional income (e.g.,
fixed transactional fees, referral
fees, fixed/variable
commissions, etc)
26
Wal-Mart
• What is the “core/type of company “ of the
Wal-Mart?
– Grocery
– Manufacturing
– or ??
Dr. Chen, Management Information Systems
27
Q4 - What is a Supply Chain (network)?
Flows and Competition
• SCP and SCE in the supply chain
PE O PLE
Material Flows
Dr. Chen, Management Information Systems
FLOWS
Product/Service Flows
28
What is a Supply Chain (network)?
• A supply chain is a network of organizations that are
involved, through upstream and downstream
linkages, in the different processes and activities that
produce value in the form of products and services
delivered to the ultimate consumer.
• A supply chain has three flows:
– Information,
– Goods/materials, and
– Payment
• Today’s supply chain is a complex web of suppliers,
assemblers, logistic firms, sales/marketing channels,
and other business partners linked primarily through
information networks and contractual relationships.
Dr. Chen, Management Information Systems
29
What is a Supply Chain (network)?
Fig 8-10 Supply Chain Relationships
Dr. Chen, Management Information Systems
30
What is a Supply Chain (Network)?
Fig 8-11 Supply Chain Example – Ski Equipment Retailer.
Dr. Chen, Management Information Systems
31
What is Supply Chain Management
(SCM)?
• SCM is the process of managing
relationships, information, and materials
flow across enterprise borders to deliver
enhanced customer service and economic
value through synchronized management of
the flow of physical goods and associated
information from sourcing to consumption
Dr. Chen, Management Information Systems
32
Drivers of Supply Chain Performance
Which one we are most concerned?
Dr. Chen, Management Information Systems
33
Four factors drive a company’s
supply chain performance
• a. Facilities:
– the closer the better ?
• b. Inventory:
– the more quantities in the inventory the better ?
• c. Transportation:
– should Wal-Mart have its own logistics fleet ?
• d. Information: our most concern
Dr. Chen, Management Information Systems
34
How can Information Systems Enhance
Supply Chain Performance?
 Information influences supply chain performance three ways:
 Purpose: Is the purpose of the information transactional or informational?
 Availability: Will they have access to the information they need when
they need it?
 Means: What means or methods will organizations use to transmit
information with others that need it? (EDI or XML)
 Supply chain profitability is determined by calculating the
difference between revenue generated by a supply chain and the
costs that all organizations in the supply chain incur to obtain that
revenue.
 The maximum profit to a supply chain will not occur if each
organization in a supply chain maximizes its own profits in
isolation from the other participants in the supply chain.
Dr. Chen, Management Information Systems
35
An Example of With and Without EDI
&
Dr. Chen, Management Information Systems
36
TM -36
How do organizations exchange data?
• Electronic Data Interchange (EDI) has been used as a way to
standardize document formats for common business
transactions.
• “EDI over Internet” improves the flow of documents but other
technologies are even better.
• The eXtensible Markup Language (XML) promises to
improve upon EDI and the use of HTML on Web pages.
– Problems with using HTML to exchange data:
• Tags used to format data don’t have consistent meanings between
businesses.
• HTML only offers a fixed number of tags.
• The HTML language mixes the format, content, and structure of a
Web page without allowing data to be defined between businesses.
Dr. Chen, Management Information Systems
37
How do organizations exchange data?
• The eXtensible Markup Language (XML) was developed by
World Wide Web Consortium (W3C) committee to help solve
some of the problems associated with using HTML for B2B ecommerce.
• Characteristics of XML:
– XML requires placing the content, structure, and format
of a Web page into documents separate from the actual
data on the page.
– A new means of delivering/displaying information
Dr. Chen, Management Information Systems
38
How can Information Systems Enhance
Supply Chain Performance?
 The bullwhip effect: the variability in size and timing of
orders increases at each stage up the chain.
 Customer demand is rarely perfectly stable, businesses must forecast
demand in order to properly position inventory and other resources.
 To meet the demand, the retailer keeps a safety quantity, which might
be a little bit more than it expects to sell.
 When the inventory drops down to a level, called the reorder quantity,
the retailer orders the product from the distributor.
 The distributor follows the same process to order from a manufacturer,
which in turn follows the same process and orders from a supplier.
 Distributors, manufacturers, and suppliers must carry larger
inventories than should be necessary to meet real demand
because of the large fluctuations in orders.
Dr. Chen, Management Information Systems
39
The Bullwhip Effect
Source: http://en.wikipedia.org/wiki/Bullwhip_effect#Consequences
Dr. Chen, Management Information Systems
40
Bullwhip Effect
• How to minimize/eliminate the
bullwhip effect?
Dr. Chen, Management Information Systems
41
How can Information Systems Enhance
Supply Chain Performance?
 One way to eliminate the bullwhip effect is to increase the
visibility of the supply chain: The ability to view all areas
up and down the supply chain
 Each organization in the supply chain plans its inventory or
manufacturing based on the true demand (the demand from
the only party that introduces money into the system) and
not on the observed demand from the next organization up
the supply chain.
 That is, to give all supply chain participants the consumer
demand information directly from retailers through interorganizational information systems (e.g., Wal-Mart SCM
work with its suppliers and other business partners)
Dr. Chen, Management Information Systems
42
How can information systems support supplier
relationship management?
• Three information systems are involved in supply chain
management: supplier relationship management, or SRM, (a
business process for managing all contacts between
organization and its suppliers), inventory, and customer
relationship management (CRM).
Dr. Chen, Management Information Systems
Fig 8-14 B2B in One Section of the Supply Chain
43
How can information systems support supplier
relationship management?



The supplier’s CRM interfaces with the purchaser’s SRM application.
Connect the CRM to the customer’s SRM to automate recurring purchases.
SRM examines inventory, determines required items, and creates an order.
Dr. Chen, Management Information Systems
Fig 8-14 B2B in One Section of the Supply Chain
44
More on E-Commerce and E-Business
Dr. Chen, Management Information Systems
45
Figure Basic business models for the Internet.
B2B
Business-to-business targets sales and services primarily to other businesses.
B2C
Business-to-consumer targets sales and services primarily to consumers.
B2E
Business-to-employee provides services other companies can use to interface
with employees (like retirement funds management, health care management, and
other benefits management).
B2G
Business-to-government involves companies who sell the bulk of their goods and
services to state, local, and national governments.
C2C
Consumer-to-consumer sites primarily offer goods and services to assist
consumers to interact (e.g., auctions).
Hybrid Combines B2B and B2C models.
Which one is a new business model on the table?
Why a company (may be yours in the future) is interested in doing this
type of business w/B2E?
Dr. Chen, Management Information Systems
46
Stages of Moving to E-Business
“commerce +”
“e-commerce”
Stage
Stage 11
Stage
Stage 22
Content
Provider
Transaction
Forum
Web presence
• Develop presence
• Develop technology
capability
Access
information
Transact
business
• Re-orientate business/technology
thinking skills
• Build integrated approach = web
+ business systems
Anxiety
Gap
2 - 3 years
Wilcocks,
Sauer andInformation
Associates
(2000)
Dr. Chen, Management
Systems
“e-business”
Stage
Stage 33
Stage
Stage 44
Integrator
Catalyst for
Industry
Restructuring
Further integration of
skills, processes,
technologies
• Reorganize people/structures
• Reengineer processes
• Remodel technology
infrastructure
Organizational
Capabilities Gap
Capability, leveraging
experience and know-how
to maximise value
• Customer-focused organization
• Content-centric services/products
• ‘The new marketing’
Value
Transformation Gap
BUSINESS
VALUE
2 - 4 years
47
From “Old World” to E-World of Business:
Knowledge Management for “Paradigm Shifts”
“Old World”
of Business
E-World
of Business
REENGINEERING (BPR)
IT-Intensive Radical Redesign
RATIONALIZATION
(INFORMATION)
Streamlining Bottlenecks
KNOWLEDGE MANAGEMENT
(INNOVATION)
for
“Paradigm Shifts”
Radical Rethinking of the Business
and Organization
for a
“World of Re-everything”
AUTOMATION
Replacing humans with
machines
Dr. Chen, Management Information Systems
48
NEW TRENDS IN E-BUSINESS:
E-GOVERNMENT AND M-COMMERCE
Dr. Chen, Management Information Systems
49