E-business is changing nearly all that companies do, from the procurement of supplies to the delivery of finished products and services. New types of competitors, value-added services and new delivery channels are shifting the boundaries between customers, suppliers, partners and competitors, and profoundly altering industry value chains. The ebusiness value chain is studies and how it has helped retail industry grow in its ebusiness setup is analyzed. Amazon.com is one of the most successful examples of e-business. Study of its business model helps to understand the creation of value chain for sustainable e-business in retailing. In line with the global scenario, Indian online retail market is one of the fastest growing across the world. But even after entry of some of the big global e-business firms, there lie some issues and challenges to be faced in terms of improving value chain for this sector.
Introduction of E-Business has brought revolution in the traditional value chain structure of the firms. Intermediaries are changing, not disappearing. Companies are found reluctant to bypass their traditional intermediaries. Instead, companies are searching for new ways of working with the middleman. For example, some companies are attempting to turn their retailers into customer-service agents. For online distribution, companies are developing a portfolio of options rather than drive customers to a single sales channel. The main obstacles to e-business are internal. The greatest barriers to e-business lie within the corporation: a need to re-engineer business processes, a lack of e-business skills and a lack of integration between front- and back-end systems (KPMG, 2005). Companies are using e-business to expand products and services to meet escalating customer demands and to keep products and services from becoming commodities. Companies are using the Internet to provide value-added products and services. The Internet is turning out to be an effective way of reaching new customers beyond geographic boundaries.
E-BUSINESS IN RETAIL SECTOR
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Retail industry, on a global scenario, has become highly competitive due to increasing consumer preferences and the growing need of differentiation in terms of product with respect to the diverse markets across the globe. Introduction of E-business in retail sector has helped in creating new activities and features for retailing. It includes shopping 24x7, seven days a week, from the comfort of your home; gathering information to be a more informed consumer; creating the appearance of a relationship with the customer; and stream lining business to business ordering to reduce prices for the consumer. This focus on cost reduction throughout the value chain has become the prime element for gaining competitive advantage in this business landscape. This is due to accelerating pace with which new products have been introduced in the market day after day, which put tremendous pressure on firms to optimise their value chains.
In the retail sector, companies use Information and Communications Technology to facilitate e-business processes for a broad range of applications along the value chain including procurement, warehouse management and logistics, and for marketing, sales and customer services activities. The basic goals of e-business identified are highly relevant in this sector: reducing costs by increasing the efficiency of processes, optimally serving customer by innovative means of information provision and communication and enabling growth by increasing market reach.
As competition in the retail industry is strong and barriers to entry are low, ebusiness can take important roles in this industry. Retail firms trade goods and service and retail customers are end-consumers of the goods and services. Hence, while the retail industry is not a goods-producing industry, opportunities for improving business processes through e-business are numerous (Empirica GmbH, 04/2008). In retail sector, Focus on companies supply chain management is of imminent importance to realize above mentioned e-business goals. Following are some of the vital elements of supply chain:
E-procurement: It improves performance of routine tasks like transaction processing, monitoring and enforcement of regulatory compliance. It increases transparency, eliminates middlemen overhead cost, improves competition amongst suppliers and eases management reporting (Vivekanand B Khanapuri et al., March 2011). With the implementation of e-procurement solutions, automation of buying and selling over the internet has been accomplished
There are many types of e-procurement:
Web-based ERP (Enterprise Resource Planning): In this type they can generate recommended purchasing schedules in order to achieve an ideal just in time production cycle.
Always on Time
Marked to Standard
E-MRO (Maintenance, Repair and Operating Supplies)
E-sourcing: This is used to identify new suppliers for a specific category of purchasing requirements using Internet technology
E-informing: this is used to gather and exchange purchasing information between buyer and seller (BPC, Article and glossary; 2012)
E-procurement also has some disadvantages. There are financial costs, from computers to extra phone lines to learning the technology. Privacy of the information is one critical issue. Another disadvantage is that e-procurement is often conducted using credit card facilities for payments, so as a result very small and very large transactions tend not to be conducted online.Â
If e-procurement system is implemented appropriately, it will benefit both buyer and seller.
The in-house supply chain: As retailers do not transform goods, operation is not concerned with organising a production process but with arranging the in-house processes of receiving, distributing, and selling goods. Computerised systems that mainly serve processes inside a company are considered as internal electronic operations. These are valuable for making internal business processes more effective. (Abend, J. & Penny, G, 2000)
An e-business allows manufacturers and other members of the supply chain that do not have direct contact with customers in traditional channels to enhance revenues by bypassing intermediaries and selling directly to customers.
SCM systems: These are the software systems specifically developed for supply chain management. SCM systems provide an overview of the flows of products/materials, information and finances (Claudia-Maria Wagner et al, 2010). In the most advanced form, they cover the whole process and value chain from suppliers/manufacturers to wholesalers, retailers and to consumer.
Â In an effective e-business, the following SCM independent processes must be highly integrated.Â
Demand management: These are shared functions including demand planning, supply planning, manufacturing planning, and sales and operations planning.Â
Supply management: These include products and services for customer order fulfilment.Â
Inbound/outbound logistics: These include transportation management, distribution management and warehouse management
Success of the firm highly depends upon to what extent it has successfully integrated above processes using SCM systems.
ERP (Enterprise resource planning: It helps to integrate and cover all major business activities within a company, including product planning, parts purchasing, inventory management, order tracking, human resources and finance.(Simchi-Levi,et al. 2003).
The ability to access information from various parts of the organization has helped ï¬rms to streamline their business processes and reduce in efï¬ciencies. Although ERP systems were implemented before the boom in e-business, their potential could not be explored and expanded due to lack of common standards and cost of access. The growth of e-business allows and requires that the information made available from the ERP systems be shared with other ï¬rms in the extended supply chain through the Internet. Advantages of such real time information sharing system are as follows:
Inventory requirements for buffer stocks are likely to be lower, because the uncertainty in forecasts and demand can be reduced across the supply chain.
As more supply chain execution information becomes available, firms can plan for future operations using advanced planning and optimization tools.
The ability to share information creates an opportunity for firms to have collaborative planning and design, which removes the inefficiencies in these processes.
CRM (Customer relationship management): It is a concept that enables an organization to tailor specific products or services to each individual customer. In the most advanced scenario, CRM may be used to create a personalized, one-to-one experience that will give the individual customer a sense of being cared for, thus opening up new marketing opportunities based on the preferences and history of the customer (Wilson et al., 2002).
It seeks to maximise competitiveness, revenues, and customer satisfaction. These are the very same areas on which most e-business firms concentrate heavily (Tim Coltman et al., 2010). Reasons for CRM e-Business growing to such enormous heights are many. Some of the important points are: Traditional business methods have proved tiresome, costly and very time consuming due to lack of integration across supply chain elements. CRM e-Business increases the chances of building sales and increasing the sales revenue by increasing the area of operation, reducing operating costs, increasing productivity and thereby improving the efficiency of the supply chain. CRM solutions give companies a well-planned and easily integrated e-Business strategy that caters to both the customer needs as well as the corporate needs. Both these need to be appropriately catered to in order that company objectives be fulfilled.
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E-selling and e-marketing: Sales side business activities consist of three aspects. The first focus is on actual sales, i.e. transactions, and on related customer support activities, a second one on marketing activities. The diffusion of internet technologies among consumers enables retailers to sell their products via the internet to consumers. Online sales are normally done through an own company or through a portal hosted by a different company (Empirica GmbH, 04/2008). Also, e-selling enables retailers to go beyond geographic boundaries as far as customer base is concerned. it appears that online sales helps to extend the geographic focus slightly from regional to national sales while the international focus remains on the same low level.
Because of the low barriers to entry of competitors, the perceived first mover advantage and the feeling that any competitor was only a click away from your customers, the internet generated an intense need for marketing and brand awareness. Internet changes the way of mixing 4Ps of Marketing- Product, Price, Place and Promotion. Requisite actions for e-business firm include creating awareness of their website, engaging customers through the same and effectively closing the sale by consistent follow up with the customer. Viral Marketing is one of the powerful forces extensively used by e-business. Â The product is spread by word of mouth or by passing on a copy or a URL to friends and colleagues. Success in e-business depends upon first mover advantage, obtaining customer lock-in, and network externalities.Â Â Barriers to entry by competitors are low.Â Â Brand recognition is important.Â Â These have combined to create a sense of desperation for new dot-com companies as they enter markets crowded with competitors.Â Â This has also generated a surge in print, billboard, and media advertising to establish brand awareness (Empirica GmbH, 04/2008).
E-support for Logistics and Distribution: logistics are a core issue for mail order retailers and for retailers selling goods online that need to be shipped to customers. Efficient customer-facing logistics are crucially important to lower the costs of goods sold in the internet and to satisfy customers who want to receive their orders swiftly, safely and at low shipping costs (Virpi Kristiina et al., 2005).Logistics management in e-business is mostly driven by e-logistics. E-logistics is the mechanism of automating logistics processes and providing an integrated, end-to-end fulfilment and supply chain management services to the players of logistics processes. Those logistics processes that are automated by e-logistics provide supply chain visibility.
A particular challenge in logistics is to manage fluctuations in demand which may be considerable. Further challenges are reverse logistics.
Current Scenario: Some Transport service providers give retailers the opportunity to check the current status of shipping on the internet. Online shops themselves may offer their customers the opportunity to check the delivery status online. Another trend is an increase in outsourcing of services to specialised logistics providers to benefit from their specialised services.
CASE: AMAZON.COM; THE PIONEER OF E-BUSINESS IN RETAIL
(Pankaj Ghemawat, 1998)
Amazon.com is an American multinational electronic commerce company. It is world's largest online retailer. Jeff Bezos Â incorporated the company (as Cadabra) in July 1994, and the site went online as amazon.com in 1995.Amazon began by selling books online through a bulletin board service in 1992 and now offers a huge variety of books and other merchandise through their own website, mostly to members.
Following is the analysis of its value chain on the basis of three aspects:
Procurement and Logistics:
While Amazon offers more than million titles to its customers, it carries only fraction of it t its own warehouse. Amazon depended more on wholesalers than publishers, to stock its books. This helps Amazon to ship the book within 4 to 7 business days resulting in faster deliveries and cost reductions. Advantages: multiplied inventory turns and reduced working capital requirements and risk of obsolescence.