ELECTRONIC COMMERCE AND ELECTRONIC PROCUREMENT NOTES

ELECTRONIC COMMERCE AND ELECTRONIC PROCUREMENT

While the role of the salesperson has changed considerably, there have also been significant changes in the way sales and procurement are carried out, particularly between large organizations and their suppliers. In these business-to-business (B2B) environments, the nature of electric commerce, or e-commerce, has certainly undergone a revolution in recent years.

E-commerce and B2B trading

The term ‘electronic commerce’ or e-commerce refers to any sales or trading activity that is carried out over an electronic network. Today, e-commerce is synonymous with business-to-business (B2B) trading, as opposed to its business-to-consumer (B2C) counterpart. Although the first wave of growth of e-commerce was in the B2C domain, the B2B area is between five and ten times larger.

E-commerce comes in many different flavors. For many years, electronic data interchange (EDI) allowed companies to place orders and facilitated suppliers’ sending invoices electronically. However, the growth of internet use has seen an accompanying expansion of e-commerce through this medium. No one should be misled into believing that success on the internet is guaranteed. For every success story there are hundreds of expensive e-commerce failures. Poor website design, reluctance to conduct transactions through a new medium, problems with the adoption of common standards, difficulties with the integration of back-end computer systems and security fears are all barriers that hinder the faster adoption of e-commerce consumers and businesses alike.

E-commerce can take place at four levels

Level 1: Publish

This is the provision of information to the customer electronically. It is one-way communication that may involve annual reports, press releases, information on products and services, recruitment opportunities and advertising. Sometimes referred to as Internet and IT applications in selling and sales management brochure ware’, it is little more than the establishment of an online presence and has little to do with selling.

Level 2: Interact

The next level refers to interactive engagement with the user on the internet. For example, Dell’s website provides online technical support services including email links to online technical support representatives. Again, this has little to do with sales but does provide an additional layer of functionality to the ‘publish’ level.

Level 3: Transact

The third level of e-commerce allows goods and services to be bought and sold over the internet. Reaching this level can be costly in terms of initial investment, and although operating costs should be lower than more traditional ways of conducting business, usually costs need to be driven down in other areas of the business for cost savings overall to fall.

Level 4: Integrate

The highest level of e-commerce is where integration of the computer system and processes of traders is achieved to create a strong, formalized relationship. This may involve the establishment of a business-to-business extranet which is an electronic network linking companies to their trading partners. Extranets allow partners to exchange information such as that relating to ordering, delivery and invoicing in a secure environment. For example, Mobil’s extranet allows the oil company to accept orders from 300 distributors globally.

CUSTOMER RELATIONSHIP MANAGEMENT

Customer relationship management (CRM) is a term for methodologies, technologies and e-commerce capabilities used firms to manage customer relationships.

In particular, CRM software packages aid the interaction between customer and company, enabling the firm to co-ordinate all its communications so that the customer is presented with a unified message and image. CRM vendors offer a range of IT based services including call centers, data analysis services and website management.

One basic principle behind CRM is that company personnel should have a ‘single customer view’ of each client. As customers are now using multiple channels more frequently, they may buy one product from a salesperson and another from a website. Indeed, a website may provide product information which is used to buy the product from a distributor. Interactions between customer and company may take place through a combination of some, or even all, of the following: direct sales force, call centers, websites, email and fax services or distributors. Therefore it is crucial that no matter how a customer contacts a company, front-line staff have instant access to the same data about the customer, such as their details as well as past purchases. This usually means consolidation of the many databases held individual company departments into one centralized database that can be accessed all relevant staff on a computer screen.

Although the term CRM is relatively new, the ideas and principles behind it are not. Businesses have long practiced some form of customer relationship management.

What sets present-day CRM apart is that companies now have an increased opportunity to use technology and manage one-to-one relationships with huge numbers of consumers. This is facilitated companies such as Seibel (www.seibel.com), SNT (www.snt.com) and Sales force (www.salesforce.com), which provide specialist consultancy services.

In practice, CRM projects have not always achieved their objectives. It is therefore important to take note of the following factors, which research has shown to be related to successful implementation:

  • having a customer orientation and organizing the CRM system around customers;
  • taking a single view of customers across departments and designing an integrated system so that all customer-facing staff can draw information from a common database;
  • having the ability to manage cultural change issues that arise as a result of system development and implementation;
  • involving users in the CRM design process;
  • designing the system in such a way that it can readily be changed to meet future requirements;
  • having a board-level champion of the CRM project, and commitment within each of the affected departments to the benefits of taking a single view of the customer and the need for common strategies – for example, prioritizing resources on profitable customers;
  • creating ‘quick wins’ to provide positive feedback on the project programmes;
  • ensuring face-to-face contact (rather than paper or email) between marketing and IT staff’
  • piloting the new system before full launch.

 

The role of technology in the retail industry

Some of the greatest changes in e-commerce have taken place within the field of retailing. This has major implications for the way in which business is conducted between suppliers and retailers,

The following paragraphs offer a brief insight into other applications used in the retail industry both suppliers and retailers.

Supply chain management

Much of the drive for investment being made retailers is to increase the efficacy of data relating to stock to allow efficiencies to be made in supply chain management.

Supply chain management is the concept of the provision of products from suppliers’ production lines to their sale at the retailers’ tills. Supply chain management drives profitability as it ensures retailers and suppliers are focused on ensuring the right products are available in the right quantities at the right times to meet their individual customers’ requirements. Accurate and real-time data are the enablers for this.

Retailers are increasingly aware of the benefit of having collaborative relationships with their suppliers and are now making these data available to their suppliers, usually through web-based technology such as secure intranets and extranets.

This allows the supplier to see the same data as their customers at the same time.

Production and supply are harmonized to in-store demand, facilitating the concept of demand management. This can have the mutual benefits of increased sales, fewer stock-outs and lower levels of stock required across the entire supply chain.

Retailers have taken the lead in this investment and thus now hold the balance of power in dealings with suppliers as they now possess more up-to-date and relevant real-time data than their suppliers. This obviously gives retailers a commercial advantage when negotiating with suppliers.

 Electronic point of sale (EPOS) and electronic funds transfer at point of sale (EFTPOS)

Data are captured at the moment a product’s unique barcode is scanned at the till.

Advances in technology have significantly aided the scope for data analysis. In addition to the original scanner-related data on sales rate, stock levels, stock turn, price and margin, retailers now have information about the demographics, socio-economic and lifestyle characteristics of consumers. They can also assess the impact of a whole host of variables, e.g. price, promotions, advertising, position in store, shelf position and number of facings. This information drives their choice of product mix, allocation of shelf space and promotional tactics. Some retailers also use customer loyalty cards as a means to capture data which can be analysed, allowing the retailer to engage in one-to-one marketing initiatives, e.g. information on new products and offers of discounts to retain customers.

EPOS has certainly changed the relationship between buyer and seller. Before the availability of scanner data, the trading relationship depended on information provided manufacturers from retail audits, information that was at least several weeks old. Access to more detailed, accurate and timely data from scanner systems gives the retailer significant bargaining power. Not surprisingly, information finds itself on the negotiating agenda. Manufacturers do buy EPOS data from their customers, but they can also trade the information and capabilities they have in exchange for it. Market knowledge is still the manufacturer’s forte and this national market picture is of great use to the retailer. Additionally, armed with the retailer’s EPOS data, the manufacturer could deliver well-targeted trade marketing programmes beneficial to both sides. In true trade marketing spirit, co-operation is the overall preferred approach.

EPOS depends on the inclusion of barcodes on all products to be scanned. This impacts directly on the manufacturer/supplier who should ensure that all packs carry a barcode and that the barcodes for any new line listings or promotional packs are entered into the customer’s system before any goods are shipped.

Space management systems

Maximizing the sales and profitability of selling space is critical. One of the reasons for retailers investing in supply chain management is to reduce the amount of storage space required in store, allowing sales areas to be increased. To ensure the right amount of product is kept in store and featured on the shelf, retailers use space management systems to construct virtual plannograms, which should maximize sales that can be achieved from each meter of selling space. To better understand the implications of these software packages on their products, suppliers have not only bought packages but also set up departments that specialize in space management. Opportunities exist for their proactive use manufacturers, particularly in situations where the retailer is short of resources; importantly, manufacturers can put themselves forward as produce category specialists. In the soft drinks sector, Coca-Cola Schweppes Beverages (CCSB) acts as the category specialist. A key function of the trade marketing role at CCSB is to advise the retail trade on the allocation of space to the soft drinks category in totality. An example of a software package that can accomplish this is Nielsen’s Spaceman. Recently, however, retailers have become concerned that some suppliers may use this technology to favour their products at the expense of competitors at the key point of purchase.

Direct product profitability

Maximizing the profitability of every product is critical in many areas of retailing where price figures highly in the marketing mix.

The output from direct product profitability (DPP) systems can affect retailer decisions on product stocking, store position, pricing and even trading terms demanded.

Internet and IT applications in selling and sales management

It is vital, therefore, that the manufacturer understands DPP and the extent to, and manner in which, individual retailers use it.

DPP replaces gross margin as a much more accurate measure of a product’s contribution to total company overhead costs and profit. It takes account of the fact that products differ with respect to the amount of resource they use; such as the amount of transport costs, warehouse and back-of-store space, staff handling time, share of shelf space, even head office costs. As a minimum, the manufacturer needs to be aware of how the retailer is using DPP and have sufficient expertise to question the results of the retailer’s analysis. For example, a product with low DPP may still be essential to a retailer’s success if it generates in-store customer flow, and if deleting it would lead to a loss of customers.

It can be used manufacturers and retailers to examine the costs at their individual ends of the distribution chain, and both to estimate the costs and profits in the other’s field for use in negotiation. In some instances, manufacturers have taken the lead in introducing

DPP and in doing so have capitalized on the potential gains for both sides.

Procter & Gamble claims it would modify its packaging, trading terms and other variables on the basis of DPP analysis. Proactive use of DPP manufacturers works best with actual cost data from the retailer; without this only standard retail industry data can be used. In fact, to continue a theme already begun, manufacturer–retailer co-operation in the sharing of data is the preferred strategy in order to maximize gains for both parties.

Category management

Technology also enables category management. Scanning technology delivers information

at a level of detail that allows customized merchandising strategies (tailored product assortments, space allocations, pricing, promotions, etc.) to be devised for categories or types of store. Furthermore, sophisticated computer modeling programs allow such marketing programmes to be pre-tested before they are implemented.

Retailers will best respond to those manufacturers who establish themselves as experts in the category and share their data on product sales, consumer behavior and competitor activity with them. Manufacturers can add these data to their knowledge analyze and identify significant consumer and category trends and use this to make strategic recommendations to the retailer on ranging, merchandising, products and promotions that will increase the overall profitability of the category. This, of course, presumes the adoption the manufacturer of the relevant technology and applications, but the gains to the proactive manufacturer are substantial.

 

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