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101 Activities Activity 6.1 (P. 222) Figure 6.2 provides a convenient tool for discussing the interrelationship between e-commerce and e-business. Based on the definitions provided above, state which of
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101 Activities Activity 6.1 (P. 222) Figure 6.2 provides a convenient tool for discussing the interrelationship between e-commerce and e-business. Based on the definitions provided above, state which of the three alternatives is most appropriate to describe the relationship between e- business and e-commerce. In Figure 6.2 (a) there is a relatively small overlap between e-commerce and e-business. From Fig 6.1 we can reject Fig 1.2(a) since the overlap between buy-side and sell-side e-commerce is significant. Figure 6.2 (b) seems to be more realistic, and indeed many commentators seem to consider e- business and e-commerce to be synonymous. It can be argued, however, that Fig 6.2 (c) is most realistic since e-commerce does not include reference to many of the transactions within a business such as processing a purchase order that are part of e-business. In an international benchmarking study analysing the adoption of e-business in SMEs the Department of Trade and Industry emphasises the application of technology in the full range of business processes, but also emphasise how it involves innovation. They describe e-business as:... when a business has fully integrated information and communications technologies (ICTs) into its operations, potentially redesigning its business processes around ICT or completely reinventing its business model e-business is understood to be the integration of all these activities with the internal processes of a business through ICT. DTI (2000) See Chapter 6 references. So e-commerce can best be conceived as a subset of e-business and this is the perspective we will use in this book. Since the interpretation in Fig 6.2(b) is equally valid, what is important within any given company, is that managers involved with the implementation of e-commerce/ebusiness are agreed on the scope of what they are trying to achieve! Activity 6.2 (P. 223) To examine estimates of the current and future size of e-commerce trade and critically review the validity of these estimates. No solution required. Activity 6.3 (P. 227) Explain the variation in online purchases for different products shown in Figure 6.6 using the Electronic Shopping Test. 102 Note: This activity should not refer to Fig 6.6 but to Fig 6.7. Rather than referring to each product on a case by case basis, it could be suggested that students consider three groups. High proportion of online purchases (more than 20% of online users have purchased); medium (5-20%) and low (less than 5%). The characteristics of products within each group can then be assessed. Within the first group the product characteristics are such that the product is standardised. It can be argued that some comparison is needed as part of the buying process, for example in selecting a book, but the reviews online are sufficient to enable this choice to be made. Books can be bought from new online brands such as Amazon or existing retailers. Consumer attributes are such that it is straightforward to purchase a book online. Alternatively, in the group with the low proportion of online purchases ( 5%) the products are more complex (e.g. financial services) or have characteristics that are less amenable to online purchase (e.g. cars, cosmetics). Activity 6.4 (PP ) For the second example of outdoor equipment, develop a matrix showing the dimensions and categories of information in the same form as that for the car sales matrix. List your assumptions where insufficient information is available. The matrix produced will be similar to that of Table 6.5 (P. 261) except for these columns: Locations this can also include retailers, mail-order and online as different channels for purchase. Products Product category, from Fig 6.27, e.g. Tents, back packs, etc. Other good areas for this analysis that students can relate to are financial services and holiday products. All are similar in areas other than product characteristics. 103 Case Studies Case Study 6.1: European SME adoption of e-business (P. 228) 1. Summarise the current usage of the Internet by SMEs according to the article. Use online resources to find specific figures for your country. 2. Discuss the reasons for the lower than expected take-up of Internet services amongst SMEs. 3. Identify the factors that will be important in determining the future use of the Internet by SMEs. 1. A suitable location for finding further information is the summary of reports at Nua (www.nua.com/surveys). E-business should be categorised according to the different levels of usage described earlier in Chapter 6 (PP ) i.e. Access to the Internet Use for sourcing products Use for managing buying process Use for buying online transactions, unintegrated systems Use for buying online transactions, integrated with internal systems. We return to this topic in the chapter on e-commerce strategy (see Fig 14.2, P. 574) for a further example. 2. Some of the reasons are given on P. 228 (right-hand column) Overestimates of demand from consumers for purchasing online. Technology confusing for managers in a small business who do not have the time or inclination to learn about it. On P. 229 (left-hand column) research is quoted suggesting that smaller businesses are less convinced by the cost-effectiveness of introducing new technology. 3. On P. 230, the financial harmonisation of Europe is thought to be one driver. However, given that the Internet hype has failed to migrate many SMEs online, the main driver which will make a difference is when SMEs become convinced that they are losing business from not having an online presence. Case Study 6.2: Tesco develops buy-side e-commerce (P. 234) 1. What benefits does Tesco s information exchange offer to the retailer and its suppliers 2. What differences have the use of TiE added over the original EDI system? 3. Discuss reasons why only two of Tesco s suppliers have fundamentally altered the way they work as a result of TiE. 104 1. Benefits to Tesco: Reduced lead times seven to three days Shifts management of supplying product to supplier this in turn Reduces inventory Improves product availability Gives more power over suppliers Benefits to suppliers: Can monitor demand in real-time and then have more time to react to ensure product is delivered to customers Can analyse sales by store or TV region which is important for promotions (St Ivel has reduced these costs by 30%) Gives a catalyst to change their processes (although only two have done so) Arguably strengthens their relationship with Tesco (soft lock-in) 2. Information flow was one-way with the original system and not real time. Now there is a twoway information flow which can be monitored in real time. This enables better forecasting and the analysis which has been used for promotions. 3. This is not clear from the case, but it can be suggested that inertia (conservatism) and the differences in links to a range of suppliers have caused this. Mini Case Study: Retail applications of TPS by Sainsbury s (P. 240) 1. Draw a diagram summarising the links between all the parties who access Sainsbury s TPS. 2. What benefits will Sainsbury s gain compared to the time before the introduction of TPS? 3. Can you think of any problems with using TPS so extensively? What can be done to counter these problems? 1. This diagram should be similar to Figure 6.12, with the following parties shown: customers (possibly via the Internet or through checkout assistants); suppliers (direct and indirect via merchants); branch managers and departmental managers at each branch; distribution and logistics managers at head office and regional distribution centres. 2. Benefits at different management levels include: Operational: better customer service through better availability of products for customers and better quality of perishable products; lower cost of managing supply chain through just-in-time ordering in response to fluctuations in demand. 105 Tactical: analysis of customer buying behaviour in response to sales promotions and loyalty card schemes; better matching of fluctuating demand and supply. Strategic: increased customer loyalty from card schemes and better customer service; related services such as banking can be tied into TPS; more choice of and competition between suppliers; better cost management. 3. The problems anticipated are those that occur when the system fails since it is so critical to customer service. Losses in sales on the day of failure and loss of loyalty could result. The solution is the careful testing of new systems and building fault tolerance into new systems. For example: ensuring the system can deal with a power failure (extra generators); providing dual or mirrored servers or disks that can take over in the event of failure; well-defined service levels with the IT and networking suppliers to agree that problems are resolved quickly; ensuring that the local system is decoupled from the company network, so that if the company network fails the system in the branch can continue to operate. Case Study 6.3: Cambridge Consultants reduce costs through e-procurement (P. 265) 1. Given the scale of the purchasing operation at Cambridge Consultants, what benefits do you think e-procurement has brought? 2. Why are procurement costs currently as high as 60 to 100 per order? 3. How are procurement costs reduced through e-procurement? 4. What staff benefits occur for Cambridge Consultants as a result of e-procurement? 1. The large number of suppliers (4,000) and range of items (needed for over 120 projects) mean that many purchases are made annually. If it is possible to reduce the cost of each one, then large potential financial savings may be possible. Through using e-procurement it is also possible to reduce the cycle time for ordering items for products which will help achieve on-time completion of projects and satisfied customers. 2. Procurement costs were high since there were many stages involving identifying needs paperwork, together with hand-offs, required between up to 8 to 10 staff in the process. 3. E-procurement enabled distributed purchasing that required less involvement from purchasing staff and hence faster ordering. The use of paper has been eliminated. Combined reductions in staff time and physical resources have helped reduce purchase costs to an average of 10 per order. 106 4. The benefits to the internal customers at Cambridge Consultants include ordering whenever required (out-of-hours) and more flexibility in the delivery of different items meaning that urgent items can be delivered more rapidly since they are not awaiting other elements of a combined order. 107 Exercises (PP ) Self-assessment exercises 1. Distinguish between e-commerce and e-business and explain what are meant by buyside and sell-side e-commerce. Can best be explained by referring to a diagram of the different elements shown in Fig 6.1 i.e. sell-side e-commerce buy-side e-commerce internal use of electronic communications to support business processes. E-business is generally understood to include all three elements. E-commerce is commonly used to refer to either the first one or first two of these elements, but less commonly the third. E- business is broader in scope than e-commerce. 2. Summarise the consumer and business adoption levels in your country. Outline the reasons why a business may wish to adopt e-commerce. What seem to be the main barriers to adoption for businesses and consumers? Cyberatlas (www.cyberatlas.com) is a good source of country-specific information. For business, the main barriers are highlighted by the DTI (2000) survey: lack of imperative; security risks. For consumers, the Which report (2000) highlights fears about security and privacy as well as the lack of a perceived need. 3. Summarise the impact of the introduction of e-business on different aspects of an organisation. One approach to this question is to refer to the McKinsey 7S framework: Structure how will be the e-business change be managed? Is a separate division required or can the change be matrix managed (Chapter 10)? Systems Do new operating procedures or business processes need to be introduced? Can existing IS be used to implement change or will new systems be required? Style Is the current, possibly conservative, style of the company consistent with the way the company wants to project its image? Will decisions be made fast enough? Will risks be taken to trial new business models and new technology? Staff Is the appropriate mix of staff available? Skills Are the correct skills available internally? What training is required? Do we need to outsource some services? Superordinate goals this refers to the higher goals of the company that may be encapsulated in the mission statement. In modern parlance, do the senior manages get the significance of the Internet and will they act? 108 A possible criticism of the 7S model is that it is internally focused. How well the company forms and leverages partnerships with suppliers and customers is now seen as a key element of strategy. Related to this is how well the company responds to the industry restructuring that has occurred as part of e-commerce. Can it take advantage of disintermediation and reintermediation within the industry. Alternatively, e-business can be reviewed by referring to different functional areas: Procurement Production Marketing Finance Human resources. 4. Describe the purpose of workflow management and groupware in an e-business context. Both of these solutions are used to increase the efficiency of internal processes and are implemented as intranet/ systems. The type of processes include: Procurement authorisation of new purchases Production alerts about problems Marketing managing customer interactions during purchase, managing product dispatch, managing new product development Finance integrating with procurement and marketing systems Human resources online systems for booking holidays and training courses (administrative workflow). 5. Evaluate the role of transaction processing systems in an organisation. TPS perform routine transactions which serve the operational level of the organisation, e.g. sales order processing. Although supporting routine transactions, TPS is often essential to the operation of the organisation. 6. How can information systems support the manufacturing process? Support for the manufacturing process includes: Production planning and materials management. Information is provided on the progress of work through the manufacturing system in relation to the due-date for a customer order. Enables plans to be developed for resources (e.g. labour, materials, equipment) needed for production and to schedule order and quantity of components on a day-to-day basis. Materials management approaches include MRP, JIT and OPT. Product/service design. A database of information required for aspects such as customer needs and material costings for the design process. CAD provides graphic design assistance. Facility design. Software allows the use of the SPC technique for quality control. 109 CIM. Provides a range of facilities coordinated over a network system using the manufacturing automation protocol (MAP). 7. Explain how decision support systems can support different parts of an organisation. Decision support systems can support the full range of organisational decisions from strategic through tactical to operational. We can draw on the following examples from different functions: Manufacturing see question 6, above Marketing see question 8, below Finance identifying debtors 8. Which information systems tools can be used to support the marketing function? Marketing information systems include: Sales information systems. Employees involved in the sales area are required to identify potential customers, negotiate the sale of goods and services with those customers and provide a follow-up service. Systems are available to support each of these tasks. Prospect information systems provide lists of potential customers by categories such as product range or geographic area. Distribution information systems. Speed of delivery is often an important aspect of service to the customer. In order to ensure this, it is important that tracking systems are in place which can locate products during the distribution process. Sales order processing (sop) systems. The sales order processing (SOP) system is usually based in the financial area and provides a variety of data which can be used for marketing purposes such as assessing the timing and value of orders from customers. These can be used for applications such as sales forecasting which is a major input into the sales planning process. Other data supplied by the SOP system includes inventory levels. If inventory levels are high then this might trigger a discount programme for a particular product line. Sales and campaign management information systems. The sales management information system provides information in support of decision making at the tactical level. It will hold information on such aspects as sales performance by geographic area, by product group and by sales person. This information can be used to determine sales effort in different areas and products and level of bonus payments to an individual sales person. The data can also be used to investigate the strength of relationship between such factors as customer types and product sales. This information can be used as the basis for a marketing plan based around an advertising and promotion scheme aimed at a particular customer segment, (e.g. targeting of designer label drinks at people in the age range). Product pricing information systems. The price of a product will be dependent on a variety of factors such as the cost of producing the product or providing the service, the required profit margin and the price of competitors goods. The price may also be affected by a marketing strategy to build market share by lowering the price. The product pricing information system will collate information on costs and predicted market demand at different price points and discounts in order to support the pricing decision. More sophisticated software in the form of a pricing model enables the user to input various market and product attributes and based on relationships formalised in the model provides a suggested price. 110 Sales forecasting information systems. At a strategic level it is necessary to provide sales forecast data in order to help form the long-range strategic plan. Sales forecast data is essential in order that demand can be met and resource employed in the correct areas. For instance, marketing needs to inform other functions such as operations of predicted demand so they can organise their resources to meet this demand. The information system is required because of the range of data that goes into the forecast and the need to continually update the database in order that the forecast is as accurate as possible. Marketing Research and analysis information systems. In order to ensure that there is a demand for the goods and services of the organisation it is necessary to undertake market research. For a new product this may include information on demographic changes and customer feedback from questionnaires and interviews that indicate customer preferences. Competitive tracking. Knowledge of competitors prices, products, sales and promotions is an important factor in the development of a marketing strategy. For example, the organisation would need to consider its reaction to a competitor move to build market share. Telemarketing software. This software is designed to dial potential customers automatically based on customer files maintained in a database. The software will also allow notes to be stored on customer requests, generate follow-up letters and display information gathered on the customer for reference as the call is taking place. Geographical information systems (GIS). GIS are used to display informat
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