The SolutionM & S realized that survival in the digital era dependson the use of information technology in general andelectronic commerce in particular. Electronic commerce(EC, e-commerce) is the process of buying, selling,transferring, or exchanging products, services, and/orinformation via electronic networks and computers. M & Sinitiated several EC initiatives, including the following:

• Selling online. Like many other retailers, M & S sellssome of its merchandise online. Shoppers can collecttheir merchandise in a “shopping basket,” pay online,and receive the merchandise the next day (in the UK).Online shoppers are encouraged to provide a UPC codein order to get the same product they see at a physicalstore, frequently at a lower price.

• Security. A security system tracks transaction data inreal time, looking for fraudulent events. If any fraudu-lent events are discovered, the system alerts the in-store security staff in the affected store by sendingthem a short text message via cell phone.

• Warehouse management. A mainframe-based ware-house management system, known as the Multi-UserWarehouse System (MUWS), was installed first at M & S’sHardwick distribution center near Birmingham. UsingMicrosoft.Net infrastructure, store sales are reported to adata warehouse (a repository of corporate data), almostin real time. The data are then available for decisionmaking on inventory replenishment (when and howmuch to ship to each store). The data are also available

to the company’s third-party logistics service providers,who run the warehouse operation and deliveries.

• Merchandise receiving. The process of matchingorders and invoices is automated, making it faster andfree of errors. Information about arriving goods ispassed automatically to both the warehouse and thestores. This way MUWS can do a real-time check ofarriving and available stock. Also, the system enablesM & S to pay suppliers more quickly, which makes themhappier and more cooperative.

• Inventory control. The warehouse management andthe merchandise receiving system, in addition to thereal-time data reporting, improve customer relation-ships. Customers can find what they want becausereplenishment is accomplished quickly (sometimeswithin 30 minutes).

• Speeding up the supply of fashion garments. Usingspecial software, merchandisers can access and changeallocation plans from any computing device (PC,laptop, pocket PC) anywhere and at any time inresponse to changing demand patterns. This is espe-cially important for fashion garments, where meetingever-changing demand is critical for competitiveness.

• Collaborative commerce. M & S can now pass moreaccurate forecast demands to its suppliers for fast deliv-ery of goods, often directly to the M & S retail stores.The new information system enables M & S to work withsuppliers to reroute merchandise to different depots andchange allocations to where they are needed.

The ResultsM & S’s CEO, in a message to the shareholders (summer2002), indicated that a turnaround is underway. He sees

M & S as a leader and example setter in retailing, resultingin increased profitability and growth.

ONLINE FILE W1.1MARKS & SPENCER—A NEW WAY TO COMPETE

The ProblemMarks & Spencer (marksandspencer.com) is a UK-based, upscale, global retailer known for its high-quality, high-priced merchandise.Operating in more than 30 countries, the company faces stiff competition, especially since the beginning of the economic slowdownthat started in 1999. Customer service became a critical success factor for Marks & Spencer. Other critical success factors included anappropriate store inventory system and efficient supply chain activities. To attract shoppers, the company had to reduce prices at itsstores, which drastically reduced profits. Several other big retailers were wrestling with similar problems, including Kmart, which hadto file for bankruptcy. Will Marks & Spencer (M & S), a world-class retailer, be able to survive?

Questions

1. List the business models used by M & S.

2. List the different EC transaction types used by M & S.

3. List some of the benefits M & S derives from EC.

4. Relate this case to supply chain management improvements.

2 Part 1: Introduction to E-Commerce and E-Marketplaces

REFERENCES FOR ONLINE FILE W1.1Hayward, C. “M & S Reveals Survival Secrets: Vandevelde

Cites a Mix of Short- and Long-Term Moves.” FinancialManagement (UK), July 2002.

Marksandspencer.com. marksandspencer.com (accessedSeptember 2006).

Ody, P. “Demand Reality.” Retail Work, October 2002.

Chapter One: Overview of Electronic Commerce 3

ONLINE FILE W1.2

E-COMMERCE SUPPORTS FIELD EMPLOYEESAT MAYBELLINEThe ProblemMaybelline is a leader in color cosmetic products (eye shadow,mascara, etc.), selling them in more than 70 countriesworldwide. The company uses hundreds of salespeople(field merchandising representatives, or “reps”), who visitdrugstores, discount stores, supermarkets, and cosmetics spe-cialty stores to close business deals. This method of sellinghas proven to be fairly effective, and it is used by hundredsof other manufacturers in various industries (e.g., Kodak,Nabisco, and Procter & Gamble). In all cases of field selling,it is necessary for the selling company to know, as quicklyas possible, when a deal has been closed or if there is anyproblem with the customer.

Information technology has been used extensively tosupport field reps. Until 2000, Maybelline, as well as manyother large consumer product manufacturers, such as Kodak,equipped their reps with interactive voice response (IVR)systems that enabled reps to enter information about theirdaily activities every evening.

With the IVR system, the Maybelline reps completedpaper-based surveys for each store they visited. The reps notedhow each product was displayed, how much stock was avail-able, how items were promoted, and so on. In addition to theirown company’s products, the reps surveyed the competitors’products. In the evening, the reps translated the data from theforms into answers that were then entered into the IVR. TheIVR asked the reps routine questions, and the reps answered bypressing the appropriate telephone keys. The system hadproblems: Frequently, reps were late in reporting. Even if theywere on time, information was inflexible, because the reportswere all menu driven. The system also consolidated informa-tion, bundling and delivering it to top management as hardcopy. Unfortunately, these reports sometimes reached top man-agement days or weeks too late, missing important changes intrends and the opportunities to act on them in time.

Another problem was the system’s inflexibility. Thereps answered only the specific questions that applied to asituation. To do so, they had to wade through more than50 questions, skipping the irrelevant ones. This was a wasteof time. In addition, some of the material that needed to bereported had no matching menu questions. Considered asuccess in the 1990s, the IVR system was unable to meet theneeds of the twenty-first century. It was too cumbersome toset up and operate and was also prone to input errors.

The SolutionMaybelline equipped its reps with a mobile system fromthe MEI Group (formerly Thinque Corp.) (meicpg.com),called Merchandising Sales Portfolio (MSP). It runs onhandheld, pen-based PDAs (from NEC) that are powered byMicrosoft’s CE operating system. The MSP system enablesthe reps to enter their reports in handwriting directly fromthe clients’ sites. From the handheld device, data can auto-matically be uploaded to a Microsoft SQL Server databaseat corporate headquarters every evening by accessing thecorporate intranet via a secure Internet connection (a synchronization process). It also enables district

managers to send daily schedules and other importantinformation electronically to each rep.

The system also replaced some of the function ofMaybelline’s EDI system, a source of pride of the 1990s.For example, the reps’ reports now include inventory-scanneddata from retail stores. These are processed quickly by anorder management system and passed whenever needed tothe shipment department for inventory replenishment.

In addition to routine information, the new system is usedfor decision support. It is not enough to speed informationalong the supply chain; managers need to know the reasonswhy certain products are selling well, or not so well, in everylocation. They need to know the conditions at retail stores thataffect the sales of each product, and they need to know it in atimely manner. The new system offers that capability.

The ResultsThe MSP system provided Maybelline with an interactive link tothe mobile field force. Corporate planners and decision makerscan now respond much more quickly to situations that needattention. The solution is helping the company forge strongerties with its retailers. It also considerably reduces the amountof after-hours time that the reps spend on data transfer toheadquarters—from 30 to 50 minutes per day to mere seconds.

The new system also performs market analyses that enablemanagers to optimize merchandising and customer-serviceefforts. It also enables Maybelline to use a more sophisticatedIVR unit to capture data for special situations. Moreover, itprovides browser-based reporting tools that enable managers,regardless of where they are, to view retail information withinhours of its capture. Thanks to the error-checking and valida-tion feature in the MSP system, there are significantly fewerdata-entry errors (because no rekeying is needed).

Finally, the quality of life of Maybelline reps has beengreatly improved. Not only do they save 30 to 40 minutes perday, but their stress level and anxiety due to the possibilityof making errors has been significantly reduced. As a result,employee turnover has declined appreciably, saving moneyfor the company.

Questions1. IVR systems are still popular. What advantages do they

have over systems that require reps to mail or faxreports?

2. Explain why the MSP application is an e-commerceapplication. Compare it with the definitions and classi-fications in the chapter.

3. The existing technology enables transmission of dataany time an employee can access the Internet with aPC. Technically, the system can be enhanced so thatthe data can be sent wirelessly from any location assoon as it is entered. Would you recommend such awireless system to Maybelline? Why or why not?

4. Summarize the advantages of the new MSP system overthe IVR.

4 Part 1: Introduction to E-Commerce and E-Marketplaces

REFERENCES FOR ONLINE FILE W1.2Microsoft Corp. Case “Industry Solutions—Maybelline.”

microsoft.com/resources/casestudies (accessed May2002).

Seeley, R., “Wireless Storm Brewing?” Atmag.com, February 1,2002. adtmag.com/article.aspx?id=6011&&page=(accessed May 2006).

ONLINE FILE W1.3

VOICE-BASED 511 TRAVELER INFORMATION LINETellme Networks, Inc. (tellme.com) developed the first voice-activated 511 traveler information line in Utah, setting anational example for future 511 services to be launched byDepartment of Transportation (DOT) agencies on a state-by-state basis in the United States. The 511 service debuted onDecember 18, 2001. Simply by using their voices, callers onregular or cell phones within the state of Utah are now ableto request and get real-time information on traffic, road con-ditions, public transportation, and so on. The answers aregenerated from the Internet and participating databases anddelivered by voice.

In July 2000, the U.S. Federal CommunicationsCommission (FCC) officially allocated 511 as the singlenationwide number for traveler information, in the same waycallers can dial 411 for directory assistance and 911 foremergency services. Previously, state governments and localtransportation agencies used more than 300 local telephonenumbers nationwide to provide traffic and traveler informa-tion. Now travelers can use one number to access travelinformation whether they are touring the country or simplydriving home from work. The Utah 511 travel information lineis provided as a free service by the Utah DOT.

During the February 2002 Olympic Winter Games, callerswere able to request event schedules, driving directions, up-to-the-minute news and announcements, and tips foravoiding traffic congestion. “The phone is the ideal mediumto make government services available and accessible to thegeneral public,” said Greg O’Connell, Director of Public SectorOperations at Tellme. “511 is a new wave in public informa-tion access” (quoted at tellme.com).

The 511 application is a special use of voice portals(see Chapter 9), which enable users to access the Webfrom any telephone by voice. Martin Knopp, Director ofIntelligent Transportation Systems, Utah DOT, said, “As thenational 511 working group has stipulated, voice recogni-tion is the way for callers to access information on 511 . . .In addition, there was no up-front capital cost and we wereable to leverage the same information and investment wehad made in our regular Web infrastructure” (quoted bySinger 2001).

Tellme Networks is revolutionizing how people andbusinesses use the telephone by fundamentally improvingthe caller’s experience with Internet and voice technologies.Tellme enables businesses and governments to empowertheir callers while slashing costs and complexity.

By May 2006, 28 systems in 24 states made 511 available to 93 million Americans. Since its inceptionin 2001, over 50 million calls have been placed (Deploy511.org 2006).

Questions1. Is this G2B or G2C? Explain.

2. Visit tellme.com and deploy511.org and find more infor-mation about this case. Summarize the benefits of 511to the users.

3. What is the role of Tellme? What Internet technology isused?

REFERENCES FOR ONLINE FILE W1.3Deploy511.org. “ 511 Fact Sheet Brochure.” deploy511.org/

docs/511%20Fact%20Sheet%20Brochure%202006.pdf(accessed September 2006).

Singer, M. “Tell Me: The 511 in Utah.” Silicon ValleyInternet.com, December 18, 2001. siliconvalley.

internet.com/news/article.php/3531_942671 (accessedSeptember 2006).

Tellme.com. tellme.com (accessed September 2006).

Chapter One: Overview of Electronic Commerce 5

ONLINE FILE W1.4

THE SUCCESS STORY OF CAMPUSFOOD.COMCampusfood.com’s recipe for success was a simple one:Provide interactive menus to college students, using thepower of the Internet to replace and/or facilitate the tradi-tional telephone ordering of meals. Launched at theUniversity of Pennsylvania (Penn), the company takesthousands of orders each month for local restaurants,bringing pizzas, hoagies, and wings to the Penn communityand to dozens of other universities.

Founder Michael Saunders began developing the site(campusfood.com) in 1997 while he was a junior at Penn.With the help of some classmates, Saunders launched the sitein 1998. After graduation, he began building the company’scustomer base. This involved expanding to other universities,attracting students, and generating a list of restaurants fromwhich students could order food for delivery. Currently, someof these activities are outsourced to a marketing firm,enabling the addition of dozens of schools nationwide. In2004, the company served 200 schools linked to over 1,000restaurants.

Financed through private investors, friends, and familymembers, the site was built on an investment of less than$1 million. (For comparison, another company with services alsoreaching the college-student market invested $100 million.)Campusfood.com’s revenue is generated through transactionfees—the site takes a 5 percent commission on each order fromthe sellers (the restaurants).

When you visit Campusfood.com, you can:

◗ Navigate through a list of local restaurants, their hours ofoperation, addresses, phone numbers, and other information.

◗ Browse an interactive menu. The company takes a restau-rant’s standard print menu and converts it to an electronicmenu that lists every topping, every special, and everydrink offered, along with the latest prices.

◗ Bypass “busy” telephone signals to place an order online,and in so doing, avoid miscommunications.

◗ Get access to special foods, promotions, and restaurant give-aways. The company is working to set up meal deals that areavailable online exclusively for Campusfood.com customers.

◗ Arrange for electronic payment for an order.

University students who signed up at Titan Poker with aspecial bonus code provided by Campusfood.com were eligi-ble to play in a series of exclusive online poker tournaments(in April 2006). Winners received special Campusfood Cashcoupons valued at $20,000, redeemable for food orders atparticipating restaurants.

Questions1. Classify this application by EC transaction type.

2. Explain the benefits of Campusfood.com for its studentcustomers and for the restaurants it represents.

3. Trace the flow of digitized information in this venture.

4. How does the outsourcing of the marketing activitiescontribute to the business?

5. What is the benefit of the Titan Poker contest to thecompany?

REFERENCES FOR ONLINE FILE W1.4Campusfood.com. campusfood.com (accessed August 2006).eMediaWire. “Titan Poker Teams Up With Campusfood

for Tournaments Aimed at College Students.”February 16, 2006. emediawire.com/releases/2006/2/emw346598.htm (accessed August 2006).

Prince, M. “Easy Doesn’t Do It.” Wall Street Journal,July 17, 2000.

6 Part 1: Introduction to E-Commerce and E-Marketplaces

ONLINE FILE W1.5

ORGANIZATIONAL RESPONSESStrategic Systems. Strategic systems provide organizationswith strategic advantages, enabling them to increase theirmarket share, better negotiate with their suppliers, or pre-vent competitors from entering into their territory. There area variety of EC-supported strategic systems. One example isFedEx’s tracking system, which allows FedEx to identify thestatus of every individual package, anywhere in the system.Most of FedEx’s competitors have already copied the FedExsystem. In response, FedEx has been forced to continuouslyintroduce EC innovations, but so are its competitors, espe-cially UPS.

Agile Systems. Agile organizations have the ability to con-sistently improve productivity—especially during periods ofchange. To create business agility, organizations use ITin general and EC in particular. The solution provided by ECenables capitalizing on changing industry, government,and business requirements; assimilating required resourcesand business processes quickly to meet demand; promptlyadapting technology to fit new or modified businessprocesses; leveraging existing resources to do the above;and doing it all economically.

Continuous Improvement Efforts and Business ProcessRestructuring and Management. Many companies continu-ously conduct programs to improve their productivity, quality,and customer service. Two examples of how EC can help areDell and Intel. Dell takes its orders electronically and imme-diately moves them via enterprise resource planning (ERP)software (see Online Tutorial T1) into the just-in-time assem-bly operation. Using an almost real-time extranet-basedmonitoring system, Intel tracks the consumption of itsproducts by a dozen of its largest customers in order to planproduction schedules and deliveries.

However, continuous improvement programs may not bea sufficient solution for some business problems. Strong busi-ness pressures may require a radical structural change. Suchan effort is referred to as business process restructuring orreengineering (BPR). E-commerce is frequently interrelatedwith process restructuring that may be needed for implemen-tation of EC initiatives such as e-procurement.

Customer and Partner Relationship Management. One ofthe major symptoms of the digital revolution is that the bar-gaining power of customers is stronger than ever, and thatpower is growing. The availability of information and theability to make quick comparisons online (e.g., froogle.com)increases this trend. Customers are called “kings” and“queens,” and organizations must make their customershappy in order to keep them. As discussed in Chapter 13 andin Online File W1.6, this may be accomplished throughcustomer relationship management (CRM).

EC is not just about buying and selling. SupportingCRM, as we will see throughout the book, and especially inChapter 13, is a major function of EC. Such support is doneby multiple technologies, ranging from computerized callcenters to intelligent agents. Some of the e-CRM topicshighlighted in this book are sales-force automation, call

center tools and operations, personalization, empowermentof customers and frontline employees, support of mobileemployees, and partner relationship management.

Business Alliances. Many companies realize that allianceswith other companies, even competitors, can be beneficial.For example, General Motors, Ford, and others in the automo-tive industry created a huge B2B e-marketplace calledCovisint (see Chapter 6). Other types of business alliancesinclude resource-sharing partnerships, permanentsupplier–company relationships, and joint design andresearch efforts. For additional details, see Chapter 14.

Electronic Markets. Electronic markets, private or public,can optimize trading efficiency, enabling their members tocompete globally. Most electronic markets require the collab-oration of different companies, sometimes even competitors,as will be shown in Chapters 6 and 7.

Reductions in Cycle Time and Time-to-Market. Cycle timereduction—shortening the time it takes for a business tocomplete a productive activity from its beginning to end—isextremely important for increasing productivity and competi-tiveness. Similarly, reducing the time from the inception ofan idea to its implementation (time-to-market) is important,because those who are first on the market with a product orwho can provide customers with a service faster than theircompetitors enjoy a distinct competitive advantage.Extranet-based applications can expedite the various steps inthe process of product or service development, testing, andimplementation. Examples of EC-supported cycle timereduction are described in Online File 1.8.

Empowerment of Employees. Giving employees theauthority to act and make decisions on their own is a strat-egy used by many organizations as part of productivityimprovement programs. Management delegates authority toindividuals or teams who can then execute the work fasterand with fewer delays. Empowerment of employees mayalso be part of e-CRM. Empowered salespeople and customerservice employees are given the authority to make customershappy and do it quickly, helping to increase customer loyalty.EC allows the decentralization of decision making andauthority via empowerment and distributed systems, butsimultaneously supports a centralized control. Empowermentcan also be achieved by using automated decision systems(see Davenport 2006).

Supply Chain Improvements. EC, as is shown throughoutthe book, and especially in Chapters 7 and 13 andOnline Tutorial T1, can help reduce supply chain delays,reduce inventories, and eliminate other inefficiencies. Theuse of e-supply chain models to automate factory scheduling,which reduces response time and inventory management,was shown in the Dell opening case.

Mass Customization: Make-to-Order in Large Quantities.Today’s customers demand customized products and services;the business problem is how to provide customization and

Chapter One: Overview of Electronic Commerce 7

do it efficiently. This can be done, in part, by changingmanufacturing processes from mass production to mass cus-tomization (Anderson 2002). In mass production, a companyproduces a large quantity of identical items. In mass cus-tomization, items are produced in a large quantity but arecustomized to fit the desires of each customer. EC is anideal facilitator of mass customization, for example, byenabling interactive communication between buyers anddesigners so customers can quickly and correctly configurethe products they want. Also, orders placed online can reachproduction facilities in minutes. Note that mass customiza-tion is not easy to achieve; however, EC can help. Mass cus-tomization requires a build-to-order process, as described inAppendix 2A in Chapter 2.

Intrabusiness: From Sales Force Automationto Inventory Control. One area where EC has made majorprogress in supporting organizational responses is applica-tions inside the business. As shown in Online File W1.1on Marks & Spencer and in the Maybelline Case (OnlineFile W1.2), support can be provided to field represen-tatives, warehouse employees, designers, researchers,and office workers. The improvements in productivity

for these kinds of employees were fairly slow until theintroduction of EC.

Knowledge Management. Knowledge management (KM)refers to the process of creating or capturing knowledge,storing and protecting it, updating and maintaining it, andusing it whenever necessary. Knowledge management programsand software are frequently associated with EC. For example,knowledge is delivered via corporate portals to assist usersor to teach employees. Also, EC implementation requiresknowledge, and EC activities such as market research createknowledge. For more on the EC–KM connection, see Chapter 8.

Questions1. List the major business pressures faced by organizations

today.

2. List the major organizational responses to businesspressures.

3. Describe how EC supports organizational responses tobusiness pressures.

4. Describe an agile organization.

REFERENCES FOR ONLINE FILE W1.5Anderson, D. Build-to-Order and Mass Customization.

Los Angeles: CIM Press, 2002.Davenport, T. H., “Competing on Analytics,” Harvard

Business Review, January 2006.

8 Part 1: Introduction to E-Commerce and E-Marketplaces

REFERENCES FOR ONLINE FILE W1.6Greenberg, P. CRM at the Speed of Light: Capturing and

Keeping Customers in Internet Real Time, 3d ed. NewYork: McGraw-Hill, 2004.

Newman, D. “Closing the CRM Loop Through CustomerData Integration.” DMReview, March 24, 2005.

Wikipedia.“Customer Relationship Management.”September 7,2006. en.wikipedia.org/wiki/Customer_Relationship_Management (accessed September 2006).

The topic of customer relationship management (CRM) has been closely related to EC since 1997, when EC and CRM were puttogether for the first time as e-CRM. CRM has many definitions (Greenberg 2004). A panel of CRM experts, working withCRMGuru.com, defined CRM as follows:

CRM is a business strategy to select and manage customers to optimize long-term value. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes. CRMapplications can enable effective Customer Relationship Management, provided that an enterprise has the rightleadership, strategy, and culture.

CRM is a diversified field that can be divided into the following areas (Greenberg 2004; Wikipedia 2006; Newman 2005):

◗ Operational CRM. Operational CRM is used for typical business functions involving customer services, order management,invoice/billing, or sales and marketing automation and management. It involves integration with all the functional areas, fre-quently via ERP. EC transactions are closely related to operational CRM.

◗ Analytical CRM. Analytical CRM involves the capture, storage, extraction, processing, interpretation, and reporting of customerdata to a user. Then, these data can be analyzed as needed. E-commerce can be closely related to analytical CRM. For example,personalization of data required for one-to-one advertisement, a part of CRM, is done with EC tools.

◗ Collaborative CRM. Collaborative CRM deals with all the necessary communication, coordination, and collaboration betweenvendors and customers. E-commerce tools, such as corporate portals, are very useful in supporting this type of CRM.

Online File W1.6 E-Commerce and CRM

Chapter One: Overview of Electronic Commerce 9

ONLINE FILE W1.7

THE INTERNET AND THE INTRANET SHORTEN TIME-TO-MARKET FOR NEW PRODUCTS AND SERVICESThe Federal Drug Administration (FDA) must be extremelycareful in approving new drugs. However, the FDA is underpublic pressure to approve new drugs quickly, especiallythose for cancer and HIV. The problem is that to ensure qual-ity, the FDA requires companies to conduct extensiveresearch and clinical testing. The development programs forsuch research and testing require 300,000 to 500,000 pagesof documentation for each new drug. The subsequent resultsand analyses are reported on 100,000 to 200,000 additionalpages. These pages are then reviewed by the FDA prior toapproval of a new drug. Manual processing of this informa-tion significantly slows the work of the FDA, so that the totalapproval process takes 6 to 10 years.

A software program offered a computerized solution.The software used a network-distributed document-processing system that enabled the pharmaceutical companyto scan all related documents into a database. The docu-ments were indexed and full-text search and retrievalsoftware was attached to the system. Using keywords,corporate employees could search the database via theircompany’s intranet. The database was also accessible, viathe Internet, to FDA employees, who no longer had to spendhours looking for a specific piece of data. Information couldbe processed or printed at the user’s desktop computer.These functions enabled the U.S. government to offer anelectronic submission and online review process for approvalof new drugs ( fda.gov/cder).

This system helped not only the FDA but also the com-panies’ researchers, who suddenly had every piece of requiredinformation at their fingertips. Remote corporate and busi-ness partners also could access the system. The overall resultwas that the time-to-market of a new drug could be reducedby up to a year. Each week saved translates into the savingof many lives and also yields up to $1 million in profits. Thesystem also reduced the time it took to patent a new drug.

An example of an interesting use of this technology isthe case of ISIS Pharmaceuticals, Inc. (isispharm.com), whichdeveloped an extranet-based system similar to the onedescribed here. The company uses DVDs to submit reports tothe FDA and opens its intranet to FDA personnel. This stepalone could save 6 to 12 months from the average 15-monthreview time. Simply by submitting an FDA report electroni-cally, the company can save 1 month of review time. To cuttime even further, SmithKline Beecham Corporation is using

electronic publishing and hypertext links to enable FDAreviewers to quickly navigate its submissions.

Entelos (entelos.com), a biotechnology firm, uses com-puter software to simulate the behavior of the human bodyand predict its response to various drugs. Pharmaceuticalcompanies approach Entelos with ideas for new drugs,and Entelos simulates the drug’s effect on hundreds of“patients” who take the medication in hundreds of differentcircumstances. Each trial can involve up to 13,000 simula-tions. To handle this processing load, Entelos uses gridcomputing to use processing power from 145 differentmachines spread across its offices. Simulations that usedto take 2 years on a mainframe now take 1 month on thegrid (Metz 2003).

The sports apparel company Fila uses data managementand collaboration software to reduce time-to-market andproduct costs while improving product quality and informa-tion exchange. The solution enabled Fila to better manageand control access to product data and images throughout itssupply chain. The software also helps Fila gain greater trans-parency and collaboration in its product developmentprocess, a higher level of product analysis, and a better focuson delivering the right Fila product to the consumer. Forfurther details, see Anonymous (2005).

Caterpillar, Inc., connects its engineering and manufac-turing divisions with its suppliers, customers, and overseasfactories via an extranet-based global collaboration system(Chapters 6 and 7). Requests for improved design flow areavailable electronically to engineering and other relateddepartments. Cycle time is 70 percent shorter, and there arefewer delays. General Motors and other car manufacturersare using EC tools to cut time-to-market by more than65 percent.

Finally, the Denver Museum of Nature and Sciencereduced delivery time of requested information and imagesfrom days to minutes using several EC tools.

Questions1. How does the computerized drug application system

facilitate collaboration?

2. How are cycle time and time-to-market reduced in eachof these applications?

10 Part 1: Introduction to E-Commerce and E-Marketplaces

REFERENCES FOR ONLINE FILE W1.7Anonymous. “FILA Selects PTC Retail.” Time-Compression

Magazine, Nov.–Dec. 2005.Folio. “SmithKline Beecham Streamlines Its Drug Approval

Process.” folio.de/aktuell/IN300797.htm (no longeravailable online).

Metz, C. “Grid Computing: Case Study—Entelos.” PCMagazine, January 1, 2003.

Online File W1.8 Benefits of EC

Benefits to OrganizationsEC’s benefits to organizations are as follows.

Global Reach. EC expands the marketplace to national and international markets. With minimal capital outlay, a company caneasily and quickly locate the best suppliers, more customers, and the most suitable business partners worldwide. Expanding thebase of customers and suppliers enables organizations to buy cheaper and sell more.

Cost Reduction. EC decreases the cost of creating, processing, distributing, storing, and retrieving paper-based information.High printing and mailing costs are lowered or eliminated. Examples of potential cost reductions are provided in Online File W1.9.

Supply-Chain Improvements. Supply-chain inefficiencies, such as excessive inventories and delivery delays, can be minimizedwith EC. For example, by building autos to order instead of for dealers’ showrooms, the automotive industry is expecting to savetens of billions of dollars annually just from inventory reduction.

Extended Hours: 24/7/365. The business is always open on the Web, with no overtime or other extra costs.

Customization. Pull-type production (build-to-order) allows for inexpensive customization of products and services andprovides a competitive advantage for companies that implement this strategy.

New Business Models. EC allows for many innovative business models that provide strategic advantages and/or increaseprofits. Combining group purchasing (Chapter 5) with reverse auctions is one example of an innovative business model.

Vendors’ Specialization. EC allows for a high degree of specialization that is not economically feasible in the physical world.For example, a store that sells only dog toys (dogtoys.com) can operate in cyberspace, but in the physical world such a storewould not have enough customers.

Rapid Time-to-Market. EC reduces the time between the inception of an idea and its commercialization due to improvedcommunication and collaboration.

Lower Communication Costs. EC lowers telecommunication costs—the Internet is much cheaper than VANs.

Efficient Procurement. EC enables efficient e-procurement that can reduce administrative costs by 80 percent or more, reducepurchase prices by 5 to 15 percent, and reduce cycle time by more than 50 percent.

Improved Customer Relations. EC enables companies to interact more closely with customers, even if through intermediaries. Thisallows for personalization of communication, products, and services, which promotes better CRM and increases customer loyalty.

Up-to-Date Company Material. Any material on the Web, such as prices in catalogs, can be correct up to the minute. Companyinformation can always be current.

No City Business Permits and Fees. Online companies that are not registered businesses with employees do not need anypermits to operate, nor do they pay license fees. If the business is registered, city fees and licenses apply.

Other Benefits. Other benefits include improved corporate image, improved customer service, ease in finding new businesspartners, simplified processes, increased productivity, reduced paperwork, increased access to information, reduced transporta-tion costs, and increased operation and trading flexibility.

Benefits to Individuals (Consumers)The benefits of EC to individuals are as follows.

Ubiquity. EC allows consumers to shop or perform other transactions year round, 24 hours a day, from almost any location.

More Products and Services. EC provides consumers with more choices; they can select from many vendors and from more products.

Chapter One: Overview of Electronic Commerce 11

Customized Products and Services. Dell customizes computers and sells them at competitive prices. Customers can get anincreased number of products (from shoes to dolls to cars) and services just the way they want them.

Cheaper Products and Services. EC frequently provides consumers with less-expensive products and services by allowing themto shop in many places and conduct quick comparisons.

Instant Delivery. In the cases of digitized products, EC allows for almost instant delivery.

Information Availability. Consumers can locate relevant and detailed product information in seconds rather than days orweeks. Also, multimedia support is cheaper and better.

Participation in Auctions. EC makes it possible for consumers to participate in virtual auctions. These allow sellers to sellthings quickly, and buyers can locate collectors’ items and bargains.

Electronic Communities. EC allows customers to interact with other customers in electronic communities (Chapter 17) andexchange ideas as well as compare experiences.

No Sales Tax. In many countries, online business is exempt from sales taxes.

Benefits to SocietyThe benefits of EC to society are as follows.

Telecommuting. More individuals can work at home and do less traveling for work or shopping, resulting in less traffic on theroads and reduced air pollution.

Higher Standard of Living. Some merchandise can be sold at lower prices, allowing less-affluent people to buy more andincrease their standard of living.

Homeland Security. EC technologies facilitate homeland security by improving communication, coordination, informationinterpretation, and more, as demonstrated in Insights and Additions 1.2.

Hope for the Poor. Because of EC, people in developing countries and rural areas are now able to enjoy products and servicesthat were unavailable in the past. These include opportunities to learn a skilled profession or earn a college degree.

Availability of Public Services. Public services, such as health care, education, and distribution of government social services,can be done at a reduced cost and/or improved quality. For example, EC provides rural doctors and nurses access to informationand technologies with which they can better treat their patients.

ONLINE FILE W1.9

CUTTING ORGANIZATIONS’ COSTS WITH ECThe following are examples of potential cost reductions dueto the use of EC:

◗ It costs a bank $1.08 to perform a simple teller transac-tion at a branch. On the Web, the same transaction costsbetween $0.02 and $0.10.

◗ The cost of issuing and processing an airline ticket on theWeb is $1. With a physical system the same transactioncosts $8.

◗ It costs $70 to arrange an average medical appointment,including lab work, over the phone (counting the time ofthe employee involved), but only $10 on the Internet.

◗ Each transaction to process one order of appliances andother high-cost items costs a brick-and-mortar retailer$12 to $20. Selling over the Internet reduces the cost to $2.

◗ It costs between $3 and $15 for a vendor to handle acustomer-service call. Letting the customers do it bythemselves (e.g., track orders using automatic e-mailreply, use FAQs to answer routine inquiries) reduces thecost to $1 per inquiry.

◗ Procuring a sales order in large companies can costbetween $100 and $140 in administrative costs per order.In e-procurement, the cost ranges between $7 and $10.

◗ The administrative cost to send a bill (invoice) is $1.60. Thisamount can be cut in half if bills are sent electronically.

◗ It costs the U.S. government $0.43 to issue a paper checkversus $0.02 to issue the same payment electronically.

◗ When conducting electronic bidding, item cost can be 5 to 15 percent lower than in a manual bidding system.

12 Part 1: Introduction to E-Commerce and E-Marketplaces

REFERENCES FOR ONLINE FILE W1.9Internet news services, various news items, 1999–2003.

Online File W1.10 Basic Resources for E-Commerce

The following are representative sources of information on EC:

Vendors, News, EC statistics and More◗ wikipedia.org/wiki/e-commerce◗ cio.com/research/ec/ and searchcio.techtarget.com◗ electronicmarkets.org◗ ecommercetimes.com◗ ecommerce.internet.com◗ reuters.com/ecommerce◗ forrester.com

ConferencesMany conferences are dedicated to e-commerce. Well-known conferences are:

The Annual Bled Conference (bledconference.org)The Annual Conference of ICEC (see icec.net)The Congress on the Management of E-Business (eworldcongress.smu.ca)IEEE Annual Conference on E-Commerce (ece.uci.edu/cec07)ACM Conference on Electronic Commerce (stiet.si.umich.edu/ec07)

JournalsElectronic Commerce Research ( jecr.com)International Journal of Electronic Commerce (gvsu.edu/ssb/ijec)Journal of Organizational Computing and Electronic Commerce (leaonline.com/loi/joce)Electronic Markets Journal (electronicmarkets.org)Journal of Electronic Commerce Research (online csul6.edu/business/ijec)Journal of Electronic Commerce in Organization (ISSN: 1539–2937)International Journal of Web Services Research (ISSN: 15398–3062)International Journal of E-Business Research (ISSN: 1548–1131)International Journal of Electronic Government Research (ISSN: 1548–3886)Journal of Cases on Electronic Commerce (ISSN: 1548–0623)