CMT302 E-commerce & Innovation
Session 3:
Strategic and Managerial Aspects, Challenges and Trends
Office: C/2.02
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Learning Objectives
• Examine a variety of strategic and tactical aspects, challenges and trends in:
– Strategy formulation and transformation
– Supply chain (SC)/ supply chain management (SCM), including
‣ Lean thinking ‣ Collaboration
– Order fulfilment ‣ Delivery
‣ Other trends: logistic postponement, aggregation,
dematerialisation, etc.
Case Studies
– EC as main channel
– RFID as key enabler in SCM – RFID use in e-tailer
How the Internet and the Web Change Business…
Diversity of strategic and tactical problems and decisions
Factors that determine the nature of strategic problems:
Nature of industry
Current trends
Nature of enterprise
Current circumstances (external and internal)
Organisation’s environment
How the Internet Influences Industry Structure: ’s 5 Competitive Forces
E-Commerce and Businesses
• Changestobusinessplayers
• Changestobusinessprocesses • Changestobusinessproducts
E-Strategy Initiation Issues and Dilemmas
Issues in E-Strategy Initiation
– Be a first mover or a follower?
– Born-on-the-net or move-to-the-net?
– How to determine scope?
– Have a separate online company?
– Have a separate online brand?
Issues in E-Strategy
• channel conflict: internal and external • pricing
Internal conflict (e.g. in ‘click-and-mortar’ business environment)
How to Handle Conflict Between the Off-Line and Online Businesses?
• Clear support by top management for both the off-line and online operations and a clear strategy of “what and how” each unit will operate are essential
• Sell some products only online
• Avoid channel conflict entirely by not selling online (e.g. use the website for promotions or information only) !9
Issues in Strategy Formulation: INTERNAL Channel Conflict
Issues in Strategy Formulation: EXTERNAL Channel Conflict
• External channel conflicts, e.g. with partners, distributors, etc.
– How to handle channel conflicts?
• Let the established distributors handle e- business fulfilment
• Provide online services to intermediaries (e.g. by building portals for them) and encourage them to re-intermediate themselves in other ways
• Sell some products only online
• Avoid channel conflict entirely by not selling
online (e.g. use the website for promotions or information only)
Mini Case Study 1
“I’m shopping from over here…”
“High street chain Argos is to close 75 stores and shift its hefty catalogue to a “supporting role” as it focuses on online sales in an effort to rejuvenate the struggling business.”
Telegraph, 24 Oct 2012
Trends in strategy
Trends in strategy
Mini Case Study 2
Pricing Strategy (cf. Porter’s buyers’ bargaining powers?):
Price comparison is easier
– Buyerssometimessettheprice
– Onlineandoff-linegoodsarepriced
differently
Differentiated pricing can be a pricing strategy (e.g. “special services”)
Issues in Strategy Formulation:
E-Strategy Formulation
Pricing strategy
Supply Chain: aspects, issues and current trends
Aspects and challenges of SC
• Multi-tier supply chain:
➡ primary, secondary, tertiary suppliers
• Visibility:
➡ extent to which purchasing companies can monitor second- and
third tier supplies activities • Demand forecasting:
➡ informing suppliers of future demand • Production scheduling:
➡ informing suppliers of production schedule • Demand forecasting:
➡ informing suppliers of future demand
• Order management:
➡ keeping track of orders to your suppliers
• Logistic management:
➡ managing logistic partners based on the production schedule
Trends in SCM
Lean, mean, green
• Simplification of SC:
➡ reduce the size of the SC and working more closely with a smaller group of strategic supplier firms to reduce both costs and admin costs, while improving quality
➡ tight coupling: ensure the suppliers precisely deliver the ordered parts, on time and to a particular location
• Adaptive SC:
➡ allow companies to react to disruptions in the supply chain in a particular region, e.g. by moving production to a different region
• Sustainable SC:
➡ use most efficient environment-aware means of production, distribution, and logistics.
• Leanisamindset,awayofthinkingabouthow to deliver value to the customer more quickly by finding and eliminating waste
• Wasteisanythingthatimpedesqualityand productivity
• Thephilosophyisexpressedasasetof principles that have proven remarkably applicable to a wide range of business activities
• Appliedinsupplychain,theoffice,engineering, and software development
History of Lean
• Lean originated in competition to mass production
• popularised mass production in 1913 with the assembly line manufacture of the Model T
• Manufacturing process divided into small steps, relying on high-precision machinery and interchangeable parts
• Drawback: inflexibility – it is only economical if producing large numbers of the same thing
History of Lean
• In 1945, the “Toyoda” Motor Company was trying to compete with the US
• It was clear mass production would not work as there was a demand for variety – from small economical cars to larger, luxury cars
• The “Toyota Production System” (a Lean approach) was introduced and by the early 1990s, Toyota was 60% more productive and produced 50% fewer defects than its non-Lean competitors
• According to , the innovator at Toyota, this advantage rested on two pillars: Just-In-Time and autonomation
Just-In-Time
• In the 1950’s Japanese delegates from Toyota visited American businesses to study their methods
• They visited Ford and were not impressed by the large amounts of inventory and unevenness of the amount of work performed in different parts of the factory
• However, on visiting a supermarket, they were impressed with the way products were reordered and restocked only after customers had purchased them
• This pull approach inspired creation of “Just-In-Time”, which strives to keep inventories at each manufacturing step as low as possible
Autonomation (Jidoka)
• Combination of the words autonomous and automation. It describes machines that automate a process but are also intelligent enough to know when something is wrong a stop immediately
• This machine can run unattended (autonomously) while providing workers with confidence that it is operating flawlessly
• When it detects an abnormal condition, the machine stops itself and everyone’s attention focuses on finding the route cause of the problem and fixing it so it will not recur
• This prevents the production of defective components that would otherwise disrupt the production line or result in more costly rework at a later stage
Waste (Muda)
The overarching goal of Lean production is to deliver value to the customer more quickly, and the primary way to achieve this is to find and eliminate waste
DOTWIMP: The 7 Deadly Wastes
– Defects: prevent them instead of the “find and fix” mentality
– Overproduction: producing more than is needed (e.g. unused functions, storage of materials)
– Transportation: unnecessary movement of parts between processes
– Waiting: people or parts waiting for the next production step – assembly is not moving!
– Inventory: work in progress and finished products that are not being processed…danger of obsolescence
– Motion: Excess motion, from the perspective of less than ideal employee ergonomics
– Processing: over processing beyond the requirements of the customer. This adds cost without adding value
Value Stream
• A key Lean activity is to break down a process into a map of its individual steps and identify which steps add value and which steps do not – the waste
• This is known as value stream mapping
• The goal is to eliminate waste (muda) and improve the value- added steps (kaizen)
• This is further divided into two categories: non-value added but necessary, and pure waste
• Two Lean skills: knowing what the customer values are, and knowing how to spot waste – EXCELLENT CONSULTING SKILLS!!
Lean Speak
– Means “light” in Japanese. A visual device that gives the
current status of a production system (green/yellow/red)
– Autonomation. The ability of a machine to detect its work and operation and to notify a human if a problem is detected
– The continuous, incremental improvement of an activity
to create more value with less waste
– A signalling system used to signal the need for an item
– Waste that consumes resources but produces no value
Lean Principles
• Modern day Lean has settled on five principles
– Value (as defined by the customer)
– Value stream (series of steps to produce
the product)
– Flow (keep things moving forward)
– Pull (let customers pull products (value))
– Perfection (strive for it by continually identifying and removing waste)
Collaboration
Now, that’s what we call ‘collaboration’!
Case study
RFID as Key Enabler
in Supply Chain Management
• radiofrequencyidentification(RFID)
Tags that can be attached to or embedded in objects, animals, or humans and use radio waves to communicate with a reader for the purpose of uniquely identifying the object or transmitting data and/or storing information about the object
• Use of RFID is widespread.
• Some examples:
– Starbucks
– DeutschePost(Germany)
– theFederalGovernment(U.S.Departmentof Defense)
– Pharmaceuticals
– Youhavecarrysomethingonyoutoday(doubt though that this can be used for supply chain management…)
BUT: Amazon Swansea FC doesn’t use RFIDs!! Why do you think that is?
RFID at Walmart and its Suppliers
The 7-Step Process
(Turban 2012)
RFID Use in E-Tailer
http://fortune.com/2014/06/02/yoox-fashion-luxury/
RFID and Digital Supply Chain
(Turban 2012)
RFID and CPFR as Key Enablers
in Supply Chain Management
• collaborative planning, forecasting, and replenishment (CPFR)
Project in which suppliers and retailers collaborate in their planning and demand forecasting to optimise flow of materials along the supply chain
(Turban 2012)
CPFR Model
Order Fullfilment
What Do Customers Want?
Attractors to Shopping Online
Ease of use
Ethical behaviour of EC company
Convenience
Disillusion with ‘physical’ shopping
Prior exprience
Motivating Factors and Aspects
Ability to pay using different payment methods
a registration/ account already set up
Marketing campaigns notifications
Availability of goods
Price, discounts and special offers
Free delivery
Ability and ease of returning unwanted goods
Figure 5.4: Motivating Factors and Aspects for Online Shopping
Motivators in Online Shopping (N. Edwards 2015)
The analysis of our data showed that “ease of use” and “convenience” were the most
How do these compare with your experience and expectations?
prominent general factors and reasons why our case study participants chose to use
Fi environment:
De-Motivating Factors in Online Shopping (N. Edwards 2015) “Not having any need” to shop for particular goods and/ or on particular websites is
nline shoppers also have a number of factors that deter them from buying online.
Barriers to Shopping Online
g. 5.5 shows factors we have found to be de-motivating in the online shopping
for buying goods
Necessity to register
Need to consider other people
Non-online company offers a better deal
Preference for shopping in physical stores
Lack of physical contact with products
Need to return goods
Having to pay for returns
De-motivating Factors and Aspects
Fear of substitutes
Unethical behaviour Of EC company
Bad prior experience
Technical problems with websites
Not providing clear information
Problems with delivery
Problems with goods availability
Fear of making a mistake
Figure 5.5: De-Motivating Factors and Aspects for Online Shopping
How do these compare with your experience and expectations?
perhaps the most ‘obvious’ demotivating factor. For instance, people with children
Problems in Order Fulfilment
• FromcustomerP.O.V. – timely delivery
– goods availability – order correctness
• FrombusinessP.O.V.
– cost-effectiveness
» warehousing, delivery scheduling
– appropriate infrastructure
– demand forecasting
– third-party logistics
How do these relate to the “Customer” perspective?
• Same day (or even hour) • Click and collect
» in store, lockers, small shops
Is there such a thing as ‘Free Delivery’
http://www.bbc.co.uk/news/business-38966692 43
Delivery: Logistics Solutions
• Partnerships and outsourcing
– Comprehensive Logistics Services – Integrated Global Logistics Systems
• Like with free delivery, customers want it as convenient as possible as well as for free.
• However:
Google for:
FT uk retailers counts the cost of return
Returns: Fact and Figure
FT: “UK retailers count the cost of returns”
• “The average returned purchase in the UK passes through seven pairs of hands before it is listed for resale.”
• “It can cost double the amount for a product to be returned into the supply chain as it does to deliver it, says Iain Prince, supply chain director at KPMG, the consultancy firm. He points to the online purchase of a coat, for instance: To pick and deliver an order costs between £3 and £10 — it could cost double or treble that to be processed on the way back.”
Returns: Fact and Figure
https://www.twenga-solutions.com/en/insights/e-commerce-europe-2016-facts-figures/
• [Dependsonthetypeofgoods,apparelistypicallythe highest; and also where you look]:
– Germany-between20%and70%(!)
– UK-25%-40%
• AhighpercentageofpeoplewouldNOTbuyifthereis
no return option
Returns: Solutions?
• Not easy, as a balance is needed to mitigate the costs against customer acquisition and retention.
• Supporting services and innovative technologies
Returns: Solutions?
• Back to partnership and alliances with logistics providers
• And also back to “Click and Collect”, but now “Click (or not) and Return”
Availability and Correct Products
Accurate forecast
Accurate management
Appropriate (and up-to-date) technology But ensuring profitability:
– costs of warehousing, technology
More Solutions to Order Fulfilment Problems
Solutions to
Order Fulfilment Problems
• Improvements in the Order-Taking Process – Improve the order-taking process and its links to
fulfilment and logistics
» fully automated order taking without the need for human intervention
– Implement linkages between order-taking and payment systems
» electronic payment systems (discussed in more detail later in the module)
Warehousing and Inventory Management Improvements
– Warehouse Management System (WMS) – Inventory management systems
– Automated Warehouses
– Wireless Technologies
» Using RFID to improve WMS
– (case study on the use of RFID by yoox.com discussed
– also, Amazon’s warehouse automatisation
Solutions to
Order Fulfilment Problems
Solutions to Order Fulfilment Problems
• Changes in the supply chain
– from traditional linear to hub-based
Innovative e-fulfilment strategies: Logistics Postponement
• Merge-in-transit
(Lee and Whang 2001)
Innovative E-Fulfilment Strategies: Logistics Postponement
• Rolling Warehouse
(Lee and Whang 2001)
Saving transportation costs by pooling resources between companies.
– Cooperation of two or more companies to exchange resources
– Using logistics service providers » e.g. FedEx, UPS
– or e-commerce aggregators » e.g.
(Lee and Whang 2001)
Innovative E-Fulfilment Strategies: Resource Exchange
Innovative E-Fulfilment Strategies: Aggregation Examples
Planning shipments based on a combinations of size (and/ or value) of the order and geographic location
– Delivery-Value Density decision support tool
» computed by dividing average total monetary volume of the shipment per trip by the average travel distance per trip.
» the larger the density value, the better
» e.g. delivery to specific geographic area on specific days of the week
(Lee and Whang 2001)
Innovative E-Fulfilment Strategies: Leveraged Shipments
Complete replacement of a physical product by information
– digitisation of products that can be digitised: electronic greeting cards, software, publications, documents, music, videos, photos, stamps, bills, receipts, money, and some services
Innovative E-Fulfilment Strategies: Dematerialisation
(Lee and Whang 2001)
Innovative E-Fulfilment Strategies: The Clicks-and-Mortar Model
– e.g. delivery and/ or returns to the brick-and-
We have already discussed earlier: mortar store
– However, ‘pure-play’ business models will need to have an alternative solution (e.g. through a partnership)
(Lee and Whang 2001)
Gig Economy
Source: http://rall.com/comic/the-gig-economy
Future work: CRM
“A customer service approach that focuses on building long-term and sustainable customer relationships that add value both for the customer and the company”
(Turban 2012)
eCRM – Customer Relationship Management conducted electronically
Further Reading
• E. Turban’s and D. Shaffey’s textbooks – chapters on SC/ SCM, order fullfillment, eCRM, and other support services.
• Lee, H. L., & . (2001), “Winning the last mile of e-commerce,” MIT Sloan Management Review, vol. 42, no. 4, pp. 54–62, 2001
• Rad, H. S., Ghorabi, M., Rafiee, M., & Rad, V. S. (2015). “Electronic Customer Relationship Management: Opportunities and Challenges of Digital World”. International Journal Of Management, Accounting & Economics, 2(6), 609-619.
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