KamLibrary - B2b C-Commerce

A new study by strategy consultants Roland Berger provides an indepth look and guide for the current development of business-to-business (B2B) e-Commerce in the consumer goods industry.

Last year both manufacturers and retailers began to invest heavily in B2B initiatives such as the GlobalNetXchange and Transora. For leading industry CEOs and senior executives the key question is how will Internet exchanges affect relationships with their retail customers. Customer relationship management and supply chain processes are, for many consumer goods companies, major sources of differentiation and competitive advantage.

Companies have made large investments to develop proprietary systems and processes in order to better service retail customers. So who would want to throw out years of development work and give away core competencies just to conform to a standard set of tools and interfaces for all processes on a public Internet exchange? Due to high uncertainty surrounding these Internet exchanges, Roland Berger believes consumer goods companies must place strategic bets and pursue a multi-channel e-Commerce strategy. A summary of the Roland Berger guide follows:

From Physical to Digital Connections

Many Internet exchanges are rapidly emerging to connect trading partners. More than 100 Internet exchanges provide services in the consumer goods industry. These Internet exchanges are developing in four areas:

One-to-One – EDI Networks e.g. Wal-Mart’s Retail Link contains over 100 terabytes of product data, sales, shipments, order, store demographics etc. Retail Link allows suppliers to connect to the database via EDI network. Roland Berger believes existing EDI networks are likely to move to Internet Exchanges over time as many networks are integrated into ERP systems based on inventory replenishment rules under long-term contracts

Many-to-One – Retailer Internet Portals e.g. Sainsbury’s Information Direct (SID) systems, an Internet-based information service for its more than 4,000 suppliers which enables planning of joint promotions via Collaborative Planning System. Also allows monitoring of product performance (e.g. EPoS sales) via the website. According the Roland Berger retailer Internet portals will significantly improve information sharing, efficiency in the supply chain operations and – most importantly – collaboration.

One-to-Many – Customer Internet Portals e.g. NestleEZOrder which was created as a response to customers’ requests for more efficiency in the ordering system. Many small and midsize did not have expensive EDI systems so Nestle developed the NestleEZOrder system to allow customers to buy and track more than 700 leading Nestle items online, leading to significant cost savings in customer service and supply chain management. Roland Berger believes customer portals can further enhance companies’ core competencies and potentially build a more personalised relationship based on close collaboration.

Many-to-Many – Public Internet Exchanges e.g. Recently established GlobalNetXchange links 7 of the world’s leading retailers to over 50,000 suppliers around the world to make purchases, exchange information and forecast demand online.<D> The Roland Berger study believes public Internet exchanges provide significant cost savings potentials by bringing many retailers and manufacturers together and increasing process efficiency.

Beyond Auctions and Procurement

According the Roland Berger the full potential of Internet exchanges will come from enhanced customer relationship management (e-CRM) and customer fulfillment management (e-CFM) more than purchasing and procurement. It is believed that e-Procurement (including MRO and raw materials) will represent less than 15% of the full cost saving potential. On the other hand, e-CFM will result in considerable inventory reductions (up to 30%), e-CRM will lead to cost savings in sales and marketing (between 10% to 20%) and outbound e-Supply chain will provide great savings potential in logistics/transportation (between 5% to 15%).

By focusing on streamlining processes and creating closer collaboration with existing retail customers, consumer goods manufacturers can realise around 65% of the full B2B cost saving potential. Roland Berger believes that these savings can be realised over a period of three to four years. Some of the identified cost savings have already been highlighted in the Efficient Consumer Response (ECR) industry initiative. Previously, however, the infrastructure to support ECR in a cost-effective manner was not present. The Internet, and the Internet exchanges, have become that ubiquitous vehicle that enables the ECR vision to become reality.

Penny Wise, Pound Foolish

Most Internet exchanges are focusing on e-Commerce (product transactions) while overlooking c-Commerce (collaborative services). The more than hundred Internet exchanges in the consumer goods industry vary considerably in their value proposition and added-value services, ownership structure and revenue model. However, most Internet exchanges are today operating as trading exchanges facilitating dynamic-pricing online commerce and focusing on product transactions (e-Commerce). Those trading exchanges will produce savings by decreasing material costs and reducing process costs associated with purchasing and procurement.

A future outlook for Internet exchanges would be that they develop into a business coordination platform that provides a scalable, Internet-based portfolio of communication and collaborative services (c-Commerce). For every purchase order there are 15 to 20 interactions taking place. These range from promotion briefing, inventory availability, scheduling delivery, returns, etc.

Transora is currently trialing a collaborative event planning programme with J Sainsbury, and this collaborative service should be available in Q2 2001. The collaborative services should also be able to transfer independent tools to an integrated collaboration platform with one interface and single sign-on access.

Links between Internet exchanges and private Internet portals will ensure that the experience remains seamless with the Internet exchange serving as the portal for the external applications. By concentrating on integrating e-procurement with Internet exchanges, consumer goods companies are overlooking major opportunities for sweeping improvements in customer relationships and customer fulfillment management through real-time collaboration. The Internet exchanges have to move beyond auctions and procurement to e-Customer Fulfillment Management and e-Customer Relationship Management to realise the full B2B e-Commerce potential.

@HEADING = Success Factors For Enhancing Customer Relationships

Through interviews with leading companies Roland Berger has identified four success factors for enhancing customer relationships with Internet exchanges – be they public or private:

1). Place Strategic Bets Consumer goods companies need a clear and consistent yet flexible B2B e-Commerce strategy for their customer relationships. The challenge will be for these companies to unlock and create substantial value within three to four years, and to learn and drive their e-Business initiatives. This will require companies to think beyond present value to option value.

Paradoxically, the greatest obstacle to e-Business is the over-supply of Internet-related opportunities. Under such conditions, traditional net present value criterion has limited applicability because it fails to capture the strategic concerns of the investment. Real option value enables strategic bets that can be treated as opportunities rather than now-or-never type investment decisions.

Due to the high uncertainty surrounding Internet exchanges, Roland Berger believes consumer goods companies must place strategic bets and pursue a multi-channel B2B e-Commerce strategy. Participating now in a public Internet exchange will allow companies to benefit from alignment of processes, influence on the strategic development and industry standards and early-mover economies of scale. Conversely, a wait-and-see approach may allow a better assessment of which model will win out – but potentially too late.

2). Learn New Ways of Working The most critical factor to successfully enhance customer relationships is not the technical barriers but rather the people barrier. The Internet exchanges will not only require new know-how, but also a different mindset for employees across all functions including sales, marketing, logistics, customer service, finance and production.

The largest impact will be on sales people who have to learn new ways of planning and executing promotions, jointly planning assortment and new product introduction online and doing category business planning through collaborative business platforms. If retail customers have direct access to market and consumer data, account managers need to understand how to add value to the data through analysis. E-mail and web-chat will replace face-to-face meetings and telephones. Sales will need to learn how to make persuasive arguments online. Key to interacting with retail customers online is developing rules of engagement which clearly set out the framework for collaboration.

Marketers have to be prepared for short planning cycles for promotions and new product development with retail customers. Collaborative product development will also drive more customisation and increase complexity. Interactive promotion planning will increasingly move responsibility of promotion planning and execution from marketing to customer teams. Content management processes will require marketers to provide consumer insights and product characteristics online.

3). Appropriate Connections To take full advantage of Internet exchanges, companies must set up appropriate connections so they can communicate and share data to complete transactions. Connection can be divided into two types: Extranet (connecting other companies within the extended enterprise) and Enterprise Application Integration (connecting with internal processes) access control tools.

4). Mobilise the Organisation The impact of Internet exchanges will require a shift in many different business functions towards speed, flexibility and collaboration. Automating and integrating internal and external processes are key to delivering bottom-line improvements. Therefore, companies must start looking at these processes and their capabilities to understand the scope and where realignment needs to be made.

Those companies that have already embraced process-driven structures will require the least amount of change to accommodate Internet exchanges. However, companies with very strong functional organisations, on the other hand, will need to address the alignment and integration of decision-making across functions and enterprises. These changes will be more substantial. Organisations that rely on human intervention or lack integrated systems will run into scalability issues as the company begins to interact at an accelerated pace. Response times expressed in days will no longer be an acceptable measure as the business world continues to move towards the real-time exchange of information.

Winning with the Winners

The digital economy is moving into the 21st century at breathtaking speed and the consumer goods industry is on the verge of major changes. According to Roland Berger the winners – large or small – will be those who place strategic bets to unlock and create value within three to four years, learn and drive their e-Business initiatives and enhance customer relationships with Internet exchanges.

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Date article published: 12/01/2001

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