Electronic Commerce

1Electronic Commerce (EC): A SurveyBill ParrUniversity of Tennessee2OutlineIntroductionGrowth rates for ECA brief word on B2CExtended thoughts on B2B ECBenefits and Limitations of ECConclusions and Solicitation for Input3DefinitionElectronic commerce is the process of buying and selling or exchanging of products, services, and information via computer networks including the Internet.Turban, Lee, King and Chung (2000)4Words from Jack Welch“Digitizing a company does more than just create unlimited business opportunities; it puts a small company soul into that big company body and gives it the transparency, excitement and buzz of a start-up. It is truly the elixir for GE and others who relish excitement and change. E-business is the final nail in the coffin for bureaucracy at GE.”Jack Welch, GE Annual Report 1999Check it out at http://www.ge.com/annual99/letter/letter_four.html5The growth of online commerce ($B)0100020003000400050006000700080001999200020012002200320042005USAWorldSource: Goldman, Sachs & Co. analysis and report6B2B Predicted GrowthFrom 1999 –2004:50Xper Gartner GroupIn 1997 -$10 billion of B2B transactions were conducted over the internet7B2B EC Predicted Percent of Revenue for 2003IndustryPercent in 2003Computing, electronics39.3%Motor vehicles14.7%Petrochemicals13.5%Utilities25.8%Paper/office products5.6%Shipping/warehousing17.2%Food/agriculture3.0%Source: Forrester Research, Inc. (1998)8Most bluntlyB2B EC is predicted to grow to $1,330.9 billion by 2003This means B2B EC grows from .2% of B2B in 1997 to 9.4% of B2B in 2003Source: Forrester Research, Inc. (1998)Assessment: They‟re probably being very conservative!!!9Experiences with B2C EC(briefly…)10Amazon –A Case StudyFounded July 1995Sold $15.7 million in 1996Sales of $600 million in 1998, monthly growth of 34 percent10 million titles in catalogInventories only a few thousand high-selling titles (rest handled through Ingram)11Amazon Case –results42 turns at Amazon versus 2.1 at Barnes & Noble brick and mortar stores (1996)Selling 14.2 percent cheaper than brick and mortar storesCustomer has search capability, information, customized hot lists, …Financials –continue to be problematic! Can anybody make serious money with this business model?Interesting part –the relationship with IngramPuzzle –providing and creating value without CAPTURING VALUE!12Experiences with B2B EC13What‟s B2B EC for?Electronic marketing (CISCO, Intel)Procurement Management (GE TPN)Electronic intermediaries (Boeing)Just-in-time delivery (FedEx)EDIIntranetExtranetIntegration with back-end information systems14Intel –A Case StudyProducts: microprocessors, motherboards, imbedded chips, chipsets and flash memoryEC site sales went to $1 billion per month in first month in operation in 1998SiteSelf-service extranetProcurement and customer supportReaches several hundred small/midsize business customers worldwideOrders entered manually using browsersOrder trackingProduct documentation, structured helpTarget –Companies not connected to Intel via EDI15Intel Case Study -results1999 cost savings –eliminated 45,000 faxes per quarter to Taiwan aloneIntermediaries indicate they are not threatened by Intel‟s EC initiatives“I don‟t think Intel‟s strategy is to touch 100,000 customers a day. Somebody has to stock and sell by ones and twos. Someone has to pull them and pack them the way the customer asks for them.”Earle ZuchtSenior VP, Wyle Electronics16Word from Lou Gerstner of IBM“E-business is all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage.”17Boeing Corporation1997 –Boeing Corporation reported a 20% savings after posting a request for proposal for manufacturing a subsystem on the InternetVendor from Hungary won the bid, delivered more cheaply, and delivered quicklyA more efficient market?18Using EC at CiscoCisco as a model:$20B business75% or more of manufacturing outsourced50% of orders routed to supplier who ships directGross margin: 65%; Net margin: 28%Savings in service and support from customer self-management: $500m/year19Cisco Case -BenefitsSavings in 1998 of 17.5% of operating costsTechnical support productivity up by 200 to 300%Technical support costs down by $125 million (against increasing sales)Software distribution reduced by $180 million due to customers downloading new software releases, Web-based CD-ROMs, …Check it out at http://www.cisco.com20General Electric Case Study1996 piloting of company‟s first online procurement system (Trading Process Network) at GE Lighting –http://tpn.geis.comSourcing receives requisitiong electronically from internal customers, sends off bid package to suppliers via the Internet“destroyyourbusiness.com” –January 199921General Electric Case -BenefitsLabor involved in procurement declined by 30%Materials costs declined 5 to 20%60% of staff in procurement redeployed, remainder still had six to eight days per month free for strategic activitiesTime to identify suppliers, prepare request for bid, negotiate price and award contract cut from 20.5 to 10 daysInformation shared across GE procurement departments about best suppliers22More about the GE TPN processSellers participate as follows:1. Buyers prepare bidding project information2. Buyers post bidding projects on the Internet3. Buyers invite potential suppliers4. Buyers invite suppliers to bid on projects5. Suppliers download project information from WWW6. Suppliers submit bids for projects7. Buyers evaluate suppliers‟ bids, negotiate electronically8. Buyers accept bids best meeting their requirements23Walmart Case StudyCFAR –Collaborative Forecasting and Replenishment –single short-term forecast, frozenExample link with Warner-Lambert via EDI24Classifying EC ApplicationsElectronic markets –buying and selling goods and servicesInterorganizational systems –inter and intra-organization flow of information, communication and collaborationCustomer service –providing customer assistance, information and problem resolution25From Business Week, September 200055% of UPS business is EC10% of FedEx business is ECDifference: FedEx requires use of their proprietary software!Possible lesson?26A phenomenonSmall players enter, establish viabilityBig players observe, enter and strike backExample: GE/Ford, Daimler Chrysler February announcement of online exchange for automotive parts and supplies27Trends per WSJThe B-to-B shakeout has begun, and it isn't pretty. Last year, analysts predicted there would be as many as 10,000 sites by now --ranging from real-world suppliers that offer their goods online to Internet start-ups that don't actually sell anything, just provide venues where buyers can hook up with sellers. But a recent study by Deloitte Consulting LP, a New York-based unit of Deloitte Touche Tohmatsu, puts the number of B-to-B sites at a much more humble 1,488 --and falling. Dozens of start-ups have already shut down, and analysts say that by this time next year hundreds more will have joined them. The sites faring the best are traditional suppliers that have moved online.Wall Street Journal report, October 23, 200028A question . . .Can the efficiency of capital markets be created in markets for almost everything?Bill Gates‟ notion of frictionless capitalism29Benefits of ECMinimal capital outlayReducing cost of transactionsHighly targeted marketingPull-type processing enabling customization (Dell)Cycle time reductionEnables reengineering projects30Current limitations of ECOutstanding security and reliability issuesIntegration with ERP software can be difficultUneven existence of standardsShortage of bandwidthPure in-house development of EC is difficult and can be costly24x7 availability and expectations can be brutal!31QuestionsCan ERP keep up with EC?Can a tortoise try to dance with a roadrunner?Will B2B EC work to create efficient markets at micro level, or keiretsu?Channel conflict?32Lean Enterprise Forum resources on ECWWW site: http://leanforum.bus.utk.eduLean Enterprise Forum Resource Group (info on study group)Lean Enterprise Forum Idea Exchange (general Q/A)33Still More Wisdom from Jack Welch“One cannot be tentative about this. Excuses like „channel conflict‟ or „marketing and sales aren‟t ready‟ cannot be allowed. Delay and you risk being cut out of your own market, perhaps not by traditional competitors, but by companies you never heard of 24 months ago.”Jack Welch, July 2000, Forbes Magazine34ConclusionsIt‟s already big!It‟s growing explosively!The action is in B2B!Taking time and cost out of transactions, getting information, etc…Creating incredibly efficient markets(Question: Efficiency or keiretsu???)35A solicitationWhat about EC interests you?Do you have knowledge or experience to contribute?What can we do to help?36Interesting resourcesDigital Capital, by Dan Tapscott, David Ticoll, Alex Lowry –business web phenomenonBrowse to http://www.i2.com/. Get scared. Get busy. (Check out IBM, i2, and Ariba.)Paul Timmers (1999). Electronic Commerce: Strategies and Models for Business-to-Business Tradinghttp://www.ecompany.comBusiness Week September 18, 2000 –special insert on e.biz –A Report on Electronic BusinessDeloitte and Touche report: http://www.dc.com/pdf/b2b_genesis.pdfInteresting WWW site:http://ecommerce.ncsu.edu/topics/intro/intro.html