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Electronic Commerce (EC): A Survey

Bill Parr

University of Tennessee

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Outline IntroductionGrowth rates for ECA brief word on B2CExtended thoughts on B2B ECBenefits and Limitations of ECConclusions and Solicitation for Input

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DefinitionElectronic 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)

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Words 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 1999

Check it out at http://www.ge.com/annual99/letter/letter_four.html

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The growth of online commerce ($B)

0

1000

2000

3000

4000

5000

6000

7000

8000

1999 2000 2001 2002 2003 2004 2005

USA

World

Source: Goldman, Sachs & Co. analysis and report

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B2B Predicted GrowthFrom 1999 – 2004:

50X

per Gartner Group

In 1997 - $10 billion of B2B transactions were conducted over the internet

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B2B EC Predicted Percent of Revenue for 2003

Industry Percent in 2003

Computing, electronics 39.3%

Motor vehicles 14.7%

Petrochemicals 13.5%

Utilities 25.8%

Paper/office products 5.6%

Shipping/warehousing 17.2%

Food/agriculture 3.0%

Source: Forrester Research, Inc. (1998)

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Most 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!!!

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Experiences with B2C EC(briefly…)

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Amazon – A Case StudyFounded July 1995Sold $15.7 million in 1996Sales of $600 million in 1998, monthly

growth of 34 percent10 million titles in catalog Inventories only a few thousand high-

selling titles (rest handled through Ingram)

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Amazon 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!

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Experiences with B2B EC

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What’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 systems

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Intel – 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 EDI

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Intel 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 Electronics

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Word 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.”

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Boeing 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?

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Using EC at CiscoCisco 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/year

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Cisco 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.com

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General 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 1999

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General 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 suppliers

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More 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 requirements

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Walmart Case StudyCFAR – Collaborative Forecasting and

Replenishment – single short-term forecast, frozen

Example link with Warner-Lambert via EDI

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Classifying 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 resolution

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From Business Week, September 2000

55% of UPS business is EC10% of FedEx business is EC

Difference: FedEx requires use of their proprietary software!

Possible lesson?

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A phenomenonSmall players enter, establish viabilityBig players observe, enter and strike back

Example: GE/ Ford, Daimler Chrysler February announcement of online exchange for automotive parts and supplies

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Trends 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, 2000

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A question . . .Can the efficiency of capital markets be

created in markets for almost everything?

Bill Gates’ notion of frictionless capitalism

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Benefits of ECMinimal capital outlayReducing cost of transactionsHighly targeted marketingPull-type processing enabling

customization (Dell)Cycle time reductionEnables reengineering projects

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Current 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!

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QuestionsCan 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?

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Lean 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)

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Still 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 Magazine

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Conclusions 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???)

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A solicitationWhat about EC interests you?Do you have knowledge or experience to

contribute?What can we do to help?

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Interesting 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