The popular conception of e-commerce among most UK businesses is thatSounds ideal. So why aren't businesses flocking to trade on the internet? it exists only in the realms of science fiction - or only in the US, which amounts to the same thing.
Technologically, e-commerce is red hot (read: very immature) and only mad dogs and Americans go out in its midday glare and take business risks there.
To a certain extent, that's because e-commerce is used synonymously for online shopping, which is essentially mail-order but with a smaller customer base.
The big retailers may be piloting Web-based shop fronts, but they are spending more on buying prime retail sites near to city centres. They know retail is all about location, and the Web, as a location, is a bit like the far side of an industrial park where the JCBs are still digging.
But business-to-business e-commerce is a different matter. While consumers churn ISP accounts faster than you can say 'free 30-day trial' - thus artificially inflating the estimated number of internet connections - businesses that get online stay online.
'All the electronic shopping transactions in a year on the Web add up to less than an hour of Visa's conventional credit card transactions,' says Thomas Patterson, IBM's chief strategist for e-commerce. 'Business-to-business is where all the action is and where the opportunity is for our resellers.'
But when will e-commerce be an opportunity? Next year? After the millennium?
After EMU? It's an opportunity now. It just needs selling and education.
The technology isn't really that immature. The basic ingredients - TCP/IP and EDI - have been around since the late 1960s. But businesses have not used them in the same recipe. The new spicy ingredient is the Web, but even that is five years old and not complicated - you can pick up the basics of HTML from a book in half a day.
The clever bit is combining these technologies into a palatable dish.
In other words, adding value.
The technological barriers to e-commerce have largely been removed, and the obstacles that remain are behavioural - an inherent resistance within organisations to do things differently.
Broadly, this was the conclusion reached at GE Information Services' (GEIS) user conference in Orlando in February. GEIS is the market leader in EDI and is moving aggressively into the Web-based e-commerce space.
Among its customers are Shell, Kmart, Kraft Foods, Chrysler, Dixons, Tesco, Smith-Kline Beecham and Benetton.
Note the presence of European companies in that list - e-commerce is not a case of only in America (see box, page 60).
Blue-chip organisations from both sides of the Atlantic are reaching the conclusion that connectivity, affordability and even security have found technological solutions. But old business habits die hard.
'There's a problem in getting small companies to participate in e-commerce,' says a commercial manager at one US-based manufacturer.
'You can't get people off the phone. If they want a status report, they pick up the phone. It's going to cost us to get them to use our EDI facilities because we'll have to do it for them.'
The issue of connectivity has been resolved to a greater extent by the ubiquity of the internet. Not only are the main transport protocols standard throughout, but even in semi-industrialised countries there is the ability to dial in.
'People say the internet doesn't work, so show me where it doesn't work,' says Ken Horn, manager of procurement and supply at Chrysler. 'I say it works. Chrysler does business with suppliers from all over the world this way. With conventional post it can take a month for a supplier to react, now it takes a day. That seems acceptable to me.'
Chrysler trades with between 8,000 and 9,000 suppliers and last June began the process of converting the smaller companies, which can't afford full-blown EDI on a private Van (value added network), to TradeWeb - GEIS' Web-based e-commerce system which links into Chrysler's EDI network. To date, over 1,600 of Chrysler's suppliers have subscribed to TradeWeb, which will save the motor manufacturer about $2 million a year.
Admittedly, the reliability and speed of the internet still needs to be addressed, and these issues will keep private Vans in business for some years to come, especially for those that demand real-time, high-volume, transaction-based services.
The relative cheapness of internet access makes it more affordable for small companies to participate in an online trading community, even if it is one foisted on them by a large customer on whom they are dependent.
Subscription to a Web-based electronic trading network like TradeWeb can cost as little as #1 a day for a supplier, claims GEIS. Subscription for customers' buyers is free. Obviously, both parties have to pay for client-side software, but this is still a far cry from #25,000 up-front for traditional EDI software plus #10,000 a month for running it over a private Van.
Security - or lack of it - is the reason most frequently given for not adopting internet-based, business-to-business e-commerce. The internet is seen as a wild west full of modem-toting bandits who will hijack your transactions and rob you of millions of virtual dollars.
In reality, the probability of a transaction being intercepted is very low - a hacker would have to know precisely what to look for, where to find it and when it was in transit. Unlike the Wells Fargo stagecoach route, the internet is awash with zero-value traffic. The electronic equivalent of shouting 'this is a stick-up' applied to random internet traffic is likely to result in a swag bag full of conversations about Pamela Anderson.
And even basic security, such as secure socket layers (SSL) and encryption like Pretty Good Privacy, is sufficient. The imminent release of SSL3, which incorporates authentication certificates (resolving the problem of 'are you who you say you are') will make security even tighter.
For consumers, transmitting a credit card number over the internet is no less secure than giving it to a waiter in a restaurant or over the telephone to a theatre ticket broker. Is that really the National Theatre's booking office or just some spoofer who's intercepted your call? Until you get the tickets, you don't know, but you still trust it is.
Companies are paranoid about security because they have never applied proper risk analyses. Consequently, they want to insure the integrity of #500,000 worth of transactions with a #2 million-a-year security spend.
What companies should be taking into account is how much the data is worth and for how long. Even highly sensitive foreign exchange price information is only of high value for about an hour at most. So 56bit encryption, which would take a supercomputer all day and night to crack, is perfectly adequate. Besides, the majority of corporate fraud is conducted by employees, not hackers.
Citing security as a reason for not embracing e-commerce is usually an excuse for something else - a fear of adopting new business practices, or a lack of openness with trading partners. If a company has an adversarial relationship with its customers and suppliers and is in the habit of keeping secrets from them, it will not want to provide electronic access at any level.
'Many who are able to make the decision to move towards virtual trading have been in their positions for 25 years and made careers out of understanding better than anyone else how the current system works,' says Harvey Seegers, CEO of GEIS. 'Throw out that familiar model and introduce a new model - it's a lot to ask.'
Avon Products encountered just such a problem when it came to using e-commerce to reduce its procurement costs. Avon, a 115-year-old cosmetics manufacturer with annual sales of $5 billion, had a local procurement policy which developed organically over the years. But Avon has factories in 22 countries that consequently deal with a staggering 26,000 suppliers for both production and non-production related commodities, running up a bill of $2.3 billion a year.
An in-house study showed that centralised electronic procurement could save the company in excess of $700 million a year by rationalising the number of suppliers and gaining bulk leverage with the remainder.
'We had a culture that was not conducive to getting to the dollars,' says Fitzroy Hilaire, director of supplier development at Avon. 'People were territorial, so it was difficult to make decisions which were Avon decisions, rather than local production decisions. Much of the purchasing was being done
by people with no purchasing experience. They're great shoppers but not necessarily great buyers.'
US airlines supplier Arinc has experienced similar problems. The airlines got into EDI in the late 1960s, for the procurement of aircraft spares.
But this side of the business has advanced little. While other companies have adopted the X12 EDI standard, the airlines have stuck to Spec 2000, an ancient standard limited to 3,840 characters per message.
'It would make me happy just to see them move from Spec 2000 to X12,' says Susan Geoghegan, director of e-commerce at Arinc's network services division. 'The fuellers, like Mobil, are already using Edifact, which is X12, but the airlines won't move, because their legacy systems are so huge.'
And yet the airlines sell seat reservations on the Web. Unfortunately, the reservations and the parts procurement divisions never talk to each, says Geoghegan.
In February, Dixons began a drive to convert its smaller merchandise suppliers - such as games software publishers - to Web-based electronic trading which it can link in with its EDI network (PC Dealer, 18 February).
The aim is not just to cut costs by making the supply chain more efficient, but to share sales tracking information with suppliers so they can predict manufacturing demand more accurately.
PC makers, who have driven down inventory by embracing a near build-to-order regime, are automatically sent daily sales data.
But over 30 per cent of Dixons' merchandise suppliers don't take the data. 'They say they have to manufacture so far in advance that regular sales tracking figures won't make a difference to them,' says Pam Bingley, commercial systems controller at Dixons.
The opportunity for resellers to jump on the e-commerce bandwagon is there, but is not being taken up. Evan Starzinger, vice president of retail at GEIS, says an organisational barrier needs to be crossed. 'It's a management problem, and a difficult one. Management time is being consumed by year 2000 concerns, so e-commerce is not high on the management radar.'
The US versus Europe
Despite the impression that US companies are two or three years ahead of their European counterparts when it comes to the uptake of e-commerce, European and Asian competitors are ready to leapfrog them with collaborative Web-based systems.
'US retailers have made an awful lot of investment in traditional EDI,' says Evan Starzinger, vice president of retail at GEIS. 'But in the last six months we've seen a greater reception for the new technology in Europe and Asia. Two out of three of my top product development projects this year are driven from outside the US - one from the UK and one from Australia.'
To date, much of the e-commerce activity in US organisations has concentrated on using traditional EDI to cut costs in the supply chain through automation.
The UK-based project is the Tesco Information Exchange (TIE), a collaborative extranet which Tesco is piloting with seven of its suppliers: St Ivel, Proctor & Gamble, Nestle, Britvic, CCSB, Kingcup Mushrooms and St Merryn Meats.
The extranet provides suppliers with access to up-to-the-minute sales tracking data for their products on promotion in Tesco's stores. Using the data, the seven can tweak supply to match demand to avoid either empty or over-stocked shelves. It effectively puts inventory management, a huge administrative burden for retailers, into the hands of the suppliers.
Tesco and GEIS are hoping to set an internationally recognised standard based on TIE for other retailers to adopt. So suppliers, increasingly organised on a global basis have one standard interface across all their customers.
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