Management Information Systems Chapter 6 Transactions and Operations Technology Toolbox: Creating EDI Transactions Technology Toolbox: Paying for Transactions Cases: Retail Sales McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Outline How do you handle the huge amount of data generated from transactions and operations? How do you efficiently collect transaction data? What are the major elements and risks of a transaction? Why are transactions more difficult in an international environment? How can customers pay for products and why do you need new payment mechanisms? How do you ensure that the transaction data is accurate? Can your company be more efficient and productive? 2
Transactions Additional Stores Bank Supplier POS Terminals/ Registers Sales Reports EDI Customers Central Computer Process Control 3
Point of Sale Process Control Electronic Data Interchange Data Capture Additional Stores Strategy CEO Information Tactics Warehouse Inventory Management Bank Operations Supplier POS Cash Registers Sales Reports EDI Customers Central Computer Process Control 4
Data Capture: Sales Collecting transaction data at the point of sale ensures accurate data, speeds transactions, and provides up-to-the-minute data to managers. 5
Radio Frequency Identification (RFID) product Radio/microwaves RFID tag Capacitor: collected energy B C E RFID reader data antenna Transistors: data Tag and scanner from: http://www.rfidinc.com 6
Process Control Various Production machines: lathe, press, dryer,... Production data: Quantity Quality Time Machine status Control Terminal Control settings and commands 7
The price of paper EDI $30 to $40 for each purchase order $24 to $28 for suppliers to handle $12 for orders 0.32 for suppliers Proprietary EDI Commercial providers and standards Electronic Data Interchange 8
Firms must support multiple data formats and sometimes different computers for each contact. Customer 1 EDI: Proprietary Supplier Production Database & Accounts Queries & Orders Invoices & confirmation Order Database & Accounts Customer 2 9
Bank/EDI consolidator EDI: Standards Route Messages Customer 1 Messages to/from any customer Supplier Production Database & Accounts Order Database & Accounts Customer 2 10
EDI Standards UN Edifact US ANSI X12 Segments for each area Detail data formats Message Segment Composite Data Element Data Element Code Lists 11
ANSI X12 Segments Partial List of segments Detailed specifications for each segment Data needed Format 104 - Air Shipment Information 110 - Air Freight Details and Invoice 125 - Multilevel Railcar Load Details 126 - Vehicle Application Advice 127 - Vehicle Buying Order 128 - Dealer Information 129 - Vehicle Carrier Rate Update 130 - Student Educational Record (Transcript) 131 - Student Educational Record (Transcript) Acknowledgment 135 - Student Loan Application 139 - Student Loan Guarantee Result 140 - Product Registration 141 - Product Service Claim Response 142 - Product Service Claim 143 - Product Service Notification 144 - Student Loan Transfer and Status Verification 146 - Request for Student Educational Record (Transcript) 147 - Response to Request for Student Ed. Record (Transcript) 148 - Report of Injury or Illness 12
EDI On The Internet The Internet Advantages Low cost. Anyone can connect. Worldwide reach. Many tools and standards. Designed to be robust, minimizes impact of network failures. Drawbacks No service guarantee. Delays might be unacceptable. Questionable reliability. Security is challenging. 13
Extensible Markup Language (XML) Example <?xml version="1.0"?> <!DOCTYPE OrderList SYSTEM "orderlist.dtd"> <OrderList> <Order> <OrderID>1</OrderID> <OrderDate>3/6/2004</OrderDate> <ShippingCost>$33.54</ShippingCost> <Comment>Need immediately.</comment> <Items> <ItemID>30</ItemID> <Description>Flea Collar-Dog-Medium</Description> <Quantity>208</Quantity> <Cost>$4.42</Cost> <ItemID>27</ItemID> <Description>Aquarium Filter & Pump</Description> <Quantity>8</Quantity> <Cost>$24.65</Cost> </Items> </Order> </OrderList> Data is sent in a standard format that is easy for computers to parse and read. 14
Credit card company accepts risks for a fee. Transaction Risks Vendor 1. Receive payment. 2. Legitimate payment. 3. Customer not repudiate sale. 4. Government not invalidate sale. Customer 1. Receive product. 2. Charged only as agreed. 3. Legal transaction. Government 1. Transaction record. 2. Tax records. 3. Identify fraud. 4. Track money for other cases (drugs). 16
E-Commerce Risk Mitigation Consumer is protected by credit card company. It is critical that vendors protect their databases. Encrypt(Database) Encryption protects transmission of data and verifies identity of vendor. Vendor Customer Vendor is not protected by credit card and has only weak methods to verify customer identity. 17
Security and Trust Security Each transmission is encrypted. Prevent interception. Keys generated by certificate authority (e.g., Verisign). Security on individual servers is the responsibility of vendor. There have been some thefts of data (e.g., creditcard numbers.) Vendor is motivated to secure the server. Commercial software exists to provide secure sites. Trust Is the vendor legitimate? Consider: Internet gambling. What if offshore vendor refuses to pay off a bet? As long as Internet gambling is illegal (in the U.S.) consumer has no recourse. Otherwise, use credit cards and rely on banks. Secure certificates. Is the customer legitimate? Rely on credit card data. Some vendors will ship only to billing address. Certificate authority. 18
Jurisdiction questions for disputes. Collection and payment for sales. Currently rely on credit cards. Many people do not use credit cards. Does not protect vendor. Coordinate and stop fraud. Internet International Issues Control harassment, spamming, and denial of service attacks. Encryption restrictions. U.S. classifies as munitions. France does not allow citizens to use encryption at all. Different privacy rules. Nations have differing perspectives of offensive content. 19
Credit card drawbacks High transaction costs. Not feasible for small payments. Do not protect the merchant. Characteristics needed Payment Mechanisms Low enough costs to support payments less than $1. Secure transmission. Secure storage. Authentication mechanism. Easy translation to traditional money. Alternatives Mobile phone bill. Smart cards. 20
Trusted Party Digital Cash Payment Conversion to real money. Bank (C) Cash amount is verified and added to vendor account. (A) Consumer purchases a cash value that can be used only once. Vendor (B) Customer chooses product, sends ID or digital cash number. Consumer 21
Data Quality Integrity Errors in data entry. Missing data. Failure to make updates. Multitasking/Concurrency Volume Changes by two people at same time gives bad data. Cost Errors harder to spot. Transmission costs. Difficulty of searching. System overload. Summaries Time Too much detail. Hard to get detail. Report and decision deadlines. Departments get data at different times. Sequencing problems. 22
Data Integrity Multitasking & concurrency Data volume Data summaries Time Multitasking and Concurrency Concurrency and Data Integrity Transaction A 1) receive 300 payment 2) read balance (500) 5) subtract payment 6) store new result (200) Customer Accounts Sanchez 500 Sanchez 200 Sanchez 850 Transaction B 3) new purchase (350) 4) read balance (500) 7) add purchase 8) store new result (850) 23
Suppliers Production Management Purchase Orders Production Information System Receiving Quality Production and Assembly Quality Quality Bill of Materials Crank UL6500 Pedals LK3500 Stem UL6600 Saddle Selle Customers Shipping Customer Order 24
factories Production Management Issues Multiple factories produce many items that need to be distributed to multiple stores. Ask Gitano Jeans in the 1980s How do you schedule efficient production? Customers or stores How do you ensure the right products go to the right locations? 25
Distribution Center Factories Split the mass production shipments into smaller units and distribute to stores immediately without holding inventory. Need to match orders exactly, and carefully schedule arrival time of shipments. Customer or stores 26
Technology Toolbox: Creating EDI Transactions You need three things to do EDI: 1. A network connection (Internet or VAN). 2. Software that creates outgoing documents. 3. Software that retrieves and integrates incoming messages. Demo at: http://www.1edisource.com/products/websource/ 27
Quick Quiz: Creating EDI Transactions 1. Why would customers require the use of a VAN instead of the Internet? 2. Even for relatively large companies, what are the advantages of using people to enter data and read EDI messages instead of an automated system? 3. Using the Internet, find at least five companies that provide EDI software. 28
Technology Toolbox: Paying for Transactions Payment Method Fixed Cost Fixed Fee Discount Fee Fraud/Insurance Cash Low except for security $0.00 $0.00 Physical security Check-physical $20/month $0.25 1.7% Included Check-electronic $20/month $0.25 2.5% Included Credit Card-physical Credit Card-electronic $10/month Minimum $25 $30-$50/month Minimum $25 $0.25-$0.50 1.6% Covered: 0.08% fraud average $0.25-$0.50 2.6%-4% Not covered: 0.25% fraud average Debit Card Setup/key pads $0.35-$0.55 0% - 2% None PayPal None $0.30 2.2% - 2.9% Covered for physical shipments 29
Quick Quiz: Paying for Transactions 1. Why have consumers rejected most electronic payment mechanisms? 2. What additional fees are charged for international transactions? 3. What happens if a customer refutes a charge? 30
Billion $ Cases: Retail Sales Annual Revenue 50 45 40 35 30 25 20 15 10 5 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Pfizer GlaxoSmithKline Bristol-Myers Squibb Eli Lilly How do retail stores handle millions of transactions? 31