Chapter 3. E-Commerce

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E-Commerce

-Tejas(IT Dept)

__________________________________________________________________________________________________ “I failed in many subjects in my school, but today toppers from top universities are my employee and I will always choose a lazy person to do difficult business because definitely they will find easy way to do it like E-Commerce”. -Bill Gates __________________________________________________________________________________________________

1.Ecommerce definition and types of ecommerce: Ecommerce (e-commerce) or electronic commerce, a subset of ebusiness, is the purchasing, selling, and exchanging of goods and services over computer networks (such as the Internet) through which transactions or terms of sale are performed electronically. Contrary to popular belief, ecommerce is not just on the Web. Ecommerce can be categorized into four main parts: B2B, B2C, C2B, and C2C. ● B2B (Business-to-Business) Companies doing business with each other such as manufacturers selling to distributors and wholesalers selling to retailers. Pricing is based on quantity of order and is often negotiable. ● B2C (Business-to-Consumer) Businesses selling to the general public typically through catalogs utilizing shopping cart software. By dollar volume, B2B takes the prize, however B2C is really what the average Joe has in mind with regards to ecommerce as a whole. Having a hard time finding a book? Need to purchase a custom, high-end computer system? How about a first class, allinclusive trip to a tropical island? With the advent ecommerce, all three things can be purchased literally in minutes without human interaction. Oh how far we've come! C2B (Consumer-to-Business) A consumer posts his project with a set budget online and within hours companies review the consumer's requirements and bid on the project. The consumer reviews the bids and selects the company that will complete the project. Elance empowers consumers around the world by providing the meeting ground and platform for such transactions. C2C (Consumer-to-Consumer) There are many sites offering free classifieds, auctions, and forums where individuals can buy and sell, thanks to online payment systems like PayPal where people can send and receive money online with ease. eBay's auction service is a great example of where person-to-person transactions take place everyday since 1995.





Companies using internal networks to offer their employees products and services online--not necessarily online on the Web--are engaging in B2E (Business-to-Employee) ecommerce.

G2G (Government-to-Government), G2E (Government-to-Employee), G2B (Government-to-Business), B2G (Business-to-Government), G2C (Government-to-Citizen), C2G (Citizen-to-Government) are other forms of ecommerce that involve transactions with the government--from procurement to filing taxes to business registrations to renewing licenses. There are other categories of ecommerce out there, but they tend to be superfluous.

2.Advantages and Disadvantages of Electronic Commerce Like any conventional business, electronic commerce is also characterized by some advantages and inherent drawbacks. Let's have a look at some of these important advantages and disadvantages of electronic commerce. Advantages of Electronic Commerce 1. The greatest and the most important advantage of e-commerce, is that it enables a business concern or individual to reach the global market. 2. It caters to the demands of both the national and the international market, as your business activities are no longer restricted by geographical boundaries. 3. With the help of electronic commerce, even small enterprises can access the global market for selling and purchasing products and services. Even time restrictions are nonexistent while conducting businesses, as e-commerce empowers one to execute business transactions 24 hours a day and even on holidays and weekends. This in turn significantly increases sales and profit. 4. Electronic commerce gives the customers the opportunity to look for cheaper and quality products. 5, With the help of e-commerce, consumers can easily research on a specific product and sometimes even find out the original manufacturer to purchase a product at a much cheaper price than that charged by the wholesaler. 6. Shopping online is usually more convenient and time saving than conventional shopping. Besides these, people also come across reviews posted by other customers, about the products purchased from a particular e-commerce site, which can help make purchasing decisions. 7. For business concerns, e-commerce significantly cuts down the cost associated with marketing, customer care, processing, information storage and inventory management. It reduces the time period involved with business process re-engineering, customization of products to meet the demand of particular customers, increasing productivity and customer care services. Electronic commerce reduces the burden of infrastructure to conduct businesses and thereby raises the amount of funds available for profitable investment. 8. It also enables efficient customer care services. On the other hand, It collects and manages information related to customer behavior, which in turn helps develop and adopt an efficient marketing and promotional strategy. Disadvantages of Electronic Commerce: 1. Electronic commerce is also characterized by some technological and inherent limitations which has restricted the number of people using this revolutionary system. 2. One important disadvantage of e-commerce is that the Internet has still not touched the lives of a great number of people, either due to the lack of knowledge or trust. 3. Large number of people do not use the Internet for any kind of financial transaction. Some people simply refuse to trust the authenticity of completely impersonal business transactions, as in the case of e-commerce. 4. Many people have reservations regarding the requirement to disclose personal and private information for security concerns. Many times, the legitimacy and authenticity of different e-commerce sites have also been questioned. 5. Another limitation of e-commerce is that it is not suitable for perishable commodities like food items. People prefer to shop in the conventional way than to use e-commerce for purchasing food products. So e-commerce is not suitable for such business sectors. 6. The time period required for delivering physical products can also be quite significant in case of e-commerce. A lot of phone calls and e-mails may be required till you get your desired products. However, returning the product and getting a refund can be even more troublesome and time consuming than purchasing, in case if you are not satisfied with a particular product.

3.The Future of E-Commerce * E-commerce introduces incredible benefits, such as the diffusion of information, the development of new technologies, the promotion and sales of products and services, and the collaboration between those in a supply chain(Aljifri,2003:130). It has been suggested that ultimately a single chain of e-commerce will emerge and this chain will be a superset of B2B, C2B, B2C and C2C. * E-commerce still represents a minor percentage of total commerce but is likely to become a major force in the future. The factors driving this push are convenience, reduced cost of operations, lower risk, more timely information and control over processes and the ability to deliver customization and control on a mass scale. * More recently attention has been focused on standards for secure communication, encryption and authentication of both sender and receiver of information on the Internet. This will continue into the future, as a broad range of new value added services built around trust and security will be found on the Internet (Cronin, 1998:177). * Initiatives for the future must be developed within a common framework or risk introducing isolated, non-interoperable implementations that will inhibit progress toward truly free, open and spontaneous e-commerce. * Most of the current solutions being prototyped over the Internet differ in some way in its approach to security and privacy and the ability to handle micro payments and the applicability to various types of transactions. They also differ in their business models. For example, in the pricing strategies and in assumptions as to who bears the risk in case of insufficient funds or disputes. Some of these variations are the inevitable result of competitors offering different solutions and are aprt of the open marketplaces that characterize the Internet. Other differences reflect more serious lack of standardization that could threaten the acceptance and deployment of secure commerce solutions. It is important for e-commerce to develop the next generation of network based products and services and that primary goals and standards must be agreed upon. It is especially important to build an infrastructure around the following characteristics:

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inter-operability flexibility for innovations increased accessibility adequate security adequate search capabilities e-payment options

4. E-commerce Security: One of the critical success factors of e-commerce is its security. Without a great degree of confidence by the customers that credit card numbers and other extremely sensitive personal information will be kept secure, e-commerce will simply not work. However, the successful functioning of e-commerce security depends on a complex interrelationship between several components, including the applications development platforms, database management systems, systems software and network infrastructure. The following outline the needs and threats of e-commerce:



Access control

If access control is properly implemented, many other security problems, like lack of privacy, will either be eliminated or mitigated. Access control ensures only those that legitimately require access to resources are given access and those without valid access cannot have access. This includes both physical access as well as logical access to resources. Various types of threats exist for access control. For example, being able physically to enter a building or having access to network equipment is one example of a threat.



Privacy

Privacy ensures that only authorized parties can access information in any system. The information should also not be distributed to parties that should not receive it. Issues related to privacy can be considered as a subset of issues related to access control. Protection of privacy requires access control, however access control deals with the larger picture. Due to this, the threats to privacy are similar to that of access control. Integrity ensures that only authorized parties make changes to the documents transmitted over the network. Lack of integrity of the system can be devastating for e-commerce. While the threats to integrity are similar to the threats to access, being a threat to integrity is possible only when one has access at a level consistent with someone having the rights to alter a document. For example, if a customer places an order, and someone can access the system as the customer, they may be able to alter the contents of the order placed.



Authentication

Authentication ensures that the origin of an electronic message is correctly identified. This means having the capability to determine who sent the message and from where or which machine. Without proper authentication, it will be impossible to know who actually placed an order and whether the order placed is genuine or not.



Non-repudiation

Non-repudiation is closely related to authentication and this ensures the sender cannot deny sending a particular message and the receiver cannot deny receiving a message. If this happens infrequently, it may not significantly harm e-commerce, however, on a large scale this can be devastating. For example, if many customers receive goods and then deny placing an order, the shipping, handling and associated costs with the order can be significant for the company processing the orders.



Availability

Availability ensures that the required systems are available when needed. For an e-commerce site this means that the customer order systems are available all the time. Two major threats to availability problems are virus attacks and denial of service. 5.Electronic Data Interchange (EDI): is the process of using computers to exchange business documents between companies. Previously, fax machines or traditional mail was used to exchange documents. Mailing and faxing are still used in business, but EDI is a much quicker way to do the same thing. EDI is used by a huge number of businesses. Over 100,000 businesses have replaced the more traditional methods with EDI. This new system has a number of benefits; cost is one of them. Computer to computer exchange is much less expensive than traditional methods of document exchange. Processing a paper-based order can cost up 70 US dollars (USD), whereas using EDI costs 1 USD or less. As a computer processes the documents in EDI, there is also less chance of human error. Speed is another benefit. A paper purchase order can take ten days to two weeks from the time the buyer requests it to the time the shipper sends it off. Now, the same order can be processed in less than a day. These faster transaction times help maintain efficient inventory levels. They also contribute to a better use of warehouse space, and less out-of-stock problems. This in turn leads to a reduction in freight costs, as there should be no need for last minute urgent delivery surcharges. There are a few drawbacks to the process. EDI can only work if everyone the company has deals with is using the same method. If the changeover has not been made within some businesses, other companies dealing with them may have to use EDI as well as the more traditional methods. This can be costly and time consuming. It may involve one member of staff maintaining the mailing process while another worker sends documents electronically. The process of using EDI for purchasing is very simple. Once a purchase order has been written, the document is translated into a specific format and submitted to the supplier via the Internet. It must be ensured that the document used by both parties is in exactly the same format. Security is an important issue for companies using EDI. Data security is controlled throughout the process using passwords, encryption and user identification. The EDI has software that checks and edits the documents for accuracy. EDI in short: Electronic commerce or in short e-commerce, refers to business activities like selling and purchasing of products and services carried out over electronic systems like the Internet and computer networks. The history of e-commerce dates back to 1970, when for the first time, electronic data interchange (EDI) and electronic fund transfer were introduced. Since then, a rapid growth of ecommerce has pervaded almost every other aspects of business such as supply chain management, transaction processing, Internet marketing and inventory management.

*Steps Involved in EDI: 1.Extraction of data from computer System. 2.Translation of data into appropriate format. 3.Processing transmitted data. 4.Interpreting data at receiver end. 5.Dowingloading data in the receiver computer application.

6.EDI: Security-risk: 1. Loss of business continuity/going-concern problem. Inadvertent or deliberate corruption of EDI-related applications could act every EDI transaction entered into by an organization, impacting customer satisfaction, supplier relations, and possibly business continuity eventually. 2. Loss of confidentiality of sensitive information. Sensitive information may be accidentally or deliberately divulged on the network or in the mailbox storage system to unauthorized parties including competitors. 3. Increased exposure to fraud. Access to computer systems may provide an increased opportunity to change the computer records of both a single organization and that of its trading partners by sta. of the trading parties or by third-party network 4. Manipulation of payment. A situation where amounts charged by or paid to suppliers are not reviewed before transmission. A erefore, there is a risk that payments could be made for goods not received, payment amounts could be excessive, or duplicate payment could occur. 5. Loss of transactions. Transactions could be lost as a result of processing disruptions at thirdparty network sites or en route to the recipient organization, which could cause losses to the organization and inaccurate financial reporting. 6. Errors in information and communication systems. Errors in the processing and communications systems, such as incorrect message repair, can result in the transmission of incorrect trading information or inaccurate reporting to management. 7. Loss of audit trail. EDI eliminates the need for hard copy. 8. Concentration of control. A ere will be increased reliance on computer controls where they replace manual controls, and they may not be suficiently timely. 9. Application failure. Application or EDI component failures could have a significant negative impact on partner organizations within the respective business cycles 10. Potential legal liability. A situation where liability is not clearly de. ned in trading partner agreements, legal liability may arise due to errors outside the control of an organization or by its own employees. A ere is still considerable uncertainty about the legal status of EDI documents or the inability to enforce contracts in unforeseen circumstances. 11. Overcharging by third-party service providers. Third-party suppliers may accidentally or deliberately overcharge an organization that is using their services. 12. Manipulation of organization. An information available to the proprietors of third-party networks may enable them or competitors to take unfair advantage of an organization. 13. Not achieving anticipated cost savings. Happens where the anticipated cost savings from the investment in EDI are not realized for some reason by an organization.

7. EDI Benefits: Five key benefits of Electronic Data Interchange The benefits of electronic trading are well documented. Here are the top five reasons why businesses adopt EDI. * Benefit One: Remove document re-keying By removing the manual keying of key business documents such as Orders, Invoices, Acknowledgments and Despatch Notes your company can benefit significantly from:

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reduced labour costs elimination of human keying errors faster document processing instant document retrieval removal of reliance on the postal service.

* Benefit Two: Eliminate paper Paper-based trading relationships have some inherent disadvantages when compared with their electronic trading equivalents:

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stationery and printer consumable costs document storage costs lost documents postage costs.

*Benefit Three: Reduce lead times and stockholding

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Electronic trading documents can be delivered far more quickly than their paper counterparts, thus the turnaround time from order to delivery can be reduced. By using EDI for forecasting and planning, companies are able to get forward warning of likely orders and plan their production and stock levels accordingly. Companies receiving Advanced Shipping Notes or Acknowledgments know in advance what is actually going to be delivered and are made aware of shortages so alternate supplies can be sourced. Integrating electronic documents means they can be processed much faster, again reducing lead times and speeding up payments.

* Benefit Four: Increase the quality of the trading relationship

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Electronic trading documents, when printed, are much easier to read than copies faxed or generated on multi-part stationery by impact printers. Accurate documents help to ensure accurate supplies. Batches of electronic documents are usually sequentially numbered, therefore missing documents can easily be identified saving companies the trouble of wading through piles of paper.

* Benefit Five: Competitive edge Electronic Data Interchange (EDI) makes you attractive to deal with from your customers' point of view, so in their eyes you are cheaper and more efficient to deal with than a competitor trading on paper. Your costs will be lower because you will require less manpower to process orders, deliveries or payments. It is no accident that the leading UK retailers all rely on EDI for placing orders and receiving invoices - they know the benefits they get and the costs that can be saved.

8. The e-Commerce Trade Cycle

A trade cycle is the series of exchanges, between a customer and supplier, that take place when a commercial exchange is executed. A general trade cycle consists of:

Pre-Sales: Execution: Settlement: After-Sales

Finding a supplier and agreeing the terms Selecting goods and taking delivery Invoice (if any) and payment. Following up complaints or providing maintenance

For business-to-business transactions the trade cycle typically involves the provision of credit with execution preceding settlement whereas in consumer-to-business these two steps are typically co-incident. The nature of the trade cycle can indicate the eCommerce technology most suited to the exchange. Commercial transactions that are repeated on a regular basis, such as supermarkets replenishing their shelves, is one category of trade cycle. EDI is the e-Commerce technology appropriate to these exchanges.

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