E-Commerce

Definition:

 Business through the Internet.

 Sharing Business Information, Maintaining Business
relationships and conducting business transactions using
computers connected to a Telecommunication Network is
called E-Commerce.
 The production, distribution, marketing, sale or delivery
of goods and services by electronic means.
Applications:
There are a variety of e-commerce applications. Some of these are as
follows:

-Retail sales of goods such as books, CDs, toys, etc.

-Auction sites using which an individual buyer and seller can buy and sell
goods.
-Railways, airlines, hotels, etc., which permit booking on-line and payment
by credit cards.
-Banks providing information using the Internet on the status of accounts to
customers.
-Filing tax returns with government agencies and obtaining immediate
acknowledgement.
-Web-based education by delivering lessons on-line, on-line examinations,
and certification.
-Delivering music, video entertainment (movies, sports events, etc.) and
books via the Internet.
 TYPES OF E-COMMERCE

 The telecommunication system used in e-commerce is the Internet

which connects computers all over the world which can communicate with
one another using well-defined rules.

-Business between commercial organizations

-Between individuals and commercial organizations and
-Between individuals.

These transactions are commonly known as Business to Business.

(B2B), Business to Customer (B2C) and Customer to Customer (C2C).
  Business transactions include
-orders sent to vendors to supply items
-invoices sent by vendors
-payments made by credit cards, payments through
electronic funds transfer and cash payments made
using what is known as electronic cash.

 The important point is that all transactions are carried

out electronically using the network infrastructure.
 Business to Customer E-Commerce

- When an individual buys items from a shop using the Internet

and the entire transaction is carried out electronically, we call it
business to customer e-commerce and it is abbreviated as B2C e-
commerce.

- The shops which transact business using the Internet are called
by various names, some of which are e-shop, virtual store, dot com
shop and cyber shop.

Example: One of the earliest e-shops was a bookstore called amazon.com

set up in USA which primarily sells books and has now added other items
such as gifts, music CDs, etc.
In India, indiabook.com sells books and CDs.
 Various steps followed in B2C e-commerce

1.Persons who want to shop have to use the Internet. A customer

normally knows the web address of the shop with whom he or she
wants to transact business and typically uses a web browser and enters
the web address of the shop.
2.The home page of the shop is displayed which provides various
options to a customer. If a customer wants to buy a book, he or she keys
in its particulars. He or she may also request books available on a
particular subject in which case the shop would search its database and
give a list of books available on that subject. The shop may also display
the contents page of a book selected by the customer, reviews of the
book, its cost and discount if any.
3. If the customer wants to buy one or more books, he or she points to
the book details displayed on the screen using the mouse and
clicks. The vendor's computer enters the prices of the book(s)
selected by the customer, provides discount (if any) and displays
the net amount payable. The customer enters the shipping address
and payment is usually by credit card. The credit card number is
entered which is used for charging the customer.

4. The credit card details entered by a customer is sent in an

encrypted (i.e., secret coded) form over the Internet and is
forwarded to the authorizing bank by the merchant.

5. If the credit is OK, the bank authorizes the transaction.

6. The e-shop acknowledges the order and gives the details of
delivery- period and mode of shipment as desired by the
customer.

7. The e-shop may not stock the items in its warehouse. It sends
an electronic request to the distributor to ship the items either
directly to the customer or to the e-shop for packing and
forwarding.

8. The credit card company's bank credits the shop's bank

account electronically and sends a bill to the customer.
 Customer to Customer E-Commerce

 Customer to customer e-commerce (C2C e-commerce) is one in which

two individuals want to sell/buy items. The items are usually used items,
collector's items such as stamps; coins or antiques.
 The seller posts the description of the item and the expected price of
the item on a web site maintained by a company which acts as a broker.
An individual who logs on to this site looking for items may be interested
in the item advertised for sale. He/she then offers to buy the item and may
quote a price.
 The price is mutually settled between the two parties by exchanging
messages through e-mail.
 The broker then-arranges to collect the item from the seller and
dispatches it to the buyer and collects payment for the item and a fee from
the buyer and the seller for services.

- The primary advantage of this transaction is that the Internet enables two
individuals located at distant places to come together to buy and sell using an
intermediary's web address.
 Customer to Customer E-Commerce

Customer1 Internet Customer2

Wants to buy Item 1

Wants to sell Item 1

Broker’s website
•Advertises - "for sale"
•Brings together buyer and seller
•Transports items
•Collects fee from both Seller
&Buyer
 Business to Business E-Commerce

Business to business e-commerce (B2B e-commerce) is perhaps the

most important of the three e-commerce modes.

 It is growing very fast and it is predicted that most businesses in the

world will participate in B2B e-commerce during this decade.

 The two parties are the purchaser and the vendor. Businesses normally
have their own local area network which connects all computers of their
organization.

 A purchase transaction initiated by a purchaser proceeds as follows:

1. A purchase order is entered by the purchaser's office using a desktop
computer and transmitted by e-mail to the vendor.

2. When the purchase order is received, the vendor immediately

acknowledges it electronically. The inventory database is now
searched for the availability of ordered items and appropriate action
is taken to (electronically) acknowledge the purchase order. The
inventory database of the vendor is updated and a delivery note is
prepared to be sent to the receiving office of the purchaser.
Concurrently an invoice for items supplied is transmitted by e-mail to
the purchaser's accounts office. The vendor dispatches the items
physically along with a hard copy of delivery note.

3. The items received from the vendor are sent to an inspection office of
the purchaser along with the delivery note. The inspection office
physically checks the items for both quantity and quality and sends a
discrepancy note of items rejected to the purchase office.
4. The accepted items are sent to the store along with an electronic
intimation. The stores office takes items, into stock and also
updates the inventory database. Simultaneously the purchase
office is intimated to enable it to handle rejected items and to
authorize accounts departments to pay for the accepted items.

5. The accounts office electronically pays for items accepted and

taken into stock. Electronic payment is made by the accounts
office by informing its banker to debit authorized amount from
its account and credit it to the vendor's bank account.
The following are the essential requirements for B2B e-commerce:

- All businesses must have a LAN interconnecting computers in their

respective offices and the offices themselves should have computers
for data entry/receipt, comparison, etc.
-The two intranets must be interconnected. Each intranet supports
web pages which can be accessed by the members of the extranet.
-There must be an agreement on a method of paying-for goods or
services received electronically. This implies that the business
partners must know one another's bank account details. Further,
funds transfer must be secure and each transaction should be
authorized electronically.
- We have assumed that documents are interchanged by e-mail. This
is acceptable between close business associates but is not secure and
there is no authentication of documents sent and received. For more
secure transactions e-commerce has introduced data encryption and
a method of digitally signing documents.
 ADVANTAGES AND DISADVANTAGES OF E-COMMERCE

Some advantages of e-commerce:

1.One can buy/sell items from anywhere in the world using one's
computer and Internet connection. Transactions can go on 24 hours a day,
7 days a week as the servers maintained by businesses.
2.Besides goods, services such as financial, legal and medical
consultation may also be obtained using the World Wide Web
infrastructure.
3.A wide variety of goods, particularly items such as books and music, are
accessible from e-shops. Besides saving the effort and time to visit a shop,
an e-shop provides many services which are not usually provided in a
physical shop. For example, an electronic book shop would provide a list
of books you selected, display a list of similar books (i.e., books on the
same topic) etc. You can use this information before you decide to buy a
book.
4. Businesses can reach out to customers worldwide at low cost. A
well-designed web page will be an asset to any business to publicize
their goods and services and also to sell their merchandise.

5. Order processing time and cost are reduced as manual entry of data
is reduced.
6. Electronic funds transfer is fast and safe.

7. A large number of potential business partners can be quickly found

and contacted by searching the World Wide Web.

8. Certain types of goods can be customized and sold directly by a

manufacturer or assembler eliminating middlemen. For example,
Dell Computers sells PCs directly to customers configuring them
as per individual's requirements. Middlemen such as distributors
and retailers are eliminated.
9. The cost of setting up an e-commerce site is quite small
compared to the cost of having large premises.

10. The cost of transactions is quite low.

11. There are some items such as airline tickets where competing
airlines provide several special packages and prices. Quick
comparison is possible on the World Wide Web and a
confirmed booking obtained on-line.

12. Companies can maintain on-line e-catalogue of items and a

price list which can be quickly updated.

13. Customers can be serviced on-line expeditiously.

 Major disadvantages of e-commerce

1.Currently Internet access is not widely available.

Communication infrastructure is expensive and not very reliable
particularly to individuals. This is, however, improving.

2.Payment by credit card requires faith in the system security.

Customers are wary of giving their credit card numbers to vendors
who have only a "web presence". Secure credit card transactions in
which credit card numbers are encrypted and sent to a vendor are
essential.

3.Many persons go shopping for social contacts, touch and feel

and bargaining before buying items. E-commerce will de-
personalize transactions.
 4.A major concern is security of transactions on the Internet.
Spies or hackers can steal and misuse credit card numbers,
purchase orders, invoices, etc., if appropriate care is not taken.

5.Shopping portals will be vulnerable to attacks by hackers

unless special precautions are taken.

6.Portals have to be protected by special security systems from

virus attacks and other electronic vandalism.

7.Customers privacy may be lost if regular log is kept of their

buying habits.

8.The web site of vendors should have the capability of being

scaled up quickly when the number of users suddenly increases.
If the server's capability is limited, the response time of the site
will be unacceptably high if a large number of customers decide
to use the site. Thus, a vendor should be able to add more servers
quickly when this happens.
 9.If there is a sudden increase in orders, there may be logistical
problems in physically delivering items to customers. Long delays in
receiving ordered goods will adversely affect future sales. Being
prepared to handle seasonal surge in demand requires pre-planning.

10. On-line businesses expose their catalogues and price lists to

competitors. The advantage of secrecy of traditional mode of doing
business is lost.
11. Not every item is suitable for sale in the web. For example
saris, fancy furniture, etc., which require touch and feel are
unsuitable for sale through the web.

In spite of these disadvantages, e-commerce is bound to rapidly

increase due to its convenience, cost saving and wide reach.
 SUPPLY CHAIN MANAGEMENT IN E-COMMERCE

 A good supply chain management ensures having the right

product, at the right time, at the right place and at the right price.
The primary aim is to reduce the volume of unsold items and
ensure that items are not out-of-stock when required.
For example, a car manufacturer will receive supplies of tyres,
electrical items, nuts, bolts, etc., from several vendors. There are
thousands of such items and tracking and regulating supplies is a
complex task. This is called Supply Chain Management (SCM).
SCM becomes simple and fast in e-commerce. When cooperating
businesses are connected by an extranet, regular suppliers can
observe the production plans and inventories of a manufacturer and
adjust their supply schedules, inventories, etc. This is possible as
remote log in and access to databases of cooperating businesses
may be mutually agreed. This reduces inventory sizes leading to
cost reduction of goods.
 There are two strategies that can be followed:

 If it is a commonly available commodity, then one can follow

an e-auction path.

In this strategy a request for e-quotation is publicized in the

web on the organization's web site. Based on the quotes the best
option can be picked. This can be done periodically. This will
minimize the cost of procurement and minimize inventory
holding cost.
 If the item is specialized, a cooperative strategy can be
followed.

 In this case, the cooperating vendor can be allowed access to

the demand forecasts and the actual stock position in the
database via the extranet. Using this information the cooperating
vendor can plan the production schedule to meet the expected
demand.

 When the stock position of the purchaser goes down, the

vendor knowing the position can automatically prepare to deliver
the items. Such a system ensures for the purchaser and vendor a
well coordinated seller-buyer relationship and both parties gain.