Electronic Commerce (EC):
A Survey
Bill Parr
University of Tennessee
1
Outline
 Introduction
 Growth
rates for EC
 A brief word on B2C
 Extended thoughts on B2B EC
 Benefits and Limitations of EC
 Conclusions and Solicitation for Input
2
Definition
 Electronic
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)
3
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. Ebusiness 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
4
The growth of online
commerce ($B)
8000
7000
6000
5000
USA
World
4000
3000
2000
1000
0
1999
2000
2001
2002
2003
2004
2005
Source: Goldman, Sachs & Co. analysis and report
5
B2B Predicted Growth
 From
1999 – 2004:
50X
per Gartner Group
 In
1997 - $10 billion of B2B transactions
were conducted over the internet
6
B2B EC Predicted Percent
of Revenue for 2003
Industry
Computing, electronics
Motor vehicles
Petrochemicals
Utilities
Paper/office products
Shipping/warehousing
Food/agriculture
Percent in 2003
39.3%
14.7%
13.5%
25.8%
5.6%
17.2%
3.0%
Source: Forrester Research, Inc. (1998)
7
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!!!
8
Experiences with B2C EC
(briefly…)
9
Amazon – A Case Study
 Founded
July 1995
 Sold $15.7 million in 1996
 Sales of $600 million in 1998, monthly
growth of 34 percent
 10 million titles in catalog
 Inventories only a few thousand highselling titles (rest handled through Ingram)
10
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!
11
Experiences with B2B EC
12
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
13
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
14
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 Zucht
Senior VP, Wyle Electronics
15
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.”
16
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?
17
Using EC at Cisco
 Cisco
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
18
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
19
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
20
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
21
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
22
Walmart Case Study
– Collaborative Forecasting and
Replenishment – single short-term
forecast, frozen
 Example link with Warner-Lambert via EDI
 CFAR
23
Classifying EC
Applications
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
 Electronic
24
From Business Week,
September 2000
 55%
of UPS business is EC
 10% of FedEx business is EC
 Difference:
FedEx requires use of their
proprietary software!
 Possible
lesson?
25
A phenomenon
 Small
players enter, establish viability
 Big players observe, enter and strike back
 Example:
GE/ Ford, Daimler Chrysler
February announcement of online
exchange for automotive parts and
supplies
26
Trends per WSJ
The 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
27
A question . . .
 Can
the efficiency of capital markets be
created in markets for almost everything?
 Bill
Gates’ notion of frictionless capitalism
28
Benefits of EC
 Minimal
capital outlay
 Reducing cost of transactions
 Highly targeted marketing
 Pull-type processing enabling
customization (Dell)
 Cycle time reduction
 Enables reengineering projects
29
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!
30
Questions
 Can
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?
31
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)
32
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
33
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???)
34
A solicitation
 What
about EC interests you?
 Do you have knowledge or experience to
contribute?
 What can we do to help?
35
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 36