Using Management Information Systems David Kroenke Ecommerce and

Using Management Information Systems David Kroenke E-commerce and Supply Chain Systems Chapter 8 © 2007 Prentice Hall, Inc. 1

Learning Objectives �Understand model. Porters five competitive forces �Define e-commerce and important ecommerce terms. �Understand the effect of e-commerce on market efficiency. �Learn technology for supporting commerce servers. © 2007 Prentice Hall, Inc. 2

Learning Objectives (Continued) �Understand the structure, profitability, and dynamics of supply chains. �Know the purpose, concepts, advantages, and disadvantages of EDI. �Know the purpose, concepts, advantages, and disadvantages of XML. © 2007 Prentice Hall, Inc. 3

Porter’s Five Competitive Forces Model �Porter developed a third model that helps to introduce the notion of interorganizational systems called the Porter’s five competitive forces model. �According to this model, five competitive forces determine profitability: ◦ ◦ ◦ Bargaining power of suppliers Bargaining power of customers New entrants to the market Rivalry among firms Threats of substitutions for an organization’s products or services © 2007 Prentice Hall, Inc. 4

Porter’s Five Competitive Forces Model (Continued) �These factors determine not only how organizations gain competitive advantages, but also how sustainable those advantages are. ◦ For example, when an organization adds value to its products and obtains an increase in price, it may not be able to sustain that price. �Information systems play a key role in obtaining sustainable advantages among organizations. © 2007 Prentice Hall, Inc. 5

Figure 8 -1 Porter’s Model of Industry Structure Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved. © 2007 Prentice Hall, Inc. 6

E-Commerce �E-commerce is the buying and selling of goods and services over public and private computer networks. �The U. S. Census Bureau, which publishes statistics on e-commerce activity, defines merchant companies as those that take title to the goods they sell. �They buy goods and resell them. © 2007 Prentice Hall, Inc. 7

E-Commerce (Continued) �The U. S. Census Bureau defines nonmerchant companies as those that arrange for the purchase and sale of goods without ever owning or taking title to those goods. © 2007 Prentice Hall, Inc. 8

Figure 8 -2 E-Commerce Categories © 2007 Prentice Hall, Inc. 9

E-Commerce Merchant Companies �There are two types of merchant companies: those that sell directly to consumers and those that sell to companies. �Each uses slightly different information systems in the course of doing business. �B 2 C, or business-to-consumer, e-commerce concerns sales between a supplier and a retail customer (the consumer). © 2007 Prentice Hall, Inc. 10

E-Commerce Merchant Companies (Continued) �A typical information system for B 2 C provides a Web-based application or Web storefront by which customers enter and manage their orders. ◦ Amazon. com, REI. com, and LLBean. com are examples of companies that use B 2 C information systems. �The term B 2 B, or business-to-business, ecommerce refers to sales between companies. ◦ Raw materials suppliers use B 2 B systems to sell to manufacturers, manufacturers use B 2 B to sell to distributors, and distributors uses B 2 B systems to sell to retailers. © 2007 Prentice Hall, Inc. 11

E-Commerce Merchant Companies (Continued) �B 2 G, or business-to-government, refers to sales between companies and government organizations. �A manufacturer that uses an e-commerce site to sell computer hardware to the U. S. Department of State is engaging in B 2 G commerce. �Suppliers, distributors, and retailers can sell to the government as well. © 2007 Prentice Hall, Inc. 12

Figure 8 -3 Example of Use of B 2 B, B 2 G, and B 2 C © 2007 Prentice Hall, Inc. 13

Nonmerchant E-commerce �The most common nonmerchant e-commerce companies are auctions and clearing houses. �E-commerce auctions match buyers and sellers by using an e-commerce version of a standard auction. ◦ This e-commerce application enables the auction company to offer goods for sale and to support a competitive bidding process. ◦ The best-known auction company is e. Bay, but many other auction companies exist; many serve particular industries. © 2007 Prentice Hall, Inc. 14

Nonmerchant E-commerce (Continued) �Clearinghouses provide goods and services at a stated price, and they arrange for the delivery of the goods but they never take title. �As a clearinghouse, Amazon matches the seller and the buyer and then takes payment from the buyer and transfers the payment to the seller, minus commission. �Other examples of clearinghouse are electronic exchanges that match buyers and sellers; the business process is similar to that of a stock exchange. © 2007 Prentice Hall, Inc. 15

Figure 8 -4 Amazon Clearinghouse Sales Source: © 2005 Amazon. com, Inc. All Rights Reserved. © 2007 Prentice Hall, Inc. 16

E-Commerce Improves Market Efficiency �E-commerce leads to disintermediation, which is the elimination of middle layers in the supply chain. ◦ You can buy a flat-screen LCD HDTV from a typical electronic store or you can use e-commerce to buy it from the manufacturer. ◦ If you take the later route, you eliminate at least one distributor, the retailer, and possibly more. �E-commerce information. also improves the flow of price ◦ As a consumer, you can go to any number of Web sites that offer product price comparisons. © 2007 Prentice Hall, Inc. 17

E-Commerce Improves Market Efficiency (Continued) �E-commerce also improves the flow of price information (continued) ◦ The improved distribution of information about price and terms enables you to pay the lowest possible cost and serves ultimately to remove inefficient vendors. ◦ The market as a whole becomes more efficient. �From the seller’s side, e-commerce produces information about price elasticity that has not been available before. �Price elasticity measures the amount that demand rises or falls with changes in price. © 2007 Prentice Hall, Inc. 18

E-Commerce Improves Market Efficiency (Continued) �Using an auction, a company can learn not just what the top price for an item is, but also learn the second, third, and other prices from the losing bids. �Managing prices by direct interaction with customers yields better information than managing prices by watching competitors’ pricing. �Many B 2 B and other interorganizational information systems require meetings among the companies involved to design the joint processes that will be used and eventually to negotiate contracts. © 2007 Prentice Hall, Inc. 19

Figure 8 -5 E-Commerce Market Consequences © 2007 Prentice Hall, Inc. 20

E-Commerce Economics �Companies need to consider the following economic factors: ◦ ◦ Channel conflict Price conflict Logistics expense Customer service expense © 2007 Prentice Hall, Inc. 21

E-Commerce and the World Wide Web �Most B 2 C commerce conducted over the World Wide Web (WWW) uses Web storefronts supported by commerce servers. �A commerce server is a computer that operates Web-based programs that display products, support online ordering, record and process payments, and interface with inventory-management applications. © 2007 Prentice Hall, Inc. 22

Figure 8 -6 Internet Protocols and Users © 2007 Prentice Hall, Inc. 23

Web Pages and Hypertext Markup Language �HTTP is used to exchange Web pages over the Internet. ◦ Such pages are documents encoded in a language called HTML, or Hypertext Markup Language. ◦ This language defines the structure and layout of Web pages. ◦ An HTML tag is a notation used to define a data element for display or other purposes. �Web pages include hyperlinks, which are pointers to other Web pages. ◦ A hyperlink contains the URL (Uniform Resource Locator) of the Web page to obtain when the user clicks the hyperlink. © 2007 Prentice Hall, Inc. 24

Web Pages and Hypertext Markup Language (Continued) �The two most popular Web server programs are Apache, commonly used on Linux, and IIS (Internet Information Server), a component of Windows XP Professional and other Windows products. �A browser is a program that processes the HTTP protocol; receives, displays, and processes HTML documents; and transmits responses. ◦ Common browsers are Internet Explorer, Netscape Navigator, and Mozilla’s Fire. Fox. © 2007 Prentice Hall, Inc. 25

Figure 8 -7 a Sample HTML Document © 2007 Prentice Hall, Inc. 26

Figure 8 -7 b HTML Document on Page 236 in Figure 87 a, rendered using Internet Explorer Source: Microsoft product screen shot reprinted with permission from Microsoft Corporation. © 2007 Prentice Hall, Inc. 27

Three-Tier Architecture �Most commerce server applications use what is called three-tier architecture. �The tiers refer to three different classes of computers. �The user tier consists of computers that have browsers that request and process Web pages. �The server tier consists of computers that run Web servers and in the process generate Web pages in response to requests from browsers. © 2007 Prentice Hall, Inc. 28

Three-Tier Architecture (Continued) � Web servers also process application programs. �To ensure acceptable performance, commercial Web sites usually are supported by several or even many Web server computers. �A facility that runs multiple Web servers is sometimes called a Web farm. ◦ Work is distributed among computers in a Web farm so as to minimize customer delays. ◦ The coordination among multiple Web server computers is a fantastic dance. © 2007 Prentice Hall, Inc. 29

Three-Tier Architecture (Continued) �The third tier is the database tier. �The computers at this tier receives and processes SQL requests to retrieve and store data. © 2007 Prentice Hall, Inc. 30

Figure 8 -8 Three-Tier Architecture © 2007 Prentice Hall, Inc. 31

Figure 8 -9 a Sample of Commerce Server Pages: Product -offer Page Source: Used with permission of REI. © 2007 Prentice Hall, Inc. 32

Figure 8 -9 b Shopping-Cart Page Source: Used with permission of REI. © 2007 Prentice Hall, Inc. 33

Supply Chain Management �A supply chain is a network of organizations and facilities that transforms raw materials into products delivered to customers. �Customers order from retailers, who in turn order from distributors, who in turn order from manufacturers, who in turn order from suppliers. �The supply chain also includes transportation companies, warehouses, and inventories and some means for transmitting messages and information among the organizations involved. © 2007 Prentice Hall, Inc. 34

Supply Chain Management (Continued) � Because of disintermediation, not every supply chain has all of these organizations. ◦ Dell, for example, sells directly to the customer. �Both the distributor and retailer organizations are omitted from its supply chain. ◦ In other supply chains, manufacturers sell directly to retailers and omit the distribution level. � Chain implies that each organization is connected to just one company up (toward the supplier) and down (toward the customer) the chain. ◦ Instead, at each level, an organization can work with many organizations both up and down the supply chain. ◦ Thus, a supply chain is a network. © 2007 Prentice Hall, Inc. 35

Figure 8 -10 Supply Chain Relationships © 2007 Prentice Hall, Inc. 36

Figure 8 -11 Supply Chain Example © 2007 Prentice Hall, Inc. 37

Drivers of Supply Chain Performance major factors, or drivers, affect supply chain performance: �Four ◦ Facilities concern the location, size and operations methodology of the places where products are fabricated, assembled or stored. ◦ Inventory includes all of the materials in the supply chain, including raw materials, in-process work, and finished goods. ◦ Transportation concerns the movement of materials in the supply chain. ◦ Information influences supply chain performance by affecting the ways that organizations in the supply chain request, respond, and inform one another. © 2007 Prentice Hall, Inc. 38

Figure 8 -12 Drivers of Supply Chain Performance © 2007 Prentice Hall, Inc. 39

Supply Chain Profitability Versus Organizational Profitability �Supply chain profitability is the difference between the sum of the revenue generated by the supply chain and the sum of the costs that all organizations in the supply chain incur to obtain that revenue. �In general, the maximum profit to the supply chain will not occur if each organization in the supply chain maximizes its own profits in isolation. © 2007 Prentice Hall, Inc. 40

Supply Chain Profitability Versus Organizational Profitability (Continued) �Usually, the profitability of the supply chain increases if one or more of the organizations operates at less than its own maximum profitability. © 2007 Prentice Hall, Inc. 41

The Bullwhip Effect �The bullwhip effect is a phenomenon in which the variability in the size and timing of orders increase at each stage up the supply chain, from customer to supplier. �The bullwhip effect is a natural dynamic that occurs because of the multistage nature of the supply chain. ◦ It is not related to erratic consumer demand. © 2007 Prentice Hall, Inc. 42

The Bullwhip Effect (Continued) �The large fluctuations of the bullwhip effect distributors, manufacturers, and suppliers to carry larger inventories than should be necessary to meet the real consumer demand. ◦ Thus, the bullwhip effect reduces the overall profitability of the supply chain. �One way to eliminate the bullwhip effect is to give all participants in the supply chain access to consumer-demand information from the retailer. © 2007 Prentice Hall, Inc. 43

The Bullwhip Effect (Continued) �Each organization can thus plan its inventory or manufacturing based on true demand not on the observed demand from the next organization up in the supply chain. ◦ An interorganizational information system is necessary to share such data. �Some SRM packages include features to support procurement auctions. �Generally, companies use auctions to obtain large amounts of materials, energy, or other consumables. © 2007 Prentice Hall, Inc. 44

The Bullwhip Effect (Continued) �In these procurement auctions, an organization indicates its desire to purchase a product or service and invites would-be sellers to submit bids. �Typically, the low bid wins the auction. �Organizational auctions can attract a large number of vendors and often result in substantial cost savings. © 2007 Prentice Hall, Inc. 45

Figure 8 -13 The Bullwhip Effect © 2007 Prentice Hall, Inc. 46

Figure 8 -14 B 2 B One Section of the Supply Chain © 2007 Prentice Hall, Inc. 47

Supplier Relationship Management �Supplier relationship management (SRM) is a business process for managing all contracts between an organizational and its suppliers. �Supplier in SRM is used generically: It refers to any organization that sells something to the organization that has the SRM application. �A manufacturer is a supplier to a distributor. © 2007 Prentice Hall, Inc. 48

Supplier Relationship Management (Continued) �SRM applications support three basic processes: source, purchase, and settle. Source ◦ Organizations need to find possible vendors of needed supplies, materials, or services: �Assess the vendors that it does find �Negotiate terms and conditions �Formalize those terms and conditions in a procurement contract ◦ Some SRM applications have features to search for product sources and to find evaluations of vendors and products. © 2007 Prentice Hall, Inc. 49

Supplier Relationship Management (Continued) Purchase ◦ SRM applications request information, quotations, and proposals from would-be suppliers. ◦ Companies can use SRM to manage the approval workflow in order to approve purchases and issue orders. Settle ◦ The accounting department reconciles the receipt of the goods and services against documents and schedules the vendor payments. ◦ The payment portion of the SRM typically connects to the cash management subsystem in the financial management application. © 2007 Prentice Hall, Inc. 50

Supplier Relationship Management (Continued) Settle (continued) ◦ Some SRM packages include features to support procurement auctions. ◦ Generally companies use auctions to obtain large amounts of materials, energy, or other consumables. ◦ Organizational auctions can attract a large number of vendors and often result in substantial cost savings. © 2007 Prentice Hall, Inc. 51

Figure 8 -15 Summary of SRM Processes © 2007 Prentice Hall, Inc. 52

Integrating SRM with CRM �Supplier’s CRM application interfaces with the purchaser’s SRM application. �Both the supplier and the customer want to perform the ordering process as cheaply and efficiently as possible. �SRM examines inventory, determines that items are required, and automatically creates the order via its connection to the supplier’s CRM. © 2007 Prentice Hall, Inc. 53

Figure 8 -16 ERP II in One Section of the Supply Chain © 2007 Prentice Hall, Inc. 54

Information Technology for Data Exchange �Web commerce-server applications are useful for B 2 C, but they are not sufficient for B 2 B needs. �In general, organizations need to exchange data and messages in more general and flexible ways than they can do with commerce servers. �There are several alternatives for exchanging data and messages (Basic Technology): ◦ The most basic are telephone calls and documents exchanged via fax or postal mail. ◦ Another alternative is to exchange messages and documents via email. © 2007 Prentice Hall, Inc. 55

Information Technology for Data Exchange (Continued) �There alternatives that involve additional technology ◦ Electronic Data Interchange (EDI) is a standard for exchanging documents from machine to machine, electronically. ◦ In the past, EDI was used over point-to-point or value-added networks. ◦ Recently, EDI systems have been developed that use the Internet as well. ◦ e. Xtensible Markup Language (XML), is a standard that offers advantages over EDI and that most believe will eventually replace EDI. © 2007 Prentice Hall, Inc. 56

Figure 8 -17 Alternatives for Inter organizational Message and Data Exchange © 2007 Prentice Hall, Inc. 57

Electronic Data Interchange �Electronic Data Interchange (EDI) is a standard of formats for common business documents. �Because the transmissions are electronic, the distributors and manufacturers must agree on a format for the orders. ◦ This format includes: �How many data fields will be sent. �In what order they will be sent. �How many characters will be sent in each data field, and so forth. © 2007 Prentice Hall, Inc. 58

The EDI X 12 Standard �In the United States, the X 12 Committee of the American National Standards Institute (ANSI) manages EDI standards. ◦ Today, the EDI X 12 standard includes hundreds of documents. �They have standard names like EDI 850 (purchase order), EDI 856 (advance ship notices), EDI 810 (electronic invoice). �AN EDI document definition consists of a set of segments, each of which has a defined set of fields. © 2007 Prentice Hall, Inc. 59

Figure 8 -18 Portion of EDI 850 (Purchase Order) Standard © 2007 Prentice Hall, Inc. 60

Other EDI Standards �EDIFACT �HIPAA standard is used internationally. standard is used for medical records. �Because of the existence of multiple standards, when two organizations today wish to exchange documents electronically, they must first agree on which standard they will use. © 2007 Prentice Hall, Inc. 61

Other EDI Standards (Continued) �With usage, organizations find a need to make adjustments to the standards. �There are various versions of each of the X 12, EDIFACT, and HIPAA standards. © 2007 Prentice Hall, Inc. 62

e. Xtensible Markup Language �Organizations documents. �There have used HTML to share three problems with HTML: ◦ HTML tags have no consistent meaning. ◦ HTML has a fixed number of tags. ◦ HTML mixes format, content, and structure. © 2007 Prentice Hall, Inc. 63

Importance of XML �To overcome the problems in HTML, the computer industry designed a new markup language called the e. Xtensible Markup Language (XML). �XML is the product of a committee that worked under the auspices of the World Wide Web Consortium (W 3 C), a body that sponsors the development and dissemination of Web standards. �XML provides a superior means for organizations to exchange documents. © 2007 Prentice Hall, Inc. 64

Importance of XML (Continued) � XML solves the problems mentioned for HTML, and has become a significant standard for computer processing. © 2007 Prentice Hall, Inc. 65

Figure 8 -19 XML Industry Standards © 2007 Prentice Hall, Inc. 66

Application Interaction in the Supply Chain �The process of a program on one computer accessing programs on a second computer is called remote computing or distributed computing. �Several different techniques are used: ◦ Two important ones are the use of proprietary designs and Web services © 2007 Prentice Hall, Inc. 67

Distributed Computing Using Proprietary Designs �One way to develop distributed computer programs is to develop proprietary distributed applications. ◦ Proprietary means that the solution is unique to and is owned by the organizations that develop and pay for the distributed systems. �To develop a proprietary design, teams of developers from the involved companies work together using a development process. �The joint development team designs this application to use a particular communications capability, particular operating systems, and particular distributed computing techniques. © 2007 Prentice Hall, Inc. 68

Distributed Computing Using Proprietary Designs (Continued) �An alternative proprietary method is for one company to develop all necessary programs itself and then install some of its programs on another company’s computers. �Proprietary solutions are difficult and expensive to develop and operate. �If they provide sufficient business value, however, the return on investment can make them worthwhile. © 2007 Prentice Hall, Inc. 69

XML Web services �XML Web services, sometimes called simply Web services, are a set of standards that facilitate distributed computing using Internet technology. �Web services are the latest and greatest tool for application interaction. �Every major software vendor has products that support Web services: ◦ Microsoft provides. Net development tools ◦ IBM provides J 2 EE development tools © 2007 Prentice Hall, Inc. 70

Fundamental Web Services Concepts �The goal of Web services is to provide a standard way for programs to access one another remotely, without the need to develop proprietary solutions. �A number of important standards have been defined to make Web services possible. ◦ In general these standards enable programs on one computer to obtain a service description that details what programs exist on another computer and how to communicate with those programs. ◦ Once the service user has the service description, it uses the information it contains to invoke the service. ◦ All Web service data are transmitted in XML documents. © 2007 Prentice Hall, Inc. 71

Web Services and the Supply Chain �Web services have the potential to simplify the automation of supply chain interactions. �Any organization in the supply chain can develop Web services and publish those services to other organizations in the supply chain. �Developers in those organizations can access the service description and write programs that call the Web services. © 2007 Prentice Hall, Inc. 72

Figure 8 -20 Example of Web Services for Sharing Sales Data © 2007 Prentice Hall, Inc. 73

Summary �Organizations should address four economic factors when considering e-commerce activity: channel conflict, price conflict, logistics expense, and customer service expense. �Most B 2 C commerce is conducted using commerce servers. �A supply chain is a network of organizations and facilities that transforms raw materials into finished goods for customers. © 2007 Prentice Hall, Inc. 74

Summary (Continued) �Most supply chains have suppliers, manufactures, distributors, and retailers. �Supply chains also include transportation companies, warehouses, inventories, and some means of transmitting messages and information. �In general, the maximum profits to the supply chain will not occur if each independent organization within it maximizes its own profit in isolation. © 2007 Prentice Hall, Inc. 75

Summary (Continued) �The bullwhip effect is a phenomenon in which the variability in the size and timing of orders increases at each stage up the supply chain. �Three fundamental supply chain information systems are: supplier relationship management (SRM), inventory, and CRM. �Organizations can exchange documents and data between programs using various alternatives. © 2007 Prentice Hall, Inc. 76

Summary (Continued) �EDI is a standard of formats for common business documents. �XML is a markup language like HTML, but it improves upon HTML by requiring standard use of XML elements by allowing users to extend the elements, and by clearly separating document structure, content, and format. © 2007 Prentice Hall, Inc. 77

Key Terms and Concepts Attribute Auctions Browser Bullwhip effect Business-to-business (B 2 B) e-commerce Business-to-consumer (B 2 C) e-commerce Business-to-government (B 2 G) e-commerce Clearinghouses Commerce server Database tier Disintermediation Distributed computing E-commerce EDI X 12 standard EDIFACT standard Electronic Data Interchange (EDI) e. Xtensible markup language (XML) HIPAA standard Hyperlink Hypertext Markup Language (HTML) © 2007 Prentice Hall, Inc. 78

Key Terms and Concepts (Continued) Merchant companies Nonmerchant companies Porter’s five competitive forces model Price elasticity Remote computing Server tier Service description Supplier relationship management (SRM) Supply chain profitability Sustainable (advantage) Tag Three-tier architecture © 2007 Prentice Hall, Inc. 79

Problem Solving Guide–Interorganizational Information Exchange Interorganizational information systems are systems that connect two or more organizations and require collaborative agreements among independent companies and organizations. Such agreements can be successful only if all parties have a clear idea of the goals, benefits, costs, and risks of working together. © 2007 Prentice Hall, Inc. 80

Problem Solving Guide–Interorganizational Information Exchange (Continued) The creation of collaborative agreements requires many joint meetings in which the parties make their goals and objectives clear and decide how best to share information and other resources. l During your career, you may be asked to participate in such meetings. When you meet with employees of another company, realize that you must apply stronger limits on your conversation than when you meet with employees in your own firm. © 2007 Prentice Hall, Inc. 81

Problem Solving Guide–Interorganizational Information Exchange (Continued) You should assume that whatever you say to an employee of another company could be general knowledge in your industry the next day. The best strategy, however, is to reveal exactly what you must reveal and no more. You may be asked to sign a nondisclosure agreement. © 2007 Prentice Hall, Inc. 82

Opposing Forces Guide–The Lawyer’s Full-Employment Act I don’t think this supply chain profitability thing is likely to work the way it’s described here. It sounds like some head-in-the-cloud idea dreamed up by economists. “First of all, how many products does REI sell? ” Thousands. “And how many distributors does it have? ” Dozens. “How would the company ever know that outages on boots were limiting sales of ski packages? ” © 2007 Prentice Hall, Inc. 83

Opposing Forces Guide–The Lawyer’s Full-Employment Act (Continued) Knowing that, REI decides to pay a premium to the boot distributor to carry a larger-than-normal inventory of boots. l l l First of all, you wonder why REI doesn’t just carry that inventory itself. But anyway, somehow it is going to make a payment to the distributor to carry more boot inventory. Now REI has to negotiate an agreement among at least three companies, and probably more if you include the manufacturers. © 2007 Prentice Hall, Inc. 84

Opposing Forces Guide–The Lawyer’s Full-Employment Act (Continued) “By the time you get all this done, it’s no longer ski season, and you’re not selling any ski equipment”. “By the time next year rolls around, you’re working with different distributors”. “It just’ won’t work”. © 2007 Prentice Hall, Inc. 85

Ethics Guide–The Ethics of Supply Chain Information Sharing Suppose that you work for a distributor that has developed information systems to read inventory data both up and down the supply chain. Situation A l l l You notice that the store inventories of all retailers are running low on items in a particular product family. Because you believe you have the only supply of those items, you increase their price by 15 percent. When the retailers ask why, you claim extra transportation costs. © 2007 Prentice Hall, Inc. 86

Ethics Guide–The Ethics of Supply Chain Information Sharing (Continued) Situation A (continued) l In fact, all of the increase is going straight to your bottom line. Situation B l l Unknown to you, one of your competitors has also accumulated a large inventory of those same items. Your competitor does not increase prices on those items, and consequently you sell none at your increased price. © 2007 Prentice Hall, Inc. 87

Ethics Guide–The Ethics of Supply Chain Information Sharing (Continued) Situation B (Continued) l l You have no direct way to read your competitor’s inventories, but you can infer their inventories by watching the decrease of inventory levels on the manufacturer side and comparing that decrease to the sales on the retail side. Using this process, you now can estimate your competitor’s inventories. Situation C l Assume the agreement you have with the retailers is that you are able to query all of their current inventory levels but only for the orders they have with you. © 2007 Prentice Hall, Inc. 88

Ethics Guide–The Ethics of Supply Chain Information Sharing (Continued) Situation C (continued) l l You are not supposed to be able to query orders they have with your competitors. However, the information system contains a flaw, and by mistake you are able to query everyone’s orders-your own as well as those of your competitors. Situation D l l Assume the same agreement with your retailers as in situation C. One of your developers, however, notices a hole in the retailer’s security system and writes a program to exploit that hole. © 2007 Prentice Hall, Inc. 89

Ethics Guide–The Ethics of Supply Chain Information Sharing (Continued) Situation D (continued) l You now have access to all of the retailer’s sales, inventory, and order data. © 2007 Prentice Hall, Inc. 90

Security Guide–A Trojan Horse? Suppose you work for a distributor that manages its inventory very closely. One of your major manufacturers says that it can dramatically shorten the lead time on most of its products if your purchasing personnel order directly from the manufacturer's CRM. To make that possible, the manufacturer needs to install some of its programs on the computers in your purchasing department. © 2007 Prentice Hall, Inc. 91

Security Guide–A Trojan Horse? (Continued) You agree to allow the installation. The chief information officer (CIO) gets wind of this project and refuses to allow the programs to be installed on the computers in purchasing. l l l He also directs building security personnel not to allow anyone from the manufacturer into your company’s building. The two of you have a meeting, and he is furious with you. “Well” you counter, “I see your point and I’m sorry we didn’t contact you sooner”. “But what can we do now? ” “Using their system could mean huge cost savings to us”. © 2007 Prentice Hall, Inc. 92

Reflection Guide–XML and the Future of Computing Once upon a time, computers were used solely for computing. They were valued for their ability to perform arithmetic and complex calculations. Today, few computers are valued primarily as computational tools. Today, they are valued because they communicate. © 2007 Prentice Hall, Inc. 93

Reflection Guide–XML and the Future of Computing (Continued) What’s the primary purpose of an IS in the supply chain? l It is to communicate orders, invoices, or other documents or send and receive data among programs. l Communications cannot occur without common standards. l Computers must share standards to communicate. l Bill Gates called XML the “lingua franca of the Internet”. l A lingua franca is a common language widely used by speakers of other languages. © 2007 Prentice Hall, Inc. 94

Reflection Guide–XML and the Future of Computing (Continued) If XML is not yet the language of the Internet, it is likely to be that within the next 5 years. Today orders may arrive via postal mail, fax, as attachments to emails, or through information systems. l Regardless, without XML, everyone of those orders must be manually validated. A starting possible consequence of the growth of XML on future computing relates to databases. © 2007 Prentice Hall, Inc. 95

Reflection Guide–XML and the Future of Computing (Continued) Databases store tables not XML documents. Why not store the XML documents in databases? l Before this can happen, significant problems must be overcome: l How to efficiently query stores of XML documents l How to process duplicated data l How to make XML data available to table-oriented programs like Excel I’m willing to bet that by the end of your career, relational databases will be thing of the past. l It will be XML storage all the way! © 2007 Prentice Hall, Inc. 96