Chapter 10 - Study Guide

Chapter 10

Payment Systems, Order Fulfillment, and the Supply Chain

As you read the textbook and go through this lesson, think about the following questions:

·        What are the most common forms of online payment?

·        How do credit card purchases online differ from credit card purchases face-to-face?

·        What is a smart card?

·        What is meant by e-micropayment?

·        What is an e-check?

·        What are the steps in the order fulfillment process?

·        What is meant by supply chain?  What are some typical problems that can arise in the supply chain?

·        How do e-logistics differ from traditional logistics in regard to e-commerce?

Upon completion of this chapter, you will be able to:

1. Understand the shifts that are occurring with regard to online payments.

2. Discuss the players and processes involved in using credit cards online.

3. Discuss the different categories and potential uses of smart cards.

4. Discuss stored-value cards and identify under what circumstances they are best used.

5. Describe the situations where e-micropayments are used and the alternative ways for handling these situations.

6. Describe the processes and parties involved in e-checking.

7. Understand the major types of mobile payments.

8. Describe payment methods in B2B EC, including payments for global trade.

9. Describe the role of support services in electronic commerce (EC).

10. Define EC order fulfillment and describe the EC order fulfillment process.

11. Describe the major problems of EC order fulfillment.

12. Describe various solutions to EC order fulfillment problems.

13. Describe RFID supply chain applications.

14. Describe collaborative planning and the CPFR model.

15. Describe other EC support services.

16. Discuss the drivers of outsourcing support services.

Answers to Pause/Break Section Review Questions

Section 10.1 Review Questions

1. What types of e-payments should B2C merchants support?

For online B2C merchants, the implications of these trends are straightforward. In the

United States and Western Europe it is hard to run an online business without supporting credit card payments, despite the costs. It also is becoming increasingly important to support payments by debit card. Under current growth patterns, the volume of debit card payments will soon surpass credit card payments both online and off-line.

2. What is the “chicken-and-egg” problem in e-payments?

A crucial element in the success of any e-payment method is the “chicken-and-egg” problem: How do you get sellers to adopt a method when there are few buyers using it?

3. Describe the factors that are critical for an e-payment method to achieve critical mass.

·       Independence

·       Interoperability and Portability

·       Security

·       Anonymity

·       Divisibility

·       Ease of Use

·       Transaction Fees

·       Regulations

Section 10.2 Review Questions

1. Describe the three types of payment cards.

The three common types of payment cards include credit cards, charge cards, and debit cards.

2. What options does a merchant have in setting up an e-payment system?

A merchant can choose to:

·       Own the payment software.

·       Use a point of sale system (POS) operated by an acquirer.

·       Use a POS operated by a payment service provider.

3. List the major participants in processing credit cards online.

For a given type of payment card and processing system, the processes and participants are essentially the same for off-line (card present) and online (card not present) purchases.  Exhibit 10.1 compares, for instance, the steps involved in making a credit card purchase both online and off-line.

4.  What costs does an online merchant incur if it submits a fraudulent credit card transaction?

In the online world, merchants are held liable for fraudulent transactions. In addition to the lost merchandise and shipping charges, merchants who accept fraudulent transactions can incur additional fees and penalties imposed by the credit card associations.

5. Describe the major trends in fraudulent orders perpetrated against online merchants.

Online fraud continues online, but the number of fraudulent orders has decreased.  This is in part due to new safeguards adopted by merchants.  These safeguards have increased the costs for merchants.

6. What steps are often taken by online merchants to combat fraudulent orders?

Merchants can take several steps to attempt to avoid fraud.  These include:

·       Address verification - Detects fraud by comparing the address entered on a Web page with the address information on file with the cardholder’s issuing bank.

·       Manual review

·       Fraud screens and automated decision models

·       Card verification number (CVN) - Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank.

·       Card association payer authentication services

·       Negative lists

7. What are the steps to processing credit cards online?

– Authorization -Determines whether a buyer’s card is active and whether the customer has sufficient funds.

– Settlement - Transferring money from the buyer’s to the merchant’s account.

Section 10.3 Review Questions

1. What is a smart card? Contact card? Contactless card?

·       Smart card - An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card.

·       Contact card - A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip.

·       Contactless (proximity) card - A smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader.

2. What is a smart card reader and a smart card operating system?

·       Smart card reader - Activates and reads the contents of the chip on a smart card, usually passing the information on to a host system. The primary purpose of the smart card reader is to act as a mediator between the card and the host system that stores application data and processes transactions.

·       Smart card operating system - Special system that handles file management, security, input/output (I/O), and command execution and provides an application programming interface (API) for a smart card.

3. Describe the use of smart cards in metropolitan transportation systems.

These systems generally store passenger information and value, and thus allow for a “cashless” system that is more efficient.

Section 10.4 Review Questions

1. What is a closed-loop stored-value card? What is an open-loop card?

Stored-value card - A card that has monetary value loaded onto it and that is usually rechargeable. A stored-value card allows users to make purchases from the value associated with the card.  A closed-loop card can only be spent for its initial value, while an open-loop card can have additional value added in at any time.

2. What are the major markets for stored-value cards?

The stored-value card market is growing rapidly. Market analysts estimate that there are over 2,000 stored value programs with over 7 million branded cards in use today (Su and Rhine 2004). By 2006, stored-value transactions were expected to exceed $70 billion. By 2008, the number of users was expected to be around 50 million, more than doubling the current figure.  Stored value cards work well as gifts, and are also used for smaller, consistent purchases.

Section 10.5 Review Questions

1. What is a micropayment?

A small online payment, typically under $10.

Five basic micropayment models that do not depend solely or directly on credit or debit cards:

1. Aggregation

2. Direct payment

3. Stored value

4. Subscriptions

5. À la carte

2. List some of the situations where e-micropayments can be used.

E-micropayments, which are small online payments, can usually be used for purchases under $10 (U.S.). These are often used for routine, repetitive purchases (like bus fare) or for purchasing small amounts of a product or service (articles).

3. Outside of using credit or debit cards, what are some of the alternative ways that an online merchant can handle micropayments?

Merchants can use other services to process the transaction.  One example would be to use PayPal.

Section 10.6 Review Questions

1. What is an e-check?

An e-check is the electronic version or representation of a paper check. E-checks contain the same information as a paper check, can be used wherever paper checks are used, and are based on the same legal framework.

2. Briefly describe how third-party e-check payment systems work.

Most businesses rely on third-party software to handle e-check payments. CheckFree, Telecheck, AmeriNet, Paymentech, and Authorize.Net are some of the major vendors of software and systems that enable an online merchant to accept and process electronic checks directly from a Web site.

3. What is the ACH?

Automated Clearing House (ACH) Network - A nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions.

4. List the benefits of e-checking.

·       It reduces the merchant’s administrative costs by providing faster and less paper-intensive collection of funds.

·       It improves the efficiency of the deposit process for merchants and financial institutions.

·       It speeds the checkout process for consumers.

·       It provides consumers with more information about their purchases on their account statements.

·       It reduces the float period and the number of checks that bounce because of insufficient funds (NSFs).

Section 10.7 Review Questions

1. Discuss proximity-based wireless payments. How have they been used in the transportation arena?

These systems use proximity-based smart cards to pay for items, for example, bus fares.

2. What are the basic processes used in handling mobile remote payments?

·       The payer initiating the payment sets up an account with a mobile payment service provider (MPSP).

·       The user selects an item to purchase. The merchant asks for a payment.

·       To make the payment, the payer sends a text message (or a command) to the MPSP that includes the dollar amount and the receiver’s mobile phone number.

·       The MPSP receives the information and sends a message back to the payer, confirming the request and asking for the customer’s PIN.

·       The payer receives the request on his or her mobile device and enters the PIN.

·       After the MPSP receives the payer’s PIN, money is transferred to the receiver’s account (credit card or bank account). The payer’s account is debited.

·       After the transaction occurs, the payment information is sent to the payer’s mobile device and his or her account at MPSP is debited.

Section 10.8 Review Questions

1. Describe the financial supply chain.

B2B payments are part of a much larger financial supply chain that includes procurement, contract administration, fulfillment, financing, insurance, credit ratings, shipment validation, order matching, payment authorization, remittance matching, and general ledger accounting.

2. Describe the current state of B2B e-payments.

Twenty-eight percent indicated that their organizations plan to convert the majority of their B2B payments from check to electronic payments over the next three years.

3. What is electronic invoice presentment and payment (EIPP)?

The process by which companies present invoices and make payments to one another through the Internet is known as enterprise invoice presentment and payment (EIPP).

4. Describe the three models of EIPP.

Buyer, Seller, and Consolidator

5. Describe the basic EIPP options.

A variety of online options are available for making payments in an EIPP system. Each differs in terms of cost, speed, auditability, accessibility, and control.  Some options include:

·       ACH Network

·       Purchasing Cards

·       Fedwire or Wire Transfer

·       Letters of Credit for Global Payments

6. What is a purchasing card?

Purchasing cards (p-cards) are special-purpose payment cards issued to a company’s employees.

7. What Managerial issues are involved with ecommerce?

1. What payment methods should your B2C site support?

2. What e-micropayment strategy should your emarketplace support?

3. What payment methods should the C2C marketplace support?

4. Should we outsource our payment gateway service?

5. How secure are e-payments? What is the required security to use Internet banking?

Review Questions

1. Define order fulfillment, logistics back-office operations and front-office operations.

·       Order Fulfillment - all of the activities needed to provide customers with ordered goods and services, including related customer services. 

·       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.

·       Back-office operations - The activities that support fulfillment of orders, such as packing, delivery, accounting, and logistics.

·       Front-office operations - The business processes, such as sales and advertising that are visible to customers.

2. Compare traditional logistics with e-logistics.

E-logistics - The logistics of EC systems, typically involving small parcels sent to many customers’ homes (in B2C). E-logistics is different in that it is generally more personalized, dynamic and reliant on technology.  These differences are summarized in Exhibit 10.2.

3. List the nine steps of the order fulfillment process.

1.     Making sure the customer will pay - Depending on the payment method and prior arrangements, the validity of each payment must be determined. In B2B, the company’s finance department or financial institution (i.e., a bank or a credit card issuer, such as Visa) may do this. Any holdup may cause a shipment to be delayed, resulting in a loss of goodwill or a customer. In B2C, the customers usually prepay, frequently by credit card.

2.     Checking for in-stock availability - Regardless of whether the seller is a manufacturer or a retailer, as soon as an order is received an inquiry needs to be made regarding stock availability. Several scenarios are possible here that may involve the material management and production departments, as well as outside suppliers and warehouse facilities. In this step, the order information needs to be connected to the information about in-stock inventory availability.

3.     Arranging shipments - If the product is available, it can be shipped to the customer right away (otherwise, go to step 5). Products can be digital or physical. If the item is physical and it is readily available, packaging and shipment arrangements need to be made. It may involve both the packaging and shipping department and internal shippers or outside transporters. Digital items are usually available because their “inventory’ is not depleted. However, a digital product, such as software, may be under revision and unavailable for delivery at certain times. In either case, information needs to flow among several partners.

4.     Insurance - Sometimes the contents of a shipment need to be insured. This could involve both the finance department and an insurance company. Again, information needs to flow, not only inside the company, but also to and from the customer and insurance agent.

5.     Replenishment - Customized orders will always trigger a need for some manufacturing or assembly operation. Similarly, if standard items are out of stock, they need to be produced or procured. Production can be done in-house or by contractors. The suppliers involved may have their own suppliers (subsuppliers or tier 2 suppliers).

6.     In-house production - In-house production needs to be planned. Production planning involves people, materials, components, machines, financial resources, and possibly suppliers and subcontractors. In the case of assembly, manufacturing, or both, several plant services may be needed, including possible collaboration with business partners. Services may include scheduling of people and equipment, shifting other products’ plans, working with engineering on modifications, getting equipment, and preparing content. The actual production facilities may be in a different country than the company’s headquarters or retailers. This can further complicate the flow of information and communication.

7.     Use contractors - A manufacturer may opt to buy products or subassemblies from contractors. Similarly, if the seller is a retailer, such as in the case of amazon.com or walmart.com, the retailer must purchase products from its manufacturers. Several scenarios are possible. Warehouses can stock purchased items, which is what Amazon.com does with its best-selling books, toys, and other commodity items. However, Amazon.com does not stock books for which it receives only a few orders. In such cases, the publishers or intermediaries must make the special deliveries. In either case, appropriate receiving and quality assurance of incoming materials and products must take place. Once production (step 6) or purchasing from suppliers (step 7) is completed, shipments to the customers (step 3) are arranged.

8.     Contacts with customers - Sales representatives need to keep in constant contact with customers, especially in B2B, starting with notification of orders received and ending with notification of a shipment or a change in delivery date. These contacts are usually done via e-mail and are frequently generated automatically.

9.     Returns - In some cases, customers want to exchange or return items. Such returns can be a major problem; more than $100 billion in North American goods are returned each year (Kuzeljevich 2004). Returns cost UK retailers approximately $1.4 billion a year (Boles 2004). The movement of returns from customers back to vendors is called reverse logistics.

4. Compare logistics to reverse logistics.

Logistics is the shipment of goods to customers while reverse logistics is customers returning those goods.  Reverse logistics is generally more difficult because there is no expected flow of goods.

Review Questions

1. List some problems along the EC supply chain.

Some problems include inventory levels, incorrect or slow shipments, and demand forecasting.

Typical Supply Chain Problems

– Demand forecasting is difficult

– Many of the problems along the EC supply chain stem from the need to coordinate several activities, internal units, and business partners in the face of uncertainties

2. Explain how uncertainties create order fulfillment problems; list some of these problems.

The scope of the order fulfillment mechanism depends on the volume of orders to process.  The greatest uncertainty is forecasting this volume.  If the order fulfillment mechanism is too large, idle time is created, if the order fulfillment mechanism is too small, orders are not shipped on time.

3. What problems may exist in financial supply chains?

Generally, the inability to forecast correctly.

4. Describe the role of 3PLs.

Pure EC companies are likely to have more problems because they do not have a logistics infrastructure already in place and thus are forced to use external logistics services rather than in-house departments for these functions. These external logistics services often are called third-party logistics (3PL) suppliers, or logistics service providers.

5. Why is information sharing needed?

Information sharing allows for better planning and decision making based on accurate data.

What are some solutions to order fulfillment problems?

– Improvements in the Order-Taking Process - One way to improve order fulfillment is to improve the order-taking process and its links to fulfillment and logistics. Order taking can be done via EDI, EDI/Internet, the Internet, or an extranet, and it may be fully automated. For example, in B2B, orders can be generated and transmitted automatically to suppliers when inventory levels fall below a certain threshold. The result is a fast, inexpensive, and more accurate (no need to rekey data) order-taking process. In B2C, Web based ordering using electronic forms expedites the process, makes the process more accurate (e.g., intelligent agents can check the input data and provide instant feedback), and reduces processing costs for sellers. When EC order taking can interface or integrate with a company’s back-office system, it shortens cycle times and eliminates errors. Order-taking improvements also can take place within an organization, for example, when a manufacturer orders parts from its own warehouse. Whenever delivery of such parts runs smoothly, it minimizes disruptions to the manufacturing process, reducing losses from downtime. Implementing linkages between order-taking and payment systems also can be helpful in improving order fulfillment. Electronic payments can expedite both the order fulfillment cycle and the payment delivery period. With such systems, payment processing can be significantly less expensive and fraud can be better controlled.

– Warehouse management system (WMS) - A popular EC inventory management solution is a warehouse management system (WMS). WMS refers to a software system that helps in managing warehouses. It has several components. For example, in the case of Amazon.com the system supports item pickers as well as packaging. Amazon.com’s B2C WMS can handle hundreds of millions of packages. Manhattan

(manhattan.com), RedPrairie (redprairie.com), and High Jump (highjumpsoftware.com) are leaders in the WMS market space. Online File W10.1.1 illustrates how one company, Schulman Fine Paper, has utilized its WMS to improve demand forecasting and inventory management.

• Other Inventory Management Improvements - WMS is useful in reducing inventory and decreasing the incidence of out-of-stocks. Such systems also are useful in maintaining an inventory of repair items so repairs can be expedited; picking items out of inventory in the warehouse; communicating; managing product inventory; receiving items at the warehouse; and automating the warehouse

(e.g., Amazon.com). For example, introducing a make-to-order (pull) production process and providing fast and accurate demand information to suppliers can minimize inventories. Allowing business partners to electronically track and monitor inventory levels and production activities can improve inventory management and inventory levels, as well as minimize the administrative expenses of inventory management. In some instances, the ultimate inventory improvement is to have no inventory at all; for products that can be digitized (e.g., software), order fulfillment can be instantaneous, eliminating the need for inventory.

• Automated Warehouses - Large-volume EC fulfillment requires automated warehouses. Regular warehouses are built to deliver large quantities to a small number of stores and plants. In B2C, however, businesses need to send small quantities to a very large number of individuals. Automated warehouses can minimize the order fulfillment problems that arise from this need. Automated warehouses may include robots and other devices that expedite the pick-up of products. An example of a company that uses such warehouses is Amazon.com. The largest EC/mail-order warehouse in the United States is operated by a mail-order company, Fingerhut. This company handles its own order fulfillment process for mail orders and online orders, as well as orders for Wal-Mart, Macy’s, and many others. Other companies (e.g., fosdickfulfillment.com) provide similar order fulfillment services. The keys to successful inventory management, in terms of order fulfillment, are efficiency and speed, which can be facilitated by wireless devices.

–Partnering Efforts and Outsourcing Logistics - An effective way to solve order fulfillment problems is for an organization to partner with other companies. For example, several EC companies partner with UPS or FedEx. Logistics-related partnerships can take many forms. Another partnering example is marketplaces managed by forwarders.com and aacb.com, which help companies with goods find “forwarders’- the intermediaries that prepare goods for shipping. They also help forwarders find the best prices on air carriers, and the carriers bid to fill the space with forwarders’ goods that need to be shipped. SkyMall (skymall.com), owned by New York-based private equity fund Spire Capital Partners and The Greenspan Corporation, is a retailer that sells from catalogs on airplanes, over the Internet, and by mail order. It relies on its catalog partners to fill the orders. For small vendors that do not handle their own shipments and for international shipments, SkyMall contracts distribution centers owned by fulfillment outsourcer Sykes Enterprise. As orders come in, SkyMall conveys the data to the appropriate vendor or to a Sykes distribution center. A report is then sent to SkyMall.

• Comprehensive Logistics Services - Major shippers, notably UPS and FedEx, offer comprehensive logistic services. These services are for B2C, B2B, G2B, and other types of EC. See Online File W10.1.2 for a description of the broad EC services UPS offers.

– Speeding Deliveries - In the digital age, the standard delivery services provided by companies such as FedEx and UPS may not be fast enough. Today, we talk about same-day delivery, and even delivery within an hour. Deliveries of urgent materials to and from hospitals are an example of such a service. eFulfillment Service (efulfillmentservice.com) and One World (owd.com) are two companies that have created networks for the rapid distribution of products, mostly EC-related ones. They offer national distribution systems across the United States in collaboration with shipping companies, such as FedEx and UPS. Delivering food is an area where speed is important. Quick pizza deliveries have been available for a long time. Today, many pizza orders can be placed online, some wirelessly. Also, many restaurants deliver food to customers who order online, a service called “dine online.’ Examples of this service can be found at dineonline.com and gourmetdinnerservice.com.au. Some companies even offer aggregating supply services, processing orders from several restaurants and then making deliveries (e.g., dialadinner.com.hk in Hong Kong). Grocery and supermarket deliveries are done same day or next day. Arranging and making such deliveries may be difficult, especially when fresh food is to be transported. Buyers may need to be home at certain times to accept the deliveries. Therefore, the distribution systems for such enterprises are critical. One of the most comprehensive delivery systems was that of GroceryWorks (now a subsidiary of Safeway USA). Note that the delivery trucks can pick up other items (such as rented videos and dry cleaning).

– Handling Returns (Reverse Logistics)

• Return the item to the place of purchase

• Separate the logistics of returns from the logistics of delivery

• Completely outsource returns

• Allow the customer to physically drop the returned item at a collection station

• Auction the returned items

– Order Fulfillment in B2B - Most of the discussion in this section has centered on B2C order fulfillment. Some of the discussion pertains to B2B fulfillment as well. Exhibit W10.1.3 shows the B2B fulfillment options. The exhibit shows how the buy options (brown lines) relate to the shipping options (blue lines). For another overview of B2B fulfillment, see Supplychainer.com (2006). B2B fulfillment may be more complex than that of B2C because it has at least six dimensions of complexity (versus two in B2C): shipment size, multiple distribution channels, more variety of shipment frequency, uneven breadth of carrier services, fewer carrier EC offerings, and complex EC transaction paths.

• Using BPM to Improve Order Fulfillment - B2B order fulfillment commonly uses business processes management (BPM) software to automate various steps in the process, as done by Daisy Brand (Online File W10.1.3). The case also demonstrates how customers pressure suppliers to improve the order fulfillment process. Note that a video supporting this case is available at tibco.com.

Review Questions

1. List the various order-taking solutions.

The solutions can include the use of EDI, EDI/Internet, Internet, extranet or other more automated solutions.

2. List solutions for improved delivery.

Some solutions include partnerships with delivery carriers, and forwarders that can immediately ship products to customers.

3. Describe same-day shipments.

Same-day shipments are product orders that can be delivered to the customer in the same day that the product is ordered.  Same-day shipments are very difficult because of the fast processing time needed, but necessary in certain industries.

4. Describe some innovative e-strategies for order fulfillment.

Two examples are merge-in-transit and rolling warehouses.

5. Describe how to effectively manage the return of items.

There are several different methodologies for return handling, including returning the item to the place where it was purchased, separate logistics for returns, outsourcing returns, and physically dropping off the returned items to collection stations.

6. Describe issues in B2B fulfillment.

The major issues are shipment size, multiple distribution channels, variety of shipment frequency, uneven breadth of carrier services, fewer carrier EC offerings, and complex EC transaction paths.

7. List three outcomes of tomorrow’s supply chain.

Tomorrow’s supply chains will address a number of concerns and allow for greater efficiency.  Some goals and advantages include:

·       Monitoring cost, quality, and delivery on time

·       Safety and security of goods delivered

·       Eliminating waste, reducing pollution, improving the environment

·       Resilience, quick recovery from disruptions of all kinds

·       Responsiveness—change quickly to adapt to changing conditions

·       Innovation—using the supply chain as a source of new processes and products, both internally and with business partners

Review Questions

1. What is RFID?

Tags that can be attached to or embedded in objects, animals, or humans and use radio waves to communicate with a reader for the purpose of uniquely identifying the object or transmitting data and/or storing information about the object.

2. How can RFID improve supply chain visibility?

RFID tags can be attached to products to more carefully monitor their location for inventory purposes. When goods are tracked, their location and the speed they are traveling through the supply chain can be better understood and planned for.

3. Describe three RFID supply chain applications.

·       Food – measure temperatures

·       Labeling – tracking in lieu of labels

·       Inventory – tracking locations

4. What is CPFR?

CPFR is collaborative planning, forecasting, and replenishment: a practice in which suppliers and retailers collaborate in their planning and demand forecasting to optimize flow of materials along the supply chain.

5. How can CPFR improve supply chain operations of an e-commerce retailer?

By allowing upstream suppliers to better stock/plan for demand.

Review Questions

1. Describe the role of EC consultants and list their major types.

EC consultants can play many roles in assisting businesses as they design and manage EC sites. There are three major types of EC consultants: EC specific consultants, general consultants, and hardware/software consultants.

2. Describe the value of directory services. Provide three examples of what value they add.

Student answers will vary.  Directory services aggregate buyers and sellers, provide basic information and may have some aspect of endorsement.

3. Explain why specialized search engines are needed.

As the number of sites increases, search engines become generalized.  Specialized engines keep their focus.

4. List some other EC support services.

Additional services include trust services, trademark and domain names, digital photos, global business communities, commercial databases, consulting, KM, client matching, rating sites, encryption sites and coupon-generating sites.

5. List the major reasons why companies outsource EC support services.

Generally these services are outsourced if the firm does not have the ability to perform the actions required, or does not feel that it is an organizational strength.

6. Which types of services are outsourced the most?

IT services are most often outsourced.

7. Describe the benefits of ASPs.

ASPs can provide many of the services required by an EC firm.  These vendors can provide an unbundled variety of services.  Their primary advantage is cost for SMEs and allowing a firm to concentrate on its core competence.

Answers to EC Application Case Questions

EC Application 10.1:  To POP or BOC: Digital Checks in the Offline World

Questions

1. What does POP stand for and how does it work?

POP stands for Purchase Order Processing and it eliminates the handling of paper checks by converting a check into an e-check at the point of sale.

2. What does BOC stand for and how does it work?

BOC stands for Back-Office Order Conversion and it eliminates the handling of paper checks by converting a check into an e-check after the point of sale in a batch process.

3. What are the advantages and disadvantages of POC?

Advantages include:

·       Reduction of handling costs

·       Faster payments

·       Better funds availability

·       Faster notification of insufficient funds

Disadvantages include:

·       Required readers

·       Special training

·       Customer confusion

·       Increased purchase process time

EC Application Case 10.2- CLOSING THE DIGITAL DIVIDE WITH MOBILE MICROFINANCE IN BANGALORE (INDIA)

Questions

1. What is microfinance?

Microfinance refers to the provision of financial services to poor or low-income clients, including consumers and the self-employed.

2. What problem is Grameen Koota trying to solve by adopting mobile loans and payments?

They are hoping to make the maintenance and reporting on these loans easier.

3. How will mobile loans and payments work for organizations like Grameen Koota?

The system would allow them to process more loans and payments, with an easier process.

4. What are the social and economic impacts of the program?

The program allows individuals who would never have had access to capital a chance to improve their lives.

EC Application Case: How WMS Helps Schurman Improve Its Internal And External Order Fulfillment System

Questions

1. Identify what the WMS automates, both in receiving and shipping.

An advanced ship notice is automatically generated (replacing the lengthy process of manual scanning). The new system also automates the task of assessing the length, width, height, and weight of each item before it goes into a box (to determine which item goes into what box). The system also improved inventory replenishment allocations.

2. In the future, RFID tags (Online Tutorial T3) could replace the bar codes that are currently used. What would be the advantages of using RFID? Where can it be used?

RFIDs would reduce the need to scan bar codes and improve the efficiency and speed of product placement and recording.

3. How has inventory management been improved?

The WMS simultaneously created two lists, expediting fulfillment. This tripled the number of orders fulfilled per picker per day. The system also generates automatic replenishment orders for items falling below a minimum level at any storage location.

EC Application Case: UPS Provides Broad EC Services

Questions

1. Why would a shipper such as UPS expand to other logistic services?

Firms might enter these related industries because of their existing investments in infrastructure that could support other services.

2. Why would shippers want to handle payments?

Shippers may want to handle payments because it facilitates the overall process of shipping, and thus adds to their business.

3. Why does UPS provide software tools to customers?

UPS provides these goods because it eliminates the need for direct customer service while using existing shipping information to grow EC and UPS’s business.

4. What B2B services does UPS provide? (Note: Check ups.com to make sure that your answers are up-to-date.)

UPS provides a wide range of business services involved with shipping and logistics operations.  Examples include integration with shipping and e-commerce systems, desktop-based shipping applications, logistics services for warehousing and shipping, and mobile commerce applications for shipment management.

EC Application Case: How Daisy Brand Fulfills B2B Orders

Questions

1. Describe the steps in order fulfillment at Daisy Brand.

Orders are placed through EDI, and then move to an ERP system that tracks and manages fulfillment and shipping.

2. How is the automation of order fulfillment done?

Orders are all electronic; fulfillment services are controlled by the ERP system which designate product, volume and shipping date.

3. How can supermarkets benefit from introducing electronic processing by Daisy Brand?

These systems can reduce costs through the efficiency of using electronic ordering.  Additionally, needs can be more accurately met by specifying parameters in the system..

4. Enter tibco.com and find information about their BPM and workflow products. How can they support order fulfillment?

Student responses will vary.  These systems help to automate many of the stages of the supply chain.

5. How can Daisy Brand improve its agility?

Student responses will vary. 

EC Application Case: How Sundowner Motor Inns Fulfill Its Online Reservations

Questions

1. Once you automate the order fulfillment and your data are online, you can generate additional revenue. How?

Student responses will vary, but may focus on marketing of unfilled rooms.

2. What are the criteria for a good order fulfillment in online hotel reservations?

Student responses will vary, but will focus on accurate, available data.

3. Why is it advantageous to integrate the front-end and back-end systems?

This integration allows visibility of what is booked and what is not.

EC Application Case: West Marine: A CPFR Success Story

Questions

1. What were the major elements of West Marine’s CPFR success?

Some factors in its success were the thoroughness of the integration and planning of the IT systems coupled with the close relationship with suppliers.

2. What were the benefits of the CPFR implementation for West Marine?

The system allows them to forecast accurately and better understand the supply chain.  It also allows them to more easily integrate new acquisitions.

Answers to Discussion Questions

1. Boku (boku.com) provides a system called Paymo (for pay mobile) that enables buyers to charge purchases to their cell phone accounts. How does the system work? Who are some of the companies supporting Paymo? Do you think the Paymo system will succeed? What factors will play a major role in its success or failure?

Student opinions will vary, but success may be based on convenience and ease of use.

2. A textbook publisher is interested in selling individual book chapters on the Web. What types of e-payment methods would you recommend to the publisher? What sorts of problems will the publisher encounter with the recommended methods?

Student answers will vary based on student perceptions of the service.

3. Recently, a merchant who accepts online credit card payments has experienced a wave of fraudulent orders. What steps should the merchant take to combat the fraud?

The merchant has a number of options available.  The easiest to implement are enhanced security on the card processing, requiring additional details and checks against addresses, phone numbers and CID codes.  Student solutions will vary based on their opinions and experience.

4. A retail clothing manufacturer is considering e-payments for both its suppliers and its buyers. What sort of e-payment method should it use to pay for office supplies?  How should it pay suppliers of raw materials? How should its customers—both domestic and international clothing retailers—pay?

While there are many options, some of the most common would include:

·       Office supplies – business credit/debit cards (possibly online) OR accounts with suppliers

·       Raw materials – probably business credit/debit cards (possibly online) OR e-tendering

·       Customers - personal credit/debit cards (possibly online) OR accounts like PayPal OR stored value cards

Student answers will vary, will focus on the perceived appropriateness of different e-payment options to specific stakeholders.

5. A metropolitan area wants to provide riders of its public transportation system with the ability to pay transit fares, as well as make retail purchases, using a single contactless smart card. What sorts of problems will they encounter in setting up the system, and what types of problems will the riders encounter in using the cards?

The transit group will have to deploy standard equipment over the area and ensure that different transportation options all work together.  Users may face problems with loading or using the cards (such as transmission problems).

6. Discuss the problems of reverse logistics in EC. What types of companies may suffer the most?

The process of reverse logistics in EC is difficult because reverse logistics is not scheduled or controlled by the company, it is controlled by consumers.  This means that returns can happen at any time and from a variety of locations.  Because the good was not sold from a physical location, returning the good to the firm will be difficult because some sort of shipping or other method must be used.  Small businesses have the largest issues with reverse logistics because their small transaction size does not allow the level of planning and organization afforded with larger businesses.

7. Explain why UPS defines itself as a “technology company with trucks,” rather than a “trucking company with technology.”

UPS feels that it derives its business processes from its technology and not its experience in traditional trucking.  The firm believes that its core competency and strategic differentiation is its ability to use technology to control the trucking process.

8. Under what situations might the outsourcing of EC services not be desirable?

Student answers will vary, but may include when those services are too expensive, critical to the business, or complex/proprietary.

9. UPS and other logistic companies also provide financial services. Discuss the logic of this.

These companies are expanding their service offering with the hope of capturing existing customers.  This service may also be an extension of shipping as it relates to factoring and purchasing known A/R (Accounts Receivable).

10. Differentiate order fulfillment in B2C from that of B2B.

B2C order fulfillment deals generally with inventory and logistics to the customer, while B2B deals with a myriad of factors related to demand and the supply chain.  Some examples include: shipment size, multiple distribution channels, variety of shipment frequency, uneven breadth of carrier services, fewer carrier EC offerings and complex EC transaction paths.

11. Discuss the motivation of suppliers to improve the supply chain to customers.

Improving the supply chain provides better overall service and can also result in reduced costs.

12. Discuss how CPFR can lead to more accurate forecasting and discuss how it can resolve the bullwhip effect.

By increasing information flow and openness across the supply chain, CPFR allows all parties to have access to the data used to make forecasts.  Having more real data (and fewer estimates) allows for more accurate forecasts and inventory levels.

13. Describe the advantages of RFID over a regular bar code in light of supply chain management.

RFID eliminates the need to scan barcodes, since movement along the supply chain is tracked by actual location.  This allows for faster, more accuraye positioning of all tagged goods.

14. Discuss the need to integrate EC with partners’ systems.

In the same way that internal integration can bring benefits, external integration can provide similar results.  This speeds up the supply chain and can be seen as a valuable service to vendors.

15. Discuss the need for intelligent and software agents.

These agents allow for streamlining of important processes, increasing speed and efficiency.

16. Investigate and discuss how artificial intelligence can be used to pick and pack orders faster and more accurately. Begin with McGown (2010).

Student research and results will vary.  Some possibilities include the use of robots reading RFID tags to place orders they are set wirelessly by EC systems.

Topics for Class Discussion and Debates

1. If you were running an online retail store would you permit purchases with e-checks? Why or why not?

Student opinions will vary.  The issue will be if the value of accepting e-checks outweighs the disadvantages.

2. Why is the marketplace for electronic payment systems so volatile? Is there a need for some other form of electronic payment?

This is an evolving marketplace with a number of new entrants with different platforms.  The market is attractive because of the apparent need to have an easy, cashless system for the large volume of transactions. Student opinions will vary based on their perception of the marketplace.

3. Besides e-books and online music, what are some of the other places where e-micropayments could be used?

Student opinions will vary based on personal preferences.  Some options might include in-game items, information/news items and temporary access to websites.

4. Which would you prefer, paying for goods and services with a physical debit or credit card or paying with your cell phone? What are some of the benefits and limitations of each?

Student opinions will vary based on personal preferences.

5. Several companies have entered the e-book business. At the moment, Amazon.com has the lead, although Google is trying to make inroads. Debate which of these two companies has the best chance of dominating this market in the long run. Barnes & Noble? Explain.

Student opinions will vary.  The debate will focus on the business merits of the companies.

6. Discuss the need for intelligent software agents in order fulfillment and supply chain management.

Student research and opinions will vary.  The discussion will focus on the ways agents can assist and their relative benefits to a firm.

7. Chart the supply chain portion of returns to a virtual store. Check with an e-tailer to see how it handles returns. Prepare a report based on your findings.

Student research and opinions will vary based on the time of the report and what chain is selected.

8. Discuss how CPFR can solve order fulfillment problems along the supply chain. Use Exhibit 11.7 to relate the elements of the figure to your proposed solutions.

Student research and opinions will vary.  The discussion will focus on the relative benefits of the technology.

9. Identify the major concerns about using RFID by companies. Discuss the validity of these concerns.

Student research and opinions will vary based on personal preferences.

10. Should a B2B EC company outsource its delivery of ordered goods?

Student research and opinions will vary based on the type of company selected for analysis.

11. Some say outsourcing B2B services may hurt the competitive edge. Others disagree. Discuss.

Student research and opinions will vary.  The debate will focus on if outsourcing is a benefit in terms of cost or service quality.  For some firms, these services are not a core requirement and outsourcing may work well.  For others, these services may be a key factor in the overall success of the firm (requiring direct control).

12. Which activities are most critical in order fulfillment of B2C (check Exhibit 11.3)? For B2B? Discuss the differences.

Student research and opinions will vary based on personal preferences.  Factors in B2C focus on speed and accuracy of picking, packing and shipping orders.  In B2B, forcasting, tracking and information sharing are more important.

13. Debate the issue of outsourcing EC order fulfillment. Consult Johnson (2010).

Student research and opinions will vary. The debate will focus on if outsourcing is a benefit in terms of cost or service quality.  The results will be largely dependent on the industry, and the importance of both cost and effectiveness of the service.

14. Debate: Should companies use RFID or not?

Student research and opinions will vary.  The debate will focus on the cost/benefit of RFID. 

Internet Exercises

(Note: URLs may change over time; please check the Internet Exercises on the Turban Web site for possible updates: www.pearsonhighered.com/turban.)

1. A number of years ago, eBay offered a payment system called Billpoint. It was a head-to-head competitor with PayPal. Use online sources to research why PayPal succeeded and Billpoint failed. Write a report based on your findings.

Student reports will vary.  The research will show various reasons for the failure of Billpoint.  Some points students may include are: first-mover advantage to PayPal, network affects/the size of PayPal and ease of use/terms of service of Billpoint.

2. Select a major retail B2C merchant in the United States and one outside of North America. Detail the similarities and differences in the e-payment systems they offer. According to CyberSource’s “Insider’s Guide to ePayment Management” (cybersource.com/cgi-bin/pages/prep.cgi?page=/promo/InsidersGuide2008/index.html), what other payment systems could the sites offer?

Student reports will vary based on the retailer selected.

3. Download Transit and Contactless Financial Payments (October 2006) from smartcardalliance.org//pages/publications-transit-financial. Based on the report, what type of payment system is New York City Transit (NYCT) piloting? Who are NYCT’s partners in the pilot? What factors helped determine the type of system to be piloted? How does the pilot work?

Paper is now at: http://www.smartcardalliance.org/resources/pdf/Open_Payments_WP_110811.pdf

NYCT is currently using bank-issued contactless cards for payments.  NYCT has partnered with the banks to help with transaction processing and the methodology of the charges.  The system seeks better ease-of-use and adoption by not requiring specific cards for just the transportation system.  Success is measured by user adoption, feedback and cost/benefit.

4. Go to nacha.org.  What is NACHA? What is its role?  What is the ACH? Who are the key participants in an ACH e-payment? Describe the “pilot” projects currently underway at ACH.

NACHA oversees the ACH Network, which provides the infrastructure for the electronic movement of funds.   The participants in an ACH payment include the sender, sender’s bank, ACH network, recipient’s bank and the recipient.  Some current pilot projects involve healthcare payments and methods to stop fraud. Student reports will vary based on the services they highlight.

5. Both Walgreens and Kohl’s utilize Solutran’s SPIN for their BOC systems. Based on information provided at Solutran’s Web site (solutran.com) and information found in online articles about the system, what kinds of capabilities and benefits does the system provide? What is unique about the system? If you were running a large retail operation would you focus on POP or BOC?

Student reports will vary based on when the report is completed.  Currently, the system allows for faster and more efficient processing of transactions and payments.  The system is unique in its methods of quickly converting payments to the seller.  Current information is at: https://www.solutran.com/solutions/spin.html

6. The U.S Postal Service is also in the EC logistics field. Examine its services and tracking systems at usps.com/shipping. What are the potential advantages for EC shippers?

Student reports will vary based on the time of report and services selected.

7. Enter redprairie.com and find their order fulfillment related products and services. Prepare a list. Also, review the RFID products that can be used for order fulfillment.

Student reports will vary based on the time of report.  Currently, the company offers products for:

· Supply-chain

· Transportation

· Yard/Fleet

· Inventory

· Parcels

The company currently offers serval systems related to inventory and parcel management that integrate with RFID technology.  Current information is at: http://redprairie.com/Search.aspx?q=rfid

8. Visit  ups.com and find its recent EC initiatives. Compare them with those of fedex.com. Then go to wwwapps.ups.com/ctc/request and simulate a purchase. Report your experiences.

Both firms provide a wide variety of shipping software and solutions related specifically to electronic commerce.  Both firms provide plug-ins to electronic commerce applications that allow for the immediate calculation of e-commerce shipping amounts.  Both firms provide a wide variety of specific shipping and returns options.  FedEx appears to deal specifically with business-level shipping, while UPS additionally provides logistics services.  Both firms also provide an application for shipment management via mobile devices.

9. Visit freightquote.com and the sites of one or two other online freight companies. Compare the features offered by these companies for online delivery.

Student reports will vary based on the time of report.

10. Enter efulfillmentservice.com. Review the products you find there. How does the company organize the network? How is it related to companies such as FedEx? How does this company make money?

Student reports will vary.  This firm assists in providing a variety of outsourced fulfillment solutions, organizing their networks based on company size and type of firm.  It takes a portion of each sale to cover their costs and may use companies such as FedEx in the shipping process. 

11. Enter cerqa.com and find information about products that can facilitate order fulfillment. Write a report.

Student reports will vary based on the time of report and services selected.

12. Enter kewill.com. Find the innovations offered there that facilitate order fulfillment. Compare it to shipsmo.com. Write a report.

Student reports will vary based on the time of report and services selected.

13. Enter b2byellowpages.com and a2zofb2b.com Compare the information provided on each site. What features do both sites share? How do the sites differ?

b2byellowpages.com has a number of features, and appears to concentrate on business search and matching.  As of November 2011, a2zofb2b.comappears to be non-functional. Student reports will vary based on which services are evaluated.

14. Visit b2btoday.com. Go to the B2B Communities area and identify the major vendors there. Then select three vendors and examine the services they provide to the B2B community. Also enter sharedinsights.com and examine the information provided and the usefulness of joining the site.

Student reports will vary based on which vendors are viewed.

15. Enter fulfillmentconcepts.com and find the solutions they offer for digital procurement. Also review their literature on fulfillment.

Student reports will vary based on the time of report and services selected.

16. Enter support.dell.com and examine all the services available. Examine the tracking services Dell provides to its customers. Finally, examine Dell’s association with bizrate.com. Write a report about customer service at Dell.

The site provides a number of self-help and after-sales services.  Dell allows for tracking items after orders, as they are returning for repair and on the return from repair.  Dell actively seeks customer feedback through the third-party BizRate site. Student reports will vary based on the time of report and services selected.

17. Investigate the status of CPFR. Start at vics.org/committees/cpfr, google.com, and yahoo.com. Also enter supply-chain.org and find information about CPFR. Write a report on the status of CPFR.

Student reports will vary based on the time of report.

18. Enter future-store.org and find the progress on the use of RFID and other tools in supply chain improvements in retailing.

Student reports will vary based on the time of report. Currently, this imitative focuses on the use of RFID tags to more efficiently handle both incoming inventory and sales.

19. Enter the Market Lodge app at Facebook facebook.com/apps/application.php?id=7274648061 and bsocialnetworks.com/market-lodge-benefits.php. Summarize all the capabilities and benefits related to this chapter.

As of November 2011 the website is no longer active.

20. Enter rlec.org and summarize the differences between reverse and forward logistics. Also include returns management.

Student reports will vary based on the services selected.  The major differences are the ability to control and plan for the process.  Generally forward logistics is planned while reverse logistics (especial returns management from customers) is reactive.

21. Enter autocrat.biz and review the different classifications (options) available. Write a summary report.

As of November 2011, the site forward to an investment group - http://www.autocratassociates.com/.

22. Enter chainanalytics.com and find how they can improve logistics and solve supply chain and other fulfillment difficulties. Write a report.

Student reports will vary based on the time of report and services selected.

23. Discuss the difficulties in fulfilling orders for fresh food. Start with Thau (2010).

Student reports will vary based on individual preferences.

24. Enter freshdirect.com and examine the methods they use to improve order fulfillment of online grocers.

Student reports will vary based on the time of report and services selected.

25. Enter sifycorp.com and study their enterprise services. Specifically find what support services they provide. Write a report.

Student reports will vary based on the time of report and services selected.

Team Assignments and Role Playing

1. Assignment for the Opening Case

Read the opening case and answer the following questions. Suppose Amazon decided to resurrect its Amazon Pages program.

a. What sort of micropayment system should it use in order to run this business profitably?

A system that allows for easy payments with quick access – probably based on an existing account

b. What types of business and legal issues would it encounter in this business?

Generally issues of copyright and tracking use/payments to owners.

c. Besides the book and music businesses, describe some other online business where micropayments are or would be critical to its success.

Student opinions will vary. Some options might include in-game items, information/news items and temporary access to websites.

2. Select some B2C sites that cater to teens and some that cater to older consumers. Have team members visit these sites.  What types of e-payment methods do they provide? Are there any differences among the methods used on different types of sites? What other types of e-payment would you recommend for the various sites and why?

Student reports will vary based on the sites selected.

3. Write a report comparing smart card applications in two or more European and/or Asian countries. In the report, discuss whether those applications would succeed in North America.

Student reports will vary.

4. Have one team represent MasterCard PayPass and another represent American ExpressPay. The task of each team is to convince a company that its product is superior.

Student reports will vary based on personal preferences.

5. Have each team member interview three to five people who have made a purchase or sold an item at auction over the Internet. Find out how they paid.  What security and privacy concerns did they have regarding the payment? Is there an ideal payment method?

Student reports will vary based on the interviews.

6. AT&T, Verizon, T-Mobile, and Discovery Financial Services announced a project called Isis that will result in a new cell phone–powered payment system. How will this system work? What are some of the competing systems that have been proposed? Which system has the best chance of success and why?

Student responses and opinions will vary.  Isis is a system that links a user’s cellphone to their bank account, and allows phone-based payments.  Current information is at: http://www.paywithisis.com/

7. Go to the NACHA site for the Council on Electronic Billing and Payment (cebp.nacha.org). On the site it provides information (see the “initiatives” section) on various forms of EIPP and EBPP. Compare and contrast two of the forms it details.

Student reports will vary based on the time of the report.

8. Assignment for the Opening Case

Read the opening case about Amazon.com and answer the following questions:

a. What were the drivers of the centralized warehousing?

Due to the size of the business, they could not rely on outsourcing.

b. Amazon.com is using third-party companies for the delivery. Can you guess why?

They already have the infrastructure for deliveries on this scale.

c. Can Amazon.com use RFID in its warehouses. If yes, where and when? If no, why not?

It appears possible, but opinions will vary on the benefits.

d. Find how Amazon.com handles returned merchandize.

Student research will vary.  Generally, Amazon uses a reverse logistics management system that tracks returns, and then processes them for credits or re-stocking.

e. Draw Amazon.com’s supply chain for books.

Student depictions will vary.  In general, books are produced by publishers who ship to Amazon warehouses (or who warehouse of Amazon).  When orders are placed, books move from the warehouse to the customer through shipping companies.  Interesting details at: http://news.cnet.com/2100-1017-886784.html

f. Where do you think there are intelligent (software) agents in Amazon.com’s order fulfillment/logistics?

Student opinions will vary based on the time of the report. A good example would be in the prediction of demand based on real-time information.  This would then be used to make more informed inventory decisions.

9. Each team should investigate the order fulfillment process offered at an e-tailer’s site, such as amazon.com, staples.com, or landsend.com. Contact the company, if necessary, and examine any related business partnerships. Based on the content of this chapter, prepare a report with suggestions for how the company can improve its order fulfillment process. Each group’s findings will be discussed in class. Based on the class’s findings, draw some conclusions about how companies can improve order fulfillment.

Student reports will vary based on the e-tailer selected.

10. FedEx, UPS, the U.S. Postal Service, and others are competing in the EC logistics market. Each team should examine one such company and investigate the services it provides. Contact the company, if necessary, and aggregate the findings into a report that will convince classmates or readers that the company in question is the best. (What are its best features? What are its weaknesses?)

Student reports will vary based on the company selected.

11. Enter Ingram Micro’s resources site (ingrammicro.com/ext/0,,23344_23343_23345_21943,00.html). Use the case studies and articles there to write a report on the importance and benefits of Web fulfillment. Include both order fulfillment and reverse logistics.

Student reports will vary based on which case is used.

12. Watch RFID-Technology Video youtube.com/watch?v=4Zj7txoDxbE and answer the following questions:

a. What are the quality control applications?

It allows for increased speed of processes.

b. What are the applications in the supply chain?

It reduces physical steps, speeds the process, and makes it more accurate.

c. What are the relationships to storage?

It allows for easier inventories of goods in storage (and that it is in the right place).

d. How can the business process be improved?

It reduces the number of hand operations, and provides accurate, timely information.

e. To where are data transferred?

The central tracking system.

f. How do the RFID readers work?

They read the information to each tag.

g. What is the merchandise management system?

It tracks the goods and where it is going.

h. What are some future applications of RFID?

It can simplify storage by better tracking locations.

Student reports will vary. This is an interesting video with details that students will respond to differently.

13. Read about SAP’s Warehouse Management System at prospectasoftware.com/Resources/sap_wm.pdf and answer the following:

a. What supply chain processes are supported and how?

The system supports almost all processes by managing inventories and throughput.

b. What are the benefits of the system?

It allows for better planning efficiencies by having a greater understanding of actual, real-time operations.

c. How is quality achieved?

By closing evaluating data, and identifying anomalies.

d. What is the role of mobility?

Mobile applications allow for information to reach the floor.

e. How is this report related to this chapter?

It focuses on the use data to drive business efficiencies, which will effect the rest of the supply chain.

Student opinions and responses will vary.

Closing Case:  FREEMIUMS IN THE SOCIAL GAMING WORLD

1.                   What does the term freemium refer to? Give some examples.

It is a business model that gives free access, but charges for premium features.  Many social games fall into this category.

2.                   On the social networks, why is it difficult to generate revenue through advertising? Why is it particularly hard for social games?

Users dislike ads, and may not click on ads in the middle of a game.

3.                   How does the Zong system differ from the Spare Change system?

Spare Change integrates with web-based apps, whereas Zong seem to focus on mobile payments.

4.                   What is the long-term prognosis for companies like Zong and Spare Change?

Opinions will vary, but will be linked to the success of social gaming and micropayments.

Closing Case: HOW MASS CUSTOMIZATION EC ORDERS ARE FULFILLED—MULTIBRAS OF BRAZIL

1. What are the drivers of the make-to-order project?

The product sets the firm as an innovative, customer driven company.  It is also very profitable.

2. How are orders taken?

Orders can only be taken on the Web site.

3. How are orders handled on the assembly line?

They are tracked by an auditor, the system essentially becomes a parallel assembly line.

4. How are channel conflicts eliminated?

The customized product is meant to complement what is available from retailers.  Additionally this product serves those who are not near a retailer.

5. How is customer service provided?

Customer service is provided online through an online chat.

6. How is make-to-order practiced?

Items are produced in the small factory as mass-produced models.

Basics of E-Accounting

E-accounting has transformed traditional accounting, originally a pencil and paper record keeping system, into a high tech system that uses software applications to apply accounting principles to business operations. Just as we think of e-mail as being an electronic version of traditional mail, we can think of e-accounting as being an electronic version of accounting processes.

For example, many businesses, brick and mortar, click and mortar, and e-commerce, now use electronic general ledger systems that allow for more efficient data entry and reporting of transactions as well as flexibility in viewing information. The general ledger is the main accounting record of businesses that use double-entry bookkeeping. Electronic general ledger systems are usually customizable and are often integrated with other accounting applications, such as accounts payable, accounts receivable, and payroll.

In short, electronic applications have made the accounting process more efficient and given businesses the tools to more easily access financial information and, hopefully, make more effective decisions. Businesses can now more easily monitor and control financial aspects of the supply chain and more effectively budget for future growth.

Let's look at how e-accounting has transformed two specific areas of accounting, cash flow and accounts payable. In addition, we'll look at impact e-commerce strategy.

Cash Flow

The movement of money in and out of a business is its cash flow. When money moves out of a business and money does not move in to replace it, there is a cash flow problem.

The challenge of managing cash flow depends on:

·       when suppliers need to be paid;

·       the physical costs of housing inventory; and

·       Receiving payment from customers.

All businesses can now use e-accounting applications to analyze background data, generate graphs, and forecast future cash flow within seconds. In addition, online payment mechanisms can expedite payment from customers creating a compressed cash flow cycle which can be highly beneficial to a business.

When contemplating the start-up of an e-commerce site, cash flow plays a big part in the decision making process. E-commerce sites that deal in small sized items, digital materials, or services have storage costs that are minimal and or non-existent, so physical inventory cost is not a major concern. On the other hand, an e-commerce site that markets large items typically needs to factor in the physical cost of housing inventory in cash flow projections; these type of businesses need a physical presence.

Accounts Payable

Accounts payable refers to the money that a company owes to its suppliers. Some of the most obvious efficiencies that can be realized for all businesses via accounts payable applications are:

·       Instant retrieval of vendor data.

·       Instant retrieval of status of invoices.

·       Automatic posting to general ledger.

·       Automated handling of recurring transactions.

·       Need for repetitious data entry eliminated resulting in lower incidence of errors.

·       Improved relations with suppliers due to increased efficiency.

In a completely automated system, when the amount of a product in inventory falls below a certain level, an order is generated to the supplier to ship the product to the business to replenish the inventory. The business is charged, and the supplier is paid automatically, and appropriate entries are made within the accounting system. The accounts payable process runs automatically.

When contemplating the start-up of an e-commerce site, projected accounts payable need to be taken into account. For example, if the site's intent is to market web-design services, there may be no need to pay suppliers (providers of services) until payment is made or contracted for, so this site need to focus only on having qualified designers on stand-by, getting customers, and securing payment. In contrast, an e-commerce site that intends to market expensive items needs to be confident that it will be able to sell these items before purchasing them from the supplier in order to avoid a negative cash flow situation.

Glossary

Address Verification System (AVS): Detects fraud by comparing the address entered on a Web page with the address information on file with the cardholder's issuing bank.

Application service provider (ASP): An agent or vendor who assembles the functions needed by enterprises and packages them with outsourced development, operation, maintenance, and other services.

Authorization: Determines whether a buyer's card is active and whether the customer has sufficient funds.

Automated Clearing House (ACH) Network: A nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions.

Back-office operations: The activities that support fulfillment of orders, such as packing, delivery, accounting, and logistics.

Card verification number (CVN): Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder's issuing bank.

Collaborative planning, forecasting, and replenishing (CPFR): Project in which suppliers and retailers collaborate in their planning and demand forecasting to optimize flow of materials along the supply chain.

Contact card: A smart card containing a small gold plate on the face that when inserted in a smart reader makes contact and passes data to and from the embedded microchip.

Contactless (proximity) card: A smart card with embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader.

E-check: A legally valid electronic version or representation of a paper check.

E-logistics: The logistics of EC systems, typically involving small parcels sent to many customers' homes (in B2C).

E-micropayments: Small online payments, typically under $10.

Enterprise invoice presentment and payment (EIPP): Presenting and paying B2B invoices online.

Front-office operations: The business processes, such as sales and advertising, which are visible to customers.

Letter of credit (L/C): A written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents.

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.

Merge-in-transit: Logistics model in which components for a product may come from two (or more) different physical locations and are shipped directly to the customer's location.

Order fulfillment: All the activities needed to provide customers with their ordered goods and services, including related customer services.

Payment cards: Electronic card that contains information that can be used for payment purposes.

Payment service provider (PSP): A third-party service connecting a merchant's EC system to the appropriate acquiring bank or financial institution. PSPs must be registered with the various card associations they support.

Purchasing cards (p-cards): Special-purpose payment cards issued to a company's employees to be used solely for purchasing nonstrategic materials and services up to a preset dollar limit.

Radio frequency identification (RFID): Tags that can be attached to or embedded in objects, animals, or humans and use radio waves to communicate with a reader for the purpose of uniquely identifying the object or transmitting data and/or storing information about the object.

Reverse logistics: The movement of returns from customers to vendors.

Rolling warehouse: Logistics method in which products on the delivery truck are not preassigned to a destination, but the decision about quantity to unload at each destination is made at the time of unloading.

Settlement: Transferring money from the buyer's to the merchant's account.

Smart card: An electronic card containing an embedded microchip that enables predefined operations, or the addition, deletion, or manipulation of information on the card.

Smart card operating system: Special system that handles file management, security, input/output (I/O), and command execution and provides an application programming interface (API) for a smart card.

Smart card reader: Activates and reads the contents of the chip on a smart card, usually passing the information on to a host system.

Stored-value card: A card that has monetary value loaded onto it and that is usually rechargeable.

Third-party logistics suppliers (3PL): External, rather than in-house, providers of logistics services.

Visibility: The knowledge about where materials and parts are at any given time, which helps in solving problems such as delay, combining shipments, and more.

Warehouse management system (WMS): A software system that helps in managing warehouses.

Chapter Test

 1. One problem with the Address Verification System (AVS) for fraud prevention is the number of false positives, meaning that the merchant rejects a valid order.

A.    True

B.    False

 2. In the authorization process, money is transferred from the buyer's to the merchant's account.

A.    True

B.    False

 3. The disintermediation of cash and credit cards has been successful in the online world.

A.    True

B.    False

 4. Which of the following spurred the use of debit cards by eliminating the requirement for merchants to issue receipts for debit purchases of $15 or less?

A.    U.S. Electronic Funds Transfer Act

B.    Federal Deposit Insurance Act

C.    Bank Service Company Act

D.    Bank Protection Act

 5. The type of contact card that is erasable and modifiable is:

A.    EEPROM.

B.    BIOS.

C.    EPROM.

D.    RAM.

 6. Factors influencing whether a particular e-payment method achieves critical mass include:

A.    independence.

B.    security.

C.    interoperability and portability.

D.    all of the above.

 7. A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip is a:

A.    contact card.

B.    proximity card.

C.    plate card.

D.    dedicated card.

8. Factors that determine whether a particular method of e-payment achieves critical mass include each of the following except:

A.    full traceability of the buyers.

B.    interoperability with other enterprise systems and applications.

C.    degree of security of the transfer.

D.    hardware and software independence.

9. A file containing customer status and customer information that is used when processing transactions to identify known problem customers is a:

A.    cancellation list.

B.    rejection list.

C.    problem child list.

D.    negative list.

 10. Costs associated with fraudulent transactions include:

A.    additional fees and penalties imposed by card associations for accepting fraudulent transactions.

B.    the revenue that is lost from rejecting orders that are valid.

C.    the cost of manually reviewing orders.

D.    all of the above.

11. The barrier to selling books online, either hardcopy or electronic, is technical and not financial.

A.    True

B.    False

12. In the online world, virtually every attempt to disintermediate cash and credit cards has failed.

A.    True

B.    False

13. The overwhelming majority of B2C purchases are paid for by smart cards.

A.    True

B.    False

14. E-payment systems that require the payer to install specialized security software have proven more likely to succeed.

A.    True

B.    False

15. The success of an e-payment method depends on its interoperability with existing enterprise systems and applications.

A.    True

B.    False

16. To succeed, special e-payment methods, such as e-cash, have to maintain anonymity.

A.    True

B.    False

17. E-payment methods that can address the lower or higher end of the price continuum are unlikely to be widely accepted because of cost and security issues.

A.    True

B.    False

18. In the settlement process, the systems must determine whether a buyer's card is active and whether the cardholder has sufficient funds available for the purchase.

A.    True

B.    False

19. The processing of card payments has two major phases: identification and settlement.

A.    True

B.    False

20. Credit cards, charge cards, and debit cards are three forms of online payment cards.

A.    True

B.    False

21. Thirty-eight percent of all merchants use negative lists, which are files that include a customer's information and the status of that customer. A customer's transaction is matched against these files and flagged if the customer is a known problem.

A.    True

B.    False

22. An electronic card that contains information that can be used for payment purposes best describes:

A.    host card.

B.    pocket card.

C.    funds card.

D.    payment card

23. For a given type of payment card and processing system, the processes and participants are essentially the same for offline (card present) and online (card not present) purchases. 

A.    True

B.    False

24. In the online world, merchants are not held liable for fraudulent transactions. 

A.    True

B.    False

25. Because of their visibility and large sales volumes, larger firms are more susceptible to fraud than medium-sized firms. 

A.    True

B.    False