The Solution

M & S realized that survival in the digital era depends

on the use of information technology in general and
electronic commerce in particular. Electronic commerce
(EC, e-commerce) is the process of buying, selling,
transferring, or exchanging products, services, and/or
information via electronic networks and computers. M & S
initiated several EC initiatives, including the following:
Selling online. Like many other retailers, M & S sells
some of its merchandise online. Shoppers can collect
their 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 code
in order to get the same product they see at a physical
store, frequently at a lower price.
Security. A security system tracks transaction data in
real 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 sending
them a short text message via cell phone.
Warehouse management. A mainframe-based ware-
house management system, known as the Multi-User
Warehouse System (MUWS), was installed first at M & Ss
Hardwick distribution center near Birmingham. Using
Microsoft.Net infrastructure, store sales are reported to a
data warehouse (a repository of corporate data), almost
in real time. The data are then available for decision
making on inventory replenishment (when and how
much to ship to each store). The data are also available
to the companys third-party logistics service providers,
who run the warehouse operation and deliveries.
Merchandise receiving. The process of matching
orders and invoices is automated, making it faster and
free of errors. Information about arriving goods is
passed automatically to both the warehouse and the
stores. This way MUWS can do a real-time check of
arriving and available stock. Also, the system enables
M & S to pay suppliers more quickly, which makes them
happier and more cooperative.
Inventory control. The warehouse management and
the merchandise receiving system, in addition to the
real-time data reporting, improve customer relation-
ships. Customers can find what they want because
replenishment is accomplished quickly (sometimes
within 30 minutes).
Speeding up the supply of fashion garments. Using
special software, merchandisers can access and change
allocation plans from any computing device (PC,
laptop, pocket PC) anywhere and at any time in
response to changing demand patterns. This is espe-
cially important for fashion garments, where meeting
ever-changing demand is critical for competitiveness.
Collaborative commerce. M & S can now pass more
accurate 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 with
suppliers to reroute merchandise to different depots and
change allocations to where they are needed.
The Results
M & Ss CEO, in a message to the shareholders (summer
2002), indicated that a turnaround is underway. He sees
M & S as a leader and example setter in retailing, resulting
in increased profitability and growth.
ONLINE FILE W1.1
MARKS & SPENCERA NEW WAY TO COMPETE
The Problem
Marks & 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 slowdown
that started in 1999. Customer service became a critical success factor for Marks & Spencer. Other critical success factors included an
appropriate store inventory system and efficient supply chain activities. To attract shoppers, the company had to reduce prices at its
stores, which drastically reduced profits. Several other big retailers were wrestling with similar problems, including Kmart, which had
to 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 W1.1
Hayward, C. M & S Reveals Survival Secrets: Vandevelde
Cites a Mix of Short- and Long-Term Moves. Financial
Management (UK), July 2002.
Marksandspencer.com. marksandspencer.com (accessed
September 2006).
Ody, P. Demand Reality. Retail Work, October 2002.
Chapter One: Overview of Electronic Commerce 3
ONLINE FILE W1.2
E-COMMERCE SUPPORTS FIELD EMPLOYEES
AT MAYBELLINE
The Problem
Maybelline is a leader in color cosmetic products (eye shadow,
mascara, etc.), selling them in more than 70 countries
worldwide. The company uses hundreds of salespeople
(field merchandising representatives, or reps), who visit
drugstores, discount stores, supermarkets, and cosmetics spe-
cialty stores to close business deals. This method of selling
has proven to be fairly effective, and it is used by hundreds
of 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 quickly
as possible, when a deal has been closed or if there is any
problem with the customer.
Information technology has been used extensively to
support field reps. Until 2000, Maybelline, as well as many
other large consumer product manufacturers, such as Kodak,
equipped their reps with interactive voice response (IVR)
systems that enabled reps to enter information about their
daily activities every evening.
With the IVR system, the Maybelline reps completed
paper-based surveys for each store they visited. The reps noted
how each product was displayed, how much stock was avail-
able, how items were promoted, and so on. In addition to their
own companys products, the reps surveyed the competitors
products. In the evening, the reps translated the data from the
forms into answers that were then entered into the IVR. The
IVR asked the reps routine questions, and the reps answered by
pressing the appropriate telephone keys. The system had
problems: Frequently, reps were late in reporting. Even if they
were on time, information was inflexible, because the reports
were all menu driven. The system also consolidated informa-
tion, bundling and delivering it to top management as hard
copy. Unfortunately, these reports sometimes reached top man-
agement days or weeks too late, missing important changes in
trends and the opportunities to act on them in time.
Another problem was the systems inflexibility. The
reps answered only the specific questions that applied to a
situation. To do so, they had to wade through more than
50 questions, skipping the irrelevant ones. This was a waste
of time. In addition, some of the material that needed to be
reported had no matching menu questions. Considered a
success in the 1990s, the IVR system was unable to meet the
needs of the twenty-first century. It was too cumbersome to
set up and operate and was also prone to input errors.
The Solution
Maybelline equipped its reps with a mobile system from
the MEI Group (formerly Thinque Corp.) (meicpg.com),
called Merchandising Sales Portfolio (MSP). It runs on
handheld, pen-based PDAs (from NEC) that are powered by
Microsofts CE operating system. The MSP system enables
the reps to enter their reports in handwriting directly from
the clients sites. From the handheld device, data can auto-
matically be uploaded to a Microsoft SQL Server database
at corporate headquarters every evening by accessing the
corporate intranet via a secure Internet connection
(a synchronization process). It also enables district
managers to send daily schedules and other important
information electronically to each rep.
The system also replaced some of the function of
Maybellines EDI system, a source of pride of the 1990s.
For example, the reps reports now include inventory-scanned
data from retail stores. These are processed quickly by an
order management system and passed whenever needed to
the shipment department for inventory replenishment.
In addition to routine information, the new system is used
for decision support. It is not enough to speed information
along the supply chain; managers need to know the reasons
why certain products are selling well, or not so well, in every
location. They need to know the conditions at retail stores that
affect the sales of each product, and they need to know it in a
timely manner. The new system offers that capability.
The Results
The MSP system provided Maybelline with an interactive link to
the mobile field force. Corporate planners and decision makers
can now respond much more quickly to situations that need
attention. The solution is helping the company forge stronger
ties with its retailers. It also considerably reduces the amount
of after-hours time that the reps spend on data transfer to
headquartersfrom 30 to 50 minutes per day to mere seconds.
The new system also performs market analyses that enable
managers to optimize merchandising and customer-service
efforts. It also enables Maybelline to use a more sophisticated
IVR unit to capture data for special situations. Moreover, it
provides browser-based reporting tools that enable managers,
regardless of where they are, to view retail information within
hours of its capture. Thanks to the error-checking and valida-
tion feature in the MSP system, there are significantly fewer
data-entry errors (because no rekeying is needed).
Finally, the quality of life of Maybelline reps has been
greatly improved. Not only do they save 30 to 40 minutes per
day, but their stress level and anxiety due to the possibility
of making errors has been significantly reduced. As a result,
employee turnover has declined appreciably, saving money
for the company.
Questions
1. IVR systems are still popular. What advantages do they
have over systems that require reps to mail or fax
reports?
2. Explain why the MSP application is an e-commerce
application. Compare it with the definitions and classi-
fications in the chapter.
3. The existing technology enables transmission of data
any time an employee can access the Internet with a
PC. Technically, the system can be enhanced so that
the data can be sent wirelessly from any location as
soon as it is entered. Would you recommend such a
wireless system to Maybelline? Why or why not?
4. Summarize the advantages of the new MSP system over
the IVR.
4 Part 1: Introduction to E-Commerce and E-Marketplaces
REFERENCES FOR ONLINE FILE W1.2
Microsoft Corp. Case Industry SolutionsMaybelline.
microsoft.com/resources/casestudies (accessed May
2002).
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 LINE
Tellme Networks, Inc. (tellme.com) developed the first voice-
activated 511 traveler information line in Utah, setting a
national example for future 511 services to be launched by
Department of Transportation (DOT) agencies on a state-by-
state basis in the United States. The 511 service debuted on
December 18, 2001. Simply by using their voices, callers on
regular or cell phones within the state of Utah are now able
to request and get real-time information on traffic, road con-
ditions, public transportation, and so on. The answers are
generated from the Internet and participating databases and
delivered by voice.
In July 2000, the U.S. Federal Communications
Commission (FCC) officially allocated 511 as the single
nationwide number for traveler information, in the same way
callers can dial 411 for directory assistance and 911 for
emergency services. Previously, state governments and local
transportation agencies used more than 300 local telephone
numbers nationwide to provide traffic and traveler informa-
tion. Now travelers can use one number to access travel
information whether they are touring the country or simply
driving home from work. The Utah 511 travel information line
is provided as a free service by the Utah DOT.
During the February 2002 Olympic Winter Games, callers
were able to request event schedules, driving directions,
up-to-the-minute news and announcements, and tips for
avoiding traffic congestion. The phone is the ideal medium
to make government services available and accessible to the
general public, said Greg OConnell, Director of Public Sector
Operations 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 Web
from any telephone by voice. Martin Knopp, Director of
Intelligent Transportation Systems, Utah DOT, said, As the
national 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 were
able to leverage the same information and investment we
had made in our regular Web infrastructure (quoted by
Singer 2001).
Tellme Networks is revolutionizing how people and
businesses use the telephone by fundamentally improving
the callers experience with Internet and voice technologies.
Tellme enables businesses and governments to empower
their callers while slashing costs and complexity.
By May 2006, 28 systems in 24 states made 511
available to 93 million Americans. Since its inception
in 2001, over 50 million calls have been placed
(Deploy511.org 2006).
Questions
1. 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 511
to the users.
3. What is the role of Tellme? What Internet technology is
used?
REFERENCES FOR ONLINE FILE W1.3
Deploy511.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 Valley
Internet.com, December 18, 2001. siliconvalley.
internet.com/news/article.php/3531_942671 (accessed
September 2006).
Tellme.com. tellme.com (accessed September 2006).
Chapter One: Overview of Electronic Commerce 5
ONLINE FILE W1.4
THE SUCCESS STORY OF CAMPUSFOOD.COM
Campusfood.coms recipe for success was a simple one:
Provide interactive menus to college students, using the
power of the Internet to replace and/or facilitate the tradi-
tional telephone ordering of meals. Launched at the
University of Pennsylvania (Penn), the company takes
thousands of orders each month for local restaurants,
bringing pizzas, hoagies, and wings to the Penn community
and 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 site
in 1998. After graduation, he began building the companys
customer base. This involved expanding to other universities,
attracting students, and generating a list of restaurants from
which students could order food for delivery. Currently, some
of these activities are outsourced to a marketing firm,
enabling the addition of dozens of schools nationwide. In
2004, the company served 200 schools linked to over 1,000
restaurants.
Financed through private investors, friends, and family
members, the site was built on an investment of less than
$1 million. (For comparison, another company with services also
reaching the college-student market invested $100 million.)
Campusfood.coms revenue is generated through transaction
feesthe site takes a 5 percent commission on each order from
the sellers (the restaurants).
When you visit Campusfood.com, you can:
Navigate through a list of local restaurants, their hours of
operation, addresses, phone numbers, and other information.
Browse an interactive menu. The company takes a restau-
rants standard print menu and converts it to an electronic
menu that lists every topping, every special, and every
drink 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 are
available online exclusively for Campusfood.com customers.
Arrange for electronic payment for an order.
University students who signed up at Titan Poker with a
special 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 Cash
coupons valued at $20,000, redeemable for food orders at
participating restaurants.
Questions
1. Classify this application by EC transaction type.
2. Explain the benefits of Campusfood.com for its student
customers and for the restaurants it represents.
3. Trace the flow of digitized information in this venture.
4. How does the outsourcing of the marketing activities
contribute to the business?
5. What is the benefit of the Titan Poker contest to the
company?
REFERENCES FOR ONLINE FILE W1.4
Campusfood.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 Doesnt Do It. Wall Street Journal,
July 17, 2000.
6 Part 1: Introduction to E-Commerce and E-Marketplaces
ONLINE FILE W1.5
ORGANIZATIONAL RESPONSES
Strategic Systems. Strategic systems provide organizations
with strategic advantages, enabling them to increase their
market share, better negotiate with their suppliers, or pre-
vent competitors from entering into their territory. There are
a variety of EC-supported strategic systems. One example is
FedExs tracking system, which allows FedEx to identify the
status of every individual package, anywhere in the system.
Most of FedExs competitors have already copied the FedEx
system. In response, FedEx has been forced to continuously
introduce EC innovations, but so are its competitors, espe-
cially UPS.
Agile Systems. Agile organizations have the ability to con-
sistently improve productivityespecially during periods of
change. To create business agility, organizations use IT
in general and EC in particular. The solution provided by EC
enables capitalizing on changing industry, government,
and business requirements; assimilating required resources
and business processes quickly to meet demand; promptly
adapting technology to fit new or modified business
processes; leveraging existing resources to do the above;
and doing it all economically.
Continuous Improvement Efforts and Business Process
Restructuring and Management. Many companies continu-
ously conduct programs to improve their productivity, quality,
and customer service. Two examples of how EC can help are
Dell 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-based
monitoring system, Intel tracks the consumption of its
products by a dozen of its largest customers in order to plan
production schedules and deliveries.
However, continuous improvement programs may not be
a sufficient solution for some business problems. Strong busi-
ness pressures may require a radical structural change. Such
an effort is referred to as business process restructuring or
reengineering (BPR). E-commerce is frequently interrelated
with process restructuring that may be needed for implemen-
tation of EC initiatives such as e-procurement.
Customer and Partner Relationship Management. One of
the major symptoms of the digital revolution is that the bar-
gaining power of customers is stronger than ever, and that
power is growing. The availability of information and the
ability to make quick comparisons online (e.g., froogle.com)
increases this trend. Customers are called kings and
queens, and organizations must make their customers
happy in order to keep them. As discussed in Chapter 13 and
in Online File W1.6, this may be accomplished through
customer relationship management (CRM).
EC is not just about buying and selling. Supporting
CRM, as we will see throughout the book, and especially in
Chapter 13, is a major function of EC. Such support is done
by multiple technologies, ranging from computerized call
centers to intelligent agents. Some of the e-CRM topics
highlighted in this book are sales-force automation, call
center tools and operations, personalization, empowerment
of customers and frontline employees, support of mobile
employees, and partner relationship management.
Business Alliances. Many companies realize that alliances
with 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 called
Covisint (see Chapter 6). Other types of business alliances
include resource-sharing partnerships, permanent
suppliercompany relationships, and joint design and
research efforts. For additional details, see Chapter 14.
Electronic Markets. Electronic markets, private or public,
can optimize trading efficiency, enabling their members to
compete 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 time
reductionshortening the time it takes for a business to
complete a productive activity from its beginning to endis
extremely important for increasing productivity and competi-
tiveness. Similarly, reducing the time from the inception of
an idea to its implementation (time-to-market) is important,
because those who are first on the market with a product or
who can provide customers with a service faster than their
competitors enjoy a distinct competitive advantage.
Extranet-based applications can expedite the various steps in
the process of product or service development, testing, and
implementation. Examples of EC-supported cycle time
reduction are described in Online File 1.8.
Empowerment of Employees. Giving employees the
authority to act and make decisions on their own is a strat-
egy used by many organizations as part of productivity
improvement programs. Management delegates authority to
individuals or teams who can then execute the work faster
and with fewer delays. Empowerment of employees may
also be part of e-CRM. Empowered salespeople and customer
service employees are given the authority to make customers
happy and do it quickly, helping to increase customer loyalty.
EC allows the decentralization of decision making and
authority via empowerment and distributed systems, but
simultaneously supports a centralized control. Empowerment
can also be achieved by using automated decision systems
(see Davenport 2006).
Supply Chain Improvements. EC, as is shown throughout
the book, and especially in Chapters 7 and 13 and
Online Tutorial T1, can help reduce supply chain delays,
reduce inventories, and eliminate other inefficiencies. The
use 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.
Todays 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 changing
manufacturing processes from mass production to mass cus-
tomization (Anderson 2002). In mass production, a company
produces a large quantity of identical items. In mass cus-
tomization, items are produced in a large quantity but are
customized to fit the desires of each customer. EC is an
ideal facilitator of mass customization, for example, by
enabling interactive communication between buyers and
designers so customers can quickly and correctly configure
the products they want. Also, orders placed online can reach
production 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 in
Appendix 2A in Chapter 2.
Intrabusiness: From Sales Force Automation
to Inventory Control. One area where EC has made major
progress in supporting organizational responses is applica-
tions inside the business. As shown in Online File W1.1
on Marks & Spencer and in the Maybelline Case (Online
File 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 the
introduction of EC.
Knowledge Management. Knowledge management (KM)
refers to the process of creating or capturing knowledge,
storing and protecting it, updating and maintaining it, and
using it whenever necessary. Knowledge management programs
and software are frequently associated with EC. For example,
knowledge is delivered via corporate portals to assist users
or to teach employees. Also, EC implementation requires
knowledge, and EC activities such as market research create
knowledge. For more on the ECKM connection, see Chapter 8.
Questions
1. List the major business pressures faced by organizations
today.
2. List the major organizational responses to business
pressures.
3. Describe how EC supports organizational responses to
business pressures.
4. Describe an agile organization.
REFERENCES FOR ONLINE FILE W1.5
Anderson, 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 W1.6
Greenberg, P. CRM at the Speed of Light: Capturing and
Keeping Customers in Internet Real Time, 3d ed. New
York: McGraw-Hill, 2004.
Newman, D. Closing the CRM Loop Through Customer
Data 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 put
together for the first time as e-CRM. CRM has many definitions (Greenberg 2004). A panel of CRM experts, working with
CRMGuru.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. CRM
applications can enable effective Customer Relationship Management, provided that an enterprise has the right
leadership, 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 customer
data 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 between
vendors 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 SERVICES
The Federal Drug Administration (FDA) must be extremely
careful in approving new drugs. However, the FDA is under
public pressure to approve new drugs quickly, especially
those for cancer and HIV. The problem is that to ensure qual-
ity, the FDA requires companies to conduct extensive
research and clinical testing. The development programs for
such research and testing require 300,000 to 500,000 pages
of documentation for each new drug. The subsequent results
and analyses are reported on 100,000 to 200,000 additional
pages. These pages are then reviewed by the FDA prior to
approval of a new drug. Manual processing of this informa-
tion significantly slows the work of the FDA, so that the total
approval 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 company
to scan all related documents into a database. The docu-
ments were indexed and full-text search and retrieval
software was attached to the system. Using keywords,
corporate employees could search the database via their
companys intranet. The database was also accessible, via
the Internet, to FDA employees, who no longer had to spend
hours looking for a specific piece of data. Information could
be processed or printed at the users desktop computer.
These functions enabled the U.S. government to offer an
electronic submission and online review process for approval
of new drugs ( fda.gov/cder).
This system helped not only the FDA but also the com-
panies researchers, who suddenly had every piece of required
information at their fingertips. Remote corporate and busi-
ness partners also could access the system. The overall result
was that the time-to-market of a new drug could be reduced
by up to a year. Each week saved translates into the saving
of many lives and also yields up to $1 million in profits. The
system also reduced the time it took to patent a new drug.
An example of an interesting use of this technology is
the case of ISIS Pharmaceuticals, Inc. (isispharm.com), which
developed an extranet-based system similar to the one
described here. The company uses DVDs to submit reports to
the FDA and opens its intranet to FDA personnel. This step
alone could save 6 to 12 months from the average 15-month
review time. Simply by submitting an FDA report electroni-
cally, the company can save 1 month of review time. To cut
time even further, SmithKline Beecham Corporation is using
electronic publishing and hypertext links to enable FDA
reviewers to quickly navigate its submissions.
Entelos (entelos.com), a biotechnology firm, uses com-
puter software to simulate the behavior of the human body
and predict its response to various drugs. Pharmaceutical
companies approach Entelos with ideas for new drugs,
and Entelos simulates the drugs effect on hundreds of
patients who take the medication in hundreds of different
circumstances. Each trial can involve up to 13,000 simula-
tions. To handle this processing load, Entelos uses grid
computing to use processing power from 145 different
machines spread across its offices. Simulations that used
to take 2 years on a mainframe now take 1 month on the
grid (Metz 2003).
The sports apparel company Fila uses data management
and collaboration software to reduce time-to-market and
product costs while improving product quality and informa-
tion exchange. The solution enabled Fila to better manage
and control access to product data and images throughout its
supply chain. The software also helps Fila gain greater trans-
parency and collaboration in its product development
process, a higher level of product analysis, and a better focus
on delivering the right Fila product to the consumer. For
further details, see Anonymous (2005).
Caterpillar, Inc., connects its engineering and manufac-
turing divisions with its suppliers, customers, and overseas
factories via an extranet-based global collaboration system
(Chapters 6 and 7). Requests for improved design flow are
available electronically to engineering and other related
departments. Cycle time is 70 percent shorter, and there are
fewer delays. General Motors and other car manufacturers
are using EC tools to cut time-to-market by more than
65 percent.
Finally, the Denver Museum of Nature and Science
reduced delivery time of requested information and images
from days to minutes using several EC tools.
Questions
1. How does the computerized drug application system
facilitate collaboration?
2. How are cycle time and time-to-market reduced in each
of these applications?
10 Part 1: Introduction to E-Commerce and E-Marketplaces
REFERENCES FOR ONLINE FILE W1.7
Anonymous. FILA Selects PTC Retail. Time-Compression
Magazine, Nov.Dec. 2005.
Folio. SmithKline Beecham Streamlines Its Drug Approval
Process. folio.de/aktuell/IN300797.htm (no longer
available online).
Metz, C. Grid Computing: Case StudyEntelos. PC
Magazine, January 1, 2003.
Online File W1.8 Benefits of EC
Benefits to Organizations
ECs benefits to organizations are as follows.
Global Reach. EC expands the marketplace to national and international markets. With minimal capital outlay, a company can
easily and quickly locate the best suppliers, more customers, and the most suitable business partners worldwide. Expanding the
base 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 minimized
with EC. For example, by building autos to order instead of for dealers showrooms, the automotive industry is expecting to save
tens 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 and
provides 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 increase
profits. 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 store
would not have enough customers.
Rapid Time-to-Market. EC reduces the time between the inception of an idea and its commercialization due to improved
communication and collaboration.
Lower Communication Costs. EC lowers telecommunication coststhe Internet is much cheaper than VANs.
Efficient Procurement. EC enables efficient e-procurement that can reduce administrative costs by 80 percent or more, reduce
purchase 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. This
allows 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. Company
information can always be current.
No City Business Permits and Fees. Online companies that are not registered businesses with employees do not need any
permits 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 business
partners, 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 an
increased 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 them
to 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 or
weeks. 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 sell
things quickly, and buyers can locate collectors items and bargains.
Electronic Communities. EC allows customers to interact with other customers in electronic communities (Chapter 17) and
exchange ideas as well as compare experiences.
No Sales Tax. In many countries, online business is exempt from sales taxes.
Benefits to Society
The 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 the
roads and reduced air pollution.
Higher Standard of Living. Some merchandise can be sold at lower prices, allowing less-affluent people to buy more and
increase their standard of living.
Homeland Security. EC technologies facilitate homeland security by improving communication, coordination, information
interpretation, 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 services
that 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 information
and technologies with which they can better treat their patients.
ONLINE FILE W1.9
CUTTING ORGANIZATIONS COSTS WITH EC
The following are examples of potential cost reductions due
to 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 costs
between $0.02 and $0.10.
The cost of issuing and processing an airline ticket on the
Web is $1. With a physical system the same transaction
costs $8.
It costs $70 to arrange an average medical appointment,
including lab work, over the phone (counting the time of
the employee involved), but only $10 on the Internet.
Each transaction to process one order of appliances and
other 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 a
customer-service call. Letting the customers do it by
themselves (e.g., track orders using automatic e-mail
reply, use FAQs to answer routine inquiries) reduces the
cost to $1 per inquiry.
Procuring a sales order in large companies can cost
between $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. This
amount can be cut in half if bills are sent electronically.
It costs the U.S. government $0.43 to issue a paper check
versus $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 W1.9
Internet news services, various news items, 19992003.
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
Conferences
Many 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)
Journals
Electronic 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: 15392937)
International Journal of Web Services Research (ISSN: 153983062)
International Journal of E-Business Research (ISSN: 15481131)
International Journal of Electronic Government Research (ISSN: 15483886)
Journal of Cases on Electronic Commerce (ISSN: 15480623)