E-Commerce ©David Whiteley/McGraw-Hill, 2000 1

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Chapter 1: Electric commerce

An introduction to e-Commerce outlining:The three basic e-Commerce technologiesThe trading exchanges to which they apply

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Definition of e-Commerce‘Formulating commercial transactions at a site remote from the trading partner and then using electronic communications to execute that transaction.’

The definition includes business to business and business to consumer transactions.

Further definitions are given in Chapter 1, Section 1.2. Many definitions are much broader covering, for example, the commercial use of e-mail.

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E-Commerce technologies

The three e-Commerce technologies are:Electronic MarketsElectronic Data InterchangeInternet Commerce

ElectronicMarkets

Internet Commerce

EDI

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Electronic marketsThe use of information and communications technology to present a range of offerings available in a market segment and hence enable:

the purchaser to compare the prices (and other attributes);make a purchase decision.

The usual example of an electronic market is an airline booking system.

There is the potential for new electronic markets to be created using Internet technologies.

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Electronic Data Interchange (EDI)EDI provides a standardised system for coding trade transactions so that they can be communicated directly from one computer system to another.

EDI removes the need for printed orders and invoices and avoids the delays and errors implicit in paper handling.

EDI is used by organisations that make a large number of regular transactions. Examples are the large supermarket chains and the vehicle assemblers which use EDI for transactions with their suppliers.

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Internet commerceInformation and communications technologies can also be used to advertise and make once-off sales of a wide range of goods and services.

This type of e-Commerce is typified by the commercial use of the Internet. The Internet can, for example, be used for the purchase of books that are then delivered by post or the booking of tickets that can be picked up by the clients when they arrive at the event.

It is to be noted that the Internet is not the only technology used for this type of service and this is not the only use of the Internet in e-Commerce.

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The trade cycleConducting a commercial transaction involves the following steps:

Pre-Sale:• Search - finding a supplier• Negotiate – agreeing the terms of trade

Execution:• Order• Delivery

Settlement:• Invoice• Payment

After-sales, e.g. warrantee and service

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Generic trade cyclesThe trade cycle varies depending on:

The nature of the parties to the transactionThe frequency of trade exchangesThe nature of the goods or services being exchanged.

Three generic trade cycles can be identified:Regular, repeat transactions between commercial trading partners (Repeat)Irregular transactions between commercial trading partners (Credit)Irregular transactions in once-off trading relationships (commercial or retail) (Cash)

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Generic trade cycles Repeat Credit Cash Trade Cycle:

Search

Negotiate

Order

Deliver

Invoice

Payment

After Sales

Pre-Sale

Execution

Settlement

After Sale

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Electronic marketsEmphasis on the search phase of the trade cycleTypically an inter-organisational credit trade cycle

Limited applications – airline seat bookings and financial sector – the operation of the electronic market is not necessarily in the vendor’s interests.See Chapter 7 for further discussion.

Search

Negotiate

Order

Deliver

Invoice

Payment

After Sales

Pre-Sale

Execution

Settlement

After Sale

EM

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Electronic Data InterchangeUsed for standardised, repeat, inter-organisational transactions

Notable users of EDI are vehicle assemblers, component supplier’s, and supermarkets (and other multiple retailers), ordering the goods to restock their shelves.See Chapters 8 through 11 for further discussion

Search

Negotiate

Order Deliver

Invoice

Payment

After Sales

Pre-Sale

Execution

Settlement

After Sale

EDI

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Internet commerceUsed for once-off transactions – consumer or inter-organisational transactions.

Can apply to Search, Execution / Settlement and / or After Sales.Consumers pay at time of ordering – businesses may have credit arrangements with the suppliers.

Search

Negotiate

Order

Deliver

Invoice

Payment

After Sales

Pre-Sale

Execution

Settlement

After Sale

Internet

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e-Commerce in perspectivee-Commerce is not appropriate to all business transactions and, within e-Commerce, there is no one technology that can or should be appropriate to all requirements.

Electronic

Internet Comerce

EDI

Markets

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Chapter 2: The value chain

The production of goods and services is the result of the efforts of many organisations – a complex web of contracts and co-operation known as the supply chain or the value system.

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The supply chainManufacturing Inputs:

Components (e.g. wheels, seats, etc.)Sub-assemblies (e.g. engine, gearbox, etc.)

Sales and Distribution:Wholesale (e.g. import agent)Retail (e.g. local main dealer)

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Logistics chainsTransportStoragePaperwork (Orders, Invoices, etc)

Each supply chain transaction adds cost without adding intrinsic value.e-Commerce can be applied to the supply chain to reduce costs or improve service.

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Porter’s value chain model

Primary Activities:Inbound LogisticsOperations (Production)Outbound LogisticsMarketing and SalesService

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Procurement

Human Resource Management Technology Development

Firm Infrastructure support activities

Margin

primary activities

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Porter’s value chain model

Support Activities:ProcurementTechnology DevelopmentHuman Resources ManagementFirm Infrastructure

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Procurement

Human Resource Management Technology Development

Firm Infrastructure support activities

Margin

primary activities

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Linked value chains

Inbound Logistics —from Suppliers

Outbound Logistics —from Customers

Outbound Logistics

Inbound Logistics

Inbound Logistics

Operations

Outbound Logistics

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Porter’s value system

Overall organisational competitive advantage:efficiency of the companyquality of its products

plusefficiency and quality of suppliersefficiency of wholesalers (Channel)efficiency of retailers

(Inter-organisational value chain)

Firm

Value Chains

Supplier

Value Chains

Channel

Value Chains

Buyers Value

Chains

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Automotive assembly value system

Inbound Logistics:Large number of suppliersVast number of components

Process:Just-in-time (JIT) manufacture

Outbound Logistics:Limited number of Main Dealers

Internal Supplies

Vehicle

Assembler

Component Suppliers

Dealer

Network

Consumer

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Food supermarkets value system

Inbound Logistics:Large number of suppliersVast number of products

Process:Retail

Outbound Logistics:Vast number of Consumers

Regional Whse

Super- market

Food

Processors

Consumer

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Insurance value system

Insurance Company

Agents

Consumer

Insurance

Broker

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Insurance value systemInbound Logistics:

No significant suppliers(financial / re-insurance partners)

Process:Administrative

Outbound Logistics:Sales through agentsSales through brokersDirect sales

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e-Commerce in the value chainElectronic Value Chain:

Reduced time frameChanged cost structures

Re-engineered Value Chain:Just-in-time manufactureQuick response supplyEfficient document processing

Competitive advantage