IS 4402: Electronic Commerce

1. IS 4402: Electronic Commerce Dr. Frederic Adam Department of Accounting, Finance and Information Systems University College Cork Ireland © Frederic Adam, 2000

2. Information systems for interacting with the environment • Primary aspect of the phenomenon of E Commerce • Attempts to change the nature of the linkage with suppliers / customers / competitors • SABRE • American Hospital Supply Corporation • Japanese and American car making and retail industry in the 70s • Concept of Just In Time (JIT)

3. Link with customers: • American Hospital Supply Corporation (AHSC): system whereby customers can directly re-order their supplies from terminals located in their hospitals • Successful because it enabled AHSC’s customers to cut their costs of administration • originally meant as an INTERNAL systems by AHSC and extended to one main customer

4. Links with customers and competitors • SABRE (American Airlines): first effective electronic reservation systems in the US • simple one-line database application • available in any travel agent • rented to other airlines • competitive value of system still felt today • in 1988 AA were making more money out of SABRE than out of flying air planes

5. Specific Features of Inter-Organisational Systems • Require co-operation • also some legal implications - e.g. prevention of computer crimes • nature of the agreement extends beyond the system itself - e.g. AHSC started from the relationship between a store manager and a customer

6. Level of Integration between trading partners • Exchanges of information between partners can be more or less structured: • purchase orders • invoices • cheques • ……………. • phone inquiries (not totally reliable) • face-to-face meetings between staff (time consuming) • Traditionally, structured exchanges were paper based => slow turnaround time

7. Electronic Commerce suggests new methods • Invoice => Electronic Data Interchange instead of postal service • Payments => Electronic Fund Transfer instead of cheque • Short messages => Electronic Mail instead of Phone • Group discussions => Electronic Bulletin Boards or computer conferencing instead of meetings • Promotion => WWW instead of paper brochure • Customer product query => on-line database instead of paper catalogue

8. Framework of generic forms of Electronic Commerce Electronic meeting rooms computer conferencing Permanent EDI IOS data retrieval systems Electronic Mail Electronic file transfer Electronic catalogues WWW home pages Ad Hoc Structured Unstructured

9. Electronic Data Interchange (EDI) • Creation of inter-organisation networks involving at least 2 organisations • can be extended to a very large number of organisations (virtual trading community) • Often use an intermediary - e.g a Value Added Network (VAN) Service provider

10. Electronic Data Interchange: A Formal Definition: “EDI is the transfer of structured data by agreed message standards from computer to computer by electronic means”

11. Important Points about EDI The definition points our three important issues: • EDI uses structured data • EDI uses agreed standards • EDI uses electronic links

12. EDI uses structured data • EDI messages are processed by a computer not by an operator • it is very different from simple E-Mail • the information received is not displayed to anyone, but directly used by a program in a computer • messages are coded

13. an EDI message: • Messages are made up of STANDARD LOCATION SEGMENTS (LOC): TYPE OF TYPE OF PLACE CODE CODE LIST DECODED TEXT DATA LOC+ POD+ USNYC 01: NEW YORK, NY

14. EDI uses agreed standards • Link between commercial partners who agree to do business in a certain way • preliminary agreement on what data is being transferred and in what order • Adherence to standards means Open Environment at both ends • it also requires an universally agreed message structure to operate.

15. EDI uses electronic links • in the beginning: EDI used computer tapes • slow • vulnerable • low level of integration across companies • then EDI used telecommunications • scheduling • cost • compatibility

16. BILATERAL LINK:

17. Multilateral Links:

18. A modern solution for EDI • Join an EDI network run by a VALUE ADDED NETWORK SERVICE (VANS) supplier • similar to a postal service • all messages are sent through a delivery service • messages are delivered into people’s post boxes

19. EDI using a VAN MAIL BOX POSTBOX

20. Advantages of VANS: • They enables ASYNCHRONOUS COMMUNICATION • there is no need for DIRECT COMPUTER TO COMPUTER COMPATIBILITY • PROTOCOL CONVERSION is straight forward • control and security of the messages are easier to enforce • error handling is done by the carrier

21. Spread of EDI • EDI was originally limited to the automotive and retail industries • now involves virtually every sector of business: • shipping • insurance • banking • government • customs

22. EDI - a Business Perspective “The main benefits of EDI stems from receiving orders as quickly as possible after the buying decision has been made. That speed of movement of information means that it is possible to get the right stock in the right place; to deliver quickly; to make sure you have captured the market opportunity and to minimise the working capitals” PURCHASING DIRECTOR OF A MULTINATIONAL

23. EDI - a Business Perspective “I see EDI as reducing the efforts required in entering invoices, with less transcription efforts. We will be able to use the people we have to far greater benefit to the company” CHAIRMAN OF A LARGE FOOD SUPPLYING COMPANY.

24. Benefits • Cost savings - reduction in data entry errors - smaller staff • reduced lead time for orders • speed up communication • creates stronger ties between partners • improved customer service

25. Problems • Set up difficulties: • integration with existing systems • selection of EDI standard • loss of flexibility resulting from initial choices • requires high levels of commitment from partners • substantial benefits only come with high volumes of data exchanges

26. What is wrong without EDI: • Companies use computers to process transactions and produce paper • Computers produce paper faster than humans can process it => strain • Result is that processes: • are Inefficient • are open to errors • are often delayed • generate extra transaction costs

27. What is wrong without EDI: • companies are using a combination of the most modern and efficient with the most archaic methods • postal link or faxes are the wrong media • re-keying of data at the reception is a waste of time • these create bottlenecks in the communication of organisations

28. With EDI • Processes can be integrated and computerised fully from end to end • Data entry error is considerably reduced • Data transfer can be extended to give immediate feed-back: • order correctly received • goods not available • substitution good suggested • Other on-line services can be added: • mail distribution list for new products / price changes • special offers

29. Introduction of EDI: EDI can be introduced in two ways • pro-active way: company sets out to create a link with its suppliers / customers • reactive way: company is asked (forced??) to switch to EDI by one of its customer / supplier • benefits can only be maximised if EDI is introduced in a pro-active way (otherwise, standards are dictated by an organisation’s partners) • companies need to formulate an EDI strategy - much like BPR (re-design processes to fully exploit EDI)

30. EDI in Ireland • Largest VAN in Ireland is called EIRTRADE managed by Eircom • proposes a variety of services: • EDI trading service • E-Mail between customers • more than 250 companies use the service in Ireland and the UK • Linked to other VANs in the world (GEIS, CFM...)

31. Example of EDI adoption: • Before Northern Telecom joined Eirtrade more than 5 days from ordering to delivery

32. Example of EDI adoption: • After Northern Telecom joined Eirtrade Other suppliers Northern Telecom EIRTRADE VAN Other customers Same day delivery

33. Another example: Hickey and Co. • Irish clothing company - about 75000 garments a week • formal request to implement EDI from large customer • only superficial at first then integrated with manufacturing • reduced stock levels, faster turnaround of orders, more attractive to other customers, easier to audit paper trail • But too small to convince other customers to use EDI

34. The Internet • Most of the business to business transactions (including EDI) are carried out on the Net • Most of the business to customer are carried out on the Web • Future of E-commerce is based entirely on the development of this vast network

35. Origins of the Internet Phenomenon • 30 years in existence - 1969 • Communication network for the US Military! • Dormant for many years • Then confined to basic applications, such as FTP and Telnet, by the platforms used

36. The Explosion of the Internet • Huge growth in the number of machines on the NET • Widespread coverage in the media - eg: buzzword “Information Superhighway” • Recognition of new business opportunities provided by the NET • Role of the WWW is and will be increasingly important “The best business opportunity that most people are likely to find in a life time” (Hammond, 1996)

37. Number of Computers Connected to the Internet

38. Some recent statistics • 400,000 companies have a web site • 90,000,000 people access the net regularly • Sales over the Net reached $5.1 billions • business to business accounts for 78% • travel is one of the most common type of transactions

39. Internet Opportunities • Like the gold rush of 1849 • A shop in 0.5 m2 • Interactive advertising • A lot of very optimistic predictions

40. Internet Threats • Dangers inherent in a wait and see approach • Companies can be international competitors on the WWW with little resources • Industries are radically changed by the WWW • WWW is becoming a crucial battleground The Internet is like a set of cross roads where petrol stations fight a tough price war; except with the Internet, all companies are at the same cross roads

41. The Internet in Ireland • Computer industry very important • 13 % of all Irish exports are software • International head-quarters for EMC, Digital, Apple etc.... • Internet’s significance is recognised • more than 1000 significant WWW server sites • 65,000 corporate users • one of the top 10 countries for WWW development in the world • Number of Internet Service Providers very high

42. Finger on the Pulse!! • Number of Sessions per Month 16 • Number of Unique Sites Visited 11 • Time Spent per Site 42: 11 • Time Spent per Month 7: 30: 51 • Time Spent During Surfing Session 28: 18 • Duration of a Page viewed 01: 05 • Active Internet Universe 64,953,584 • Current Internet Universe Estimate 109,993,829 • but double figure growth is over • redistribution towards vertical sites • traffic congestion

43. Case Study of Web Fortune • Blue Mountain Arts (.com) - on-line postcard service • One of the most highly trafficked sites on the Internet (16th, but 3rd E-Com site) • 9.2 millions visitors per month • Etoys inc. ready to pay £1 billion for it • but quick response of competitors may spoil deal • AOL, Yahoo and Amazon developed their own • service may be extended to include flower, candy or fruit delivery!

44. How trivial can you get? You have just received an animated greeting card from XXX You'll see the personal greeting by using the following Web location. http://www1.bluemountain.com/cards/box6958r/ufe4vyeufagkwy.htm (Your greeting card will be available for the next 90 days) There is no charge for this service! :) HAVE a good day and have fun!

45. Electronic Commerce • As indicated by spread of EDI, phenomenon not recent (gradual increase over 25 years) • Interest growing rapidly • Definition: automation of commercial transactions using computer and communications technologies • commercial = transactions that involve the exchange of goods, funds or obligations...

46. Precursors of E-Com • More than 2000 initiatives introduced over last 20 years • most successful (still exist besides the Web) was France’s Minitel (1980) • infrastructure made available to companies to sell services through telephone lines • France Telecom equipped entire user population within 2 years • hundreds of thousands of local and national services • Most other attempts failed (e.g. Minitel in Ireland)

47. Key points in the current success • International, borderless initiative • Technology is mainstream and affordable (e.g GUI) • Flexibility is ensured through the existence of thousands of existing / developing local networks • Global markets set free from the shackles of 9 to 5 constraints • goes hand in hand with internal re-engineering carried out in many organisations ...

48. Fortune 500 E-Com • All have Web sites • Only 10% conduct transactions • Mostly public relations, customer service and technical assistance (70% of sites) • marketing and sales (30% of sites) • Illustrates that E-Com is not a silver bullet

49. Limitations of current sites • Only 3% of sites for direct sale (9% equipped for on-line transactions) • more than 50% of users went on-line to make a purchasing decision... • only 15% bought because sites did not (easily) allowed them to do it on-line • 2/3 of customers put goods in their trolleys and then fail to complete transaction!

50. But... • Internet has potential to enable / impose radical changes: • at first, e-mail is a replication of normal mail, just faster • then, it take additional dimensions • i.e. effects that go beyond its technical features (virtual communities) • E-Mail has the power to change the key parameters in this definition groups are those social aggregates that involve mutual awareness and potential mutual interaction (McGrath, 1984)