Value added networks (VANs) – Privately owned networks that are rented to users, along with a package
of related services, to operate their EDI systems by providing an environment within which they can
work, and by connecting them to their customers and suppliers.
Issues to consider in choosing:
o Cost per transaction and to set up
o Repudiability and Authentication
o Acceptance (Familiarity/Ubiquity) and Convenience
o Integrity of Transaction
o Security (for customer and vendor)/Risk of Loss
o Standards/regulations (infrastructure) underlying system
Traditional Payment Systems ("Bricks and Mortar") –
o Unit of commerce
o Interoperable, atomic
o Store of value
o Durable (subject to inflation)
o Can be copied
o Medium of exchange
o anonymity vs. traceability
o Acceptable, convenient?,
o Risk of loss, repudation and security issues
o Low set up costs, but relatively high cost per transaction
o Well standardized and regulated
o Merchant swipes card
o Terminal contacts Processor
o Transaction routed to Card Issuer
o Card issuer generates response
o Terminal receives approval/denial
o Customer walks away with goods
o Credit Card is the most widespread electronic payment method
o Credit Card purchases over telephone or internet have a $ 50 liability limit
o Fast and easy for merchant and customer; familiar
o Infrastructure all in place, and has been augmented by SET, SSL etc to provide
extra security for e-business use
o Part of Banking System
o Well regulated and standardized (esp. debit cards in Canada)
o Not confidential
o Security issues: identity theft, forgery (for cheques)
o Cheque processing per transaction relatively expensive, debit cards relatively low
cost, but more expensive to set up
o Accepted, convenient
o Hard to repudiate Cheques
E-Business Payment Systems –
SET (Secure Electronic Transaction) – A method of securing credit card transactions using
encryption and authentication technology
Initiative between banks , financial institutions,VISA/MC/AMEX and technology partners
Requires issue of new, SET-enabled credit card
Four entities: cardholder, merchant, payment gateway, certificate authority
PKI: digital certificates / digital signatures used to authenticate partners / validate
Provides confidentiality via encryption, integrity and authentication of both parties via
Also now a SET -2
o Just like a cheque, without paper
o It’s an off-line digital promise to pay, digitally signed
o Financial Services Technology Consortium (FSTC) have spent over three years
and $10 million developing a system to enable e-checking
o Not clear that the eCheck initiative described in text is progressing, although
paper cheques are disappearing
o Leverages an established payment and processing model (EFTS)
o Reduces costs of paper handling
o approximately 300 million checks are written each year by the US Federal
o Saves time - no clearing period required
o Provide a secure, off-line payment method for the internet (but privacy is a
o Electronic Checkbook Software brings up E-check on screen
o User fills in fields with amounts, etc.
o User inserts SmartCard in reader
o Software authenticates user and digitally signs cheque
o E-checkbook automatically assigns a cheque #
o Signed E-check is sent to Payee via Secure Email (S/Mime) or other transport
o Payee’s Software decrypts cheque and displays it
o Payee uses Smartcard to authenticate and digitally endorse cheque
o Cheque is forwarded to Payee’s bank for clearing
o Bank equipped with E-check gateway authenticates cheque and processes it as a
Smart Cards e.g. Mondex
o Resembles a credit card
o Contains an embedded integrated circuit (IC)
o Storage capacity of embedded memory with the processing power of 8-bit, 16-bit
or even 32-bit microprocessors
o Active when connected with reader o Do not require access to remote
o database at time of transaction
o Like a credit card, but with embedded chip instead of magnetic stripe
o Smart card Types:
Memory Cards - Only contains memory chip – allows retrieval of data
Processor Cards - Contains memory chip + microprocessor and Can
read/write data, process data, encrypt/decrypt data
o Smart Card Applications:
Access to ATMs
Stores Digital Cash
Digitally sign E-cheques/Payment notes
Digitally sign SET credit cards
o Could be used for everything that could identify or give a persons information
o OneSMART TM Mastercard and Mondex
Same benefits as traditional Mastercard
Accepted at 32 million merchants worldwide
Global cash access 24hrs/day
200 million OneSmart Cards issued by 2004
Marketed towards corporate customer
Monetary value stored on chip
Digital Cash e.g. Digicash
o Electronic Representation of Cash
o Should be anonymous and reusable (same digital cash id can be sent from
recipient to another computer)
o Stored in
o Electronic Wallet (in users’ PC)
o Electronic Wallet (in Server)
o E-cash is pre-purchased with traditional payment method
o E-cash processor handles authentication, non-repudiation and merchant payment
o Why digital cash? Credit card is expensive (2%-4% discount)
o Credit card is not viable for micropayments
o transaction fee of $0.25 vs. $0.01 for e-cash
o Digital cash allows instantaneous payment
o credit card fraud a concern for content providers
o Anonymity / privacy for buyer
o Theft / counterfeiting resistant
o Reduced transportation costs - US $ 60 b / yr
o Digital Cash has been around since 1994 but never caught on
o CyberCash Cybercoin: discontinued
o Digicash: Filed for Bankrupcy Protection o 100% Digital Cash system creates chicken-egg situation: adoption from users
depends on merchant adoption / Merchant adoption depends on user adoption
o Recent rebirth of e-cash micropayment systems is due to increased popularity of
subscription based or pay-per-view digital content
o Most new e-cash systems are hybrids: they rely on traditional payment methods to
process final transaction
Examples: Prepaid Cards e.g. Visa prepaid cards,
Limits liability and identity theft issues
Dexit (Loyalty Programs, plastic key, reload money) Mobipay (Money on
phone, linked to debit/credit, used in 20 countries), Paycash (Buy cash for
software wallet, 2% charge on withdraw, anonymous), Echarge eg. Charge
to phone, cable or utility bill Partners: Mplayer, Gamestorm, DirectCredit
Do not require a network of approved banks and merchants e.g. Paypal
o PayPal - Intermediary between the buyer and seller
o Buyer never has to expose payment information to the seller
o Buyer registers credit card or bank account, maps account and email address and
uses PayPal to make purchases.
o Advantage = the seller never gets the buyers payment information and therefore
can’t abuse it (accidentally or otherwise)
Electronic Data Interchange – is a way to conduct transaction, including payment
transaction, in electronic form.
Electronic Funds Transfer (EFT) is actually quite a generic term. The label EFT
encompasses any monetary transaction that is completed by electronic means.
o EDI can be used to conduct various transactions, including sales and payments
o Still makes up a large component of B2B sales - big in auto industry and major
retailers e.g. Walmart and Sears
o Still key to many supply chains - paperless if fully implemented
o Traditional barriers are expense and variety of standards
o Internet based EDI to reduce costs, but standards issue continues
o EFT important to Payroll, B2B payments, OnLine Financing, transfer of funds
SSL/HTTPS protocols - Protocols for sending encrypted data from a web browser to a server
Radio Frequency Identification – Technology that uses radio waves to transfer data between a reader
device and an item such as a smart card
Near field communication – Technology that uses magnetic field induction to transfer data between a
mobile phone and a reader device
Mail Order/Telephone Order/Internet Order –
Customer transmits authentication information to merchant
Customer transmits payment data to merchant Merchant’s system contacts payment processor
Processor routes transaction to issuer
Issuer generates response
Merchant’s system receives approval/denial
Customer receives confirmation – goods or services are delivered.
Supply chain management – The process of coordinating and optimizing the flow of all products or
services, information, and finances, among all players of the supply chain
The supply chain is essentially all of the companies from product creation through:
Retail / Wholesale
Until the product reaches the customer
Logistics – The process of planning, implementing, and controlling the efficient and effective flow and
storage of goods, services, and related information from point of origin to point of consumption
term commonly interchangeable with SCM
B2B- SCM is an essential component of managing the buy side or the sell side.
B2C- SCM is an essential component of managing the sell side when dealing directly with the
(Traditional Supply Chain) Push System – A supply chain model in which suppliers produce goods based
upon their efficiencies and push them to customers, rather than relying on demand to determine
Pull system – A supply chain in which the production of suppliers is determined by the needs of
customers who request or order goods, necessitating production
Cash to cash cycle – The length of time from purchasing materials until a product is manufactured
Other names for Supply Chain Management
integrated logistics integrated purchasing strategies
FORCES AFFECTING SUPPLY-CHAIN MANAGEMENT
The rapid pace of change in the business world today has affected SCM in a number of ways.
customer focus and time to market
just-in-time inventory and inventory reduction
enterprise resource planning
Dis-Intermediation - a change in the supply chain where the manufacturer or service provider and
consumer interact directly with each other, thereby eliminating the need for an intermediary
With Internet Commerce, the value of the traditional intermediary is challenged
More and more manufacturers sell directly to consumers
Dis-intermediation is the process in which unnecessary “steps” are removed from the Value
Re-Intermediation - Using the internet to reassemble buyers, sellers, and other partners in a traditional
supply chain in new ways
A new breed of intermediaries is born: those who use the internet to provide value-added
services both to consumers and manufacturers
Some of the new intermediaries are called “Infomediaries” – they provide information that
stimulates and facilitates online business improvements
The “e-tailers” in the book industry (Amazon.com, Chapters.Indigo.ca) are the pioneers of
INTEGRATION OF TECHNOLOGY
Use of Extranets
Sharing information between supply-chain members has been made significantly more
manageable through the use of extranet technologies.
For supply-chain members to reduce costs and increase efficiency, information needs to be
shared in a reliable, cost-effective manner.
Extranets allow companies to share information in a much more timely manner
Extranet/internet technology allows for the demand forecast to be adjusted constantly, giving
the supplier advance notice and allowing for production planning changes to take place sooner
TRUST, AND PARTNERSHIPS OF THE SUPPLY CHAIN
• Sharing information is a difficult task in a business world where traditionally information has
• Partnership formation- key is managing relationships.
• Forming partnerships- as crucial to supply-chain success as the technology and information
• Establishing strong lines of communication is the first step in ensuring that supply partnerships
will succeed. Developing Trust
• The relationship of trust can be created more quickly if discussions centre on:
• Realignment- vendor-managed inventory – perpetual inventory (constantly reviewed by
• Service level agreement- compensation
• Performance measurement- delivered on time?
• Dispute resolution- share/own critical insider information
• Security- remote access, etc. ensure no security breach
• many organizations have realigned the decision making related to purchasing by moving toward
Vendor-managed inventory (VMI).
• suppliers take over monitoring inventory levels through the use of technology and are
responsible for replenishment of stock.
• Wal-Mart has adopted the use of VMI for many of its products.
• Example: Procter & Gamble is responsible for replenishing their own products.
• VMI often leads to reduced inventory levels and substantially lower stockout rates- suppliers
ensure that consumers are always able to purchase their products.
• Order fulfillment- set of processes involved in delivering a product to a customer.
• Front-end and back-end processes necessary to convert an order into a sale by completing the
company’s responsibility of providing a product or service.
• Order processing- includes activities such as credit checks, inventory availability
determination, accounting, billing, and replenishment requests
• Warehousing- includes processes such as receiving orders of inventory from suppliers,
as well as picking, organizing, and packaging goods for delivery.
• Shipping and transportation planning (STP)- process of transporting finished goods to
the consumer quickly and efficiently.
Shipping and transportation planning (STP)
• RFID tags- embedded electronic product codes (EPC) for tracking and identifying items at the
individual crate and pallet level.
• Gather and track a variety of data related to products, materials, shipping dates, etc
• These tags can store more detailed information than conventional bar codes, enabling tracking
of items at the unit level.
• Returning products is both a concern for buyers and an important issue for sellers.
• Reverse logistics- customers can return items purchased for refund, repair or replacement under
• Effective mechanism for dealing with returns is helpful in making sales.
• Bricks-and-mortar businesses with catalogue sales can take returns at the store.
• However, pure online stores need to establish policies, drop-off locations, and credit procedures
to effectively handle returns.
C-COMMERCE: THE FUTURE
• collaborative commerce (c-commerce)
• C-commerce is the application of technologies to allow trading partners to synchronize and
optimize their partnerships, and is performed in collaboration.
• Wal-Mart’s supply-chain management program, also known as Collaborative Planning,
Forecasting, and Replenishment (CPFR), aims “to sell as much product as possible without either
the supplier or Wal-Mart having too much inventory.” • Wal-Mart saves 5 to 10 percent in cost of goods through the use of technology in its streamlined
• Wal-Mart’s SCM practices have benefited not only the retailer but its suppliers as well.
Eprocurement – Complete business process of acquiring goods through electronic means, from
requisition through to fulfillments and payment
The Traditional Procurement Process
• Purchase Order
• Supplier Shipment
• Reducing order costs & cycle times
• Enterprise-wide access
• Desktop requisitioning
• Integrating back-office
• Strategic procurement
Goods and Services Procured
• MRO - Maintenance, Repairs and Operations- automatic approvals may be delegated to specific
• Travel Service- major expense for many companies, use only pre-approved suppliers.
• Computer related equipment- replace systems within budget limits.
• Even - production items- must fit production schedules for deliveries.
Benefits of Eprocurement
• Cost and Efficiency- faster order times, convenience, time savings, easier price comparisons, and
• streamlining of internal processes.
• length of time to process a purchase order has been reduced by nearly 75 percent due to the
removal of “the paper chase”
• Strategic Procurement- staff will be able to focus efforts on more important tasks, such as
strategic sourcing and supplier relations.
• developing relationships is very beneficial.
• Authorized Suppliers-By controlling whom employees may order from, a business should be able
to demand improved pricing by increasing volume.
• can reduce maverick buying.
• Maverick buying- unauthorized purchase of goods by employees through non-routine and
poorly controlled means, such as acquiring office supplies with petty cash.
• Normally end up paying a much higher price than from an authorized dealer
• 4 main types of exchanges
• private exchange: A trading exchange that limits participation to specific buyers and sellers—
normally related to