CIPS Procurement topic

eCommerce

ECommerce offers a wide range of benefits to customers and to businesses, including cost and time savings (Laudon and Laudon, 2007).

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eCommerce - CIPS Procurement Topic

Introduction eCommerce refers to online transactional processes such as buying, selling, transferring, or exchanging products, services, and/or information via computer networks (CIPS: Electronic Commerce and e-Business). The term can be applied to a website that serves only as an electronic company brochure, or an entire firm conducting all operations online (Tapp, 2002). The term 'electronic commerce' first started to appear in the 1970s, along with the emergence of activities with electronic support. eCommerce, as an area of business, was made possible by the widespread use of the Internet, not just by organisations but also by private households and individuals. E-mail and electronic data interchange (EDI) were the first crucial concepts enabling business to be conducted over the Internet (Wigand, 1997).

eCommerce aims to reduce the cost of purchasing and transactions which is difficult to achieve in traditional markets. Before the purchase is made, Internet technology may reduce the cost of search and comparison of suppliers, products and prices. During purchase and transaction, eCommerce can reduce communication costs. After the transaction, eCommerce allows further time and cost savings as the existing data, order and transaction history can be used to update the product, re-order, replenish inventory in a simple one-to-two-stages process, update accounting records etc. (Lucking-Reiley and Spulber, 2001).

In the area of purchasing and supply management, the use of eCommerce is embedded in Electronic Data Interchange (EDI) – the widely accepted method of electronically exchanging business documents between partners in the supply chain. As the use of e-Technologies in purchasing and supply chain management is continuously extending on to other functions, EDI is today merely one aspect of e-business in this field. Other functions include accessing data about products finding suppliers and advertising products (CIPS: Electronic Commerce and e-Business).

Definition eCommerce refers to the technology-mediated exchanges and transactions between parties, as well as to the electronically based intra- or inter-organisational activities that facilitate such exchanges (Rayport and Jaworski, 2003). It is generally considered a subcategory of e-Business (Jelassi and Enders, 2004; Timmers, 2005) and sometimes the two terms are used inter-changeably (CIPS: Electronic Commerce and e-Business).

Successful Application The key components of eCommerce are the website and the use of Internet technology (Rayport and Jaworski, 2003). Great attention must be dedicated to the website, including its design, hosting and maintenance. It is also crucial to understand the website's target audience and the overall goals. The domain name should be easy to remember, easy to spell and offer a clear signal of the type of business. There are some decisions to be made regarding software as well. Companies can chose to build the software from scratch or buy a package solution. A

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eCommerce - CIPS Procurement Topic

frequent choice is to get a third party to build a website according to individual requirements and specifications. Having an online presence also means an ongoing commitment. The website must be maintained, updated, overhauled. In addition, particular attention must be devoted to security and data protection issues (BusinessLink, 2011).

Steps to Successful Application • Plan for eCommerce: outline the major objectives for establishing eCommerce activities

and their costs, using an e-marketing plan.• Identify eCommerce opportunities: how will it be used for direct sales, pre-sales, and post-

sales support?• Make a user-friendly eCommerce site: consider the shop front, the shopping cart, and the

payment software platform.• Develop relationships with trading partners: consider using eCommerce as a strategy to

build closer links and improved business relationships with key trading partners.• Conduct eCommerce and host/maintain the website: search engine optimisation (SEO) is an

important factor to drive traffic.

BusinessLink (2011)

Hints and Tips • 75% of online shoppers say that good customer service (e.g. delivery times, returns services

etcetera) makes them return to a website for future purchases (Solomon, 2007).• By using existing technology in an optimal way (e.g. virtual models of products that can be

viewed from several angles and shown in different colours), companies can provide morevalue to their customers and websites can be made more attractive to them (Solomon,2007).

• Security is a key concern in e-Business and ensuring the security of end-user data is crucialto maintaining company reputation in the eyes of users (Solomon, 2007).

Potential Advantages • eCommerce offers a wide range of benefits to customers and businesses, including cost and

time savings. It can reduce costs in many aspects of business including informationprocessing, storage and distribution. ECommerce also reduces the time required to executea variety of tasks such as information acquisition and transformation (Kalakota andWhinston, 1996; Jelassi and Enders, 2004; Laudon and Laudon, 2007).

• eCommerce can facilitate the expansion of geographic markets as it makes it possible to sellto customers who are located in different geographic markets more efficiently (Laudon andLaudon, 2007).

• eCommerce can result in more efficient procurement as purchasing and processingactivities can be automated. Improvements in supply chain efficiency are also possible, withreduced costs, smoother communication and quicker turnaround times at various stages(CIPS: Electronic Commerce and e-Business).

Potential Disadvantages • Numerous barriers to eCommerce have been identified, including resistance to new

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eCommerce - CIPS Procurement Topic

technology from business stakeholders and lack of technology skills on the part of both the business and its customers (Kalakota and Whinston, 1996; Jelassi and Enders, 2004).

• The potential scale and geographical benefits of eCommerce can be limited or complicatedby international trade barriers and other government regulations. International cultural differences can also limit effectiveness (Laudon and Laudon, 2007).

• Due to the issue of security concerns many customers prefer to do their shopping offline(CIPS: Electronic Commerce and e-Business).

Performance Monitoring • Unique visitors: the number of individual people visiting the site during a reporting period

(BusinessLink, 2011)• Bounce rates: visits that consist of a single-page view (i.e. visitors do not navigate beyond

the landing page). It is the ratio of these visits to the total number of pages on the site orwithin a specific group of page visits, which might be a group of products on an eCommercesite (BusinessLink, 2011).

• Average order value: the total value of sales divided by the number of individual orders(BusinessLink, 2011).

• Conversion rate to goals: the percentage of visitors who complete target actions such asregistering for more information, signing up for a newsletter, completing a purchase orasking for a price quote (BusinessLink, 2011).

• Pages visited and browsing time: what pages are visitors looking at and how long do theyspend on each page? (BusinessLink, 2011

Case Studies • RS components, a UK-based supplier of MRO (maintenance, repair and operation) products,

has been using eCommerce successfully since 1997. This allowed the company to reducetransaction costs for low-value orders which represent the main portion of its business. RStakes an order average every 10 seconds and its annual turnover is £760m, of which 6% isgenerated through eCommerce (CIPS: Electronic Commerce and e-Business).

• Watford Electronics, a UK-based computer seller, launched its first website in 1997 and hasover the years invested almost £2m in it. Today the website gets over 5m hits each month,and around 50% of orders are received online. The average order value is currently around£130 (CIPS: Electronic Commerce and e-Business).

• In 2000 Tesco announced it would triple the number of stores that offer online shoppingafter the company registered an enormous demand for its eCommerce web portal 'TescoDirect'. This expansion of the online shopping service enabled Tesco to create 7,000 newjobs in 2000 (BBC News,

Further Reading/References CIPS Source Downloads • CIPS: Electronic commerce and e-Business

Web Resources • China: the world's most valuable eCommerce opportunity

://www.economist.com/node/21540260• ECommerce at The Guardian http://www.theguardian.com/technology/efinance

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eCommerce - CIPS Procurement Topic

• China's king of eCommerce: Alibaba Group http://www.economist.com/node/17800299• European Commission’s eCommerce Directive

http://ec.europa.eu/internal_market/eCommerce/directive/index_en.htm• WTO portal on eCommerce http://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm

References • Bakos, Y. (2001) The Emerging Landscape for Retail eCommerce. The Journal of Economic

Perspectives, Vol. 15(1), pp. 69-80.• BBC News (2000) Tesco Expansion Creates 7,000 Jobs. [online] Available at:

(news.bbc.co.uk/1/hi/business/610077.stm) [Accessed 20 November 2011].• Brynjolfsson, E., Hu, Y. and Smith, M.D. (2006) From Niches to Riches: The Anatomy of the

Long Tail. Sloan Management Review, Vol. 47(4), pp. 67-71.• BusinessLink (2011) ECommerce. Gov.uk Web Portal. [online] Available at:

www.businesslink.gov.uk/bdotg/action/layer?topicId=1073866263 [Accessed 20 November2011].

• Curran, K., McCartney, D. and Elder, K. (2006) The Power of Long Tail. Journal ofInformation Technology Impact, Vol. 6(3), pp. 129-134.

• Jelassi, T. and Enders, A. (2004) Strategies for e-Business: Creating Value Through Electronicand Mobile Commerce. FT/Prentice Hall: England.

• Kalakota, R. and Whinston, A. (1996) Electronic Commerce: A Manager's Guide. Addison-Wesley: Massachusetts.

• Klueber, R., Alt, R. and Osterle, H. (2000) Implementing Virtual Organising in BusinessNetworks: A Method of Inter-Business Networking. In Y. Malhotra (Ed.) KnowledgeManagement and Virtual Organisations. Idea Group Publishing: Hershey, PA.

• Laudon, K. and Laudon, J. (2007) Essentials of Management Information Systems: Managingthe Digital Firm. (8th Ed.) Prentice Hall: Upper Saddle River.

• Lucking-Reiley, D. and Spulber, D.F. (2001) Business-to-Business Electronic Commerce. TheJournal of Economic Perspectives, Vol. 15(1), pp. 55-68.

• Mellahi, K. and Johnson, M. (2000) Does it Pay to be a First Mover in eCommerce? The Caseof Amazon.com. Management Decisions, Vol. 38(7), pp. 445-452.

• Rayport, J. and Jaworski, B. (2003) Introduction to eCommerce. (2nd Ed.) McGraw-Hill: NewYork.

• Rudzki, R.A., Smock, D.A., Katzorke, M. and Stewart, S. (2006) Straight to the Bottom Line. JRoss: US.

• Solomon, M.R. (2007) Consumer Behaviour. Buying, Having, and Being. (7th Ed.) PearsonPrentice Hall: Upper Saddle River, N.J.

• Standifird, S.S. (2001) Reputation and eCommerce: eBay Auctions and the AsymmetricalImpact of Positive and Negative Ratings. Journal of Management, Vol. 27(3), pp. 279-295.

• Tapp, A. (2002) Principles of Direct and Database Marketing. (2nd Ed.) FT/Prentice Hall:London and New York.

• Timmers, P. (2000) Electronic Commerce: Strategies and Models for Business-to-Business.Wiley: Chichester and New York.

• Turban, E. (2008) Electronic Commerce: A Managerial Perspective. Pearson/Prentice Hall:Upper Saddle River.

• Wigand, R.T. (1997) Electronic Commerce: Definition, Theory, and Context. The InformationSociety, Vol. 13(1), pp. 1-16.

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eCommerce - CIPS Procurement Topic

Video Evolution of eCommerce

://www.youtube.com/watch?feature=player_embedded&v=LW4X3b_j0eE

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eCommerce - CIPS Procurement Topic