ELC 200

Day 23

Agenda

Questions from last Class? Assignment 6, 7 & 8 all posted

Assignment 6 due Today Will have them back to you on Monday

Assignment 7 due May 1 @ 12:30PM Assignment 8 due May 8 @ 8AM

EBiz plan and presentations Due May 8 @ 8AM More information in assignments section of WebCT

Today we will the discussing on Payment systems and start talking about eCommerce Strategies.

Person-to-Person Payments

Person-to-person (P2P) payments—e-payment schemes (such as paypal.com) that enable the transfer of funds between two individuals Repaying money borrowed Paying for an item purchased at online auction Sending money to students at college Sending a gift to a family member

Global B2B Payments

Letters of credit (LC)—a written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents

TradeCard (tradecard.com)—innovative e-payment method that uses a payment card

Electronic Letters of Credit (LC)

Benefits to sellers Credit risk is

reduced Payment is highly

assured Political/country

risk is reduced

Benefits to the buyer Allows buyer to negotiate for a

lower purchase price Buyer can expand its source of

supply Funds withdrawn from buyer’s

account only after the documents have been inspected by the issuing bank

TradeCard Payments

TradeCard allows businesses to effectively and efficiently complete B2B transactions whether large or small, domestic or cross-border, or in multiple currencies Buyers and sellers interact with each other via the

TradeCard system System

Checks purchase orders for both parties Awaits confirmation from a logistics company that deliveries

have been made and received Authorizes payment completing financial transaction

between the buyer and seller

E-Checking

E-check—the electronic version or representation of a paper check Eliminate need for expensive process

reengineering and takes advantage of the competency of the banking industry

eCheck Secure (from vantaguard.com) and checkfree.com provide software that enables the purchase of goods and services with e-checks

Used mainly in B2B

Order Fulfillment: Overview

Order fulfillment—all the activities needed to provide customers with ordered goods and services, including related customer services Back-office operations—the activities that

support fulfillment of sales, such as accounting and logistics

Front-office operations—the business processes, such as sales and advertising, that are visible to customers

Overview of Logistics

Logistics—the operations involved in the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption

Delivery of materials or services Right time Right place Right cost

EC Order Fulfillment Process

1. Payment clearance2. In-stock availability3. Arranging

shipments4. Insurance 5. Production

(planning, execution)

6. Plant services

7. Purchasing and warehousing

8. Customer contacts

9. Returns (Reverse logistics—movement of returns from customers to vendors)

10. Demand forecast

11. Accounting, billing

Steps in the process of order fulfillment

Exhibit 10.9Order Fulfillment and Logistics Systems

Order Fulfillment and the Supply Chain

Order fulfillment and order taking are integral parts of the supply chain.

Flows of orders, payments, and materials and parts need to be coordinated among Company’s internal participants External partners

The principles of supply chain management must be considered in planning and managing the order fulfillment process

Problems in Order Fulfillment

Manufacturers, warehouses, and distribution channels were not in sync with the e-tailers

High inventory costsQuality problems exist due to

misunderstandingsShipments of wrong products, materials, and

partsHigh cost to expedite operations or shipments

Problems in Order Fulfillment (cont.)

Uncertainties Major source of uncertainty is demand forecast Demand is influenced by

Consumer behavior Economic conditions Competition Prices Weather conditions Technological developments Customers’ confidence

Problems in Order Fulfillment (cont.)

Demand forecast should be conducted frequently with collaborating business partners along the supply chain in order to correctly gauge demand and make plans to meet it

Delivery times depend on factors ranging from machine failures to road conditions

Quality problems of materials and parts (may create production time delays)

Labor troubles (such as strikes) can interfere with shipments

Problems in Order Fulfillment (cont.)

Order fulfillment problems are created due by lack of coordination and inability or refusal to share information

Bullwhip effect—large fluctuations in inventories along the supply chain, resulting from small fluctuations in demand for finished products

Solutions to Order Fulfillment Problems

Improvements to order taking process Order taking can be done on EDI, EDI/Internet, or

an extranet, and it may be fully automated. In B2B, orders are generated and transmitted

automatically to suppliers when inventory levels fall below certain levels.

Result is a fast, inexpensive, and a more accurate process

Web-based ordering using electronic forms expedites the process

Makes it more accurate Reduces the processing cost for sellers

Solutions to Order Fulfillment Problems (cont.)Implementing linkages between order-

taking and payment systems can also be helpful in improving order fulfillment

Electronic payments can expedite order fulfillment cycle and payment delivery period Payment processing significantly less

expensive Fraud can be controlled better

Inventory Management Improvements

Inventories can be minimized by: Introducing a make-to-order (pull) production

process Providing fast and accurate demand information

to suppliers Inventory management can be improved

(inventory levels and administrative expenses) can be minimized by: Allowing business partners to electronically track

and monitor orders and production activities Having no inventory at by digitizing products

Automated Warehouses

B2C order fulfillment—send small quantities to a large number of individuals Step 1: retailers contract Fingerhut to stock

products and deliver Web orders Step 2: merchandise stored SKU warehouse Step 3: orders arrive Step 4: computer program consolidates orders

from all vendors into “pick waves”

Automated Warehouses (cont.)

Step 5: picked items moved by conveyors to packing area; computer configures size and type of packing; types special packing instructions

Step 6: conveyer takes packages to scanning station (weighed)

Step 7: scan destination; moved by conveyer to waiting trucks

Step 8: full trucks depart for Post Offices

Same Day, Even Same Hour Delivery

Role of FedEx and similar shippers From a delivery to all-logistics Many services Complete inventory control Packaging, warehousing, reordering, etc. Tracking services to customers

Same Day, Even Same Hour Delivery (cont.)

Supermarket deliveries Transport of fresh food to people who are

in homes only at specific hours Distribution systems are critical Fresh food may be spoiled

Partnering Efforts

Collaborative commerce among members of the supply chain results in: Shorter cycle times Minimal delays and work interruptions Lower inventories Less administrative cost Minimize bullwhip effect problem

Order Fulfillment in B2B

Using e-marketplaces and exchanges to ease order fulfillment problems

Both public and private marketplaces E-procurement system controlled by one large

buyer, suppliers adjust their activities and IS to fit the IS of the buyer

Company-centric marketplace can solve several supply chain problems

Use an extranet Use a vertical exchange

Order Fulfillment in B2B (cont.)

Shippers (sellers) Receivers (buyers) Carriers Third-party logistics

providers Warehouse

companies

Vertical e-marketplaces

Transportation

e-marketplaces Logistics software

application vendors

Players in B2B fulfillment

Handling Returns

Necessary for maintaining customer trust and loyalty using: Return item to place it was purchased Separate logistics of returns from logistics of

delivery Completely outsource returns Allow customer to physically drop returned

items at collection stations

UPS Provides Broad EC Services

Electronic tracking of packagesElectronic supply chain services for

corporate customers by industry including: Portal page with industry-related information Statistics

Calculators for computing shipping feesHelp customers manage electronic supply

chains

The UPS Strategy (cont.)

Improved inventory management, warehousing, and delivery

Integration with shipping management system

Notify customers by e-mail of: Delivery status Expected time of arrival of incoming

packages

The UPS Strategy (cont.)

Representative tools 7 transportation and delivery applications

Track packages Analyze shipping history Calculate exact time-in-transit

Downloadable tools Proof of delivery Optimal routing features

Delivery of digital documents Wireless access to UPS system

Summary

Crucial factors determining the success of an e-payment method

Key elements in securing an e-paymentOnline credit card players and processesThe uses and benefits of purchasing cardsCategories and potential uses of smart

cardsOnline alternatives to credit card payments

Summary (cont.)

E-check processes and involved partiesThe role of order fulfillment and back-office

operations in ECThe order fulfillment processProblems in order fulfillmentSolutions to order fulfillment problems

Chapter 11

E-Strategy, Internet Communities,

and Global EC

Learning Objectives

Describe the importance and essentials of business and EC strategies

Describe the strategy planning and formulation process for EC

Understand how EC applications are discovered, justified, and prioritized

Describe strategy implementation and assessment including the use of metrics

Understand EC failures and lessons for success

Learning Objectives (cont.)

Describe the role and impact of virtual communities on EC

Evaluate the issues involved in global ECAnalyze the impact of EC on small businessesDescribe the relationship between EC and BPR,

knowledge management, and virtual corporationsDescribe the future of EC

IBM’s E-Business Strategy

The Problem Need to capture new business opportunities and

technologies (like EC) Develop a business strategy for that purpose IBM’s current strategy is to transform itself into an

e-business in order to provide business value to the corporation and its shareholders

IBM views e-business as being much broader than EC because it:

Serves a broader constituency Offers a variety of Web-based processes and transactions

IBM’s E-Business Strategy (cont.)

The Solution is based on four goals: Lead IBM’s strategy to transform itself into e-

business Act as a catalyst to help facilitate that

transformation Help business units become more effective

in their use of the Internet/intranet Internally With their customers

IBM’s E-Business’s Strategy (cont.)

Establish a strategy for the corporate Internet site

Including definition of how it should look, “feel” and be navigated

Create an online environment most conducive to customers doing business with IBM

Leverage the wealth of e-business transformational case studies within IBM to highlight the potential of e-business to IBM’s customers

IBM’s E-Business Strategy (cont.)

E-commerce E-care for customers E-care for business

partners

E-care for influencers E-care for employees E-procurement E-marketing

communications

IBM focused on seven key initiatives:

IBM’s E-Business Strategy (cont.)

The Results Implementation of an e-procurement system

that spans IBM globally Saved IBM almost $5 billion over a 3-year

period Electronic invoicing:

Reduces the number of paper invoices Enables fast, competitive tendering from its suppliers

IBM’s E-Business Strategy (cont.)

IBM’s evaluation of the procurement process determined where the use of the Web adds value

Identification of more than 20 initiatives to reduce costs and improve purchasing including:

Collaboration with suppliers Online purchasing Knowledge-management-based applications

E-Strategy: Concepts & Overview

Strategy—search for revolutionary actions that will significantly change the current position of a company, shaping its future Finding the position in a marketplace that best

fits the firm’s skills Company’s choice of new position that must be

driven by its ability to find new trade-offs and leverage a new system of complementary activities into sustainable advantage

Elements of Strategy

Elements of a strategy Forecasting Resource allocation Core competency Environmental analysis Company analysis Business planning

Strategic Management Process Model

Develop Mission and Vision Statements

Chap 2

Measure and Evaluate

PerformanceChap 9

Implement StrategiesManagement Issues

Chap 7

Generate, Evaluate and Select Strageies

Chap 6

Implement StrategiesMarketing, Finance, accounting, R&D,

MIS issuesChap 8

Perfrom External Audit

Chap 3

Establish Long-termObjectives

Chap 5

Perform Internal Audit

Chap 4

Types of E-Strategies

EC strategy (e-strategy)—an organization’s strategy for use of e-commerce or e-business Click-and-mortar companies that use many EC

applications Click-and-mortar companies that use only one or two

EC applications Click-and-mortar companies that use one EC

application that fundamentally changes all their business

Pure-play EC companies

Source: adapted from www.mohanbirsawhney.com

Activity

Business Process

Enterprise

PurePlayBusiness transformation

(competitive advantage,industry redefinition)

Effectiveness(Incremental sales,customer retention)

Efficiency(Cost

reduction)

Pure dot-com(E*Trade)

Click and Mortar(eSchwab)

Customerrelationshipmanagement

Brochureware,Order processing

Leve

l of

busi

ness

impa

ct

Need for a Strategy

Why does a company need an e-strategy? Fast changes in business and technology means

that opportunities and threats can change in a minute

Company must consider EC strategy that includes contingency plans to deal with changes

May be too costly not to have one

Charles Schwab’s EC Strategy

In 1998 Schwab launched schwab.com—one of the first click-and-mortar stockbrokers Changed the company pricing structure

radically Took a short-term revenue loss Looking toward a long-term strategic gain

EC strategy fit well with company’s overall strategy emphasizing a one-to-one relationship with its customers

Charles Schwab (cont.)

Schwab had first-mover advantage in securing key partnerships Schwab and Nextel agreed to build an

infrastructure allowing investment opportunities over mobile phones or wireless handheld devices

Initial target was existing off-line customers with incomes over $150,000 a year and who buy and hold

Key benefits: Innovative products Superior service Low fees Cutting-edge technology

Charles Schwab (cont.)

Partnered with content providers and technology companies to offer: Large number of financial services online Community and personalized services

Financial model composed of three parts: The revenue model The value model The growth model

Charles Schwab (cont.)

CyberTrader's services are designed for online, self-directed active traders who use short-term trading strategies to generate current income

Cybertrader features include:Nasdaq Level II quotes Direct Access trading capabilities Risk management toolsGraphical decision support modules Streaming NewsIntelligent order routingDirect options routing

E-Strategy Landscape

Strategy initiation: organization prepares information about its vision,mission,purpose,and the contribution that EC could make to the business

Strategy formulation: Identification of EC applications Cost-benefit analysis Risk analysis

E-Strategy Landscape (cont.)

Strategy implementation: Organization’s resources are analyzed A plan is developed for attaining the goals

Strategy assessment: Organization periodically assesses progress

toward the strategic goals Involves the development of EC metrics

Exhibit 11.1The Landscape of EC Strategy

Strategy Initiation

Strategy initiation—the initial phase of e-strategy in which an organization prepares information about its vision, mission, purpose, and the contribution that EC could make

1. Review the organization’s business and IT vision and mission

2. Generate vision and mission for EC

3. Begin with industry and competitive analysis

Industry Assessment

What industry is the EC initiative related to?

Who are the customers? What are the current

practices of selling and buying?

Who are the major competitors? (How intense is the competition?)

What e-strategies are used, by whom?

How is value added throughout the value chain?

What are the major opportunities and threats?

Are there any metrics or best practices in place?

What are the existing and potential partnerships for EC?

Company Assessment

The organization investigates its own: Business strategy Performance Customers Partners

It looks at everything that has an impact on its operations Processes People Information flows Technology support

Industry, Company, andCompetitive Analysis

SWOT analysis—a methodology that surveys the opportunities and threats in the external environment and relates them to the organization’s particular strengths and weaknesses

SWOT Analysis Strengths Opportunities Weaknesses Threats

Exhibit 11.2SWOT Matrix

Verizon 1.Top wireless provider in the U.S. serving 49 of the top 50 markets2.High-speed data network in all major markets3.Largest provider of local, long distance, data, and broadband services in 2/3 of the top 100 markets in the U.S.4.Leading print and on-line directory publisher with 2100 in U.S. and 13 other countries5.Verizon invested 12 billion in 2002 in 400,000 miles of fiber-optic cable.6.Marketing campaign – brand awareness

1.49 billion dollars in long term debt2.Lack of international presence3.Revenue only increased 4 percent since year end 2000.

S-O Strategies W-O Strategies

1.141 million possible investors in Europe, UK, and Germany2.Strengthening foreign currencies vs dollar- Euro advantages 3.Increased usage in wireless services4.Small wireless providers are consolidating with larger providers due to increased competition5.Increased desire for high-speed internet service

1.Expand wireless services into Europe, UK and/or Germany (S1, O1, O3)2.Expand high speed internet service in Europe, UK and/or Germany (S2,O5)3.Acquire small domestic wireless providers such as Powertel or Aerial (S1, O4)4.Invest capital into fiber optic cable to compete with cable companies. (S5, O5)

1.Purchase international wireless providers such as MMO2 (W2, O4)

2.Offer services to people in Europe to increase revenue due to the difference in foreign currency (W1, O2)

S-T Strategies W-T Strategies

1.New regulatory complaints (new phone # portability)2.Rising costs of healthcare3.Global unrest- economic monetary and financial4.Consumer privacy rights being attacked5.Weak Consumer spending6.Decreasing demand for traditional voice lines and fixed lines7.Increasing overlap of telecommunication territories8.Increasing competition for providers of web search directories9.Increasing providers of wireless services10.Brand recognition

1.Enter into a joint venture with MCI to offer a package deal (S1, T12)2.Proceed with legal battles to serve local markets to increase traditional voice and fixed lines.(S3, T7)

1.Expand globally in Europe (W2, T7)2.Liquidate the Telecommunications Services such as fixed lines and traditional lines business to reduce long-term debt. (W1, T6)

Competitive Intelligence on the Internet

Internet can play a major role as a source of competitive information (competitive intelligence)

Review competitors’ Web sites Examine publicly available financial

documents Ask the customers—award prizes to those

who best describe your competitors’ strengths and weaknesses

Competitive Intelligenceon the Internet (cont.)

Analyze related discussion groups Find out what people think about a company and its

products and competitor's products Reaction to new ideas and products

Use information delivery services Find out what it published on the Internet Known as push technologies

Corporate research companies provide information about your competitors:

Examine chat rooms

Issues in Strategy Initiation

Advantages Chance to capture

large markets Establishing a brand

name Exclusive strategic

alliances

Disadvantages Cost of developing EC

initiative is usually very high

Chance of failure is high System may be obsolete

as compared to second wave arrivals

No support services are available at the beginning

To be a first mover or a follower?

Should You Have a SeparateOnline Company?

Advantages Reducing or eliminating

internal conflicts Providing more freedom

to management in pricing, advertising, etc.

Can create new brands quickly

Take the e-business to an IPO and make a fortune

Disadvantages May be very costly

and risky Collaboration with off-

line business may be difficult

Lose expertise of business functions unless you use close collaboration