Analyse the contribution IT makes to the delivery of physical products from online retailers and discuss how this relates to the requirements of the consumer.
Managing Information and Operations
ASSIGNMENT TWO - MG5085
Date of submission: 10th January 2005
Tutor: Mr Mark Henry
Compiled by: Prerna Thakkar
Student Number: 0428819
Table of Contents
Page
Introduction 2
The Reality of E-Commerce 4
Internet Commerce 5
Convenience of Online Shopping 5
Consumer's Demands 7
IT Contribution 8
The Details Behind the Scenes 12
The Customer Perspective 15
Innovation v/s Technological Progress 16
Conclusion 17
Bibliography 19
Word Count 19
Topic A:
Analyse the contribution IT makes to the delivery of physical products from online retailers and discuss how this relates to the requirements of the consumer.
Introduction:
The 'dot-com' era is now fast receding into the past. But, throughout the world, managers are still grappling with turning the e-business concept into a business reality. Companies in some sectors have demonstrated success. In Europe, the low cost airlines such as easyJet and Ryanair have succeeded in migrating the majority of their customers to online booking in the space of a few years, while acquiring many new customers. Other companies have used the internet to gain competitive advantage. For example, the supermarket Tesco has launched a market-leading e-commerce service for customers and also uses the internet extensively for purchasing (Tesco Information Exchange).
Although many start-up companies which adopted innovative business models, have now failed, some are now achieving profitability. For example, now operating profitability across many countries in Europe include lastminute (main focus travel: www.lastminute.com), Kelkoo (consumer retail: www.kelkoo.com) and Wanadoo (Internet Service Provider: www.wanadoo.com). In some traditional industries, the impact of the internet has been immense. Banking, for example, shows that in a seven and half year period (May 1995 - December 2002), the number of households using online banking worldwide increased to 100 million as around 6,000 different financial institutions offered web based banking. (Source: Online Banking Report, Number 89, 10 December 2002). Meanwhile, many business-business companies and governments have found encouraging their customers to use their online services to be much more challenging.
In this 'post-dot-com' era, managers are looking to learn from the experiences of the early adopters, identifying success factors and incorporating best practices while trying to avoid the costly mistakes made by others.
The Reality of E-Commerce:
Most introductions to e-business open with a history of the growth of the Internet, and the predictions of the growth of e-commerce and e-business. E-Commerce is implemented using three technologies: Electronic Data interchange (EDI), Internet Commerce and Electronic Markets.
We limit our approach to covering commercial activities conducted on the Internet. E-commerce offers opportunities to dramatically improve the way that businesses interact with both their customers and their suppliers, that is, to make business negotiations faster, cheaper, more personalized, and more agile.
The number of web users who shop or buy products online is continuously increasing. However, searching and buying products via on-line can be frustrating due to the lack of help or decision support given to the user. Nowadays e-commerce applications are being improved from a first generation stage where buyers are humans who browse through a catalogue of commodities (e.g. books, computer components, films) and make purchases, often by means of a credit card transaction, to a second generation with a greater degree of automation on both the buyer's and the seller's side. The aim of this work was to develop a technology for facilitating 'Business-to-Consumer' (B2C) and 'Business-to-Business' (B2B) processes.
Internet Commerce:
Although the growth in Internet retailing has not turned out to be as strong as predicted in the late 1990s, it is clear that some e-tailers offer distinctive value propositions to certain customers. At the core of any business strategy is the ability to develop a sustainable competitive advantage. Current market leaders, such as Amazon, enhance the shopping experience by providing reviews and making suggestions based on past purchases. However products such as apparel can be difficult for customers to purchase over the Internet because of the need to touch, feel and try on products. Market leaders, like The Gap and cataloguer Lands' End, can be successful because of their prior customer base, strong brand identity, consistent quality and fit and outstanding service and guarantees.
Convenience of Online Shopping:
'Convenience shopping online' is becoming increasingly popular with both adults and young people. Internet may be a good source for bargain hunting. The simplicity of online shopping can lure consumers into making purchases that may not qualify as a good deal. It is therefore imperative to know when a deal is really a deal!
There are advantages and disadvantages to shopping online that are similar to real world shopping. A few of them are listed below:
Advantages:
* The stores are never closed; 24/7 shopping.
* Convenience, no pressure ...
This is a preview of the whole essay
Convenience of Online Shopping:
'Convenience shopping online' is becoming increasingly popular with both adults and young people. Internet may be a good source for bargain hunting. The simplicity of online shopping can lure consumers into making purchases that may not qualify as a good deal. It is therefore imperative to know when a deal is really a deal!
There are advantages and disadvantages to shopping online that are similar to real world shopping. A few of them are listed below:
Advantages:
* The stores are never closed; 24/7 shopping.
* Convenience, no pressure shopping.
* There is no dress code.
* There are no parking woes.
* You don't have aggressive salespeople bothering you.
* Vast resources for product and price comparison are available.
* Access to products and services which are not available in your local stores.
* It can save time, and help you avoid crowds.
All of these advantages do carry a certain value to the consumer. But there are details that consumers sometimes forget when deciding if an online purchase is a good deal, such as, shipping and handling charges, sales tax, restocking fees etc. We shall look at a few.
Disadvantages:
* Finding the product, and choosing a supplier, can be hard, as there are so many websites and online retailers.
* Lack of touch and feel of merchandise.
* You pay shipping costs rather than carry your product home.
* More chances to encounter fraud or mistakes in ordering the wrong item.
* Higher exposure of credit card security.
In short, the consumers must look at the entire purchase amount including shipping charges in order to get a good value on the products purchased as there are a few bottlenecks faced by online shoppers which need immediate attention.
Consumer's Demands:
Well known e-retailers agree that user experience is the brand and are investing a lot of money in technology to enhance the online shopping experience of their customers.
Each of the top 3 e-commerce players has extensively invested in technology to improve customer experience; Amazon for example by further developing and refining its collaborative filtering techniques by allowing product recommendations based on user behaviour.
Still many web retailers' sites have some troubling flaws. The single biggest problem is they don't show customers a broad display of product categories early on. Each time a customer has a negative experience it undermines their confidence in the Internet transaction.
A basic fact of e-Tailing is that all web sites are created equal as far as the "location, location, and location". Some sites are not close to its customers. Business thus makes customer to come back to their stores. The key to this goal is to optimize factors such as efficiency, personalization, socialization, the look and the feel of the site, offering incentives to purchase and security. Customers generally prefer certain specific services relating to the delivery of products in addition to the services offered online while making a purchase such as quick and efficient delivery with the right product delivered at the right place and at the right time.
The recent Office of Fair Trading investigation into the Britain's biggest supermarkets overcharging online shoppers (The Sunday Times, December 12, 2004) has made consumers more anxious about their internet purchases. The consumers had bad experiences shopping online as they either did not receive their products after paying for it in full or were overcharged for the products. Reliability is vital for online success.
IT Contribution:
Understanding the retailing aspect is important to plan a successful e-retail business. However it is equally important to delve into the technology used to make those business plans real. Physical product requires streamlined delivery process. We shall see how IT contributes to the physical delivery of products from online retailers by considering the two main aspects a) The Web Site and b) The Back Office:
a) The Web Site:
The most obvious part of the Internet commerce operation is the website - the e-shop. A web site must attract the customer, display the product and transact the business. A full service e-shop selling tangible goods will normally include:
* Front page which tells the customer clearly what the e-shop does and provides access by a search engine to the rest of the site.
* Company information which details the products and services offered
* The catalogue which details the name, picture, description and price of the goods for sale.
* An electronic shopping basket which holds the goods selected along with the option to conform or return the goods if required.
* Checkout where the customer can pay electronically by providing information about their name, address and payment details to enable delivery of the goods.
To improve the online shopping quality, the online retailers must ensure they fulfil the web site requirements and the e-mail response requirements.
b) The Back office:
However the website is what customers see and where they select their goods. The web site is then connected to the back office system where the payments are processed and the fulfilment of the order is actioned. The e-shop having taken an order needs to ensure that the goods that have already been paid for are despatched rapidly and reliably.
The basic requirement for the back office is a warehouse with appropriate arrangements for the despatch of goods, replenishment of stock and processing of returns. Different servers are required which combine the applications logic and database storage for different requirements. These may be physically separate servers or may be combined.
This can be clearly explained with the help of the following diagram1:
E-Business Architecture for the B2C Company
Payment Catalogue ERP
Web Browser
Web Merchant
INTERNET
Personalisation CRM
The purpose of each of the servers is as follows:
Web server - manages HTTP (Hypertext Transfer Protocol) requests from the customer and acts as a passive broker to other servers. Returns or serves web pages.
Merchant server - This is the main location of the application logic which integrates the entire application by making requests to the other servers.
Personalisation server - provides tailored content and may be part of commerce server functionality.
Payment server - manages payment systems and secure transactions
Catalogue server - A document management server that displays detailed product information and technical specifications.
CRM server - stores information on all customer contacts
ERP server - required for information on stock availability and pricing from the customer. This is also accessed for sales order processing and histories along with logistics for distribution.
Once the order is placed by the customer, EDI transfers the structured data from one business information to another computer system. The typical example would be supermarkets that use the EDI to replenish their warehouses. EDI has also enabled the online retailers to move to just-in-time providing faster speed of transaction, error reduction and cost cutting.
The Details Behind the Scenes:
Apart from merely accepting orders, the online retailers have to face a number of commerce issues; IS supported downstream supply chain management which includes logistics and inventory management (on a local and an international basis). This enables fulfilment of customers' needs and enhancing the online shopping experience.
The key activities of downstream supply chain management are logistics and fulfilment. In addition to being one of the leaders in using technology to improve upstream supply chain management, Tesco is also one of the leaders in using e-commerce for downstream supply chain management i.e. selling directly to customers. Tesco thus operates a strategy of 'disintermediation' bypassing some of the channel partners and reducing the role of its branches. Through being an early adopter, Tesco.com has developed as the world's largest online grocery site. By the end of 2000 annualised sales were running at nearly £300 million, with 48,000 orders per week - the most transactions for any supermarket.
Physical Distribution Service (PDS) is also vital to the success of an internet retailer i.e. the seller. Although a seller may have sophisticated information systems, its survival in the competitive market depends upon its ability to fulfil consumer orders economically. Many unsuccessful e-commerce ventures ignored this premise and devoted a considerable amount of resources to building attractive sites. These businesses failed to realise that consumers do not pay Internet retailers money to visit their sites, but for products that the retailers must deliver. If the e-retailers do not meet or exceed an acceptable level of fulfilment service, they are unlikely to keep their current customers or attract new ones.
Outbound Logistics:
The importance of outbound logistics relates to the expectations of offering direct sales through a website. In a nutshell, logistics is crucial to delivering the service promise established on the web site. A final indication of the importance of logistics is its scale - Philips (2000) reports that e-fulfilment including warehousing, logistics and dispatch of online orders could be worth £5bn per year in the UK by 2008.
Shipping and handling:
Shipping and Handling are parts of the overall area of logistics. Once an order is placed online, physical goods must be delivered to the consumer. From the consumer's perspective, this process appears simple, but it contains complexities of pricing, international concerns, and automation of order handoff from merchant to the shipping company.
Transport and Tracking:
The challenge of distribution companies is to deliver on time and provide services to enable customers to track shipment of products ordered online. There is a large national and international infrastructure for freight and shipping. Companies such as Federal Express, United Parcel Service, Airborne and DHL provide worldwide services. These companies offer automated systems for arranging pickup and shipment of packages. Shipping software creates the appropriate labels, assigns tracking numbers, and schedules pickup and delivery. Customers can track their deliveries on the websites of the respective companies. Thus there is reliance on the Inter Organisational Systems (IOS).
Inventory Management:
In most commercial transactions, the availability of the product plays an important role in the sale. In-face-to-face commerce or a conventional retail store, the product is on the shelf. However for online retailers, the concept is available to promise where the retailer's Enterprise Resource Planning (ERP) system has complete access to the inventory, time in transit, and the scheduled arrival. Online shoppers want to know if they can actually get the products they order. If the required products are not immediately available, buyers will switch to alternatives. IT enables effective inventory management by catalogue integration. The retailer's website is updated periodically with inventory on-hand information. For example, the catalogue uses this information to mark or simply not display items which are out of stock.
MetaPack, established in 1999, specialises in delivery solutions that help retailers to improve service and reduce costs, without reducing carrier rates. The solutions and software enable clients to provide a cost effective and high quality service from a variety of stock locations, irrespective of how a customer order is captured and to where the delivery is to be made.
Outsourcing:
The idea of virtual corporation predates Internet commerce. A virtual corporation may outsource everything: product design, manufacturing, distribution, marketing, accounting and so forth. Many businesses are not virtual but do depend on partners for substantial components.
A good example to mention here would be Ocado, a revolutionary online supermarket service in partnership with Waitrose, which delivers fresh Waitrose groceries to the door step customers in one-hour delivery slots. Ocado has been rated the best online supermarket for overall service in survey 2004 and has also been voted the best online grocery service by Good Housekeeping Magazine 2004.
The Customer Perspective:
Since the advent of the Internet, the possibilities with regard to the distribution of goods and/or services have changed substantially. Firms are able to offer goods/services not only through traditional channels such as retail outlets, but also in an online virtual store. But there is more to it than just the addition of a new channel of distribution.
First, whereas data captured from purchases in traditional stores only collect information concerning the buying behaviour of their clients, online data provides much more information. Clickstream data typically contain the route of prospective clients at the company's website. Subsequently, also the visits that do not result in a purchase of one or more products/services are monitored that makes the customer picture more complete.
Secondly, the Internet makes it possible to outline better client relations. Customer Relationship management (CRM) goes hand in hand with personalization of customer treatments where alternative strategies can be pursued for different segments. Through their website, companies can communicate individually with their current clients and prospects. As a result, products, services and even marketing actions can be adjusted to the profile of visitors in order to influence potential customers' visiting and shopping behaviour.
Innovation v/s Technological Progress:
E-Business presents one of the greatest opportunities and challenges for the retail. Years of fierce competition on the high street means that to be successful, retailers need to examine every aspect of their business to ensure a profitable return on investment. On-line supply chains are becoming the norm and to succeed in electronic retail requires an effective strategy for both B2C and B2B operations, seamlessly integrating existing channels to market with new complementary channels, and whatever the future holds. The cost effective and well-managed integration of existing systems with new systems and new technologies is one of the major challenges that retailers face today in moving towards the future.
Retail managers also believe that having a strategic focus for customers and their requirements will be a decisive factor in ensuring growth, even in saturated markets. Focusing on customer needs and innovation in technology will be the key factors for success in the future. Today's customer is demanding and will demand the best. In order to keep abreast of competition and to lure the customer to visit the website again for further purchases, it is vital for a retailer to have a 'Unique Selling Point'. This could be done in several ways. Offering a tailored design to the customer account and personalising it could attract the customer to re-visit the website. Retailers can also provide discounted offers to their patrons based on the shopping patterns captured on earlier purchases.
Besides offering the above, the retailer must be innovative in its approach to sell the products by adopting smarter and more efficient technologies to make the user experience a memorable one. Innovation could further take the form of technological enhancements enabling the consumer to access the sites to make purchases from a PDA (personal digital assistant) or GPRS enabled mobile phones. This would enable customers to make productive use of their time whilst on the move. With these and many more innovations lined up the possibilities are endless.
Conclusion:
Information Technology brings a combination of new opportunities, challenges, changing cost structures, new customers, and faster response times. E-commerce has already demonstrated its great benefit for both consumers and merchants. As time goes on, the growth of domestic Internet access, and the increasing involvement of mobile devices (m-commerce) will yield more potential customers. Nonetheless, security clearly represents a significant concern given the range of potential threats and the limited extent to which suitable precautions are followed in some cases.
While e-retailing is less turbulent than in previous years, we can conclude that the future of e-retailing will largely be in the hands of the multi-channel operators. The onus is upon operators to make appropriate use of technologies to reduce risk, and to assist in improving customer awareness of genuine risks in order to increase their confidence in using the services. Learning from the dynamics of population growth, entrepreneurs can evaluate the market they are attempting to enter, determine which stage on the evolutionary model dominates the environment and then understand where the competitive pressures will lie.
The IMRG says that by 2009, a quarter of all UK shopping will be conducted via the internet or mobile devices, in a market worth £80bn. A further 20% of purchases will be influenced by online research. The question is what kind of growth we will see. And what of the one in five UK residents who have never shopped online? Clearly the online retail market is changing the landscape of mainstream retail!
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Source: Chaffey, D. (2002) E-Business and E-Commerce Management, 2nd edition (p.481)