Dilla University College of Business and Economics Department of Logistics and Supply Chain Management, 2022/23

DU CBE Department of LSCM E-Commerce Course Outline for BA Degree Students

Course Title: Ecommerce and Supply Chain Information System Course Code: LSCM3062 A/Y- 2022/23

Module title: Supply Chain Operations and Strategy Module No: LSCM-M 2061 Credit Hours: 3 Semester-I

Instructor: - Jilo W. (MSc)

Specific Topics
1 An Overview to  Introduction of e-commerce - Origin of e-commerce
E-commerce  Definition of e-commerce - E-business vs. e-commerce
 Unique features of Electronic Commerce -Comparison of traditional commerce & ecommerce
 Advantages & disadvantage of e-commerce
2 Technology in E-  Origins of the Internet -The Internet, Intranets, Extranets & the World Wide Web
procurement
 Internet Protocols -Web Page Request and Delivery Protocols
 Electronic Mail Protocols -Markup Languages and the Web
 Electronic data interchange (EDI)
3 Business  Business to Business (B2B) -Business to Consumer (B2C)
Models for E-  Consumer to Business (C2B) - Consumer to Consumer (C2C)
commerce  Business to Government (B2G)
4 Concepts of E-  Introduction - What is e- procurement? - Overview of e-procurement
procurement  E-procurement tools -Types of e- procurement - E-procurement system
 Public e-procurement -Benefits of e- procurement - Challenge and risks of implanting eprocurement

5 E-payment  Introduction - Online payment process - Online Credit Card Payment

Systems  Process -Some of the Online Credit Card -Transaction Enablers
6 Supply chain  fundamental concepts of information system -Solving Business Problems with Information Systems
information  Data base Management -Planning and Implementing Information systems
system  Controlling Information Systems

7 E-Security  Online security issue overview - Security for client computer -Communication channel security
 Security for server computers

Assessment - Quiz- 10% Mid-exam-20% Group Ass-20% Final Exam-50% Total- 100%

Teaching Method- Lecturing

Course Policy

 No student is allowed to enter in to the class after the class begins!

 Attendance is mandatory! - Disturbing class is strictly forbidden!
 Students who are feeling health problem can go out of the class! -Any type of cheating will score zero!

References

 E. Lawrence. Corbitt, Fisher, Lawrence and Tidwell, (2000). Internet commerce, 2ndedition, John Wiley
and sons Australia, Ltd
 Mahony, D., Peirce,M., Tewari,H.,( 2001) Electronic Payment Systems for ECommerce, Second
Edition,Artech House, inc
 Schneider, G P., (2011) Electronic Commerce, 9th edition , Course Technology, Cengage Learning

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Chapter One

An Overview to E-commerce

Learning Objectives:

At the end of these chapter students expected to:

• To Understand the History Of E-Commerce

• To Defining the concept of E-Commerce
• Identifying E-Business Vs. E-Commerce
• Distinguish Traditional Commerce and E- Commerce
• Features of E-Commerce Technology
• Interdisciplinary Nature of E-Commerce
• Explain the Benefits and Limitation of E- Commerce
1.1 Origin of e-commerce

The e-commerce was initially introduced about 40 years ago in its earliest form. In 1979, the
English inventor Michael Aldrich introduced electronic shopping, which operated by connecting
a modified TV to a transaction-processing computer via telephone line. This made it possible for
closed information systems to be opened and shared by outside parties for secure data
transmission – and the technology became the foundation upon which modern e-commerce was
built. The system was marketed beginning in 1980 and offered mainly business-to-business
systems that were sold in the UK, Ireland, and Spain. The world‘s first e-commerce company
was Boston Computer Exchange launched in 1982. Its primary function was to serve as an online
market for people interested in selling their used computers. Ten years later was launched one of
the first online marketplace for books, Book Stacks Unlimited. Originally the company used the
dial-up bulletin board format, but in 1994 the site switched to the internet and operated from the
[Link] domain. 1995 saw the launch of Amazon, introduced primarily as an ecommerce
platform for books and that same year, Pierre Omidyar introduced Auction Web, which would
later become what we know today as eBay. Since then, both have become massive e-commerce
selling platforms that enable consumers to sell online to audiences around the globe.

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In 1998, PayPal hit the internet as a payment system for e-commerce. It merged with Elon
Musk‘s online banking in 2000 to become the megastar site it is today. In 1999 was launched the
online market place Alibaba that now is the world's largest retailer and ecommerce company.
[Link] was expected to improve the domestic e-commerce market and perfect an e-
commerce platform for Chinese enterprises, especially small and medium-sized enterprises, to
help export Chinese products to the global market as well as address World Trade Organization
challenges. In 2000, Google introduces Google Ad Words as a way for e-commerce businesses
to advertise to people using the Google search tool. With the help of short text ad copy and
display URLs, online retailers began using the tool in a pay-per-click (PPC) context. Later in
2005, Amazon initiated Amazon Prime as a way for customers to get free two day shipping for a
flat annual fee. The membership also came to include other perks like discounted one-day
shipping and later access to streaming services like Amazon Video and members-only events
like ―Prime Day.‖ Nowadays, free shipping and speed of delivery are the most common requests
from online consumers. The same year was also launched Etsy, a buyer and seller for small
goods. This brought the makers community online –– expanding their reach to a 24/7 buying
audience. Big Commerce launched its online platform in 2009. In 2011, Google Wallet was
introduced as a peer-to-peer payment service that enabled individuals to send and receive money
from a mobile device or desktop computer. By linking the digital wallet to a debit card or bank
account, users can pay for products or services via these devices. Today, Google Wallet has
joined with Android Pay for what is now known as Google Pay. Also, in 2011, Facebook
introduced advertising in the form of sponsored stories. This gave e-commerce sellers more
opportunities to advertise their products to targeted audiences. The same year Stripe was also
launched as a payment processing system for developers. In 2014, Apple Pay rushed to the e-
commerce scene and made payment of services more convenient through a mobile device.
Buyers could attach their debit or credit cards to their phone and order online. [Link] was also
founded in 2014 by entrepreneur Marc Lore (who had sold his previous company, [Link],
to [Link]) along with Mike Hanrahan and Nate Faust. The company competes with
Costco and Sam‘s Club, catering to folks looking for the lowest possible pricing for longer
shipping times and bulk ordering. Instagram Shopping launched in 2017 first with e-commerce
partner Big-Commerce. Since then, the service has expanded to additional e-commerce platforms
and allows Instagram users to immediately click an item, and go to that product‘s product page

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for purchase. The e-commerce market has evolved from a simple counterpart of brick and mortar
retail to a shopping ecosystem that involves multiple devices and store concepts. Now, when
looking at the e-commerce landscape, we see a relatively mature market with established players
and a clear set of rules, but this impression can be misleading, because the digital transformation
is not over yet.

1.2 Definition of e-commerce

The word e-commerce is the basic concept for electronic commerce, pertaining to buying and
selling of goods while ‗commerce‘ denotes business practice and activities intended to make
profits. Electronic commerce, like any other business, deals with the exchange of money for soft
or hard goods and services. Kalakota and Whintons in 1997 defined the term E-commerce from
different perspectives. These perspectives are:

• Communication
• Business Process
• Service
• Online
 Communication Perspective: According to this perspective, E-commerce is the delivery
of information, product/services or payments over telecommunication channels, computer
networks or any other electronic mode of communication.
 Business Process Perspective: This says that E-commerce is the application of
technology towards the automation of business transactions and work flow.
 Service Perspective: E-commerce is defined as a tool that addresses the desire of firms,
consumers and management to cut service cost while improving the quality of
goods/services and increasing the speed of service delivery.
 Online Perspective: E-commerce provides the capability of buying and selling products
and information on the internet and other online services.

―E-commerce has the potential to unleash enormous savings and business efficiencies, but the
practicalities remain elusive.

 Electronic Commerce (e-commerce) is electronic business. It‘s using the power of

computers, the Internet and shared software to send and receive product specifications

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and drawings; bids, purchase orders and invoices; and any other type of data that needs
to be communicated to customers, suppliers, employees or the public.
 E-commerce is the new, profitable way to conduct business which goes beyond the
simple movement of information and expands electronic transactions from point-of-sale
requirements, determination and production scheduling, right through to invoicing,
payment and receipt.
 E-commerce uses key standards and technologies including Electronic Data Interchange
(EDI), Technical Data Interchange (TDI), Hypertext Mark-up Language (HTML),
Extensible Mark-up Language (XML), and the Standard for Exchange of Product model
data (STEP).
 E-commerce is made possible through the expanded technologies of the Internet, the
World Wide Web, and Value-Added Networks. Different people use different
terminology such as 'electronic trading' 'electronic procurement' 'electronic purchasing'
or 'electronic marketing'.

Further, e-commerce includes purchases of goods, services and other financial transactions in
which the interactive process is mediated by information or digital technology at both locational
separate, ends of the interchange. Here 'transactions' include both specification of goods and
service required and commitment to buy. E-commerce is used everywhere in everyday life. It
ranges from credit /debit card authorization, travel reservation over a phone/ network, wire fund
transfers across the globe, point of sale (POS) transactions in retailing, electronic banking,
electronic insurance, fund raising, political campaigning, on-line education and training,
auctioneering, on line lottery, to arranging funeral services on-line. More formally, we focus on
digitally enabled commercial transactions between and among organizations and individuals.
Digitally enabled transactions include all transactions mediated by digital technology. For the
most part, this means transactions that occur over the Internet and the Web. Commercial
transactions involve the exchange of value (e.g., money) across organizational or individual
boundaries in return for products and services. Exchange of value is important for understanding
the limits of e-commerce: Without an exchange of value, no commerce occurs. Electronic
commerce (e-commerce) is often thought simply to refer to buying and selling using the Internet;
people immediately think of consumer retail purchases from companies such as Amazon. But e-
commerce involves much more than electronically mediated financial transactions between

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organizations and customers. E-commerce should be considered as all electronically mediated

transactions between an organization and any third party it deals with. By this definition, non-
financial transactions such as customer requests for further information would also be considered
to be part of ecommerce.

1.3 E-commerce vs. E-business

Some analysts and on-line business people have decided that e-business is infinitely superior as a
moniker to e-commerce. That‘s misleading and distracts us from the business goals at hand. The
effort to separate the E-commerce and E-business concepts appears to have been driven by
marketing motives and is dreadfully thin in substance. Here‘s the important thing: E-commerce,
E-business or whatever else you may want to call it is a means to an end. The different names,
definitions and words referred to in the previous sections are merely a sample of the glossary that
has originated from marketing departments to sell a concept, the media to describe a sensational
‗new‘ phenomenon, consultants to justify their fees and recommendations, and business to
validate and implement the new technology. In fact there is no one definitive meaning of e-
commerce or e-business that is universally established. The different terms are used to illustrate
different perspectives and emphases of different people in different organizations and business
sectors. Some argue that it makes little sense to have a restrictive definition for the term e-
commerce since it is unlikely that there will be agreement on a single unique definition.
‗Attempting to define E-commerce or E-business is guaranteed to generate Byzantine debates
with meaningless origins.‘ Because of this trend, it is necessary when undertaking any electronic
commerce, electronic business or any other e-related project or assignment, to clearly define any
term in the context and environment in which it is being used.

 E-commerce- Electronic commerce, commonly written as E-commerce, is process of

trading the product or service by using computer networks, such as an internet. Electronic
commerce draws on technologies such as mobile commerce, electronic funds transfer;
Internet marketing, online transaction processing, electronic data interchange (EDI), and
automated data collection systems. Modern electronic commerce typically uses the World
Wide Web for at least one part of transaction‘s life cycle, although it may also use other
technologies such as E-mail. Pre-tail (also referred as pre-retail or pre-commerce) is a
subcategory of E-commerce and online retail for introducing new products, services and

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brand to market by pre-lunching online, sometimes as reservations in limited quantity

before resale, realization, or commercial availability. Pre-tail includes pre-sale
commerce, pre-order retailers, incubation market places, and crowd funding
communities.
 E-business-Electronic business or E-business is the application of information and
communication technologies (ICT) in supporting all the activities of business.
Commerce constitutes the exchange of products and services between businesses, groups
and individuals and can be seen as one of the essential activities of any business.
Electronic business focuses on the use of ICT to enables the external activities and the
relationship of the business with individuals, groups and business or e-business refers to
business with help of internet i.e doing business with the help of internet work.

Distinction between e-commerce and e-business

For the purpose of clarity, the distinction between e-commerce and e-business in this module is
based on the respective terms commerce and business. Commerce is defined as embracing the
concept of trade, ‗exchange of merchandise on a large scale between different countries‘. By
association, e-commerce can be seen to include the electronic medium for this exchange. Thus
electronic commerce can be broadly defined as the exchange of merchandise (whether tangible
or intangible) on a large scale between different countries using an electronic medium – namely
the Internet. The implications of this are that e-commerce incorporates a whole socio-economic,
telecommunications technology and commercial infrastructure at the macro-environmental level.
All these elements interact together to provide the fundamentals of e-commerce. Business, on the
other hand, is defined as ‗a commercial enterprise as a going concern‘. E-business can broadly be
defined as the processes or areas involved in the running and operation of an organization that
are electronic or digital in nature. These include direct business activities such as marketing,
sales and human resource management but also indirect activities such as business process re-
engineering and change management, which impact on the improvement in efficiency and
integration of business processes and activities. The major differences in e-commerce and e-
business, where e-commerce has a broader definition referring more to the macro-environment,
e-business relates more to the micro-level of the firm.

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1.4 Unique features of E-Commerce

Electronic commerce refers to the process of creating, marketing, servicing and paying for
services and goods. Businesses, governments and the public can participate in e-Commerce
transactions. The following discussion will elicit the unique features of e-commerce. The unique
features of e-commerce technology include:

 Ubiquity- e-Commerce is ubiquitous, It is available just about everywhere and at all

times by using internet and Wi-Fi hotspot such as airport, coffee cafe and hill station
places.. Consumer can connect it to the Internet at any time, including at their homes,
their offices, on their video game systems with an Internet connection and mobile phone
devices. E-Commerce is ubiquitous technology which is available everywhere Moreover,
individuals who have cell phones with data capabilities can access the Internet without a
Wi-Fi connection.
 Global Reach- The potential market size is roughly equal to the size of the online
population of the world. E-Commerce Technology seamlessly stretches across traditional
cultural and national boundaries and enables worldwide access to the client. E-
Commerce website has ability to translate the multilingual websites as well as allow the
access to visitors all over the world, purchase products and make business interactions.
 Universal standards- The technical standards of the Internet are shared by all of the
nations in the world. The whole online tradition are growing and expanding their
features in the world. To development any kind of business need Internet and
communication application which make the business relationship more lovingly and
attractive for secure business and successful business.
 Richness-Users can access and utilize text messages and visual and audio components
to send and receive information. An individual may see information richness on a
company's blog if a post contains a video related to a product and hyperlinks that allow
him to look at or purchase the product and send information about the post via text
message or email.
 Interactivity- E-commerce technologies allow two-way communication between the
merchant and the consumer. As a result, e-Commerce technologies can adjust to each
individual‘s experience. For example, while shopping online, an individual is able to

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view different angles of some items, add products into a virtual shopping cart, checkout
by inputting his payment information and then submit the order.
 Personalization- Technologies within e-Commerce allow for the personalization and
customization of marketing messages that groups or individuals receive. An example of
personalization includes product recommendations based on a user's search history on a
Web site that allows individuals to create an account.
 Information density- The use of e-Commerce reduces the cost to store, process and
communicate information. At the same time, accuracy and timeliness increase; thus,
making information accurate, inexpensive and plentiful. For example, the online
shopping process allows a company to receive personal, shipping, billing and payment
information from a customer all at once and sends the customer's information to the
appropriate departments in a matter of seconds.
 Social technology- E-Commerce technology has tie up the social media networking
application to provide the best source of content sharing technology and e-Marketing
systems. You can share your content or data easily in just one click.
 User-Generated Content- Social networks use e-Commerce technologies to allow
members, the general public, to share content with the worldwide community.
Consumers with accounts can share personal and commercial information to promote a
product or service. When a company has a professional social networking account, a
member of the same social network has the option of associating himself with the
company or a product by saying he likes or recommends it. When an individual updates
his status on a social networking account, he may also mention a product or company by
name, which creates word-of-mouth advertising.
1.5 Traditional Commerce and E-Commerce

Traditional commerce can broadly be defined as the exchange of valuable objects or services
between at least two parties. Such activity includes all of the processes that each party undertakes
to complete the transaction. The earliest form of traditional commerce is the barter system. E-
commerce is the process of buying and selling over the Internet, or conducting any transaction
involving the transfer of ownership or rights to use goods or services through a computer-
mediated network without using any paper document. Electronic commerce or e-commerce

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refers to a wide range of online business activities for products and services. It also pertains to
―any form of business transaction in which the parties interact electronically rather than by
physical exchanges or direct physical contact.‖

Differences between Traditional Commerce and E-Commerce

Point of Difference E-commerce Traditional Commerce

Cost E-commerce is cost effective. The cost incurred on Cost has to be incurred for the role of
middlemen is eliminated as there is direct link middlemen to sell the company‘s
between the business and the customers. . The total products. The total overhead cost is
overhead cost required to run e-business is more. Running a traditional business
comparatively less. Running an e-business require require a head office with several
only a head office. Overhead cost can be branches to cater to the needs of
eliminated by hosting a website. customers situated in different places.
Time A lot of valuable time for both the consumers and It takes a lot of time to complete a
business is saved. A product can be ordered and transaction.
the transaction can be completed in few minutes
through internet
Convince It provides convenience to both customers and It is not so convenient method as that of
business. It provides better connectivity for its E-commerce. Customers have to move
prospective and potential customers as the website away from their home or work place to
can be accessed virtually from anywhere, anytime locate and purchase a desired product.
through internet. It is not necessary to move away
from their work place or home to locate and
purchase a desired product.
Accessibility It is easy to expand the size of the market from It may not be easy to expand the size of
regional to international level. By hosting a the market from regional to national
website, a business can penetrate into global level. Business organizations have to
market. It is quite easy to attract customers from incur a lot of expenses to enter
Global markets at a marginal cost. international market.
Introduction to new It is easy to introduce a product on the website and It takes a lot of time and money to
product get the immediate feedback of the customers. introduce a new product and analyses
Based on the response, the products can be the response of the customers. Initially,
redefined and modified for a successful launch. cost has to be incurred to carry out pilot
Surveys to understand the taste of the
customers.

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Profit It helps the organization to enjoy greater profits by The cost incurred on the middlemen,
increasing sales, cutting cost and streamlining overhead, inventory and limited sales
operating processes. pulls down the profit in traditional
commerce.
Physical inspection It does not allow physical inspection of goods. It allows physical inspection of goods
Time accessibility Round the clock service is available. Business is open only for a limited
time.
Product It not suitable for perishable goods and high value It is suitable for perishables and ‗touch
Suitability items such as jewelry and antiques. It is mostly and feel‘ items.
suitable for purchasing tickets, books, music and
software.
Human It requires technically qualified staff with an It does not have such problems
Resources aptitude to update them in the ever changing associated with human resources.
world. It has difficulty in recruiting and retaining
talented people.
Customer The interaction between the business and the The interaction between the business
Interaction customer is screen-to-face and the consumer is a face-to-face.
Process Automated processing of business transactions There are chances of clerical errors to
helps to minimize the clerical errors. occur as there is manual processing of
business transactions
Business Business relationship is characterized by end-to- Business relationship is vertical or
relationship end. linear.
Fraud Lot of cyber frauds takes place in ecommerce Fraud in traditional commerce is
transaction. People generally fear to give credit comparatively less as there is personal
card information. Lack of physical presence in interaction between the buyer and the
markets and unclear legal issues give loopholes for Seller.
frauds to take place in e-business transactions.
Information Little dependency on person to person information Heavy dependency on information
Sharing exchange. It provides a universal platform to exchange from person to person. No
support business activities across the globe. uniform platform for information
sharing as it depends heavily on
personal communication.
Method of Communication can be done in asynchronous way. Communication is done in synchronous
Communication Electronics system automatically handles when to way. Manual intervention is required
pass communication to required person or do the for each communication or transaction.
transactions.
Strategy A uniform strategy can be easily established and It is difficult to establish and maintain

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maintain. standard practices.

1.6 Interdisciplinary Nature of E-commerce

Electronic commerce, being a new field, is just developing its theoretical or scientific
foundations. Ii is based on several disciplines. The major disciplines of E-Commerce with some
samples of issues with which they are concerned follow:

 Marketing- Many issues of marketing offline are relevant to online E-Commerce - for
example, cost benefits of advel1isements and advertisement strategies. Other issues are
unique to E-Commerce, ranging from online marketing strategy to interactive kiosks.
 Computer sciences- Many of the issues in the infrastructure of E-commerce, such as
languages, multimedia, and networks, fall into the discipline of computer sciences.
Intelligent agents play a major role in ECommerce as well.
 Consumer behavior and Psychology- Consumer behavior is the key to the success of
B2C trade, but so is the behavior of the sellers. The relationship between cultures and
consumer attitude in electronic market is an example of a research issue in the field.
 Finance- The financial markets and banks are one of the major participants in E-
Commerce. Also, financing arrangements are part of many online transactions. Issues
such as using the Internet as a substitute for a stock exchange and fraud in online stock
transactions are a sample of the many topics of the field.
 Economics- Electronic commerce is influenced by economic forces and has a major
impact on world and country economies. Also, theories of micro and macro-economic
need to be considered in E-Commerce planning, as well as the economic impacts of E-
Commerce on firms.
 Management Information Systems (MIS)-The information systems department is
usually responsible for the deployment of E-Commerce. This discipline covers issues
ranging from systems analysis to system integration, not to mention planning,
implementation, security, and payment systems, among others.
 Accounting and Auditing- The back-office operations of electronic transactions are
similar to other transactions in some respects, but different in others. For example,

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auditing electronic transactions presents a challenge for the accounting profession; so

does the development of methodologies for costbenefit justification.
 Management- Electronic commerce efforts need to be managed properly, and because of
the interdisciplinary nature of E-Commerce, its management may require new approaches
and theories.
 Business Law and Ethics- Legal and ethical issues are extremely important in E-
Commerce, especially in a global market. A large number of legislative bills are pending,
and many ethical issues are interrelated with legal ones, such as privacy and intellectual
property.
1.7 Advantages and Disadvantage of e-commerce
1.7.1 Advantages of E-commerce

Some advantages that can be achieved from e-commerce include:

 Being able to conduct business 24 x 7 x 365.: E-commerce systems can operate all day
every day. Your physical storefront does not need to be open in order for customers and
suppliers to be doing business with you electronically.
 Access the global marketplace: The Internet spans the world, and it is possible to do
business with any business or person who is connected to the Internet. Simple local
businesses such as specialist record stores are able to market and sell their offerings
internationally using e-commerce. This global opportunity is assisted by the fact that,
unlike traditional communications methods, users are not charged according to the
distance over which they are communicating.
 Speed: Electronic communications allow messages to traverse the world almost
instantaneously. There is no need to wait weeks for a catalogue to arrive by post: that
communications delay is not a part of the Internet / ecommerce world.
 Market space: The market in which web-based businesses operate is the global market.
It may not be evident to them, but many businesses are already facing international
competition from web-enabled businesses.
 Opportunity to reduce costs: The Internet makes it very easy to 'shop around' for
products and services that may be cheaper or more effective than we might otherwise
settle for. It is sometimes possible to, through some online research, identify original

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manufacturers for some goods - thereby bypassing wholesalers and achieving a cheaper
price.
 Efficient applications development environment: In many respects, applications can be
more efficiently developed and distributed because the can be built without regard to the
customer's or the business partner's technology platform. Application updates do not have
to be manually installed on computers. Rather, Internet-related technologies provide this
capability inherently through automatic deployment of software updates.
 Allowing customer self - service and 'customer outsourcing': People can interact with
businesses at any hour of the day that it is convenient to them, and because these
interactions are initiated by customers, the customers also provide a lot of the data for the
transaction that may otherwise need to be entered by business staff. This means that some
of the work and costs are effectively shifted to customers; this is referred to as 'customer
outsourcing'.
 Stepping beyond borders to a global view- Using aspects of e-commerce technology
can mean your business can source and use products and services provided by other
businesses in other countries.
 A new marketing channel: The Internet provides an important new channel to sell to
consumers.
1.7.2 Limitations and Constraints of E-Commerce

Some disadvantages and constraints of e-commerce include the following.

 Time for delivery of physical products: It is possible to visit a local music store and
walk out with a compact disc or a bookstore and leave with a book. E-commerce is often
used to buy goods that are not available locally from businesses all over the world,
meaning that physical goods need to be delivered, which takes time and costs money. In
some cases there are ways around this, for example, with electronic files of the music or
books being accessed across the Internet, but then these are not physical goods.
 Physical product, supplier and delivery uncertainty: When you walk out of a shop
with an item, it's yours. You have it; you know what it is, where it is and how it looks. In
some respects e-commerce purchases are made on trust. This is because, firstly, not
having had physical access to the product, a purchase is made on an expectation of what

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that product is and its condition. Secondly, because supplying businesses can be
conducted across the world, it can be uncertain whether or not they are legitimate
businesses and are not just going to take your money. It's pretty hard to knock on their
door to complain or seek legal recourse! Thirdly, even if the item is sent, it is easy to start
wondering whether or not it will ever arrive.
 Perishable goods: Forget about ordering a single gelato ice cream from a shop in Rome!
Though specialized or refrigerated transport can be used, goods bought and sold via the
Internet tend to be durable and non-perishable: they need to survive the trip from the
supplier to the purchasing business or consumer. This shifts the bias for perishable and/or
non-durable goods back towards traditional supply chain arrangements, or towards
relatively more local e-commerce-based purchases, sales and distribution. In contrast,
durable goods can be traded from almost anyone to almost anyone else, sparking
competition for lower prices. In some cases this leads to disintermediation in which
intermediary people and businesses are bypassed by consumers and by other businesses
that are seeking to purchase more directly from manufacturers.
 Limited and selected sensory information: The Internet is an effective conduit for
visual and auditory information: seeing pictures, hearing sounds and reading text.
However it does not allow full scope for our senses: we can see pictures of the flowers,
but not smell their fragrance; we can see pictures of a hammer, but not feel its weight or
balance. Further, when we pick up and inspect something, we choose what we look at and
how we look at it. This is not the case on the Internet. If we were looking at buying a car
on the Internet, we would see the pictures the seller had chosen for us to see but not the
things we might look for if we were able to see it in person. And, taking into account our
other senses, we can't test the car to hear the sound of the engine as it changes gears or
sense the smell and feel of the leather seats. There are many ways in which the Internet
does not convey the richness of experiences of the world. This lack of sensory
information means that people are often much more comfortable buying via the Internet
generic goods - things that they have seen or experienced before and about which there is
little ambiguity, rather than unique or complex things.
 Returning goods: Returning goods online can be an area of difficulty. The uncertainties
surrounding the initial payment and delivery of goods can be exacerbated in this process.

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Chapter Two

Technology in E-procurement

Objectives

After studying the unit, you will be able to:

 understand differences among Internet, Intranet and Extranet;

 Develop an effective communication system within an organization using provisions of
Intranet; and
 Know the advantages of setting up Extranets in business organizations and libraries.
2.1 Origins of the Internet and New Uses for the Internet

The Advanced Research Projects Agency (ARPA) of the United States Department of Defense
funded research into time-sharing of computers in the 1960s. Meanwhile, research into packet
switching, one of the fundamental Internet technologies, started in the work of Paul Baran in the
early 1960s and, independently, Donald Davies in 1965. Packet switching was incorporated into
the proposed design for the ARPANET in 1967 and other packet-switched networks such as the
NPL network, the Merit Network, and CYCLADES were developed in the late 1960s and early
1970s. ARPANET development began with two network nodes which were interconnected
between the Network Measurement Center at the University of California, Los Angeles (UCLA)
Henry Samueli School of Engineering and Applied Science directed by Leonard Kleinrock, and
the NLS system at SRI. International (SRI) by Douglas Engelbart in Menlo Park, California, on
29 October 1969. The third site was the Culler-Fried Interactive Mathematics Center at the
University of California, Santa Barbara, followed by the University of Utah Graphics
Department. In a sign of future growth, fifteen sites were connected to the young ARPANET by
the end of 1971. These early years were documented in the 1972 film Computer Networks: The
Heralds of Resource Sharing. Early international collaborations for the ARPANET were rare.
Connections were made in 1973 to the Norwegian Seismic Array (NORSAR) via a satellite
station in Tanum, Sweden, and to Peter Kirstein's research group at University College London
which provided a gateway to British academic networks. The ARPANET project and
international working groups led to the development of various protocols and standards by which
multiple separate networks could become a single network or "a network of networks". In 1974,

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Vint Cerf and Bob Kahn used the term internet as shorthand for internetworking in RFC 675, and
later RFCs repeated this use. Cerf and Khan credit Louis Pouzin with important influences on
TCP/IP design. Commercial PTT providers were concerned with developing X.25 public data
networks. Access to the ARPANET was expanded in 1981 when the National Science
Foundation (NSF) funded the Computer Science Network (CSNET). In 1982, the Internet
Protocol Suite (TCP/IP) was standardized, which permitted worldwide proliferation of
interconnected networks. TCP/IP network access expanded again in 1986 when the National
Science Foundation Network (NSFNet) provided access to supercomputer sites in the United
States for researchers, first at speeds of 56 Kbit/s and later at 1.5 Mbit/s and 45 Mbit/s. The
NSFNet expanded into academic and research organizations in Europe, Australia, New Zealand
and Japan in 1988–9. Although other network protocols such as UUCP had global reach well
before this time, this marked the beginning of the Internet as an intercontinental network.

Commercial Internet service providers (ISPs) emerged in 1989 in the United States and
Australia. The ARPANET was decommissioned in [Link] advances in semiconductor
technology and optical networking created new economic opportunities for commercial
involvement in the expansion of the network in its core and for delivering services to the public.
In mid-1989, MCI Mail and CompuServe established connections to the Internet, delivering
email and public access products to the half million users of the Internet. Just months later, on 1
January 1990, PSInet launched an alternate Internet backbone for commercial use; one of the
networks that added to the core of the commercial Internet of later years. In March 1990, the first
high-speed T1 (1.5 Mbit/s) link between the NSFNET and Europe was installed between Cornell
University and CERN, allowing much more robust communications than were capable with
satellites. Six months later Tim Berners-Lee would begin writing Worldwide Web, the first web
browser after two years of lobbying CERN management. By Christmas 1990, Berners-Lee had
built all the tools necessary for a working Web: the Hypertext Transfer Protocol (HTTP) 0.9, the
Hypertext (HTML), the first Web browser (which was also a HTML editor and could access
Usenet newsgroups and FTP files), the first HTTP server software (later known as CERN http),
the first web server, and the first Web pages that described the project itself. In 1991 the
Commercial Internet exchange was founded, allowing PSInet to communicate with the other
commercial networks CERF net and AlterNet. Stanford Federal Credit Union was the first
financial institution to offer online Internet banking services to all of its members in

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October 1994. In 1996 OP Financial Group, also a cooperative bank became the second online
bank in the world and the first in Europe. By 1995, the Internet was fully commercialized in
the U.S. when the NSFNet was decommissioned, removing the last restrictions on use of the
Internet to carry commercial traffic. As technology advanced and commercial opportunities
fueled reciprocal growth, the volume of Internet traffic started experiencing similar
characteristics as that of the scaling of MOS transistors, exemplified by Moore's law, doubling
every 18 months. This growth, formalized as Edholm's law, was catalyzed by advances in MOS
technology, laser light wave systems, and noise performance.

Since 1995, the Internet has tremendously impacted culture and commerce, including the
rise of near instant communication by email, instant messaging, telephony (Voice over
Internet Protocol or VoIP), two-way interactive video calls, and the World Wide Web with
its discussion forums, blogs, social networking, and online shopping sites. Increasing
amounts of data are transmitted at higher and higher speeds over fiber optic networks operating
at 1-Gbit/s, 10-Gbit/s, or more. Most traditional communication media, including telephony,
radio, television, paper mail and newspapers are reshaped, redefined, or even bypassed by the
Internet, giving birth to new services such as email, Internet telephony, Internet television, online
music, digital newspapers, and video streaming websites. Newspaper, book, and other print
publishing are adapting to website technology, or are reshaped into blogging, web feeds and
online news aggregators. The Internet has enabled and accelerated new forms of personal
interactions through instant messaging, Internet forums, and social networking. Online
shopping has grown exponentially both for major retailers and small businesses and
entrepreneurs, as it enables firms to extend their "brick and mortar" presence to serve a larger
market or even sell goods and services entirely online. Business-to-business and financial
services on the Internet affect supply chains across entire industries. The Internet has no single
centralized governance in either technological implementation or policies for access and usage;
each constituent network sets its own policies. The overreaching definitions of the two principal
name spaces in the Internet, the Internet Protocol address (IP address) space and the Domain
Name System (DNS), are directed by a maintainer organization, the Internet Corporation for
Assigned Names and Numbers (ICANN). The technical underpinning and standardization of the
core protocols is an activity of the Internet Engineering Task Force (IETF), a non-profit
organization of loosely affiliated international participants that anyone may associate with by

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contributing technical expertise. In November 2006, the Internet was included on USA Today's
list of New Seven Wonders.

2.2 The Internet, Intranets, Extranets and the World Wide Web
 The Internet

Internet is defined as an electronic communications network that connects computer networks

and organizational computer facilities around the world. The Internet, sometimes called simply
"the Net," is a worldwide system of computer networks. A network of networks in which users at
any one computer can, if they have permission, get information from any other computer (and
sometimes talk directly to users at other computers). The Internet is the global system of
interconnected computer networks that uses the Internet protocol suite (TCP/IP) to link devices
worldwide. It is a network of networks that consists of private, public, academic, business, and
government networks of local to global scope, linked by a broad array of electronic, wireless,
and optical networking technologies. The Internet carries a vast range of information resources
and services, such as the inter-linked hypertext documents and applications of the World Wide
Web (WWW), electronic mail, telephony, and file sharing. The following sections describe the
key features of the Internet which have contributed to this world-wide success:

1. Geographic Distribution: The geographic distribution of the Internet continues to

spread, around the world and even beyond. A key attribute of the Internet is that once you
have connected to any part of it, you can communicate with all of it. All of the Internet's
technologies web, newsgroups, email, mailing lists, IRC, MUD's enable geographically
distributed groups of people to communicate who otherwise couldn't do so. Largely
because the basic architecture of the Internet is open fundamentally designed to connect
new networks this powerful communication medium has spread rapidly to interconnect
our world and turned it into a true multi-way electronic village. The rapid geographic
distribution of the Internet is having the same effect on our civilization as previous
inventions that have dramatically expanded the geographic boundaries of our
communication abilities, each making the world just a bit smaller. The Internet is the
latest and most powerful such invention, with a current distribution to every corner of this
planet, and already inevitably moving into space.

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2. Robust Architecture: The Internet is the most robust communications network ever
designed, able to adapt itself almost instantaneously to damage or outages to individual
sections. The Internet has no irreplaceable central control, administration, or authority. It
can't be bought, hijacked, or monopolized. The loss of individual computers and
networks does not affect its overall reliability. The Internet perfectly realizes its original
intent it is actively robust, and cannot be completely deactivated without bringing down
every single connection. The Internet is robust over time, too. Many people alive today
were born before the Internet was invented. If we mark its birth from 1969, we can safely
assume that it is now effectively immortal, and will continue to exist in some form for the
rest of human history.
3. Near Light Speed: The Internet operates at near light speed, which on a planet the size
of Earth often practically amounts to near real-time. Digital information such as Internet
packets travel at 2/3 of the speed of light on copper wire and on fiber optic cables. Since
light speed is about 300,000 kilometers a second, this means digital communications
travel at about 200,000 kilometers a second, slowing down only because copper and fiber
optic materials are about one-third thicker than a vacuum. At this speed and neglecting
switching delays, two computers have to be more than ten thousand kilometers apart, or
almost half way around the world, before they experience a tenth of a second in
communications delay. With fixed near-optimal transmission speed, there are only two
ways to make Internet networks faster increase the number of bits that are traveling at
once down the connection, or increase the speed at which you switch them from one
connection to another at the junction points. Internet routers are getting faster and faster
with switching speeds nearing instantaneous, while fiber optics and wireless technologies
are enabling networks to send much larger numbers of bits at once. The Internet is getting
even [Link] provides services to test the speed of your own Internet connection.
4. Universal Access: The Internet provides universal access, giving the same powerful
capabilities to everyone who has access to the network no matter where they are. The
Internet is based on a common standard, the TCP/IP network protocol, which provides all
computers with access to the network with the same technical interface and capabilities.
This common foundation makes the entire internet technologies equally available to
anyone connected to the Internet. This architecture gives everyone the ability to make

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information like text, audio, and video accessible to a worldwide audience at an

extremely low cost, since website storage space and lots of bandwidth can be rented from
web hosting providers for low fees. Because the Internet has a "many-to-many"
architecture, with everyone having the same capabilities as anyone else, it allows anyone
to become a global publisher. The earlier Citizens Band radio and Amateur Radio
technologies provided a similar ability to share a common space across geographical
distances. The Internet is the current such frontier. You should feel free to approach the
Internet with a spirit of exploration, and don't need to have a task or a question to answer
you can surf from link to link or try random searches just to see what turns up, like
exploring a new city. If you feel moved to set up a website about your favorite hobby, go
ahead. The Internet is universally empowering - everyone can participate.
5. Internet Growth Rates: The growth rate of the Internet exceeds that of any previous
technology. Measured by users and bandwidth, Internet has been growing at a rapid rate
since its conception, on a curve geometric and sometimes exponential. Today, the
Internet is growing exponentially in three different directions size, processing power, and
software sophistication making it the fastest growing technology humankind has ever
created:
• Size- The graphs in the historical statistics section show the exponential rate of
growth in the number of people that use the Internet. Soon more than half the world's
population will have access to the Internet.
• Power- As first appreciated at the Dartmouth AI Conference in 1956, computer
processors and storage continue to double in power and capacity about every 18
months, providing steadily more powerful computers for use by increasing
sophisticated software.
• Functionality- Software applications from routing programs to browser applications
continually build on previous technology to become more sophisticated with every
release, continuously evolving to incorporate new features and capabilities.
6. The Digital Advantage: Digital communications have the D4 advantage "Digital data
doesn't degrade". Analog systems and digital systems are like mirror images of each
other. Analog systems are usually controlled by physical mechanisms that can be in an
infinite number of continuous positions. A typical example would be the bicycle, which

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provides force to the wheels through the gear system depending on the continuously
varying force of your feet on the pedals. An example from the 20th century would be one
of those old record players that recorded music with the depth and pattern of a tiny
groove cut into a vinyl disk by a diamond needle. In contrast to approximate, analog
systems, the Internet is a digital medium based on data made up of discrete 1's and 0's. A
bit of computer data is not infinitely adjustable, and only has one of two unambiguous
states -- it is either a 1, or a 0. This limitation has a very important compensating
advantage: there is no "drift" that can introduce error. For example, for many years radio
stations that broadcast on the AM frequency had a lot of static because their signal was
based on an analog measurement of radio waves that were distorted in transmission.
However, FM radio stations used a different method based on the phase of the radio wave
frequency, which was a digital measurement with only one of a small number of different
values, and therefore provided static free sound that wasn't distorted in transmission. On
the other hand, once you go far enough away, and the FM receiver started having trouble
decoding the weakening signal, then the station would often just drop out altogether. The
Internet, like all computer systems, is based on digital data, so that information never
changes or becomes distorted over time or in transmission between sites. This is the key
feature that makes it possible to construct the very complex software systems that run the
Internet, so that a website doesn't age and become fuzzy or garbled over time, and the
characters in an email don't get transposed or mixed up when they are sent over long
distances. One of the most important strengths of the Internet is that it's based on one of
the simplest concepts digital 1's and 0's.
7. Freedom of Speech: Information wants to be free, and the Internet fosters freedom of
speech on a global scale. The Internet is a common area, a public space like any village
square, except that it is the largest common area that has ever existed. Anything that
anybody wishes to say can be heard by anyone else with access to the Internet and this
world-wide community is as large and diverse as humanity itself. Therefore, from a
practical point of view, no one community's standards can govern the type of speech
permissible on the Internet. In the words of John Barlow, a founding member of the
Electronic Frontier Foundation (EFF) "In Cyberspace, the First Amendment is a local
ordinance". The principle of freedom of speech is also embedded in the Internet's robust

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architecture. In the words of John Gilmore, another founding member of the EFF "The
Net interprets censorship as damage, and routes around it." Because of the Internet's
robust design, it is impossible to completely block access to information except in very
limited and controlled circumstances, such as when blocking access to a specific site
from a home computer, or when using a firewall to block certain sites from employees on
a workplace network.
 Intranets

An intranet is a wide area network (WAN) that uses Internet technology and is secured behind
company‘s firewalls. The intranet links various servers, clients, databases, and application
programs like Enterprise Resource Planning (ERP). Although intranets are developed on the
same TCP/IP protocol as the Internet, they operate as a private network with limited access. Only
authorized employees are able to use it. Intranets are limited to information pertinent to the
company and contain exclusive and often proprietary and sensitive information. The firewalls
protect the intranets from unauthorized outside access; the intranet can be used to enhance the
communications and collaboration among authorized employees, customers, suppliers, and other
business partners. Since the intranet allows access through the Internet, it does not require any
additional implementation of leased networks. This open and flexible connectivity is a major
capability and advantage of intranet. Intranets provide the infrastructure for many intra-business
commerce applications.

 Extranet

An extranet, or ―extended intranet‖, uses the TCP/IP protocol network of the Internet, to link
intranets in different locations. Extranet transmission is usually conducted over the Internet,
which offers little privacy or transmission security. Therefore, when using an extranet, it is
necessary to improve the security of connecting portions of the Internet. This can be done by
creating tunnels of secured data flows, using cryptography and authorization algorithm. The
Internet with tunneling technology is known as a virtually private network (VPN). Extranets
provide secured connectivity between corporation‘s intranets and the intranets of its business
partners, material suppliers, financial services, government, and customers. Access to intranets is
usually limited by agreements of the collaborating parties, is strictly controlled, and is only
available to authorized personnel. The protected environment of the extranet allows groups to

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collaborate, sharing information exclusively, and exchanging it securely. Since an extranet

allows connectivity between businesses through the Internet, it is an open and flexible platform
suitable for supply chain management. To increase security, many companies replicate the
database they are willing to share with their business partners and separate them physically from
their regular intranets.

Comparing Internet, Intranet and Extranet

Internet Intranet Extranet

It is a global system of It is a private network specific to an It is a private network that uses
interconnected computer organization. public network to information with
networks. suppliers vendors
Not regulated by any one It is regulated by an It is regulated by multiple
Organization organizations.
Thus content in the network is Thus content in the network is The content in the network is
accessible to everyone connected. accessible only to members of accessible to members of
organization. organization and external members
with access to network.
It is largest in terms of number of It is small network with minimal The number of devices connected is
connected device. number of connected device. comparable with intranet.
It is owned by no one It is owned by single organization It is owned by single/multiple
organization.
It is means of sharing information It is means of sharing sensitive It is means of sharing information
throughout the world. information throughout organization between members and external
members.
Security is depending of the user Security is enforced via a firewall. Security is enforced via a firewall
of device connected to network. that separates internet and extranet.
Users can access internet Users should have valid Users should have valid
anonymously. username/password to access intranet. username/password to access
extranet

 World Wide Web (WWW)

The World Wide Web (WWW) or web is an internet based service, which uses common set of
rules known as protocols, to distribute documents across the Internet in a standard way. World
Wide Web, which is also known as a Web, is a collection of websites or web pages stored in web

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servers and connected to local computers through the internet. These websites contain text pages,
digital images, audios, videos, etc. Users can access the content of these sites from any part of
the world over the internet using their devices such as computers, laptops, cell phones, etc. The
WWW, along with internet, enables the retrieval and display of text and media to your device.

The World Wide Web- Or ‗Web‘ is a part of the Internet. The Web is viewed through web
browser software such as Google chrome, Internet Explorer, Mozilla Firefox etc. Using browsers
one can access the digital libraries containing innumerable articles, journals, e-books, news,
tutorials stored in the form of web pages on computers around the world called web servers. In
general,

 The Web was invented in 1991 by Tim Berners-Lee, while consulting at CERN
 (European Organization for Nuclear Research) in Switzerland.
 The Web is a distributed information system
 The Web contains multimedia
 Information in the Web is connected by hyperlinks
 Markup Language (HTML)-Markup language refers to a text-encoding system
consisting of a set of symbols inserted in a text document to control its structure,
formatting, or the relationship between its parts. Markup is often used to control the
display of the document or to enrich its content to facilitate automated processing. A
markup language is a set of rules governing what markup information may be included in
a document and how it is combined with the content of the document in a way to
facilitate use by humans and computer programs. The idea and terminology evolved from
the "marking up" of paper manuscripts (i.e., the revision instructions by editors), which is
traditionally written with a red pen or blue pencil on authors' manuscripts Such
formatting allows for embedded hyperlinks that contain URLs and permit users to
navigate to other web resources.
 Internet Protocols- the Internet Protocol (IP) is a protocol, or set of rules, for routing
and addressing packets of data so that they can travel across networks and arrive at the
correct destination. Data traversing the Internet is divided into smaller pieces, called
packets. IP information is attached to each packet, and this information helps routers to
send packets to the right place. Every device or domain that connects to the Internet is

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assigned an IP address, and as packets are directed to the IP address attached to them,
data arrives where it is needed. In information technology, a protocol is the special set of
rules that end points in a telecommunication connection use when they communicate.
Protocols specify interactions between the communicating entities. Protocols exist at
several levels in a telecommunication connection. For example, there are protocols for
the data interchange at the hardware device level and protocols for data interchange at the
application program level. In the standard model known as Open Systems
Interconnection (OSI), there are one or more protocols at each layer in the
telecommunication exchange that both ends of the exchange must recognize and observe.
 HTTP (Hyper Text Transfer Protocol)-HTTP (Hypertext Transfer Protocol) is the set
of rules for transferring files -- such as text, images, sound, video and other multimedia
files over the web. As soon as a user opens their web browser, they are indirectly using
HTTP. HTTP is an application protocol that runs on top of the TCP/IP suite of protocols,
which forms the foundation of the internet. Through the HTTP protocol, resources are
exchanged between client devices and servers over the internet. Client devices send
requests to servers for the resources needed to load a web page; the servers send
responses back to the client to fulfill the requests. HTTP allows an open-ended set of
methods to be used to indicate the purpose of a request. It builds on the discipline of
reference provided by the Uniform Resource Identifier (URI). Messages are passed in a
format similar to that used by Internet Mail and the Multipurpose Internet Mail
Extensions (MIME). The HTTP protocol is a request/response protocol. A client sends a
request to the server in the form of a request method, URI, and protocol version, followed
by a MIME-like message containing request modifiers, client information, and possible
body content over a connection with a server.
 Electronic Mail Protocols -E-mail Protocols are set of rules that help the client to
properly transmit the information to or from the mail server. Here in this tutorial, we will
discuss various protocols such as SMTP, POP, and IMAP, SMPTP and SMTP stands for
Simple Mail Transfer Protocol. It was first proposed in 1982. It is a standard protocol
used for sending e-mail efficiently and reliably over the internet.
 Hypertext Markup Language- Hypertext Markup Language (HTML) is the standard
markup language for documents designed to be displayed in a web browser. It can be

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assisted by technologies such as Cascading Style Sheets (CSS) and scripting languages
such as JavaScript. Web browsers receive HTML documents from a web server or from
local storage and render the documents into multimedia web pages. HTML describes the
structure of a web page semantically and originally included cues for the appearance of
the document. In 1980, physicist Tim Berners-Lee, a contractor at CERN, proposed and
prototyped ENQUIRE, a system for CERN researchers to use and share documents. The
first publicly available description of HTML was a document called "HTML Tags", first
mentioned on the Internet by Tim Berners-Lee in late 1991.
 Extensible Markup Language- Extensible Markup Language (XML) extensible Markup
Language, or "XML," is a computer programming language designed to transmit both
data and the meaning of the data. XML accomplishes this by being a markup language, a
mechanism that identifies different structures within a document. Structured information
contains both content (such as words, pictures, or video) and an indication of what role
content plays, or its meaning. XML identifies different structures by assigning data "tags"
to define both the name of a data element and the format of the data within that element.
Elements are combined to form objects. XML also allows structured relationships to be
defined. The ability to represent objects and their relationships is key to create a fully
beneficial justice information sharing tool. A simple example can be used to illustrate this
point: A "person" object may contain elements like physical descriptors (e.g., eye and
hair color, height, weight), biometric data (e.g., DNA, fingerprints), and social
descriptors (e.g., marital status, occupation). A "vehicle" object would also contain many
elements (such as description, registration, and/or lien-holder). The relationship between
these two objects—person and vehicle—presents an interesting challenge that XML can
address. XML is sanctioned by the World Wide Web Consortium (W3C), a premier
forum comprised of agencies from across the globe committed to helping the World
Wide Web reach its full potential by developing common protocols promoting Web
evolution and interoperability. XML is compatible with major Internet transmission
protocols, and is also highly compressible for faster transmission. Almost all major
software vendors fully support the general XML standard. Major database vendors and
their database applications provide software development "tools" to assist justice agency
technical staff to develop and use XML more efficiently and productively within agency

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applications. XML is very developer-friendly, yet ordinary users with no particular XML
expertise can make sense of an XML file. The XML standard is designed to be
independent of vendor, operating system, source application, destination application,
storage medium (database), and/or transport protocol. This last fact makes XML great
news for justice administrators: sharing vital information no longer entails purchasing
new systems or compromising one's business practices. XML is generally recognized as
an enabler for increasing the sharing of information, and has emerged as a key
technology for assisting commercial and government organizations in exchanging
information and conducting business over the Internet and intranets. XML is the "glue"
that promotes interoperability—it allows systems already in use and those being
developed to communicate with each other and paves the way for future expanded
collaboration between agencies.
 Electronic data interchange (EDI)-Electronic Data Interchange EDI – is the exchange
of business documents between any two trading partners in a standard or structured,
machine readable form. EDI is used to electronically transfer documents such as purchase
orders, invoice, shipping bills, and communicate with one another. A Specified format is
set by both the parties to facilitate transmission of information. Traders use Electronic
Data Interchange EDI to exchange financial information in electronic form. Electronic
Fund Transfer facility provided by banks is an example of Electronic Data Interchange
EDI. EDI helps to eliminate paper based system, reduces data entry task and improves
business cycle. EDI stands for Electronic Data Interchange. EDI is an electronic way of
transferring business documents in an organization internally, between its various
departments or externally with suppliers, customers, or any subsidiaries. In EDI, paper
documents are replaced with electronic documents such as word documents,
spreadsheets, etc.

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Chapter Three

Business Models for E-commerce

After reading this chapter, you will be able to:

 Identify the key components of e-commerce business models.

 Describe the major B2C business models.
 Describe the major B2B business models.
 Recognize business models in other emerging areas of e-commerce.
 Understand key business concepts and strategies applicable to e-commerce
3.1 Introduction

A business model is the methods of doing business, by which a company can sustain itself, that
is, generate revenue. The business model spells out how a company makes money by specifying
where it is positioned in the value chain. Some models are quite simple. A company produces
goods or services and sells it to customers. If all goes well, the revenues from sales exceed the
cost of operation and the company realizes profit. Other model can be more intricately woven.
Radio and television broadcasting is a good example. With all the talk about "free" business
models on the web, it is easy to forget that in radio, and later in television, programming have
been aired free to anyone with a receiver (here, the radio or the television) for much of the past
century. The broadcaster is part of a complex network of distributors, content creators,
advertisers, and listeners or viewers. Who makes money and how much is not always clear at the
outset. However, a business model does not discuss how it will realize the business mission of
the company. The marketing strategy of the company is needed to assess the commercial
viability of a business model and to answer questions like: how is competitive advantage being
built? What is the positioning? What is the marketing mix? Which product-market strategy is
followed? and so forth.

A company's business model is the way in which it conducts business in order to generate
revenue. In the new economy, companies are creating new business models and reinventing old
models. Reading the literature, we find business models categorized in different ways. As such,
there is no single, comprehensive and cogent taxonomy of web business models one can point to.

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A business model can be defined as architecture for product, service, and information flow,
including a description of business players, their roles, and revenue sources. For example, some
of the most popular revenue-generating models adopted by companies are: charge fees for
advertising, sell goods and services, sell digital contents, and charge for processing the
transactions that occur between two parties on the web. Business model also defined as a set of
planned activities (sometimes referred to as business processes) designed to result in a profit in a
marketplace. The business model is at the center of the business plan. A business plan is a
document that describes a firm‘s business model. A business plan always takes into account the
competitive environment. An e-commerce business model aims to use and leverage the unique
qualities of the Internet and the World Wide Web. A business model is like a business plan
conceived by a company so that the company has an edge over its competitors and can make
profits but it is over and above a business plan too. It is also about specifying exact strategies and
approaches of initiating and sustaining the proposed business plan. Its key focus stays on
sustaining the proposed business by specifying ways and means to create on-going value for the
desired customers. First and foremost, a business plan must clearly delineate who the target
customer is, then highlight the differentiating product or a service that the identified customer
would seek, also called the USP – Unique Selling Proposition, that would be unique to this
business and would give an edge over its competitors. After that, a business model should move
on to describe all the elements that are required to demonstrate the feasibility and success of a
prospective business. Therefore, business plan should ideally include several details including
target customer, description of the goods, details of the services that the company has to offer,
marketing strategy, revenues and expenses, start-up costs, sources of financing and so on.

To address such and related concerns, a business model must be a detailed description related to
following components:

 Core business focus (why are we doing the business, who is our target customer)
 Design priorities (why are we going online – to improve our brand positioning, to promote
the business across various geographies, to eliminate intermediaries or all)
 Implementation strategies (how would this business go online, directly or through existing
online aggregators etc.)

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 Revenue mechanisms (how the money flows – directly through sales or advertisements etc.)
driving that business.

To ensure that all these basic questions are adequately addressed, following are some simple
steps to create a strong business model.

1. Identify your specific audience: Targeting a wide audience won‘t allow a business to
identify the right customers, who truly need and want the product or service. Instead,
when creating a business model, narrow down the audience (expected buyers) number to
two or three and do detailed study of the buyer personas. Outline each persona‘s
demographics, common challenges and the solutions of the company that it will offer.
2. Establish business processes: Before the business can go live, make a clear
understanding of the activities required to make the business model work. It is important
to determine the key business activities to establish a proper business process. The first
step is to identify the core aspects of the business‘s offering.
3. Record key business resources: What does a company need to carry out during daily
processes, find new customers and reach business goals? Document essential business
resources to ensure the business model is adequately prepared to sustain the needs of the
business. Common example that a business may need includes a website, capital for the
business to start running, warehouses, intellectual property and the customer lists.
4. Develop a strong, preferably a unique value proposition: For standing among other
competitors a company needs to provide some additional value proposition to the
customers in the form of an innovative service, or a revolutionary product. Value
proposition is about giving the value to the business and how it stands out from other
businesses in the market. Once the business has got a few value propositions, then it is
important to link each of them to a service or product delivery system to determine how
the business would remain valuable to the customers over time.
5. Determine key business partners: No business can function properly (let alone reach
established goals) without key partners that donate to the business‘s ability to serve
customers. While building a business model it is significant to choose the key partners
like for example suppliers, strategic alliances, or advertising partners.

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Besides, E-Commerce or Electronics Commerce business models can generally be categorized

into the following types.

 Business - to - Business (B2B)

 Business - to - Consumer (B2C)
 Consumer - to - Consumer (C2C)
 Consumer - to - Business (C2B)
 Business - to - Government (B2G)
3.2 Business - to -Business (B2B)

It is a type of commerce transaction which exists between businesses or a transaction that occurs
between a company and some other company to transfer of services and products. A possible
explanation discussion that Business-toBusiness includes online wholesaling in which businesses
sell materials, products and services to other businesses on the websites. For example such as E-
commerce major like Amazon, Paytm and Shopclues are recreating the clickto –buy model for
their sellers on business-to-business (B2B) platform. Most B2B applications are available in the
areas of supplier management (especially purchase order processing), inventory management
(i.e., managing order-shipbill cycles), distribution management (especially in the transmission of
shipping documents), channel management (i.e., information dissemination on changes in
operational conditions), and payment management (e.g., electronic payment systems).

3.3 Business - to - Consumer (B2C)

As the name suggests, it is the model involving business and consumers over the internet. B2C
means selling directly to the end consumer or selling to an individual rather than a company.
Website following B2C business model sells its product directly to a customer. It refers to
transactions between a business and its end consumer and so it create electronic storefronts that
offer information, goods, and services between business and consumers in a retailing transaction
or it is an Internet and electronic commerce model that indicates a financial transaction or online
sale between a business and consumer. Business-to-consumer e-commerce, or commerce
between companies and consumers, involves customers gathering information; purchasing
physical goods (i.e., tangibles such as books or consumer products) or information goods (or
goods of electronic material or digitized content, such as software, or e- books); and, for

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information goods, receiving products over an electronic network. Examples could also be
purchasing services from an insurance company, conducting online banking and employing
travel services. A customer can view products shown on the website of business organization.
The customer can choose a product and order the same. Website will send a notification to the
business organization via email and organization will dispatch the product/goods to the
customer. B2C is also known as internet retailing or E-trailing. B2C can also relate to receiving
information such as share prices, insurance quotes, on-line newspapers, or weather forecasts. The
supplier may be an existing retail outlet such as a high street store; it has been this type of
business that has been successful in using e-commerce to deliver services to customers.

3.4 Consumer - to - Consumer (C2C)

Customer to Customer (C2C), sometimes known as Consumer to Consumer, E-Commerce

involves electronically-facilitated transactions between individuals, often through a third party. It
is an electronic Internet facilitated medium, which involves transactions among users and it is a
business model which two consumers deal business with each other directly. Examples are
individuals selling in classified ads and selling residential property, cars, and so on. Advertising
personal and own services on the Internet and selling knowledge and expertise is another
example of C2C. Several auction sites allow individuals to put items up for auctions services.
The examples of C2C e-Commerce are [Link], [Link], [Link]. This type of e-
commerce is characterized by the growth of electronic marketplaces and online auctions,
particularly in vertical industries where firms/businesses can bid for what they want from among
multiple suppliers. It perhaps has a great potential for developing new markets and opportunities.
This type of e-commerce comes in at least three forms

 Auctions facilitated services at a portal, such as eBay, which allows online real- time
bidding on items being sold in the Web;
 Peer-to-peer systems services, such as the Napster model (a protocol for sharing files
between users used by chat forums similar to Internet Relay Chat) and other file
exchange and later money exchange models; and classified ads at portal sites such as
[Link] and [Link] classifieds are the examples.

Features of C2C

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 Here a consumer sells directly to another consumer. For examples, EBay and
[Link] are common examples of online auction websites that provide a
consumer to advertise and sell their product online to another consumer.
 The buyer can purchase products from multiple sellers.
 The same customer can act as both buyer as well as seller.
 The online market place will allow buyer to browse products by using different criteria
such as; best seller, most popular product, from your city and many more.
 Different sellers can bid on the products wish list item listed by the buyer, what they are
looking for so that the buyer can get different best prices and offers from sellers.
 The social media linking functionalities include, community or forum discussion and
blog and other social media website link interface.
 The back end interface includes features for administration to manage buyer and seller
accounts, payment settings, gallery setting, etc.
 The buyer has to browse products by using different sections such as; good seller, most
popular product, from place and many more
 The prospective sellers can bid on the products from ad to cart list item listed by the
buyer, what they are looking for so that the buyer can get different best prices and offers
from sellers.

Advantages of C2C

 The customers can directly contact sellers and eliminate the middle man.
 It is easy to start the new business venture.
 The sellers can reach both national and international customers orientation.
 The simplified buying and searching process through listing products and services.
 It has minimized searching and distribution cost through search engine optimizer.
 It has reduced inventory cost or holding cost of products.

Disadvantages of C2C

1. The numbers of internet-related auction frauds have also increased.

2. Unnecessarily inflated prices by creating multiple buyers.

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3. The illegal or restricted products and services have been found on selling process. Example:
illegal drugs, pirated works.

4. The More credit card/ payment frauds are increased.

3.5 Consumer - to -Business (C2B)

Customer to Business (C2B), sometimes known as Consumer to Business, is the most recent E-
Commerce business model. In this model, individual customers offer to sell products and
services to companies who are prepared to purchase them. This business model is the opposite of
the traditional B2C model. C2B (Customer to Business) is a model where initiative comes from
the customers (consumers) and enterprises are the target group. The customers actively contact
the enterprises via the Internet and raise questions, suggestions and ideas that can be used, for
example for product or service innovation. The enterprises can facilitate the C2B model by
setting, for example discussions forums on their websites or their pages on social networks. In
this model, a consumer approaches website showing multiple business organizations for a
particular service. Consumer places an estimate of amount he/she wants to spend for a particular
service. For example, comparison of interest rates of personal loan/ car loan provided by various
banks via website. Business organization that fulfills the consumer's requirement within
specified budget approaches the customer and provides its services. E-lance was one of the first
web sites to offer this type of transactions. It allows sellers to advertise their skills and
prospective buyers to advertise projects. Similar sites such as People per-hour and Guru work on
the same basis. Online Advertising sites like Google AdSense, affiliation platforms like
Commission Junction and affiliation programs like Amazon are the best examples of C2B
schemes. Individuals can display advertising banners, contextual text ads or any other
promotional items on their personal websites. Individuals are directly commissioned to provide
an advertising/selling service to companies. The new C2B business model is a revolution
because it introduces a new collaborative trading scheme paving the way for new applications
and new socio-economical behaviors.

3.6 Business-to-Government (B-to-G)

Business-to-government (B2G) e-commerce is concerned with the need for business to sell
goods or services to governments or government agencies. It includes the exchange of

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information, services and products between business organizations and government agencies on-
line

3.7 Other Models

 Business-to-Peer Networks (B-to-P)- This would be the provision of hardware, software
or other services to the peer networks. An example here would be Napster who provided
the software and facilities to enable peer networking.
 Consumer-to-Government (C-to-G) -Examples where consumers provide services to
government has yet to be implemented.
 Consumer-to-Peer Networks (C-to-P): -This is exactly part of what peer-to-peer
networking is and so is a slightly redundant distinction since consumers offer their
computing facilities once they are on the peer network.
 Government-to-Business (G-to-B): Also known as e-government, the exchange of
information, services and products between government agencies and business
organizations. Government sites now enable the exchange between government and
business of:
o Information, guidance and advice for business on international trading, sources of
funding and support, facilities (e.g. [Link]. [Link]).
o A database of laws, regulations and government policy for industry sectors.
o On-line application and submission of official forms (such as value added tax).
o On-line payment facilities
 Government-to-Consumer (G-to-C): It is also known as e-government. Government
sites offering information, forms and facilities to conduct transactions for individuals,
including paying bills and submitting official forms on-line such as tax returns.
 Government-to-Government (G-to-G): It is also known as e-government.
Government-to-government transactions within countries linking local governments
together and also international governments, especially within the European Union,
which is in the early stages of developing coordinated strategies to link up different
national systems.
 Peer–to-Peer Network (P-to-P): This is the communications model in which each party
has the same capabilities and either party can initiate a communication session. In recent

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usage, peer-to-peer has come to describe applications in which users can use the Internet
to exchange files with each other directly or through a mediating server.
 Peer Network-to-Consumer (P-to-C): This is in effect peer-to-peer networking,
offering services to consumers who are an integral part of the peer network.
 Peer Network-to-Business (P-to-B) -Peer-to-peer networking provides resources to
business. For example, using peer network resources such as the spare processing
capacity of individual machines on the network to solve mathematical problems or
intensive and repetitive DNA analyses which requires very high capacity processing
power.
 M-commerce: Mobile commerce is the buying and selling of goods and services
through wireless technology-i.e., handheld devices such as cellular telephones and
personal digital assistants (PDAs). Japan is seen as a global leader in m-commerce. As
content delivery over wireless devices becomes faster, more secure, and scalable, some
believe that m-commerce will surpass wire line e-commerce as the method of choice for
digital commerce transactions.
3.8 Key Elements of a Business Model

A successful business model effectively addresses eight key elements:

1. Value proposition: It answers the question ―why should customer buy products and
services from a given firm?‖ In other words, how a company's product or service fulfills
the needs of customers is typically addressed by value proposition. Typical e-commerce
value propositions include personalization, customization, convenience, and reduction of
product search and price delivery costs.
2. Revenue model: Refers to how the company plans to make money from its operations.
Revenue model describes how the firm will earn revenue, generate profits, and produce a
superior return on invested capital. Major e-commerce revenue models include the
advertising model, subscription model, transaction fee model, sales model, and affiliate
referral model.
3. Market Opportunity: Refers to a company‘s intended market space and the overall
potential financial opportunities available to the firm in that market space. Market space:
the area of actual or potential commercial value in which a company intends to operate is

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what a market opportunity means. Realistic market opportunity is defined by revenue

potential in each of market niches in which company hopes to compete
4. Competitive Environment: The direct and indirect competitors doing business in the
same market space, including how many there are and how profitable they are, i.e, it
refers to the other companies selling similar products and operating in the same market
space.
5. Competitive Advantage: Achieved when a firm can produce a superior product and/or
bring product to market at a lower price than most, or all, of competitors. Firms achieve
competitive advantage when they are able to obtain differential access to the factors of
production that are denied to competitors. Types of competitive advantage include:
 Asymmetry: it exists whenever one participant in a market has more resources than
other participants.
 First mover advantage: results from a firm being first into a marketplace.
 Un-fair competitive advantage: occurs when one firm develops an advantage based on
a factor that other firms cannot purchase.
 Second mover advantage: results form a firm being second into a market place.
6. Market Strategy: A plan that details, how a company intends to enter a new market and
attract customers? Best business concepts will fail if not properly marketed to potential
customers. It also connotes to all marketing mix strategies: product, price, place and
promotion.
7. Organizational Development: The process of defining all the functions within a
business and the skills necessary to perform each job, as well as the process of recruiting
and hiring strong employees. Describes how the company will organize the work that
needs to be accomplished. Work is typically divided into functional departments and
respective employees are assigned accordingly. Move from generalists to specialists as
the company grows.
8. Management Team: The group of individuals retained to guide the company's growth
and expansion. Employees of the company responsible for making the business model
work. Strong management team gives instant credibility to outside investors. A strong
management team may not be able to salvage a weak business model, but should be able
to change the model and redefine the business as it becomes necessary

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Chapter four

Concepts of E-procurement

4.1 What is e- procurement?

It is the term used to describe the use of electronic methods, typically over the Internet to
conduct transactions between awarding authorities and suppliers. E-Procurement is the process
wherein the physical tendering activity is carried out online using the Internet and associated
technologies. E-Procurement enables the user to introduce ease and efficiency without
compromising the required procedures of the organization. E-Procurement provides
transparency, results in savings of time and money, shortening of procurement cycle, ease of
operation to the implementing organization and to the vendors. The process of e-procurement
covers every stage of purchasing, from the initial identification of a requirement, through the
tendering process, to the payment and potentially the contract management. E-procurement
(electronic procurement, sometimes also known as supplier exchange) is the business-to-business
or business-to-consumer or business-to-government purchase and sale of supplies, work, and
services through the Internet as well as other information and networking systems, such as
electronic data interchange and enterprise resource planning. Basically Electronic Procurement
(e-procurement) refers to the electronic integration and management of all procurement activities
including purchase request, authorization, ordering, delivery and payment between a purchaser
and a supplier. E-procurement, also known as electronic purchasing or supplier exchange, is the
business-to-business, business-to-consumer or business-to-government purchase and sale of
products and services through the Internet and other information and networking systems. The e-
procurement value chain consists of indent management, e-Informing, e-Tendering, e-
Auctioning, vendor management, catalogue management, purchase order integration, Order
Status, Ship Notice, e-invoicing, e-payment, and contract management. Indent management is
the workflow involved in the preparation of tenders. This part of the value chain is optional, with
individual procuring departments defining their indenting process. In works procurement,
administrative approval and technical sanction are obtained in electronic format. In goods
procurement, indent generation activity is done online. Elements of e-procurement include
request for information, request for proposal, and request for quotation. Alongside with increased
use of e-procurement, needs for standardization arise. Currently, there is one globally developed

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open extensible markup language based standard framework built on a rich heritage of electronic
business experience. It consists of five layers - messaging, registry and repository, collaboration
protocol, core components and business processes. The primary functions of e-Procurement are
far-reaching, offering a range of benefits for a company‘s day-to-day operation and supply chain
activities. Below, we list the main functions of e-Procurement for business:

 Automates processes to free up resources and reduce errors.

 Improves communication between stakeholders and partners to streamline the
procurement cycle.
 Provides a single platform for all procurement activity, giving stakeholders and
managers a centralized platform for managing and auditing.
 Offers real-time updates for vendors, management, stakeholders, and partners, as well as
the chance to curate and store procurement data.
 Allows for streamlined negotiation between multiple partners and stakeholders.
4.2 E-procurement Tools

There are several tools and processes used in the field of e-Procurement, including:

 Electronic data interchange system-An electronic data interchange (EDI) is used to

exchange data and information between electronic devices. Messages and information
from partner companies are transmitted and stored via EDI, streamlining invoicing and
order logistics.
 Internet applications and platforms-Businesses implement a variety of e-
Procurement tools and web platforms to facilitate day-to-day working, including e-
Sourcing, e-Tendering, e-Auctioning, and e-Ordering tools. Email is also used
predominantly, as well as XML-based data transfer.
 E-ordering and purchasing tools-Major tools relating to product purchasing include a
web-based ERP and digital mechanisms for e-Auctions.
4.3 Types of e- procurement

Electronic procurement encompasses several forms. We distinguish between the following

forms:-

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 e-ordering
 e-sourcing
 e-tendering
 e-reverse auctioning
 E-informing
 e-ordering- it is the process of creating and approving purchasing requisitions, placing
purchase orders as well as receiving goods and services ordered, by using a software
system based on Internet technology. In the case of e-ordering the goods and services
ordered are indirect goods and services (i.e., non-product related goods and services). The
supporting software system (an ordering catalog system) is usually used by all employees
of an organization. In the case of web-based ERP the goods and services ordered are
product-related. These are called direct goods and services. Usually only the employees
of the purchasing department (or the planning department) are using the supporting
software system (a web-based ERP-system (Enterprise Resource Planning)). It may be
clear that ordering of indirect goods and services usually takes place on an ad hoc basis,
whereas ordering of direct goods and services usually is plan-based.
 E-sourcing- is the process of identifying new suppliers for a specific spend category,
using Internet technology (usually the Internet itself). By identifying new suppliers a
purchaser can increase the competitiveness in the tactical purchasing process for this
spend category. E-sourcing is a way of decreasing the supply risk associated with this
spend category.
 E-tendering- is the process of sending RFI‘s and RFP‘s to suppliers and receiving the
responses of suppliers back, using Internet technology. Usually e-tendering is supported
by an e-tendering system. Often the e-tendering system also supports the analysis and
assessment of responses. E-tendering does not include closing the deal with a supplier.
As a matter of fact, e-tendering smoothens a large part of the tactical purchasing process
(Van Weele, 1988), without focusing on the content (i.e. spend category) of that process.
In practice an auction enables a supplier to sell (surplus) goods and services to number of
(known or unknown) buying organizations. During a relatively short time frame the
buying organizations involved submit bids for the goods and services that are auctioned.
The auction operates with an upward price mechanism or a downward price mechanism.

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A reversed auction is the opposite: it enables a buying organization to buy goods and
services needed from a number of (known of unknown) suppliers.
 E-reverse auctioning is the Internet technology based equivalent of reverse auction.
Usually e-reverse auctioning focuses on the price of the goods and services auctioned. In
most cases, other criteria are neglected during the e-reverse auction. Of course, other
criteria can be used in a previous phase in order to determine which suppliers should be
invited to join the e-reverse auction. E-reverse auctioning does really close a deal
between a buying organization and a supplier, if parties agree on the price. Unlike the
previous forms, e-informing is a form of EP that is not directly associated with a phase in
the purchasing process like contracting or ordering.
 E-informing is the process of gathering and distributing purchasing information both
from and to internal and external parties, using Internet technology. For example,
publishing purchasing management information on an extranet that can be accessed by
internal clients and suppliers is a way of e-informing. This form is also called purchasing
intelligence or spend control.
4.4 E-procurement system

E-procurement systems, applications designed to allow businesses use the Internet in order to
acquire the necessary goods and services, are not all created equal. The term itself is quite broad
and actually includes several varieties of applications. Part of a successful implementation
involves choosing the appropriate application. In general, there are three main categories of e-
procurement systems. One type focuses on improving the transactions and the decision-making
capabilities of the company. Businesses may deal with hundreds of transactions weekly, but
these applications simplify the process and help foster stronger relationships between buyers and
suppliers. The second category of e-procurement systems involves managing assets. Systems in
this category provide inventory management, maintenance scheduling, in-house product
availability, as well as other similar services. These applications are useful for businesses that
need to keep a close idea on the quality of their direct materials in stock. Finally, the last
category includes systems designed to optimize a company's production operations. Many of
these applications deal with the entire production cycle, including the procurement of materials
when the inventory runs low, the management of supplier contracts, and the production
scheduling. Because of the differences between the systems, it is important for companies to

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choose the one that is most appropriate for their industry. However, the decision isn't as difficult
as one might at first think. Businesses involved with manufacturing, such as automobile makers,
would be more likely to use systems from the third category. Those types of applications would
allow them to maintain a specific amount of direct materials in their inventory but they also need
to have a system which helps them plan and forecast their production. On the other hand,
companies that deal with repair and/or maintenance, such as automotive repair shops, would be
more likely to use e-procurement systems from the second category. Since they need to keep
track not only of their inventory of car parts, but also of helping them set repair schedules.

Regardless of the type of e-procurement system a company chooses, the company can expect to
receive similar benefits including saving money on purchases, improving the timeliness of the
purchasing process, and eliminating waste. In addition to these benefits, companies can also
improve the efficiency of their supply chain. Supply chains essentially include every business,
manufacturer, and distributor that supplies the goods and services necessary to create a product,
so any improvement in the speed of those transactions is obviously beneficial. Additionally,
using e-procurement to enhance supply chain relationships can make it easier for accounting
departments to track and keep a record of payments and invoices. E-procurement systems don't
automatically boost supply chain efficiency, however. The company must select a system that
has the capabilities necessary to achieve those benefits first. For example, the system must
include applications to assist with contract management, including storing pricing information,
maintaining sales terms, and helping negotiations. By having all of this information in one place,
the purchasing process is expedited. Another offering that must be included in the application is
the ability to easily compare suppliers so that the best one can be chosen to meet that company's
particular needs. After all, choosing the right supplier depends on more than just price; it also
involves product availability, customer service, industry reputation, and quality.

4.5 Public e-procurement

The term of the Electronic Public Procurement can be defined as the usage of e-Government
platform over the electronic resources (Internet and Web-based applications) to conduct
transactions for purchasing the products and services from suppliers to authority's buyers. The
following sub-phases of the electronic public procurement process could be identified:

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 E-Sourcing: preparatory activities conducted by the contracting authority/entity to

collect and reuse information for the preparation of a call; potential bidders may be
contacted, if admitted by the legal rules, by electronic means to provide quotations or
manifest interest.
 E-Noticing: advertisement of calls for tenders through the publication of appropriate
contract notices in electronic format in the relevant Official Journal (national/EU);
electronic access to tender documents and specifications as well as additional related
documents are provided in a non-discriminatory way.
 E-Access: electronic access to tender documents and specifications as well support to
economic operators for the preparation of an offer, e.g. clarifications, questions and
answers.
 E-Submission: submission of offers in electronic format to the contracting
authority/entity, which is able to receive, accept and process it in compliance with the
legal requirements.
 E-Tendering: is the union of the e-Access and e-Submission phases.
 E-Awarding: opening and evaluation of the electronic tenders received, and award of the
contract to the best offer in terms of the lowest price or economically most advantageous
bid.
 E-Contract: conclusion, enactment and monitoring of a contract / agreement through
electronic means between the contracting authority/entity and the winning tenderer.
 E-Orders: preparation and issuing of an electronic order by the contracting
authority/entity and its acceptance by the contractor.
 E-Order Status: preparation and delivery of status information against the e-Order.
 E-Invoicing: preparation and delivery of an invoice in electronic format.
 E-Payment: electronic payment of the ordered goods services or works.
4.6 Benefits of e- procurement

There are many benefits to be found from using e-procurement within an organization, and the
following are just some of the key points:

 Reduced Transaction Time: individual business activities (transactions) can be

completed much more quickly; they are not restricted by office hours and may not even

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need human intervention, thus increasing the capacity to complete transactions on a real-
time basis. This means that downstream processes are not constrained by waiting for
transactions to be completed.
 Electronic catalogues: the development of e-catalogues has enabled organizations to
market their product offer electronically, this has been a fantastic marketing tool for
sellers and for buyers, there is price transparency (you can easily see how much items
cost) and buyers can compare offers from various e-catalogue vendors.
 Increased Standardization: With the electronic catalogues mentioned, there has been a
move by some suppliers to offer a more standardized offer, thus allowing buyers to easily
compare the offers from e-catalogues; however care must be exercised in these
comparisons as it is difficult to assess the quality of products without samples. If in doubt
request samples and take time to make your own assessment. The great news is that most
catalogue sites operate in a very similar way, and they are very easy to set up allowing
multiple business users to undertake some of their own procurement…this keeps the
business running, sourcing the day-to-day needs of the business and allows procurement
people to continue to develop great value-adding relationships.
 Wider Spread Supplier Bases: Because the virtual e-procurement portals are web-
based, buyers can search suppliers worldwide, meaning a wider selection of products and
services are available to the organization meaning that when items are not available
locally, it is still possible to source these. It is important to remember the time and cost of
shipping goods, but it‘s great to know that it is possible to source items from somewhere
in the world!
 Simplified Global Procurement: With the e-procurement applications supporting
various languages, currencies, international taxation and financing, shipping regulations
and more, it is simple for buyers and suppliers in different countries worldwide to
communicate and co-operate.
 Increase Productivity: As e-procurement automates some of the procurement and wider
business processes typically handled by employees, this will free up time for the team to
spend on more strategically significant functions and tasks. For example with automated
matching of invoices, goods can be ordered, processed and paid in a matter of minutes;

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the key however is to ensure that the supplier is set up in the buyers systems support as
much automation as possible.
 Simple Configuration and Scalability: E-procurement applications can be configured to
suit the individual needs or both the buyer and the supplier, and can grow with the
organization as needs be. It is important to select suppliers for both the current
requirement as well as possible future need so gaining an understanding of the technical
infrastructure development plans of suppliers will help buyers to select possible longer
term partners.
 Creation of Trading Communities: Because the e-procurement applications are internet
based, they allow for both vertical and horizontal trading communities to be developed.
This means buyers can consolidate buying power and it also opens up opportunities for
new supply chains. The opportunity to consolidate the requirements of smaller buyers via
consortia or trading communicates has enabled smaller business to access prices
historically reserved for bigger buyers, thus fuelling a fast developing SME sector. Many
Chambers of Commerce and other local business organizations operate such buying
communities.
 More Cost Efficient: With the time reductions and increased supplier selection,
development of trading communities, more opportunities for purchasing surplus goods
and services at below market price, and much more, it isn‘t surprising that e-procurement
proves to be much more cost efficient than traditional procurement.
4.7 Challenge and Risks of Implanting e-procurement

Even though the benefits of adopting e-procurement solutions can be significant, there are some
internal and external challenges and risks related to the adoption of e-procurement. Accordingly,
before the implementation of e- procurement, a company must first clearly define the business
problems its e-procurement solution is intended to address. Furthermore, before an e-
procurement solution can be deployed, a company must undergo thorough procurement process
reengineering. Automating an existing procurement process will only make matters worse. The
successful practices the redesigning of the procurement process is focused on: reduction or
elimination of authorization stages; regulation of exceptions to a limited degree in the beginning;
elimination of paper; integration of suppliers in the entire process chain; and consideration of the

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complete process from searching for goods through to invoicing. There are three important
challenges to e-procurement implementation:

1. Lack of system integration and standardization issues- Lack of system integration and
standardization issues relates to the fact that e-procurement is still relatively new business
application and it is not unusual to find a lack of benchmark able reference models.
Another challenge is software immaturity and the lack of certain key features like
invoicing, payment reconciliation or managing of different geographical jurisdictions, tax
structures, currencies etc. Also, companies need to be aware of the possible hidden costs
related to implementation of e-procurement solutions, such as system integration, content
aggregation and rationalization, catalog and search engine maintenance, supplier
enablement, end user training and procurement process re-engineering. These costs can
easily exceed software licensing and maintenance cost by five to ten times.
2. Immaturity of e-procurement-based market services and end user resistance- The
second challenge relates to the immaturity of providers of e-procurement services and the
lack of supplier preparation, and the resistance of solutions end-users. In some cases the
immature service providers may not be able to provide a complete suite of services,
especially for more complex or advanced e-procurement implementations projects. The
immaturity of suppliers and the lack of preparation is also a challenge for many
companies. After all, suppliers need to learn how to generate catalogs, process electronic
purchase orders, how to use invoicing mechanisms among other tasks. Including
companies preferred suppliers is very important as according to Davila et al. (2003) the
success of e-procurement solutions relies on the network effect that will be more
effective if enough players are adopting the same technology. The other challenge here
relates to the resistance of end-users towards operating the e-procurement solution.
3. Maverick buying and difficulty in integrating e-procurement with other systems-
The third challenge is linked to the difficulty of changing purchasing-related behavior
among the company‘s employees. Some companies find it difficult to eliminate maverick
buying even after the implementation of e-procurement. This can be prevented by
intensive end-user training and educational programs.

Besides, in other cases there are four risks associated with adopting e-procurement technologies

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 Internal business risks: Businesses have to be careful while integrating e-procurement

technologies with other business applications such as accounting, human resources,
accounts payable and cash management. Most companies already have invested heavily
in these other applications and the integration of e-procurement should go as smoothly as
possible, or it can jeopardize the reliability of organizational information.
 External business risk: e-procurement solutions also need to be able to cooperate with
suppliers IT-infrastructure. For e-procurement solution to be successful suppliers must be
accessible through the Internet and provide catalogs to satisfy the needs of their
customers. In some cases suppliers might lack the resources to meet the demands of
customers in catalog developing and updating. Companies also need to develop
mechanisms that provide the buyers with assurance that new suppliers meet the
expectations and standards relating to supplier quality, service and delivery capabilities.
 Technology risks: Many companies are unsure which e-procurement solution best suits
the specific needs of their company. The lack of widely accepted standards blocks the
integration of different e-procurement solutions across the supply chain. The researchers
insist that without widely accepted standards for coding, technical, and process
specifications, adoption of e-procurement technologies will continue to be slow and will
fail to deliver the promised benefits.
 E-procurement process risks: This risk relates to the security and control of the e-
procurement process itself. Such issues can be related to, for example data security and
fraud prevention e.g. fake suppliers, fake bids etc.

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Chapter Five

E-payment Systems

Learning Objectives

After reading this unit, you would be able to

 Understand the concept of E-Payment system

 Know about various types of E-Payments
 Learn the process of E-Payment system
5.1 Introduction

The ease of purchasing and selling products over the Internet has helped the growth of electronic
commerce and electronic payments services are a convenient and efficient way to do financial
transactions. Generally we think of electronic payments as referring to online transactions on the
internet, there are actually many forms of electronic payments. As technology developing, the
range of devices and processes to transact electronically continues to increase while the
percentage of cash and cheque transactions continues to decrease. The Internet has the potential
to become the most active trade intermediary within a decade. Also, Internet shopping may
revolutionize retailing by allowing consumers to sit in their homes and buy an enormous variety
of products and services from all over the worlds. Many businesses and consumers are still wary
of conducting extensive business electronically. However, almost everyone will use the form of
E Commerce in near future. An electronic payment system is needed for compensation for
information, goods and services provided through the Internet - such as access to copyrighted
materials, database searches or consumption of system resources - or as a convenient form of
payment for external goods and services - such as merchandise and services provided outside the
Internet. It helps to automate sales activities, extends the potential number of customers and may
reduce the amount of paperwork. Electronic Payment is a financial exchange that takes place
online between buyers and sellers. The content of this exchange is usually some form of digital
financial instrument (such as encrypted credit card numbers, electronic cheques or digital cash)
that is backed by a bank or an intermediary, or by a legal tender.

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5.2 Online Payment Methods

Electronic payment systems are proliferating in banking, retail, health care, on-line markets, and
even government—in fact, anywhere money needs to change hands. Organizations are motivated
by the need to deliver products and services more cost effectively and to provide a higher quality
of service to customers. The emerging electronic payment technology is labeled as electronic
funds transfer (EFT). Electronic Funds Transfer is defined as ―any transfer of funds initiated
through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to
order, instruct, or authorize a financial institution. Electronic payment refers to paperless
monetary transactions. Electronic payment has revolutionized the business processing by
reducing paper work, transaction costs, labor cost. Being user friendly and less time consuming
than manual processing, it helps business organization to expand its market reach / expansion.
Some of the modes of electronic payments are the following

1. Cards
 Credit Card- Credit card is small plastic card with a unique number attached with an
account. It has also a magnetic strip embedded in it which is used to read credit card via card
readers. When a customer purchases a product via credit card, credit card issuer bank pays on
behalf of the customer and customer has a certain time period after which he/she can pay the
credit card bill. It is usually credit card monthly payment cycle. Following are the actors in
the credit card system.
o The card holder - Customer
o The merchant - seller of product who can accept credit card payments.
o The card issuer bank - card holder's bank
o The acquirer bank - the merchant's bank
o The card brand - for example, visa or master card.
 Debit Card- Debit card, like credit card is a small plastic card with a unique number
mapped with the bank account number. It is required to have a bank account before
getting a debit card from the bank. The major difference between debit card and credit
card is that in case of payment through debit card, amount gets deducted from card's
bank account immediately and there should be sufficient balance in bank account for the
transaction to get completed, whereas in case of credit card there is no such compulsion.

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 Smart Card- Smart card is again similar to credit card and debit card in appearance but
it has a small microprocessor chip embedded in it. It has the capacity to store customer
work related/personal information. Smart card is also used to store money which is
reduced as per usage. Smart card can be accessed only using a PIN of customer. Smart
cards are secure as they stores information in encrypted format and are less
expensive/provide faster processing. Mondex and Visa Cash cards are examples of smart
cards.
2. E-Money- E-Money transactions refer to situation where payment is done over the
network and amount gets transferred from one financial body to another financial body
without any involvement of a middleman. E-money transactions are faster, convenient
and save a lot of time. Online payments done via credit card, debit card or smart card are
examples of e-money transactions. Another popular example is e-cash. In case of e-cash,
both customer and merchant both have to sign up with the bank or company issuing e-
cash.
3. Electronic Fund Transfer- It is a very popular electronic payment method to transfer
money from one bank account to another bank account. Accounts can be in same bank or
different bank. Fund transfer can be done using ATM (Automated Teller Machine) or
using computer. Now-a-days, internet based EFT is getting popularity. In this case,
customer uses website provided by the bank. Customer logins to the bank's website and
registers another bank account. He/she then places a request to transfer certain amount to
that account. Customer's bank transfers amount to other account if it is in same bank
otherwise transfer request is forwarded to ACH (Automated Clearing House) to transfer
amount to other account and amount is deducted from customer's account. Once amount
is transferred to other account, customer is notified of the fund transfer by the bank.
4. Internet-Online payments involve the customer transferring money or making a purchase
online via the internet. Consumers and businesses can transfer money to third parties
from the bank or other account, and they can also use credit, debit and prepaid cards to
make purchases online. Current estimates are that over 80% of payments for online
purchases are made using a credit card or debit card. At present, most online transactions
involve payment with a credit card. While other forms of payment such as direct debits to

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accounts or pre-paid accounts and cards are increasing, they currently represent a less
developed transaction methodology.
5. Mobile Payments-Mobile phones are currently used for a limited number of electronic
transactions. However, the percentage seems likely to increase as mobile phone
manufacturers enable the chip and software in the phone for easier electronic commerce.
Consumers can use their mobile phone to pay for transactions in several ways.
Consumers may send an SMS message, transmit a PIN number and use WAP to make
online payments, or perform other segments of their transaction with the phone. As
phones develop further, consumers are likely to be able to use infrared, Bluetooth and
other means more frequently to transmit full account data in order to make payments
securely and easily from their phone. Additionally, merchants can obtain an authorization
for a credit or debit card transaction by attaching a device to their mobile phone. A
consortium in the US also announced Power Swipe, for example, which physically
connects to a Nextel phone, weighs 3.1 ounces, and incorporates a magnetic stripe reader,
infrared printing port and pass-through connector for charging the handset battery.
6. Financial Service Kiosks-Companies and service providers in several countries,
including Singapore and the US, have set up kiosks to enable financial and non-financial
transactions. These kiosks are fixed stations with phone connections where the customer
usually uses a keyboard and television-like screen to transaction or to access information.
Kiosks in the United States enable the customer to send money via wire transfers, cash
cheques, make purchases using cash, and make phone calls. Located at convenient public
locations such as bus or subway stations, convenience stores or shopping malls, these
kiosks enable electronic payments by individuals who may not have regular access to the
internet or mobile phones.
7. Television Set-Top Boxes and Satellite Receiver-Specialized boxes attached to a
television can also be used for payments in some locations. The set-top box attaches to
the television and a keyboard or other device, and customers can make purchases by
viewing items on the television. Payment is made electronically using a credit card or
other account. While usage is presently low, it could grow substantially in countries with
a strong cable or satellite television network.

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8. Biometric Payments- Electronic payments using biometrics are still largely in their
infancy. Trials are underway in the United States, Australia and a limited number of other
countries. Most biometric payments involve using fingerprints as the identification and
access tool, though companies like Visa International are piloting voice recognition
technology and retina scans are also under consideration. Essentially, a biometric
identifier such as a fingerprint or voice could replace the plastic card and more securely
identifies the person undertaking the transaction. The electronic payment is still charged
to a credit card or other account, with the biometric identifier replacing the card, cheque
or other transaction mechanism.
9. Electronic Payments Networks- Various countries have electronic payments networks
that consumer can use to make payments electronically. ACH (Automated Clearing
House) in the US, domestic EFTPOS networks in Australia and Singapore, and other
networks enable electronic payments between businesses and between individuals. The
consumer can go online, to a financial service kiosk or use other front-end devices to
access their account and make payments to businesses or other individuals.
10. Person-to-Person (P2P) Payments- P2P payments enable one individual to pay another
using an account, a prepaid card or another mechanism that stores value. PayPal in the
US, which was recently purchased by Ebay, is one of the most frequently used P2P
mechanisms. P2P payments can be made through a variety of means, including services
like PayPal, transfers using card readers, or other. In the future other devices, such as
mobile phones or PDAs, could also be used to enable P2P electronic payments.
5.3 Online Payment Process

In the processing of a credit card payment, there are several entities that play important roles to make the
online payment possible. For the payment to be successful, merchants must connect to a network of banks
(both acquiring and issuing banks), processors, and other financial institutions so that the information
provided by the customer can be routed securely. When using the credit card for online payment,
merchant‘s account must be in place with the acquiring bank or with the third party service. As
soon as the customer makes a purchase online and pays using his credit card, he is required to
submit his credit card information which is then sent securely over the Internet to the merchant‘s.
Below is an illustration on how is the process going on when a transaction of purchasing and
payment (thru credit card) is made online as well as the step-by-step processes are explained.

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 Card issued: The customer has a credit card with him issued by the issuing bank with the
credit limit and an available balance.
 Buy button: The customer visits a web site or the online shop using standard web
browser and start shopping and add the product(s) into his shopping cart. Upon checkout,
he is required to submit his credit card information, expiration date, billing address. After
which, he also selects the method of shipping for example and then click on the submit
button to initiate the transaction. The information is then transmitted to the merchant‘s
online shop where the outsourced payment service is setup. The outsourced payment
service receives the encrypted information from the online shop, perform a fraud check,
and then initiate the process of communicating the billing information and purchase
amount to the third-party processor.
 Authorization request: The outsourced payment service encrypts the purchase
information or data and transmits it to the third-party processor, who will forward the
information or data further to the card association or card issuer for authorization and
verification.
 Authorization Response: The issuing financial institution verifies the credit card
information and determines whether the customer has sufficient credit available to pay
for the purchase. An authorization number is generated and the available credit is reduced
by the authorized amount. If it so happen that the credit card information is not correct or
if there is not enough available credit, then a message declining the transaction is
generated. During this short span of time, the issuing bank also performs other operations
such as address verification service (AVS), where the billing information entered online
is compared to the entry in the issuing bank‘s database – this is the authentication part.
After which, an authorization message is returned to the card association and forwarded
to the third-party processor.
 Merchant notification: The third-party processor receives the authorization message and
other pertinent information from the card association or issuer and initiates the process of
communicating the authorization message to the merchant. The third-party processor
encrypts the authorization message and transmits the encrypted information to the
merchant‘s secure commerce server.

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 Shopper notification: The merchant‘s server receives the information and is

programmed to send immediately the purchase approval or decline message to the
cardholder/customer. Normally when the credit card was declined, some pertinent
information like a suggestion to check for the accuracy of the information provided or to
use a different credit card is sent. As soon as the customer receives this information for
example approved transaction he at the same time receives a confirmation number. It
takes only a few seconds end-to-end from the moment that the customer hit the buy
button until he receives the authorization message back.
 Fulfillment: The merchant begins the process of fulfilling the customer‘s order with the
appropriate product/service.
 Settlement request: The merchant compiles a batch of orders that have been fulfilled
and begins the process of transmitting batch to the third-party processor for the
settlement. The merchant first transmit the batch to his payment service that encrypts the
purchase information and transmits the encrypted information to the third-party
processor. The third-party processor receives this information and sends the settlement
instructions to the appropriated financial institution to transfer the ticket amount from the
cardholder‘s account to the merchant‘s account.
 Settlement: For each credit card transaction in the batch, the appropriated financial
institution is debited and the cardholder‘s credit card statement is updated. The acquiring
bank receives the funds and makes a deposit into the merchant‘s bank account.
 Settlement response: The merchant receives the notification that the funds have been
deposited into his bank account. On a periodic basis, the merchant receives reports that he
can use to reconcile with his batch settlement requests with his deposit activity.
5.4 Some of the Online Credit Card Transaction Enablers

This part presents the online payment enablers that are commonly used by merchants to enable
the acceptance of payments online particularly for the online credit card transactions. There are a
lot more of them but we will discuss a few of them. These companies established business
relationships with the financial institutions to accept online credit card payment for their
merchant clients.

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1. PayPal- ―Arising from the popularity of eBay online auctions, PayPal

([Link]) has quickly become dominant in online transaction processing‖
according to Pan-Western E-Business Team. Many people still think of PayPal primarily
as the service to use to pay for items they buy on eBay. PayPal originally started as a
peer-to-peer money transfer system for eBay auctions, but has also expanded as a third
payment processor for any website. Two of their main gateway products that they offer
are Pay flow Pro and Pay flow Link.
2. Google Checkout- Google has an online payment processing service particularly for
credit card transactions. The difference between PayPal is that the scope of Google
Checkout™ is focused on enabling one-time payments to be made from a purchaser to a
merchant.
3. Authorize Net- Like any other payment gateways [Link] handles online payment
transactions for credit card and electronic payment processing between the merchants and
financial processing networks. These three vendors are almost the same in a way that
they connect the merchants‘ website to the back end processing systems of the credit card
issuer. Only they differ in the charging policy such as monthly fee and transactions fee
that has been regulated differently.

Chapter Six

Supply Chain Information System

6.1 concepts of Information system

Many programs in business require students to take a course in information systems. Various
authors have attempted to define the term information system in different ways.

―An information system (IS) can be defined technically as a set of interrelated components
that collect, process, store, and distribute information to support decision making and control in
an organization.‖

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―Information systems are combinations of hardware, software, and telecommunications

networks that people build and use to collect, create, and distribute useful data, typically in
organizational settings.‖

―Information systems are interrelated components working together to collect, process, store,
and disseminate information to support decision making, coordination, control, analysis, and
visualization in an organization.‖

Besides, Information systems can be viewed as having five major components: hardware,
software, data, people, and processes. The first three are technology. Technology can be thought
of as the application of scientific knowledge for practical purposes. From the invention of the
wheel to the harnessing of electricity for artificial lighting, technology has become ubiquitous in
daily life, to the degree that it is assumed to always be available for use regardless of location. As
discussed before, the first three components of information systems – hardware, software, and
data – all fall under the category of technology. The last two components, people and processes,
separate the idea of information systems from more technical fields, such as computer science. In
order to fully understand information systems, you will need to understand how all of these
components work together to bring value to an organization.

 Hardware- Hardware is the tangible, physical portion of an information system – the

part you can touch. Computers, keyboards, disk drives, and flash drives are all examples
of information systems hardware.
 Software- Software comprises the set of instructions that tell the hardware what to do.
Software is not tangible – it cannot be touched. Programmers create software by typing a
series of instructions telling the hardware what to do. Two main categories of software
are: Operating Systems and Application software. Operating Systems software provides
the interface between the hardware and the Application software. Examples of operating
systems for a personal computer include Microsoft Windows and Ubuntu Linux. The
mobile phone operating system market is dominated by Google Android and Apple iOS.
Application software allows the user to perform tasks such as creating documents,
recording data in a spreadsheet, or messaging a friend.
 Data- The third technology component is data. You can think of data as a collection of
facts. For example, your address (street, city state, and postal code), your phone number,

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and your social networking account are all pieces of data. Like software, data is also
intangible, unable to be seen in its native state. Pieces of unrelated data are not very
useful. But aggregated, indexed, and organized together into a database, data can become
a powerful tool for businesses. Organizations collect all kinds of data and use it to make
decisions which can then be analyzed as to their effectiveness. The analysis of data is
then used to improve the organization‘s performance.
 Networking Communication- Besides the technology components (hardware, software,
and data) which have long been considered the core technology of information systems, it
has been suggested that one other component should be added: communication. An
information system can exist without the ability to communicate – the first personal
computers were stand-alone machines that did not access the Internet. However, in
today‘s hyper-connected world, it is an extremely rare computer that does not connect to
another device or to a network. Technically, the networking communication component
is made up of hardware and software, but it is such a core feature of today‘s information
systems that it has become its own category.
 People- When thinking about information systems, it is easy to focus on the technology
components and forget to look beyond these tools to fully understand their integration
into an organization. A focus on the people involved in information systems is the next
step. From the front-line user support staff, to systems analysts, to developers, all the way
up to the chief information officer (CIO), the people involved with information systems
are an essential element.
 Process-The last component of information systems is process. A process is a series of
steps undertaken to achieve a desired outcome or goal. Information systems are becoming
more integrated with organizational processes, bringing greater productivity and better
control to those processes. But simply automating activities using technology is not
enough – businesses looking to utilize information systems must do more. The ultimate
goal is to improve processes both internally and externally, enhancing interfaces with
suppliers and customers. Technology buzzwords such as ―business process re-
engineering,‖ ―business process management,‖ and ―enterprise resource planning‖ all
have to do with the continued improvement of these business procedures and the

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integration of technology with them. Businesses hoping to gain a competitive advantage

over their competitors are highly focused on this component of information systems.
6.2 Roles of Information Systems

Information systems have become essential for helping organizations deal with changes in global
economies and the business enterprise. Information systems provide firms with communication
and analytic tools for conducting trade and managing businesses on a global scale. Information
systems are the foundation of new knowledge-based products and services in knowledge
economies and help firms manage their knowledge assets. Information systems make it possible
for businesses to adopt flatter, more decentralized structures and more flexible arrangements of
employees and management. Organizations are trying to become more competitive and efficient
by transforming themselves into digital firms where nearly all core business processes and
relationships with customers, suppliers, and employees are digitally enabled. From a business
perspective, an information system represents an organizational and management solution based
on information technology to a challenge posed by the environment. Supply chain management
is the close linkage of activities involved in buying, making, and moving products. Information
systems make supply chain management more efficient by helping companies coordinate,
schedule, and control procurement, production, inventory management, and delivery of products
and services to customers. Collaborative commerce relies on digital technologies to enable
multiple organizations to collaboratively design, develop, build, move, and manage products
through their lifecycles. A firm engaged in collaborative commerce with its suppliers and
customers can achieve new efficiencies by reducing product design cycles, minimizing excess
inventory, forecasting demand, and keeping partners and customers informed. The information
system is very important for the internet technology and the traditional business concerns and is
really the latest phase in the ongoing evolution of business. All the companies need to update
their business, infrastructure and change way they work to respond more immediately to
customer need. Information system and technology including E-business and E-commerce
technology and application has become vital component of successful business and organization.
It is a study of business administration and management. For a manager or a business
professional it is just as important to have basic understanding of information system and any
other functional area in business. An Information system supports the business Organizations in
the following ways.

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a) Support the Business Process: Treats inputs as a request from the customer and outputs
as services to customer. Supports current operations and use the system to influence
further way of working.
b) Support Operation of a Business Organization: An IS supports operations of a
business organization by giving timely information, maintenance and enhancement which
provides flexibility in the operation of organizations.
c) Support Decision Making: An IS supports the decision making by employee in their
daily operations. It also supports managers in decision making to meet the goals and
objectives of the organization. Different mathematical models and IT tools are used for
the purpose evolving strategies to meet competitive needs.
d) Strategies for an Organization: Today each business is running in a competitive
market. An IS supports the organization to evolve appropriate strategies for the business
to assent in a competitive environment
6.3 Database Management

Before us going to see database management let us see the following terminologies.

 Data: raw representation of unprocessed facts, figures, concepts or instruction. It can

exist in any form, usable or not. Data are facts presented without relation to other things.
 Information: information is data that has been given meaning by way of relational
connection. This "meaning" can be useful, but does not have to be. In computer parlance,
a relational database makes information from the data stored within it.
 Database- A database is a collection of data, typically describing the activities of one or
more related organizations. For example, a university database might contain information
about the following: Entities such as students, faculty, courses, and classrooms,
relationships between entities, such as students‘ enrollment in courses, faculty teaching
courses, and the use of rooms for courses. Proper storage of data in a database will
enhance efficient data Management, data processing and data retrieval.
 Database System- Database system refers to an organization of components that define
and regulate the collection, storage; management from general management point of
view, the DB system is composed of
o Hardware

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o Software
o People –system administrators, designers, System analysts, and end user
o Procedures
o Data

Database management system is a collection of programs that manages the database structure
and controls access to the data stored in the database. It is software designed to assist in
maintaining and utilizing large collections of data, and the need for such systems, as well as their
use. The area of database management systems is a microcosm of computer science in general.

Advantages of DBMS

Using a DBMS to manage data has many advantages:

• Data independence: Application programs should be as independent as possible from

details of data representation and storage. The DBMS can provide an abstract view of
the data to insulate application code from such details.
• Efficient data access: A DBMS utilizes a variety of sophisticated techniques to store
and retrieve data efficiently. This feature is especially important if the data is stored on
external storage devices.
• Data integrity and security: If data is always accessed through the DBMS, the DBMS
can enforce integrity constraints on the data. For example, before inserting salary
information for an employee, the DBMS can check that the department budget is not
exceeded. Also, the DBMS can enforce access controls that govern what data is visible
to different classes of users.
• Data administration: When several users share the data, centralizing the
administration of data can offer significant improvements. Experienced professionals
who understand the nature of the data being managed, and how different groups of
users use it, can be responsible for organizing the data representation to minimize
redundancy and for fine-tuning the storage of the data to make retrieval efficient.
6.4 Planning of Information systems

Planning is a managerial function that encompasses the definition of corporate goals, the
establishment of a global strategy to achieve these goals, and the development of a

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hierarchy of plans to integrate and coordinate activities. Planning has sufficient characteristics
including

o It linked to the future development of organizations, anticipating the events.

o It promotes decision-making in an orderly manner
o It is concerned with changes in the external environment, as well as with the correct
resources available.
o It identifies needs for change in the organizational posture, in addition to promoting a
internal process of change.
o It worry about organizational culture

One has to plan the information which the management information system will churn out for the
different levels of management. The report structures, information flow, storage, information
capture and its strategy, network, applications and security are all planned and designed before
the system is created. The planning process involves amongst other things the aligning of
objectives of an organization with the objectives of the Management Information System. This
activity requires strategic management orientation and a macro view of the needs and growth
aspirations of the organization among other skills as the system will have to be relevant to the
organization in the near future. Information systems development becomes easy if there is:

 A supportive management with a positive attitude

 The existing Information system is adequate
 The objectives for the new information system is good and clear

In such a scenario, the IS development becomes easy and the IS that is developed delivers value
and becomes acceptable to employees easily. However, if any or all of the above factors are not
in favor, i.e., management is not supportive or has a negative attitude towards IS or if the
objectives of the new IS are bad or if the existing IS is inadequate or all of the factors are
together not in favor, then the IS development becomes very difficult. One must factor in these
issues before commencing with the information systems planning process. The process of
development of information systems in an organization may vary from case to case but ideally
the stages of development can be clearly demarcated.

The process of developing information system involves the following stages:

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 Planning- Planning sets the objectives of the system in clear and unambiguous terms so
that the developer may conform to a well laid set of deliverables rather than a high-
sounding statement that may mean little to him. Planning also enables the development
process to be structured so that logical methodology is used rather than working in fits
and starts. It ensures user participation and helps in greater acceptability and a better
outcome from the development process. It leads to a system that is well balanced in both
the managerial and technical aspects.
 Analysis-is an activity of technical representation of a system. Over the years many
methods have been developed of which the structured analysis and object oriented
analysis are most widely used. This step or activity is the first technical representation in
abstract terms of the system.
 Design-is the stage where the model or representation of an entity or a system is done
(in detail). It is based on the idea that the developer will be able to develop a working
system conforming to all the specifications of the design document which would satisfy
the user. ·It is a concept which has been borrowed from other branches in engineering
where the blueprint of a system or entity to be built later is first created on a piece of
paper or digitally to help developers in conceptualization of the system and to
understand the specifications of the system.
 Coding-is the actual stage of writing codes to develop the application software
according to the specifications as set by the design document. The programming done at
this stage to build the system is dictated by the needs of the design specifications. The
programmer cannot go beyond the design document.
 Testing-is the testing of the system to check if the application is as per the set
specification and to check whether the system will be able to function under actual load
of data. The testing is also done to remove any bugs or errors in the code.
 Implementation-is the stage when the system is deployed in the organization. This is a
process which often is a difficult one as it involves some customization of the code to fit
context specific information in the system.

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The planning models of Information system

The planning model to be used in the information systems is based on the diagnosis of the
current situation, where the actions to be developed and the choice of the strategy are
conditioned to the reality of the information systems in the organizations. Some scholars
propose the planning models in four stages:

1. Philosophical stage: it consists in the declaration of principles and values that explain
the options of the organization when constructing the planning. The definition of the
mission that underlies and drives the creativity of an organization and the macro policies
arise as a logical consequence.
2. Analytical stage: it consists in the precision of the specific reality of the
organizations' performance through an analysis of their internal and external
environments. This knowledge is essential to situate the activity of information
management in the concrete reality of organizational methods and processes. a) Internal
analysis: corresponds to the evaluation of deficiencies, weaknesses and forces, the values,
resources and qualities necessary to achieve the company goals. As an example, we can
have an organization that has an information service supported by professionals who are
not specialized in information management. The forces are the values that the
organization has and that serve to reach the pre-established goals. b) External analysis:
corresponds to the evaluation of opportunities, problems and threats. Opportunities are
environmental forces that can favor, through actions, the development of the
organization. Information on a need to design a new packaging for a given product is an
example of an opportunity. Threats are situations of risk that paralyze or
permanently interrupt the information flow.
3. Stage of elaboration of the plan: the synergy between the previous stages should be the
initial motivation for the formulation of a master plan of development of the information
system. This plan must have objectives, strategies and plans of action; and
4. Evaluation and control stage: consists in the execution of all proposed activities, as
well as their control and feedback. The purpose of this stage is to correct the course of the
planned actions according to the requirements contained in the pre-established objectives.

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The operative insertion of the information systems in the strategic administration of the
organizations is the purpose of the planning of information systems. The planning of
information systems should also implement changes in the flow of information of an
organization, since the aggregation of value and the information system itself must be
considered as indispensable elements in the production, organization and transfer of
information. This fact will invariably impact the day-to-day business decisions and can perfect
the pre-established information flow. The changes in the flow of information should occur from
the planning of the information system and directly influence the speed and reliability in
meeting the demands for information. The fulfillment of demands can only be done reliably
and expeditiously if the process that originates it is endowed with sufficient information. This
characteristic should be linked to the information flow of the company, which is basically
reflected in internal communication and in determining priorities in internal processes.

6.5 Controlling Information Systems

Information Systems controls are a set of procedures and technological measures to ensure
secure and efficient operation of information within an organization. Both general and
application controls are used for safeguarding information systems.

6.5.1 General Controls

These controls apply to information systems activities throughout an organization. The most
important general controls are the measures that control access to computer systems and the
information stored or transmitted over telecommunication networks. General controls include
administrative measures that restrict employee access to only those processes directly relevant to
their duties, thereby limiting the damage an employee can do. Some general controls are as
follows.

1. Software Controls – Monitor the use of system software and prevent unauthorized
access of software programs, system failure and computer programs.
2. Hardware Controls – Ensure the computer hardware is physically secure and check
for equipment malfunctions. Computer equipment should be specially protected against
extreme temperatures and humidity. Organizations should make provisions for backup
or continued operation to maintain constant service.

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3. Computer Operations Controls – This include controls over setup of computer

processing jobs and computer operations and backup and recovery procedures for
processing that ends abnormally.
4. Data Security Controls – Ensures critical business data on disk and tapes are not
subject to unauthorized access, change or destruction while they are in use or in
storage.
5. Implementation Controls – Audit the system development process at various points to
ensure that the process is properly controlled and managed.
6. Administrative Controls – Formalize standards, rules, procedures and control
discipline to ensure that the organization‘s general and application controls are properly
executed and enforced.
6.5.2 Application Controls

Application controls are specific to a given application and include measures as validating input
data, regular archiving copies of various databases, and ensuring that information is disseminated
only to authorized users. This can be classified as input, processing and output controls.

1. Input Controls – Input controls check data for accuracy and completeness when they
enter the system. There are specific input controls for input authorization, data conversion,
data editing and error handling.
2. Processing Controls – Processing controls establish that data are complete and accurate
during updating. Run control totals, computer matching, and programmed edit checks are
used as processing controls.
3. Output Controls –Output controls ensure that the results of computer processing are
accurate, complete and properly distributed.

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Chapter Seven

E- Security

7.1 Introduction

The term ―e-security‖ is often interchangeable used with other terms such as ―internet security‖,
―cyber security‖, and / or ―IT Security‖. Broadly ―e-security encompasses security aspects of the
information economy, including information systems and communications networks‖. E-Security
is a branch of computer security specifically related to the Internet, often involving browser
security but also network security. Its objective is to establish rules and measures to use against
attacks over the Internet. The Internet represents an insecure channel for exchanging information
leading to a high risk of intrusion or fraud, such as phishing. Different methods have been used
to protect the transfer of data, including encryption. Like that, there are benefits associated with
the popularity of the Internet and ever-increasing growth rate of the computers being connected
to it. But there is a down side too. The task of protection of the data and information stored in the
computers and travelling across the Internet has never been so challenging. Therefore, Computer
and Internet Security has become a specialized area in itself. The internet provides great
opportunities for business but, with those opportunities come some esecurity risks. Intruders can
install malicious software such as spyware and viruses, which can steal sensitive business
information and slow down the computer, intercept financial transactions, steal credit card details
and access customer information, steal download limit without your knowledge and at your cost,
take over your website and modify it and Steal sensitive business information by using a portable
device. E-Security is a part of the Information Security framework and is specifically applied to
the components that affect e-commerce that include Computer Security, Data security and other
wider realms of the Information Security framework. E-commerce and network security are not
simple; diligence is needed to prevent loss. E-security is protection of information against
unauthorized disclosure, transfer, modifications, or destruction, whether accidental or intentional.
E-Security is the method of securing internet systems from malicious use. It deals with the
security of the information (in electronic form) that travels over the Internet. So, e-security
involves securing both the information as well as the network through which the information
flows.

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7.2 Security for E-Commerce

As business activity grows on the Internet, security is becoming an important consideration to
take into account and to address, to the stakeholders' satisfaction. Security is an essential part of
any transaction that takes place over the internet. Customer will lose faith in e-business if its
security is compromised. E-Commerce Security deals with the protection of Ecommerce assets
such as computers and networks from unauthorized access, use, alteration or distribution.
Anything that can cause danger to the e-commerce assets are considered to be threats. Systems
that are connected to the internet are the targets for destruction / tampering of the data stored in
them. Certain threats may result in severe financial loss and others may result in loss of
reputation to an individual and to an organization. With the growing internet use, such incidents
would result in loss of trust in computer and networks and also decline the growth of public
confidence in internet. In this context e-commerce security relates to three general areas:

 Secure file / information transfers

 Secure transactions
 Secure enterprise networks, when used to support Web commerce
7.3 Online Security Issues

The internet has advanced markedly over this past decade, especially as an agent of
communication, marketing and entertainment. The practice of purchasing products online has
become popular because of the convenience that comes with the ability to have products on an
online platform that can be accessed regardless of the location. Online shoppers can avoid
queues and select the cheapest deals without having to walk around a city. E-commerce
merchants, who sell their products exclusively over online platforms, and online sellers who buy
commodities and sell them online for a profit, have reaped from the soaring heights of the
internet‘s popularity in the 21st century. These online merchants and sellers include provisions
for various online payment solutions within their platform that encompass the features making
online shopping and e-commerce in general, an attractive prospect. Besides, types of security
threats exists in e-commerce are

 Denial of Service (DOS) -Two major types of DOS attacks: spamming and viruses.
Spamming is sending spontaneous business messages to people, E-mail bombing caused
by a hacker targeting one computer or network, and sending a huge number of email
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messages to it. Surfing includes programmers, hackers placing software agents onto an
outsider framework and setting it off to send requests to an expected target.
 Unauthorized access- The Illegal access to frameworks, systems, applications,
information or data, Passive unauthorized access –listening to communications channel
for discovering privileged insights. It might utilize content for destructive purposes,
Changes intent of messages, e.g., to prematurely end or postpone a negotiation on a
transaction. Masquerading or spoofing –sending a message that appears to be from
someone else.
 Phishing- Phishing is a situation where fraudsters transmit emails which they falsely
claim to be affiliated to highly reputed firms so as to extract an individual‘s personal data.
Phishing uses disguised emails as its main weapon, the goal being to trick a user with an
urgent message such as a request from the user‘s bank requiring the user to download a
form. It can be done to extract important information from the client, by tailoring a
message to resemble a bank. Phishing can also lure a user into downloading malware, the
files usually come with .zip extensions or Office documents embedded with malicious
code, ransom ware is one of the most common malicious codes and has been detected in
93% of phishing emails.
 Fake Online Stores-The internet harbors numerous online stores that convince people to
purchase fake products, once purchased, these products are never availed to those who
ordered them. These stores mimic the appearance of legitimate stores and in extreme
situations, steal their identity.
 Adware- A user can be bombarded with advertisements on online shopping platforms or
social sites. These advertisements are at times illegitimate and they usually promise
attractive rewards such as an iPhone 7. When the user clicks on an Ad, he or she is
solicited for his or her personal details that can eventually be stolen by an unauthorized
third party.
 Theft of data-Data theft has become an issue as online merchants accumulate important
client information on their databases. System administrators and other workers who are
authorized to access servers can access data without the owner‘s knowledge.
 Identity Theft- Identity theft is fulfilled by paying attention to the activities undertaken
by an online shopper. The crime perpetrators carefully monitor the activities of customers

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as they communicate with merchants via online stores so that they can be in a good
position to masquerade as the merchants or online shoppers.
 Credit-Card Theft- One of the more serious barriers to the growth of e-commerce is the
perception of many people that credit-card numbers can be stolen when they‘re given out
over the Internet. Though virtually every company takes considerable precautions,
they‘re not entirely wrong. Cyber criminals, unfortunately, seem to be tirelessly creative.
One popular scheme involves setting up a fraudulent Internet business operation to
collect credit-card information. The bogus company will take orders to deliver goods—
say, Mother‘s Day flowers—but when the day arrives, it will have disappeared from
cyberspace. No flowers will get delivered, but even worse, the perpetrator can sell or use
all the collected credit-card information.
 Password Theft-Many people also fear that Internet passwords—which can be valuable
information to cyber criminals—are vulnerable to theft. Again, they‘re not altogether
wrong. There are schemes dedicated entirely to stealing passwords. In one, the cyber thief
sets up a Web site that you can access only if you register, provide an e-mail address, and
select a password. The cybercriminal is betting that the site will attract a certain
percentage of people who use the same password for just about everything—ATM
accounts, e-mail, employer networks. Having finagled a password, the thief can try
accessing other accounts belonging to the victim. So, one day you have a nice cushion in
your checking account and the next you‘re dead broke.
7.4 Computer Security

Computer Security: - Ensuring the data stored in a computer cannot be read or compromised by
an individual‗s without authorization. A computing system: is a collection of hardware, software,
data, and people that an organization uses to do computing tasks. Computer security means
protecting of computing system from dangers. Main aspects of computer security include:

 Prevention:- Prevent your assets from being damaged

 Detection :- Detect when assets has been damage
 Reaction:- Recover your assets

Besides to this, three goals of computer security are

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1. Confidentiality
2. Integrity
3. Availability
1. Confidentiality: ensures that computer-related assets are accessed only by authorized
parties. Confidentiality is sometimes called secrecy or privacy. Confidentiality is the
ability to hide information from those people unauthorized to view it. It is perhaps the
most obvious aspect of the CIA (Confidentiality, Integrity and Availability) triad when it
comes to security; but correspondingly, it is also the one which is attacked most often.
Cryptography and Encryption methods are an example of an attempt to ensure
confidentiality of data transferred from one computer to another. A good example of
methods used to ensure confidentiality is an account number or routing number when
banking online. Data encryption is a common method of ensuring confidentiality. User
IDs and passwords constitute a standard procedure; two-factor authentication is becoming
the norm. Other options include biometric verification and security tokens, key fobs or
soft tokens. In addition, users can take precautions to minimize the number of places
where the information appears and the number of times it is actually transmitted to
complete a required transaction.
Two concepts in confidentiality are
 Data Confidentiality: - In this case only the people who are authorized to do so
can gain access to sensitive data. Imagine your bank records. As well you should
be able to access them, of course, and employees at the bank who are helping
you with a transaction should be able to access them, but no one else should.
 Privacy: The right of individuals to hold information about themselves in secret,
free from the knowledge of others
2. Integrity: it means that assets can be modified only by authorized parties or only in
authorized ways. Two concepts in integrity are
 Data Integrity: - Information and programs are changed only in authorized manner
 System Integrity: - System performs its operation in unimpaired manner that means
state of the system not changed.

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Integrity mechanisms fall into two classes: prevention mechanisms and detection mechanisms.
Prevention mechanisms seek to maintain the integrity of the data by blocking any unauthorized
attempts to change the data or any attempts to change the data in unauthorized ways.

3. Availability: it means that assets are accessible to authorized users in all time

In general, computer security is important, primarily to keep your information protected. It‗s also
important for your computer‗s overall health, helping to prevent viruses and malware and
allowing programs to run more smoothly. Besides, computer security is needed due to following
reason

1. Privacy:- It defines the right of individuals to hold information about themselves in

secret, free from the knowledge of others
2. Accuracy: - Most of damages of data are caused by errors and omissions. An
organization always needs accurate data for transaction processing, providing better
service and making
3. Threats by dishonest employ
4. Computer Crimes:- When computer resources can be misused for unauthorized or illegal
function
5. Threats for fire and Natural Disasters:- fire and natural disasters like floods, storms,
lightening etc.

The End!
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