Posing New Challenges

The shift of commerce from the physical

world to the virtual world will force companies to get in sync with

ecommerce or left behind by tomorrow’s business.

Packaged software solutions



The earliest packaged solutions for EC mainly addressed commerce
activities between businesses and consumers. At that time, businesses

wanting to deploy such applications for their business-to-business

EC needs were required to add a significant amount of custom design

and programming. Newer packaged applications offer more comprehensive

solutions. 

Business-to-business EC software products

can be divided into two primary categories: buy-side and sell-side.

Buy-Side:

On the buyer’s side, multiple individuals often are involved in

the procurement process. They play various roles, including requesting

or approving the expenditure, negotiating the purchase, recording

receipt of the goods, approving the invoice, processing the payment

via check or electronic funds transfer and handling the accounting

or financial reporting. Core enterprise business systems such as

materials management, procurement, accounts payable and general

ledger are employed to document and record the various components

of the transaction life cycle.

New procurement systems from vendors

including Ariba, Commerce One, Elekom (in the process of becoming

part of Clarus), Fisher and Harbinger move routine purchasing activities

to the desktop and improve compliance with an organization’s purchasing

guidelines and policies while lowering costs. The trend is to start

by using these products to purchase maintenance, repair and operation

(MRO) materials but transition toward the organization’s major purchases

through integration with enterprise resource planning (ERP) applications.

For other types of procurement, web-based bid systems such as Digital

Market and Free Markets Online let buyers obtain the lowest prices

on requests for proposals (RFPs) and reduce costs for the process.

Buy-side solutions typically include workflow capabilities, linkages

into ERP suites and user profile analysis.

Sell-Side:

On the seller’s side, core business systems are employed to track

and record the various elements of the transaction life cycle. For

example, sellers use core business systems to describe their products

and pricing catalog, to maintain buyer information including payment

history, to track inventory and warehousing, to process and fulfill

orders and ship goods, and to record payments and generate financial

reports.

Sell-side products include catalogs,

transaction engines, payment mechanisms and supply chain management

tools. Beyond the basic services of taking orders, clearing credit and

inventory verification, software from vendors such as iCat, Netscape

and Open Market also provide catalog customization for individual

buyers, manage account information and interface with accounting

systems. Online trading exchanges such as FastParts provide a framework

for buyers and sellers to negotiate prices competitively.

Business-to-business

process examples



Both traditional EDI and newer forms of business-to-business commerce
over the internet can allow a company to save money. Savings can

result from less-expensive ways of processing transactions themselves

or by eliminating the need to receive invoices in paper from and

then manually re-key them into financial applications. They also

can allow a company to operate in a more efficient build-to-order

process by eliminating excess inventory and facilitating ‘just-in-time’

(JIT) production planning and manufacture. JIT benefits include

smaller on-hand inventories and more inventory ‘turns’ like replacements

of inventory used in orders or manufacturing. The JIT process has

been tailored to meet the needs of various industries engaged in

business-to-business EC, including:

• Quick Response
  
  (QR): Retailers can improve
  
  their profitability by increasing the number of stock turns during
  
  a season and eliminating end-of-season mark-downs. EDI enables
  
  market data gathered by point-of-sale (POS) terminals to be delivered
  
  from retailers to suppliers more quickly. Retail industry studies
  
  estimate that a fully implemented QR system returns about 5% of
  
  gross sales to the bottom line.
  
  
  
  
• Model Stock Replacement:
  
  A retailer identifies the desired level of inventory, known as
  
  ‘model stock’, for each location and provides POS data to suppliers
  
  on a daily basis. The suppliers then restock the shelves as needed.
  
  The retailer monitors the suppliers’ activities while allowing
  
  the original model stock level to be adjusted by suppliers as
  
  the volume of sales changes over time. Payments are made on delivery
  
  rather than on invoice, reducing the costs of handling payables.
  
  
  
  
• Materials Management:
  
  Materials Management uses EDI, materials requirements planning
  
  (MRP), and JIT manufacturing to reduce the level of parts inventory
  
  required. Suppliers receive planned material usage information,
  
  which allows them to deliver the right amount of suppliers just
  
  in time for use by the manufacturer.
  
  
  
  
• Efficient Customer
  
  Response (ECR): Similar
  
  to Quick Response and Model Stock Replacement but found in the
  
  grocery industry, ECR enables sales data to be transferred electronically
  
  between the supplier, the distributor and the retail store. The
  
  goal is to match product flow to consumption in a timely and accurate
  
  manner.
  
  
  
  
• Evaluated Receipt
  
  Settlement: This process
  
  eliminates the invoice from the purchase order cycle. The customer
  
  authorizes payment to the supplier upon confirmation of the arrival
  
  of goods, making the issuing of an invoice unnecessary.
  
  
  
  
• Collaborative
  
  Forecasting and Replenishment (CFAR):
  
  CFAR is a formal way for manufacturers and retailers to collaborate
  
  on estimates of future demand for products. Organizations post
  
  selected data about their sales forecasts on a common web server,
  
  which supply chain partners use to develop more accurate forecasts.
  
  CFAR affects forecasting, purchasing, inventory and logistics
  
  planning.

Business-to-consumer

EC: Prior to EC, there were

three business-to-consumer models: retail stores, direct sales,

and mail or phone order along with a later version of mail order,

television shopping:

• Retail stores:
  
  In this model, the consumer
  
  comes to a place of business (a store) and the supplier’s staff
  
  are in place, providing a physical environment in which consumers
  
  can shop and buy. Significant costs are involved in retail stores,
  
  including the physical plant, inventory, staff, advertising and
  
  so on.
  
  
  
  
• Direct sales:
  
  In this model, the supplier
  
  visits the customer’s residence. Direct sales effort by door-to-door
  
  salespeople and multilevel marketing existed prior to EC but have
  
  only a limited relationship to its evolution.
  
  
  
  
• Mail order:
  
  In this model, the supplier and customer transact business without
  
  meeting. Mail order, for example, is based on printed catalogs
  
  from which shoppers choose their products and either mail, call
  
  or fax in their orders. Mail order also can be costly, but it
  
  offers key advantages: IT is ‘open’ 24 hours per day, can reach
  
  a national or global market without the need for multiple store
  
  locations, and is highly flexible.

These retail channels all differ along

several dimensions, such as the following:

• Price and cost of delivery.
• Speed of fulfillment and guarantee
  
  of satisfaction.
• Scope of the selection.
• Purchasing content (for example,
  
  what information is present when making the decision).
• Pleasure of the shopping experience.

Traditional retail organizations are

designed to optimize different combinations of those factors, under

the constraints of the physical world. The reason some web retail

models take off and others do not is due primarily to the fact that

the web has created new models rather than that it has changed the

economics of existing methods. Thus, although it is true that business-to-consumer

EC allows stores to become virtual store-fronts that are always

open and lightly staffed or even not staffed at all, the web as

a medium offers very different possibilities from the physical world.

Advertisements on the web, for example, allow consumers to click

on them to make a purchase. This process changes the economics of

what is possible along those different dimensions by offering the

following:

• The advantages of a worldwide audience,
  
  assuming that through branding or other mechanisms businesses
  
  can draw visitors to their web site.
• Theoretically unlimited selection
  
  from a database–freed from the constraints of floor space, printed
  
  space and cost of a catalog or minutes of television air time.
• Intermediaries and aggregators now
  
  sometimes referred to as ‘portals’ that provide detailed product
  
  information and context, and simultaneous access to many sites.
• Lowered risk and barriers to entry
  
  for fun or exciting purchase experiences, such as online auctions.
• Highly targeted marketing that presents
  
  each consumer with a timely and appropriate offer, before shopping
  
  has even begun.

Business-to-consumer EC can lower the

cost of traditional retail operations dramatically. Although initially

the focus was on the transition of traditional business models such

as catalog sales to the internet, the more interesting events are

the evolution of new business models that fit the requirements of

the consumer.

For example, mass marketing is moving

to a focus on targeted customer segments. In addition, newer business

models are developing such as product aggregators, auction sites

or service providers. In other words, specialized forms of business

are emerging that fit the business’ market objectives by responding

to the needs of targeted customers. Today, most online business-to-consumer

transactions are conducted using credit cards.

Business-to-consumer

process examples: EC providers

aiming to serve consumers must provide ways for them to shop, buy

and obtain customer service. The shopping process should enable

shoppers to find a ‘store', find the types of products they want

to purchase, learn more about a particular product and evaluate

alternatives before purchasing. The buying process involves the

buyers actually placing an order and arranging to pay. The customer

service process begins after the purchase and includes order and

shipment tracking, returns and problem resolution, customer questions

and the increasingly important issue of managing customer information.

The challenge for this type of EC is

marketing: attracting, selling to and retaining customers. Depending

on a company’s business objectives and resources, the cost of building

and maintaining a website for online EC can range from less than

$100,000 to more than $2 million.

A typical website runs off a commerce

server, which presents products to customers and allows them to

shop–with a transaction processing engine or service in the background

to process the actual orders in real time. Product configuration

tools allow customers to build orders for component-based products

such as PCs and a database integrated with the merchant server stores

information about the products for sale and the consumers who are

purchasing them. Consumers provide payment information using a browser

over an encrypted Secure Sockets Layer (SSL) connections so creditcard

numbers and other order information cannot be intercepted. The browser

also may be integrated with an electronic wallet, which stores information

about consumers (such as an X.509 digital certificate) and their

available forms of payment as well as information about the orders

themselves.

Retail:

EC likely will have a strong impact on the retail sector, with the

emergence of new types of online virtual stores set up specifically

to sell via the web. Online vendors of flowers, books, cars, music,

computers, software and even grocery items have been making inroads

into traditional retailing by specializing in unusual or rare product

lines, customized services or aggressive pricing. Electronic retail

purchasing also facilitates tracking of customer buying patterns,

enabling sellers to target advertising and information on the basis

of stated preferences. Probably the most well-known electronic retailer

is the internet bookseller Amazon.com.

Catalog:

Despite the success of specialized retailing, many electronic shopping

malls and online catalog sites have been less successful for the

reasons discussed previously. New models being tried by mega stores

or malls offer a wide array of products and provide one-stop shopping.

However, the processes of locating a particular product, evaluating

alternatives and negotiating prices online still need to be improved.

Some of the emerging models referred to as ‘portals’ are offering

improved search methods to help consumers locate products or information

more quickly, but the comparison shopping and price negotiation

issues remain.

Aggregator:

At the same time, websites specializing in particular products are

evolving to address niche audiences. Such sites operate without

inventory, merely placing orders for customers with an array of

suppliers willing to negotiate on price in response to a specific

offer. These sites enable customers to search among items such as

airline tickets, wine and even automobiles to find the best price

and the best services, or other specific requirements. Travelocity.com

and Priceline.com are examples of aggregators that help customers

locate bargain air fares and vacation packages.

Auction:

Online auctions increasingly are becoming popular and offer alternatives

to traditional retail business models. These sites typically bring

together sellers and buyers in an auction that capitalizes on the

internet’s strengths of real-time communication and interaction:

users can see and respond to one another’s bid seconds after they

are placed. In addition to buyers placing bids, these sites attract

many people who just watch the auctions. For example, eBay.com and

Onsale.com each offer a range of products including antiques and

collectibles, photographic equipment, consumer electronics, sports

equipment, computers and peripherals, and toys to the highest bidder.

Specialty:

These sites tend to focus on those specific services– making investments

or booking airline tickets, for example–consumers may find more

convenient to accomplish online on a personalized timetable according

to individual needs.

Electronic

commerce servers