online file w11.1 what services do customers...

Chapter Eleven: Order Fulfillment Along the Supply Chain and Other EC Support Services 11-1

Online File W11.1 What Services Do Customers Need?

Insights on online customer services:

◗ Customer preferences. Customers tend not to do much self-service in terms of getting information from companies(e.g., only 19% use FAQs), so they require attention. As more companies offer online self-service, though, thissituation is changing. When contacting companies for information, customers use e-mail more than the telephone(71% versus 51%).

◗ Types of service. Four types of service exist, based on where the customer is in the purchase experience: duringshopping (search products, compare, find product attributes); during buying (questions on warranties, billing,receipt, payment); after placing the order (checking status in processing and in shipping); and after receiving the item(checking return procedures, how to use the item).

◗ Problem resolution. Customers expect quick resolutions to problems, and expect problems to be resolved to theirsatisfaction. Therefore, easy returns and order tracking are desirable.

◗ Shipping options. Several shipping options are usually needed to make customers happy.◗ Fraud protection. Customers need to make sure that sellers or others are not going to cheat them (Chapters 9 and 14).◗ Order status and updates. Customers want to have some way to check on the status of their order, which involves

tracking either by phone or online. These services are highly desired, including order notification and a clear returnpolicy.

◗ Developing customer relationships. This includes building trust, providing security, and ensuring privacy protection(see Chapter 4).

◗ Agent profiling. The process of matching service agents directly with the needs and personalities of customers isa win-win situation for businesses, customers, and employees.

Online File W11.2 The Bullwhip Effect

The bullwhip effect refers to erratic shifts in orders up and down supply chains (see en.wikipedia.org/wiki/Bullwhip_effect).This effect was initially observed by Procter & Gamble (P&G) with its disposable diapers in offline retail stores. Althoughactual sales in stores were fairly stable and predictable, orders from distributors had wild swings, creating production andinventory problems for P&G and their suppliers. An investigation revealed that distributors’ orders were fluctuating becauseof poor demand forecasts, price fluctuations, order batching, and rationing within the supply chain. All of this resulted inunnecessary inventories in various places along the supply chain, fluctuations in P&G orders to its suppliers, and the flowof inaccurate information. Distorted or late information can lead to tremendous inefficiencies, excessive inventories, poorcustomer service, lost revenues, ineffective shipments, and missed production schedules.

The bullwhip effect is not unique to P&G. Firms from HP in the computer industry to Bristol-Myers Squibb in thepharmaceutical field have experienced a similar phenomenon. Basically, even slight demand uncertainties and variabilitiesbecome magnified when viewed through the eyes of managers at each link in the supply chain. If each distinct entitymakes ordering and inventory decisions with an eye to its own interest above those of the chain, stockpiling may beoccurring simultaneously at as many as seven or eight different places along the supply chain as assurance againstshortages. Such stockpiling can lead to as many as 100 days of inventory waiting “just in case.” Companies may avoid the“sting of the bullwhip” if they take steps to share information along the supply chain. Such information sharing isimplemented and facilitated by EDI, extranets, and collaborative technologies.

11-2 Part 4: EC Support Services

ONLINE FILE W11.3Application Case

HOW DELL FULFILLS CUSTOMER REPAIR ORDERSOne of Dell’s success factors is its superb logistics and orderfulfillment systems. Customer orders, which are receivedmostly online, are automatically transferred to theproduction area, where configuration determines whichcomponents and parts are needed to create the customizedcomputer that the customer wants.

Once configuration is complete, the problem becomeshow to get all the needed components so that a computercan be ready for shipment the next day. As part of thesolution, Dell created a network of dedicated suppliers forjust-in-time deliveries, as well as a sophisticatedcomputerized global network of components and partsinventories. The global network is also used for productservices (e.g., repairs, upgrades, remanufacturing, etc.).

Let’s examine how Dell provides service when acomputer that is in the customer’s possession needs to berepaired. Dell is trying to achieve for repairs, upgrades, andother services the next-day shipment that it uses for newcomputers. For repair activities, Dell needs parts andsubassemblies to be delivered to hundreds of repair stations,worldwide, from internal warehouses or external vendors. The search for the parts and their delivery must be done very quickly.

To facilitate this search for parts, Dell is using an onlineintelligent inventory optimization system from LPA software(now clickcommerce.com). The system can reconcile thedemand for parts with the action needed (e.g., repair,upgrade, transfer, or remanufacture). For example, the systemallows Dell to factor the yield on reusable parts into its

supply projection. This allows Dell to use repairable parts tocompress time and reduce costs, enabling a team of about 10employees to successfully process more than 6,000 serviceorders every day.

The online system generates timely information aboutdemand forecast, the cost of needed inventory, and “days ofsupply of inventory.” It compares actual with forecasteddemand. This enables Dell to communicate criticalinformation to external and internal customers, reducingorder fulfillment delays.

Producing or acquiring the required parts throughcomponent substitution, upgrades, and engineering changeorders must be effective in order to provide superb customerservice at a low inventory cost. The system also provides anonline standard body of knowledge about parts and planningstrategies.

Questions1. What portions of order fulfillment does this process

improve?

2. Enter dell.com and find information about how Dellconducts repair (warranty) customer service.

3. Relate this case to the discussion of “returns” in thischapter.

4. What competitive advantage is provided by this Dellsystem?

REFERENCES FOR ONLINE FILE W11.3dell.com (accessed March 2009). Xelus, Inc. “Case Study: Dell.” 1999. xelus.com/industries/

cs_dell.html (no longer available online).



GROCERY SUPERMARKET KEEPS IT FRESH—WOOLWORTHSOF AUSTRALIADealing with early movers of pure e-tailing is a majorproblem for established retailing. How is a well-establishedmajor supermarket to respond? With huge investments inbrick-and-mortar stores, Woolworths of Australia found itselfdealing with just this question. Three major players dominatethe grocery market in Australia: Coles Myers, Woolworths, andFranklins. These three companies control some 80 percent ofthe marketplace. Franklins, which is owned by a company inHong Kong, takes a low-cost, minimum-service approach. The others, both Australian-based, provide a full range ofproducts, including fresh foods and prepared meals.

Woolworths’ initial approach was to set up a standardwebsite offering a limited range of goods, but excludingperishable items. The delivery service was initially availableonly in areas near the company’s major supermarkets.Woolworths felt it had to respond to the newly emergingapproaches from online entrepreneurs. If those organizationswere allowed to take over a sizable segment of the market, itcould be difficult to recover it.

It was not long before management realized that thiswas not an effective approach. Woolworths’ staff had to walkthe aisles, fill the baskets, pack the goods, and deliver them.For an organization that had optimized its supply chain inorder to cut costs, here was a sudden explosion in costs.When gross margins are only 10 percent, and net marginsaround 4 percent, it is very easy to become unprofitable.

Furthermore, Woolworths has established its place inpublic perception as “the fresh food people,” with fruits andvegetables, freshly baked breads, meats, and prepared mealsbeing promoted heavily. If home shopping ignores these,Woolworths is avoiding its strengths.

Woolworths’ Homeshop, the second-generation homeshopping site (woolworths.com.au), was designed withfreshness in mind, and all the fresh foods are available fordelivery. Deliveries are arranged from major regionalsupermarkets, rather than from every local store. There is anAU$50 minimum order, and a 7.5 percent surcharge for home

delivery, as well as an AU$6 delivery charge. This helps inrecovering the additional costs, but an average order, aroundAU$200, still returns little profit.

New users can register only if deliveries are possible totheir postal address. On first use of the system, the customeris guided to find the products that they want withsuggestions from the list of best-selling items. Alternatively,the customer can browse for items by category or search bykeyword. Items are accumulated in the “shopping trolley”(cart). The first order is entered into a master list for futureorders, as are subsequent orders.

When the customer has selected the required items,they select “checkout;” at that point, the total value iscomputed and the customer confirms the shopping list.Payment is made only at the time of delivery using a mobile(cellular) electronic funds transfer (EFT) POS terminal, andeither a credit card or a debit card. In this way, precisecharges can be made based on weight of meat or fish, as wellas allowing for out-of-stock items.

The customer has to set the delivery time and day. If the customer is not home to accept the delivery,additional charges will be applied.

Additional services that are available include dietaryadvice, recipes, and recording of preferred food items.

Source: Jordan, E.“Grocery Supermarket Keeps It Fresh: Woolworthsof Australia.” Professor, Macquarie Graduate School of Management,Australia, August 2000, revised June 2011. Used with permission.

Questions1. Describe the driver of the online initiative.

2. Describe the difficulties of moving online.

3. Find the status of online service today atwoolworths.com.au.


Online File W11.5 Order Fulfillment at GroceryWorks

Source: From T. Steinert-Threkeld (January 31, 2000). Originally published in Interactive Week, www.xplane.com.Reprinted by permission.

Each customer order is placed 6.5 to 9 hours ahead of delivery time.

Suppliers pick goods off their own shelves and package them forpickup, with orders sorted by customer and placed in coded bags.

GroceryWorks’ vans pick up the goods from suppliers.

Fresh goods from suppliers are sent along a conveyor belt; dry goodsare picked from GroceryWorks’ warehouse shelves.

GroceryWorks’ vans head to customers’ homes, stopping by supplierson their return trip to the local warehouse to pick up the next round of customer orders.

GroceryWorks’ truckspick up the next batchof fresh goods from vendors afterfinishing delivery tocustomers’ homes.

Frozenfoodsvendor

Video store

Drycleaner

Customers’homes

Producevendor

Meatvendor

“Home meal”vendor

1

1

2

3

4

5

2

3

4

5

RECEIVINGRECEIVING

LOADINGLOADING

Dry goods

Picking zones

Conveyor belt

EXHIBIT W11.5.1



HOW WALMART USES EC IN ITS SUPPLY CHAINWalmart Stores, Inc., is the world’s largest public corpora-tion by revenue and the largest private employer in theworld (about 2.1 million employees in 2008). Also in 2008,the company operated about 4,000 stores in the UnitedStates (discount, supercenters, neighborhood markets, andSam’s Clubs) as well as more than 2,200 stores in othercountries, mostly in Mexico, Canada, Brazil, and the UnitedKingdom. Its revenue exceeded $400 billion, with netincome of about $15 billion. For further details, seeen.wikipedia.org/wiki/ Walmart and walmartfacts.com.A major determinant of the success of Walmart is its ITand EC-driven supply chain.

Walmart’s Supply ChainWalmart pioneered the world’s most efficient technology-driven supply chain. Let’s look at some of its componentsand innovations.

Walmart invited its major suppliers to codevelopprofitable supply chain partnerships. These partnerships areintended to amplify product flow efficiency and, in turn,Walmart’s profitability. A case in point is Walmart’s supplierrelationship with P&G, a major supplier of consumerproducts. This relationship enables interoperation betweenthe companies’ systems at transactional, operational, andstrategic levels. Since 1988, the relationship has evolved toyield tremendous value to both companies, and their mutualbusiness has grown manifold. Examples of intercompanyinnovations are vendor-managed inventory (VMI), CPFR, andRFID. Let’s look closer at Walmart and some of its supplychain–related initiatives.

Inventory ManagementInventory management is done at the corporate andindividual store levels. In both cases, computerizedsystems facilitate proper inventory levels and reordering ofgoods. Stores manage their inventories and order goods asneeded instead of the company using a centralized control.By networking with suppliers, a quick replenishment ordercould be placed via Walmart’s own satellite communicationsystem. This way, suppliers can quickly deliver the goodsdirectly to the store concerned or to the nearestdistribution center. The suppliers are able to reduce costsand prices due to better coordination. Walmart invested $4 billion into a retail link collaboration system. About20,000 suppliers use the retail link system to monitor thesales of their goods at individual stores and accordinglyreplenish inventory. The system has been upgraded severaltimes with Web-enabled technologies. Walmart also usesadvanced EC-based communication and processing systems,and it has extensive disaster recovery plans, enabling thecompany to track goods and inventory levels when disaster

strikes. This ensures uninterrupted service to Walmartcustomers, suppliers, and partners. With its major suppli-ers, Walmart has VMI agreements.

Managing Distribution Centers and ForkliftManagementWalmart uses hundreds of distribution centers worldwide.Goods are transported to these centers from suppliers andthen stored. When needed, goods are reorganized in trucksand delivered to the stores. Walmart uses a computerizedwarehouse management system (WMS) to track and managethe flow of goods through its distribution centers. Thissystem manages not only the forklifts within the distributioncenter, but also Walmart’s fleet of trucks.

Wireless Industrial Vehicle ManagementSystemForklifts and other industrial vehicles are the workhorses ofmaterial handling within the distribution centers and thusare critical factors in facility productivity. In each center,Walmart installs a comprehensive wireless VehicleManagement System (VMS).

The major capabilities of this system (from I.D. Systems,Inc., id-systems.com) are listed here and organized by pro-ductivity and safety features:

Productivity Features

◗ A two-way text messaging system that enablesmanagement to divert material-handling resourceseffectively and quickly to the point of activity where they are needed the most.

◗ Software that displays a graphical facility map, whichenables not only near real-time visibility of vehicle/operatorlocation and status, but also the ability to play backthe trail of a vehicle movement over any slice of time.The system also helps to locate vehicles in real time.

◗ Unique data on peak vehicle utilization that enablesoptimal computerized fleet “right sizing.” It also helpswork assignments and communication, especially inresponse to unexpected changes and needs.

Safety Features

◗ Electronic safety checklist system for identifying andresponding to vehicles’ problems.

◗ Access authorization to drive certain vehicles by traineddrivers only.

◗ Impact sensing that provides a broad choice of automatedmanagement responses, from alerting a supervisor withvisual or audible alarms, to generating a warning icon on agraphical software display of the facility, to sending ane-mail or text message to management.

(continued)


◗ Automatic reporting and prioritization of emergency repairissues that are identified on electronic safety checklists,where operator responses are flagged by severity of thevehicle condition.

◗ Wireless, remote lock-out of vehicles that are unsafe or inneed of repair.

For further details, see the Walmart case at id-systems.com.

Warehouse Management SystemA warehouse management system (WMS) is a key part of thesupply chain that primarily aims to control the movementand storage of material within a warehouse and process theassociated transactions including receiving, shipping, andin-warehouse picking. The system also optimizes stock levelsbased on real-time information about the usage of parts andmaterials.

Warehouse management systems often utilizeinformation technologies, such as bar code scanners,mobile computers, Wi-Fi, and RFID to efficiently monitorthe flow of products. Once data has been collected, there iseither a batch synchronization with, or real-time wirelesstransmission to, a central database. The database can thenprovide useful reports about the status of goods in thewarehouse.

Warehouse management systems can be stand-alonesystems, or modules in an ERP system (e.g., at SAP andOracle) or in a supply chain management suite. The role andcapabilities of WMS are ever-expanding. Many vendorsprovide WMS software (e.g., see qssi-wms.com). For acomprehensive coverage of WMS, see Piasecki (2006).

Fleet and Transportation ManagementSeveral thousands of company-owned trucks move goodsfrom the distribution centers to stores. Walmart uses severalEC and IT tools for managing the trucks. These include adecision support system (DSS) for optimal scheduling,dispatching, and matching of drivers with vehicles; acomputerized system for efficient purchasing and use ofgasoline; a computerized preventive maintenancemanagement system for efficient maintenance and repairsprocedures; and a system that helps maximize the size oftruck necessary for any given shipment. The company isexperimenting with the use of a wireless GPS/GIS system forfinding the trucks’ locations at any given time.

Decisions about cross-docking are computerized. Cross-docking involves the elimination of the distribution center andinstead uses a direct delivery to the customer after picking andsorting the goods from the suppliers. This is possible only ifthe suppliers ensure delivery within a specified time frame.

Going GreenWalmart is spending $500 million a year to increase fuelefficiency in Walmart’s truck fleet by 25 percent over thenext 3 years and plans to double it within 10 years.

Walmart and RFID AdoptionOne of Walmart’s major initiatives in the supply chain areais pioneering the use of RFID. In the first week of April2004, Walmart launched its first live test of RFID trackingtechnology. Using one distribution center and seven stores,21 products from participating vendors were used in thepilot test.

Walmart set a January 2005 target for its top 100 suppliers to place RFID tags on cases and palletsdestined for Walmart stores. The system expanded to allmajor suppliers during 2006 through 2009, especially in the B2B Sam’s Club stores. It improves flow along thesupply chain, reduces theft, increases sales, reducesinventory costs (by eliminating overstocking), andprovides visibility and accuracy throughout Walmart’ssupply chain.

To encourage more suppliers to cooperate, in January2008 Walmart started to charge $2 per case or pallet nottagged (see Hayes-Weier 2008). In addition to requiringRFID tags from its suppliers, Walmart is installing the tech-nology internally. According to Scherago (2006), more than2,000 Walmart stores were RFID-enabled with gate readersand handhelds at loading docks, facility entrances, stockrooms, and sales floors by the end of 2006. According toSongini (2007), the emphasis now is on the use of RFIDin stores rather than in distribution hubs.

The RFID initiative is an integral part of improving thecompany’s supply chain (Scherago 2006). RFID along witha new EDI improves collaboration with the suppliers andhelps reduce inventories. Companies that conformed earlyto Walmart’s RFID mandate enjoy benefits, too. Forexample, Daisy Brand, the manufacturer of sour cream andcottage cheese, started shipping RFID-tagged cases andpallets to Walmart in the fall of 2004. Daisy says itsinvestment in RFID has been a boon, helping it bettermanage the flow of its perishable products throughWalmart stores and ensuring that marketing promotionsproceed as planned (Hayes-Weier 2008).

The next step in Walmart’s pilot is to mark eachindividual item of large goods with a tag. This plan raises apossible privacy issue: What if the tags are not removed fromthe products? People fear that they will be tracked afterleaving the store. Walmart can also use RFID for many otherapplications. For example, it could attach tags to shoppers’children, so when they are lost in the megastore, they couldbe tracked in seconds.

ConclusionWalmart’s competitiveness and its future success depend onEC and IT’s ability to deliver applications and systems thatare agile and easy to adopt to changing market conditions,especially along the supply chain. Special attention needs tobe paid to global operation and transportation. It is stilldifficult to find items in stores due to the lack of Walmart

ONLINE FILE W11.6 (continued)

(continued)


Players ChallengesShippers (sellers) Mix of channels, choice of logistics partners, go solo or use aggregation, what

to outsource, integration of strategic, tactical, and operational decisionsReceivers (buyers) Solo and/or consortia buy sites, supply chain collaboration, total delivered

costs, when to buyCarriers Self-service websites, links to vertical transportation e-marketplaces,

institutional dragThird-party logistics providers

(3 PLs)Cooperation from carriers, breadth of modes/services, IT resources, customer

acquisitionWarehouse companies Location, operational intensity, capital investment, mode of automation,

choice of buildersVertical e-marketplaces Where is the “ship-it” button? Who’s behind it? What services are offered?Transportation e-marketplaces Moving beyond spot transactions to ASPs and value-added services, neutrality

versus alignment, market mechanisms (e.g., bidding)Logistics software application

vendorsComprehensive solutions, e-marketplace involvement, strategic partnerships,

integration with existing software

Online File W11.7 Players and Challenges in B2B Order Fulfillment

ONLINE FILE W11.6 (continued)

REFERENCES FOR ONLINE FILE W11.6Birchall, J. “Walmart to Deploy ‘Smart’ Shop Network.”

Financial Times, September 4, 2008.Hayes-Weier, M. “Sam’s Club Suppliers Required to Use

Tags or Face $2 Fee.” InformationWeek, January 21, 2008.Piasecki, D. “Warehouse Management Systems (WMS).”

InventoryOps.com, July 19, 2006. inventoryops.com/

warehouse_management_systems.htm (accessedMarch 2009).

Scherago, D. “Wal-Smart.” Retail Technology Quarterly( January 2006).

Songini, M. L. “Walmart Shifts RFID Plans.” Computer-world, February 26, 2007.

associates, as well as to check prices due to poor labeling insome cases. The future use of RFID can help the companyovercome many of these problems.

Walmart is using EC in many other applications. Forexample, the company has more than 30 million shopperseach day, which generates 800 million transactions (eachitem you buy adds one transaction regarding inventory levelsand sale volume). Walmart operates a huge data warehouseand uses business intelligence (BI) for reporting and analysispurposes.

Finally, Walmart introduces more and more innova-tions. To increase the efficiency of money flow andcustomer service, Walmart has introduced a smartnetwork (Birchall 2008).

Questions1. Why is Walmart concentrating on supply chain projects?

2. Walmart mandates RFID tags from all its largesuppliers. Why are some suppliers not in compliance?

3. Investigate the options for international customers onthe Walmart website.

4. Compare walmart.com with target.com, costco.com,kmart.com, and other direct competitors. Write a report.

5. Envision how transaction processing systems (TPSs) areused in Walmart stores. Go to Walmart and pay with acheck. How has EC improved the old way of payingwith checks?


Online File W11.8 The CPFR Process

As part of a pilot project, Wagner-Lambert (WL), now a Pfizer company, shared strategic plans, performance data, andmarket insight with Walmart. The company realized that it could benefit from Walmart’s market knowledge, just as Walmartcould benefit from WL’s product knowledge. In CPFR, trading partners collaborate on making demand forecasts. Using CPFR,WL increased its products’ shelf-fill rate (the extent to which a store’s shelves are fully stocked) from 87 percent to 98 percent, earning the company about $8 million a year in additional sales.

When implementing a CPFR process, the collaborators agree on a standard process, shown in Exhibit W11.8.1. Theprocess ends with an order forecast. CPFR provides a standard framework for collaborative planning. Retailers and vendorsdetermine the “rules of engagement,” such as how often and at what level information will be provided. Typically, theyshare greater amounts of more detailed information, such as promotion schedules and item point-of-sale history, and usestore-level expectations as the basis for all forecasts.

The idea is to improve demand forecasting for all of the partners in the supply chain and then communicateforecasts using information-sharing applications (already developed by technology companies such as Oracle and JDAsystems). For the retailer, collaborative forecasting means fewer out-of-stocks and resultant lost sales and less storedinventory. For the manufacturer, collaborative forecasting means fewer expedited shipments, optimal inventory level, andoptimally sized production runs.

Besides working together to develop production plans and forecasts for stock replenishment, suppliers and retailersalso coordinate the related logistics activities (such as shipment or warehousing) using a common language standard andnew information methodologies.

The CPFR strategy has been driven by Walmart and various benchmarking partners. After a successful pilot betweenWalmart and Warner-Lambert involving Listerine products, a VICS (Voluntary Interindustry Commerce Standards) subcommitteewas established to develop the proposed CPFR standard for the participating retailing industries (Walmart’s suppliers).

EXHIBIT W11.8.1 The CPFR Process

Company decideson participating

suppliers

Agreement onscope of

collaboration

Selection ofsupporting software

(e.g., fromJDA Software)

Develop jointly theforecasts, resolve

forecasts’ exceptions

Use result tomake inventory andscheduling decision

Determinespecific project (e.g.,

demand forecast,logistics forecast)

Examine thevalue chain


Online File W11.9 Intelligent Agents and Their Role in E-Commerce

As various chapters in the text have demonstrated, intelligent or software agents have come to play an increasinglyimportant role in EC—providing assistance with Web searches, helping consumers comparison shop, making shoppingrecommendations, matching buyers to sellers, monitoring activities, and automatically notifying users of recent events(e.g., new job openings). This section is provided for those readers who want to learn a little more about the generalfeatures and operation of software and intelligent agents in a networked world such as the Web.

Definitions and Basic ConceptsThere are several definitions of intelligent agents.

DefinitionAn intelligent agent (IA) is an autonomous entity that perceives its environment viasensors, and acts upon that environment by directing its activity toward achieving a goal(s)(i.e., acting rationally) using its actuators. The process is illustrated in Exhibit W11.9.1.Intelligent agents may also learn or use knowledge to achieve their goals. They may be verysimple or very complex: A thermostat, for example, is an intelligent agent, as is a humanbeing, as is a community of human beings working together toward a goal. Our attentionhere is directed to computer-based software agents.

Examples of IA elements include:

◗ Sensors. Eyes, nose, camera, sonar, laser range finder, search engine◗ Percepts. Electronic signals, noise level, temperature level, e-mail volume◗ Actuators. Limbs (artificial, real), digits, electronic commands◗ Actions. Move an arm (real, artificial), activate electronic command, move, close, or open switch

Types of AgentsSome definitions of intelligent agents emphasize their autonomy, and so prefer the term autonomous intelligent agents.Still others consider goal-directed behavior as the essence of intelligence and so prefer a term borrowed from economics,rational agent.

intelligent agent (IA)An autonomous entitythat perceives itsenvironment via sensors,and acts upon thatenvironment directing itsactivity toward achievinga goal(s) (i.e., actingrationally) using itsactuators.

Environment

Perceptions

ActionActionActuators

Action tobe taken

Sensors

What is the environment

like now?

Agent

Condition-action(if/then) rules

(based on a goal)

System

EXHIBIT W11.9.1 A Simple Intelligent Agent

(continued)


Online File W11.9 (continued)

(continued)

Intelligent agents in artificial intelligence are closely related to agents in economics, and versions of the intelligentagent paradigm are studied in cognitive science, ethics, and the philosophy of practical reason, as well as in manyinterdisciplinary sociocognitive modeling and computer social simulations.

Software AgentsIntelligent agents are also closely related to software agents, which are autonomous software programs that carry out tasks on behalf of users. In computer science, the termintelligent agent may be used to refer to a software agent that has some intelligence, regardlessof whether it is or is not a rational agent. For example, autonomous programs used for operatorassistance or data mining (sometimes referred to as bots) are also called intelligent agents.The two terms are often confused and used interchangeably. Note that most EC agents aresoftware agents, but several have some intelligence.

Following are the major types of software agents:

◗ Simple reflex agents. Simple reflex agents act only on the basis of the current precept. The agent’s function is basedon the condition-action rule: if condition, then action.

◗ Model-based reflex agents. Model-based agents can handle partially observable environments. Its current state isstored inside the agent, maintaining some kind of structure that describes the part of the world that cannot be seen.This behavior requires information on how the environment behaves and works.

◗ Goal-based agents. Goal-based agents are model-based agents that store information regarding situations that are desir-able. This allows the agent a way to choose among multiple possibilities, selecting the one that reaches a goal state.

◗ Utility-based agents. Goal-based agents distinguish only between goal states and nongoal states. It is possible to define a measure of how desirable a particular state is. This measure can be obtained through the use of a utilityfunction (or value function), which maps a state to a measure of the utility of the state.

Besides these essential traits, a software agent may also possess additional traits such as adaptability, mobility,sociability, and personality. Typically, these latter traits are found in more advanced research prototypes. In this section,we will consider the essential traits first.

The Essential Traits of Software AgentsThe following are the major traits of software agents.

AutonomyAutonomous software agents can perform certain tasks automatically according to the rules and inference mechanisms givenby the designer. As Maes (1995) points out, regular computer programs respond only to direct manipulation. In contrast, asoftware agent senses its environment and acts autonomously upon it. A software agent can initiate communication, monitorevents, and perform tasks without the direct intervention of humans or others. For more, see Greenwald, et al. (2003).

Autonomy implies that an agent takes initiative and exercises control over its own actions (Huhns and Buell 2002)and thus displays the following characteristics:

◗ Goal orientation. Accepts high-level requests indicating what a human wants, and is responsible for deciding how andwhere to satisfy the requests. These are referred to by Hess, et al. (2000) as homeostatic goal(s).

◗ Collaboration. Does not blindly obey commands but can modify requests, ask clarification questions, or even refuse tosatisfy certain requests.

◗ Flexibility. Actions are not scripted; the agent is able to dynamically choose which actions to invoke, and in whatsequence, in response to the state of its external environment.

◗ Self-starting. Unlike standard programs directly invoked by a user, an agent can sense changes in its environment anddecide when to act.

Autonomous agents can be resident or mobile (see Zhang, et al. 2004).

Temporal ContinuityA software agent is a program to which a user assigns a goal or task. The idea is that once a task or goal hasbeen delegated, it is up to the agent to work tirelessly in pursuit of that goal. Unlike regular computer programs

software agentsAutonomous softwareprograms that carry outtasks on behalf of users.


that terminate when processing is complete, an agent continues to run—either actively in the foreground orsleeping in the background—monitoring system events that trigger its actions. You can think of this attribute as“set and forget.”

ReactivityA software agent responds in a timely fashion to changes in its environment. This characteristic is crucial for delegationand automation. The general principle on which software agents operate is “When X happens, do Y,” where X is somesystem or network event that the agent continually monitors (Gilbert 1997).

Goal DrivenA software agent does more than simply respond to changes in its environment. An agent can accept high-level requestsspecifying the goals of a human user (or another agent) and decide how and where to satisfy the requests. In some cases,an agent can modify the goals or establish goals of its own.

Other Common TraitsSome software agents also possess other common traits.

Communication (Interactivity)Many agents are designed to interact with other agents, humans, or software programs. This is a critical ability in view ofthe narrow repertoire of any given agent. Instead of making a single agent conduct several tasks, additional agents can becreated to handle undelegated tasks. Thus, communication is necessary in these instances. Agents communicate byfollowing certain communication languages and standards, such as Agent Communication Language (ACL) and KnowledgeQuery and Manipulation Language (KQML) (see en.wikipedia.org/wiki/Agent_Communication_Language anden.wikipedia.org/wiki/Knowledge_Query_and_Manipulation_Language).

Intelligence and LearningCurrently, the majority of agents are not truly intelligent because they cannot learn; only some agents can learn. Thislearning goes beyond mere rule-based reasoning, because the agent is expected to use learning to behaveautonomously. Although many in the artificial intelligence (AI) community argue that few people want agents wholearn by “spying” on their users, the ability to learn often begins with the ability to observe users and to predict theirbehavior. One of the most common examples of learning agents is the wizards found in many commercial softwareprograms (e.g., in Microsoft Office applications). These wizards offer hints to the user based on patterns the programdetects in the user’s activities. Some of the newer Internet search engines boast intelligentagents that can learn from previous requests the user has made.

For a comprehensive discussion of these and additional characteristics, see Gudwin andQueiroz (2006).

Mobile AgentsAgents can be classified into two major categories: resident and mobile. Resident agentsstay in the computer or system and perform their tasks there. For instance, many of thewizards in software programs are designed to carry out very specific tasks while a person isusing his or her computer. Mobile agents, however, move to other systems, performing tasks there. A mobile agent can transport itself across different system architectures andplatforms. EC agents are mobile. For applications in EC and m-commerce, see Wan (2006).

Mobility. Mobility refers to the degree to which the agents themselves travel over thenetwork. Some agents are very mobile; others are not.

Mobile agents can move from one website to another and send data to and retrieve datafrom the user, who can focus on other tasks in the meantime. This can be very helpful to auser. For example, if a user wants to continuously monitor an electronic auction that takes afew days, the user essentially would have to be online continuously for days. Softwareapplications that automatically watch auctions and stocks are readily available, alerting userswhen relevant changes are being made.

Recommendation agents can improve performance by monitoring a user’s behavior afterthey provide the user with a recommendation (i.e., whether the recommendations areaccepted or not).

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resident agentsSoftware agents that stayin the computer or systemand perform their tasks.

mobile agentsSoftware agents thatmove to other systems,performing tasks there.A mobile agent cantransport itself acrossdifferent systemarchitectures andplatforms.

mobilityThe degree to which theagents themselves travelover the network. Someagents are very mobile;others are not.



Learning AgentsSoftware agents are called learning agents if they have the capacity to adapt or modify theirbehavior—that is, to learn. Simple software agents, such as e-mail agents, lack this capacity.If a simple software agent has any intelligence at all, it is found in the subroutine or methodsthat the agent uses to perform its tasks. Learning agents can act as assistants to humans.

A learning agent can modify its behavior in four ways:

1. “Look over the shoulder” of the user. An agent can continually monitor the user’sinteractions with the computer. By keeping track of the user’s actions over an extended period of time, the agent candiscern regularities or recurrent patterns and offer to correct or automate these patterns.

2. Provide direct and indirect user feedback. The user can provide the agent with negative feedback either in a director an indirect fashion. Directly, the user can tell the agent not to repeat a particular action. Indirectly, the user canneglect the advice offered by an agent and take a different course of action.

3. Learn from examples given by the user. The user can train the agent by providing it with hypothetical examples ofevents and actions that indicate how the agent should behave in similar situations.

4. Ask the agents of other users. If an agent encounters a situation for which it has no recommended plan of action,it can ask other agents what actions they would recommend for that situation.

An examples of commercial personal learning assistants is Cybelle (see agentland.com).

Multiagent SystemsAgents can communicate, cooperate, and negotiate with other agents. The basic idea of multiagent systems is that it iseasy to build an agent that has a small amount of specialized knowledge and then group several agents to create a systemwhere each agent is assigned to a simple subtask. However, in executing complex tasks that require much knowledge, itfrequently is necessary to employ several software agents in one application. These agents need to share their knowledge,otherwise the results of applying this knowledge together may fail (see en.wikipedia.org/wiki/Multiagent_system).

Multiagent Systems at WorkWith multiagent systems (MASs), no single designer stands behind all the agents. Each agent in the system may be working toward different goals, even contradictory ones. Agents eithercompete or cooperate. For example, a customer may want to place a long-distance call. Once thisinformation is known, agents representing the carriers submit bids simultaneously. The bids arecollected, and the best bid wins. In a complex system, the customer’s agent may take the processone step further by showing all bidders the offers, allowing them to rebid or negotiate.

A complex task is broken into subtasks, each of which is assigned to an agent that works onits task independently of others and is supported by a knowledge base. Acquiring and interpretinginformation is done by knowledge processing agents that use deductive and inductive methods, aswell as computations. The data are defined, interpreted, and sent to the coordinator, who trans-fers whatever is relevant to a specific user’s inquiry or need to the user interface. If no existingknowledge is available to answer an inquiry, knowledge creating and collecting agents of various types are triggered.

Of the many topics related to MASs, ones that are related to EC are negotiation, coordination, collaboration,communities of agents, and agent networking.

Example: Multiagent in E-Commerce. Consider a situation in which agents cooperate to arrange for a person’s summervacation in Hawaii. The person’s agent notifies sellers’ agents about the potential traveler’s needs for a hotel, plane tickets,and a rental car; the sellers’ agents submit bids. The person’s agent collects the bids and tries to get lower rebids. Thesellers’ agents can use rules for a negotiation. Related to negotiation is intermediation (see Bohte and La Poutre 2006).

Applications of Software and Intelligent Agents in E-Commerce In addition to applications cited in the variouschapters, or to supplement the descriptions there, we provide a comprehensive list.

◗ Mundane personal activity. In a fast-paced society, time-strapped people need new ways to minimize the time spenton routine personal tasks, such as shopping for groceries or travel planning, so that they can devote more time toprofessional and leisure activities. An agent can help in several tasks.

◗ Search and retrieval. Shoppers need to find information and then compare and analyze it. It is not possible to directlymanipulate a distributed database system containing millions of data objects for such activities. Users will have

learning agentsSoftware agents that have the capacity to adaptor modify their behavior—that is, to learn.

multiagent systems(MASs)Computer systems in whichthere is no single designerwho stands behind allthe agents; each agent inthe system can be workingtoward different, evencontradictory, goals.

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to delegate the tasks of searching and cost comparison to agents. Such agents perform the tedious, time-consuming,and repetitive tasks of searching databases, retrieving and filtering information, and delivering results back to the user.

◗ Repetitive office activity. There is a pressing need to automate tasks performed by administrative and clerical personnelin functions such as online sales, desk purchasing, or customer support in order to reduce labor costs and increase officeproductivity. Labor costs were estimated to be as much as 60 percent of the total cost of information delivery in EC.

◗ Decision support. Increased support for tasks performed by knowledge workers, especially in the decision-makingarena, is needed. Timely and knowledgeable decisions made by EC professionals greatly increase their effectiveness andthe success of their businesses in the marketplace.

◗ Domain experts. It is advisable to model costly expertise and make it widely available. Expert software agents couldmodel real-world agents such as EC consultants, EC system developers, EC site translators, EC lawyers, and so forth.

◗ Data mining. Finding patterns and relationships in data, including Web data, can be done by data mining agents, evenin real time. This is especially important in market research and personalization. For a discussion, see en.wikipedia.org/data_mining.

◗ Web and text mining. Web mining—the analysis of Web data—can be facilitated by agents that can analyze largevolumes of data very rapidly. The results can be used to improve Internet advertising and customer service.

For additional applications in e-commerce, see Turban, et al. (2011) and Chapter 13.

General Resources About Intelligent AgentsThe following are some of the best general resources on software agents:

◗ One of the best places to start is the University of Maryland’s website on intelligent agents (agents.umbc.edu). Start withAgents 101 at agents.umbc.edu/introduction. The site has downloadable papers and reports and an extensive bibliographywith abstracts (see “Publication and Presentation”).

◗ BotSpot (botspot.com) has comprehensive information about e-commerce agents and other agents. See also internet.com.◗ MIT Media Lab (search for media projects at media.mit.edu) provides a list of agent projects and much more.◗ The American Association of Artificial Intelligence provides comprehensive information about agents at aaai.org.◗ The Computer Information Center in the United Kingdom provides a comprehensive knowledge base about intelligent

agents at compinfo.co.uk/ai/intelligent_agents.htm.◗ Comprehensive knowledge bases about agents are available at agent.org and 123-bots.com.◗ Carnegie Mellon University has several agent-related programs (search for software agents at cs.cmu.edu/~softagents).◗ IBM has several agent-development projects (research.ibm.com/iagents and alphaworks.ibm.com).◗ Stanford University has several research teams developing agent technology (search for Knowledge Systems Laboratory at

stanford.edu).◗ Agentland.com is another “must” place to visit. It contains an up-to-date list of dozens of agents classified into

e-commerce and entertainment. Some of the agents and development tools can be downloaded.◗ The Computer Information Center (compinfo-center.com) facilitates collaboration and technology transfer about agent

development.◗ The University of Michigan has several agent development projects (eecs.umich.edu). An extensive list of resources also is

available at ai.eecs.umich.edu.◗ The National Research Council of Canada (nrc.ca) provides an artificial intelligence subject index for agents.◗ Botknowledge.com provides considerable information about all types of bots.◗ The Xerox Palo Alto Research Center (parc.com) provides information on software agents in general and on multiagent

systems in particular. In addition to references, articles, and application cases, you can find a list of leading vendors,some with customers’ success stories. Related intelligent systems are covered as well.

◗ Microsoft employs dozens of agents (or “wizards”) in most of its software products. For details, see Microsoft’s SMSOperations Guide (e-books.bassq.nl/Microsoft/SCCM_&_SMS/Microsoft_Systems_Management_Server_2003_Operations_Guide.pdf). With the Microsoft Agent set of software services, developers can easily enhance the user interface of theirapplications and Web pages with interactive personalities in the form of animated characters. These characters can movefreely within the computer display, speak aloud (and display text on screen), and even listen for spoken voice commands(see msagentring.org). You can download Microsoft Agent at microsoft.com/products/msagent.



Periodicals and MagazinesThe following periodicals and magazines often contain feature articles on agents and agent-related technologies:

◗ AI Magazine◗ Journal of Artificial Intelligence Research◗ Annals of Mathematics and AI◗ Expert Systems◗ IEEE Intelligent Systems

Online File W11.9 • Review Questions1. Define intelligent agents.

2. List and describe the major components of an intelligent agent.

3. Define a software agent.

4. Describe a mobile agent.

5. Define a learning agent.

6. Define multiagents and describe some of their applications.

REFERENCES FOR ONLINE FILE W11.9Bohte, S. M., and H. La Poutre. “Emergent Intelligence in

Competitive Multi-Agent Systems.” ERCIM News,January 2006.

Gilbert, D. “Intelligent Agents:The Right Information at theRight Time.” White paper, IBM, May 1997. citeseer.nj.nec.com/context/1105800/0 (no longer available online).

Greenwald, A., N. R. Jennings, and P. Stone (Eds.).“Agents and Markets.” Special issue, IEEE IntelligentSystems, November–December 2003.

Gudwin, R., and J. Queiroz. Semiotics and Intelligent SystemsDevelopment. Hershey, PA: The Idea Group, 2006.

Hess, T. J., L. P. Rees, and T. R. Rakes. “Using AutonomousSoftware Agents to Create the Next Generation DSS.”Decision Sciences, 31, no. 1 ( July 2000).

Huhns, M. N., and C. A. Buell. “Trusted Autonomy.”IEEE Internet Computing (May–July 2002).

Maes, P. “Artificial Intelligence Meets Entertainment:Life-like Autonomous Agents.” Communications of theACM (November 1995).

Turban, E., et al. Decision Support and Business IntelligenceSystems. Upper Saddle River, NJ: Prentice Hall, 2011.

Wan, Y. “Comparison-Shopping Agents and Online SmallBusiness.” In M. Khosrow-Pour (Ed.), Encyclopedia ofE-Commerce, E-Government, and Mobile Commerce.Hershey, PA: Idea Group Reference, 2006.

Zhang, N., O. Shi, M. Merabti, and R. Askwith.“AutonomousMobile Agent Based Fair Exchange.” Computer Networks(December 20, 2004).

online file w11.1 what services do customers...

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