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Supply Chain Management: An International Journal

E-business strategy development: an FMCG sector case study


M. Webster R. Beach I. Fouweather
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To cite this document:
M. Webster R. Beach I. Fouweather, (2006),"E-business strategy development: an FMCG sector case study", Supply Chain
Management: An International Journal, Vol. 11 Iss 4 pp. 353 - 362
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Case study

E-business strategy development: an FMCG


sector case study
M. Webster, R. Beach and I. Fouweather
University of Bradford School of Management, Bradford, UK

Abstract
Purpose – This paper sets out to discuss the development of an e-business strategy by a UK soft drinks company. It is based within the Fast Moving
Consumer Goods (FMCG) sector (also known as Consumer Packaged Goods), which is characterised by powerful retailers, tier-1 suppliers of industrial
end-products and ingredient/raw material producers further upstream. The paper aims to examine the tensions created at tier-1 level relating to the
adoption of e-business solutions for B2B activities.
Design/methodology/approach – The paper draws on the literature to describe the technological options for achieving e-commerce, focusing
particularly on Electronic Data Interchange (EDI) and internet-mediated e-commerce. It then explores the current uptake of e-commerce, and the drivers
and barriers that relate to its adoption. The theoretical issues identified are explored empirically using data gathered from a case study of Princes Soft
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Drinks. A detailed survey of organisations within its supply base was conducted in order to inform the development of its future e-business strategy.
Findings – The results of the survey indicate a lack of enthusiasm among Princes’ supply chain members for the adoption of e-commerce generally and
for internet-mediated e-commerce solutions in particular.
Research limitations/implications – The empirical survey is limited to the UK soft drinks sector and allows for the development of descriptive
findings. These findings, discussed within the theoretical context of the paper, have potentially wider implications for the FMCG sector as a whole.
Practical implications – The work has significant implications for the development of Princes’ e-business strategy, and – by extrapolation – for other
companies operating in similar commercial environments.
Originality/value – The paper reports original empirical research in the commercially important FMCG sector. Its value stems in part from the
examination of the supply chain tensions created at tier-1 – between powerful e-committed retailers and e-reluctant industrial suppliers.

Keywords Electronic commerce, Internet, Fast moving consumer goods

Paper type Case study

Introduction base, i.e. for inbound procurement, and with customers for
transactions relating to their procurement activity.
Electronic commerce (e-commerce) refers to the conducting In the current business environment the adoption of e-
of business transactions over electronic/computer networks, commerce is seemingly unavoidable – “ . . . e-commerce is no
including the internet, (Barnes and Hunt, 2001) and longer an alternative, but an imperative. [However] many
therefore encompasses processes related to the buying, companies are struggling with the most basic problem: what is
selling and trading of products, services and information, the best approach for establishing and doing business in the
(Gunasekaran et al., 2002). There has been considerable digital economy?” (Lee, 2001, p. 349). This suggests that, in
publicity given to the use of e-commerce in business-to- moving into an e-commerce business environment – over
consumer (B2C) markets, where transactions involving such which there is little choice – there is a need to develop an e-
activities as ordering goods, personal banking and share business strategy that will inform and direct future operations.
trading are becoming increasingly commonplace. However, Lee goes on to argue that in addressing this problem, there is
the use of e-commerce for business-to-business (B2B) no simple prescription or established business model for
transactions has been widely identified as an area with companies or industries and that developing an e-capability
significant potential for cost saving and future revenue often entails making a paradigm shift, radically altering
generation (Barnes and Hunt, 2001). For businesses, B2B traditional approaches to doing business (Lee, 2001). It
can mean electronic interaction with members of the supply follows that the development of an e-business strategy is
uniquely challenging and essential. Such a strategy should
concern not only the appropriate technology choices of tools
The current issue and full text archive of this journal is available at and solutions, but also the coherence and integration of these
www.emeraldinsight.com/1359-8546.htm choices with other company processes (Cagliano et al., 2003)
and with their wider strategy for supply chain management
(Smart and Harrison, 2002). The empirical component of
Supply Chain Management: An International Journal this paper – presented after theoretical background - explores
11/4 (2006) 353– 362
q Emerald Group Publishing Limited [ISSN 1359-8546]
the situation faced by Princes, a tier-1 supplier in the UK soft
[DOI 10.1108/13598540610671806] drinks industry. It considers the difficulties faced by first tier

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

organisations in the supply chains for FMCG (also known as limited to larger organisations with stable supply chain
Consumer Packaged Goods Cox, 2003/2004), and the structures. It is less popular with smaller organisations or
implications of these for the development of e-business those in non-stable supply networks where the costs of
strategy. participation are prohibitive.
Within the broad definition of e-commerce, it is clear that Increasingly, the internet is being promoted as a means to
there are alternative technological routes by which e- facilitate collaboration between members of supply chains, to
commerce can be achieved – the internet being only one result in cost savings, more efficient operations, improved
possibility. Moreover, both within the literature and in customer service and potential for innovation and new
practice, there is confusion over the terminology used in business opportunities (e.g. Wagner et al., 2003, Hawkins and
this area, with some authors using the term “e-commerce” Prencipe, 2000, Baldwin et al., 2001, Timmers, 2000).
synonymously with that of “e-commerce mediated via the Internet technology differs from conventional EDI technology
internet”, or “I-commerce” (e.g. Manecke and Schoensleben, in several important ways. It is relatively inexpensive. It is
2004, Yen and Ng, 2003). The increasing accessibility of the based on open standards and therefore supports numerous
internet and the wide availability of standard browsers is applications, which can process small transaction volumes
encouraging the expansion of e-commerce via the internet cost effectively and can be configured to accommodate
(Gunasekaran et al., 2002). However, technology options for changes in users with ease (Hawkins and Prencipe, 2000). It
conducting commerce electronically still include telephone, is also a public network that is globally available, providing
facsimile, electronic mail (email), Electronic Data access to customers and suppliers worldwide. Moreover,
Interchange (EDI) together with the internet. Structuring applications are not limited to inter-firm transactions.
their discussion of the impact of e-commerce on operations, Internet and Web technology can be used within the
Gunasekaran et al. (2002) distinguish between the principal organisation to manage workflow, co-ordinate activities and
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contemporary options – email, EDI and the internet. This improve process efficiency through the sharing of information
distinction mirrors the structure of the empirical research (Rowlatt, 2001, Gunasekaran et al., 2002). Intranets, the term
undertaken in support of this paper. The three options are used to describe these private communication networks,
discussed below. secured behind firewalls (Beynon-Davies, 2004) are typically
Email was one of the first applications to run on the internet based on groupware[1] applications (Gunasekaran et al.,
and involves the direct transmission of text messages between 2002). As such, they can be extended to encompass other
2 users. Using email provides the simplest form of e- firms that an organisation has a commercial relationship with.
commerce. It replaces paper, fax and telephone The resulting Extranet configurations can be used to facilitate
communication between members of a supply system closer relationships with customers and suppliers, to improve
(Beynon-Davies, 2004). It is quick and uncomplicated, but the co-ordination of (supply chain) activities, and to improve
lacks the sophistication provided by EDI and internet- communications between the functions and individuals of an
mediated e-commerce solutions. organisation (Davis and O’Sullivan, 1998). The benefits cited
Developed to facilitate business transactions between for internet-mediated e-commerce solutions over proprietary
trading partners, EDI technology provides organisations EDI solutions are summarised as speed, consistency,
with the means to develop e-commerce capabilities and immediate access, lowered transaction costs, flexibility and
thereby to eliminate the delays and errors generally associated extensibility – i.e. the potential to access further applications
with traditional procurement systems. It provides a (limited) via a web-server – (Manecke and Schoensleben, 2004).
collection of standard message formats that businesses may Conversely, internet-mediated solutions are said not to match
use to exchange data including, for example, orders, delivery
the robustness and capacity of EDI for carrying out B2B e-
notes and invoices (Beynon-Davies, 2004). It has been in
commerce (Lee, 2001).
existence for over 20 years and has been championed mostly
Despite the obvious benefits offered by internet-mediated
by large manufacturing and retail companies who use it to link
e-commerce there is little indication that its functionality is
suppliers into their business processes. On the inbound
being widely harnessed in practice (Hawkins and Prencipe,
supply-side of an organisation’s operations, improved record
2000, Wagner et al., 2003). Evidence suggests that smaller
accuracy, lower data entry costs, reduced inventory holdings
businesses, in particular, are failing to appreciate its potential
and improved inventory turn ratios are cited as benefits;
benefits (Williams, 2001) and that the majority of e-commerce
whilst on the outbound demand-side improved
transactions continue to be associated with conventional EDI
responsiveness to orders and enquiries and increased
technologies and larger organisations (Hawkins and Prencipe,
business opportunities are cited (Davis and O’Sullivan,
2000). The following section draws on a range of published
1998).
literature to develop a macro view of the causes of this and of
Unfortunately, the technological solutions developed for
the scale of the problem.
EDI are generally customer led and frequently proprietary in
nature. Standardisation of approaches is restricted (Beynon-
Davies, 2004) and the cost of participation can be high. The adoption of e-commerce solutions in supply
Consequently, EDI technology-enabled e-commerce is chains
typically characterised by closed groups of users whose
transaction volumes are high, as it is these organisations that In order to link with the subsequent empirical work within the
are most likely to benefit from the expected improvements in paper, this section is structured around the perspective of a
operational efficiency. The costs of switching between EDI tier-1 FMCG organisation, interacting demand-side with its
systems are also high (Hawkins and Prencipe, 2000), and this retail customers and supply-side with its ingredient and raw
limits the ability of group members to go elsewhere. As a material suppliers. However, the data, upon which it draws, is
consequence, e-commerce facilitated by EDI has tended to be not specific to the FMCG sector.

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

For some time, EDI has been the technological choice of drawn from multiple sector studies. Table II draws on
large manufacturing and retail companies for managing published literature to develop a view of the factors that are
transactions within their supply chains. (e.g. Beynon-Davies, thought to be influencing decisions to develop e-commerce
2004, McIvor and Humphreys, 2004). For these major capabilities using internet technology. These are classified as
commercial and industrial players, e-commerce has become either drivers or barriers. The drivers for adoption have been
their preferred way of operating and, provided their suppliers categorised as either reactive or proactive, and either strategic
buy-in to the technology, represents an effective and efficient or tactical (Hawkins and Prencipe, 2000).
means of conducting e-commerce. Therefore, for these Hawkins and Prencipe (2000) found that tactical drivers
organisations, there is little need to consider the were the most dominant – particularly the desire to reduce
opportunities offered by the internet. Additionally, it has costs - and that firms were becoming more proactive. A later
been said that the internet has provided no new sales study found that improvements in supply chain relationships
opportunities for FMCG retailers, and that they therefore were considered more important than cost reductions and
have little incentive to develop online interaction (Brown, improvements in efficiency (Clegg, 2001). In this case, the
2000). Although this has been identified specifically at the drivers seem to be strategic rather than tactical in nature. It
demand-side of retailers, it may be expected that they would has also been noted that the approach most frequently
have an equivalent reluctance to develop internet-mediated e- adopted, particularly amongst organisations already
commerce solutions on their supply-side. Thus, there may be conducting business through conventional channels, is
little incentive to move away from the traditional EDI exploratory and experimental (Williams et al., 2001,
interaction with their tier-1 suppliers. Malone, 2001). This suggests that a cautious and possibly
On the supply-side, there is far less consensus and opportunistic view of the technology prevails and that an
important factor influencing the extent and effectiveness with
standardisation of approach. Individual companies may
which e-commerce is adopted may be an organisation’s
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supply many customers – some using EDI, others using


perception of the risks and benefits associated with the
more conventional business approaches. In this situation the
technology.
arguments for considering the relatively flexible and accessible
The preceding sections of the paper have introduced the
internet-mediated e-commerce appear compelling. However,
principal options for developing a B2B e-commerce
evidence suggests that industry is not rushing to adopt e-
capability, and have explored the current status of e-
business and that attitudes are predominantly reactive commerce implementation. In the following section, a case
(Wagner et al., 2003). There is typically a mis-alignment study from the UK FMCG industrial sector is presented.
between internet standard functionality and the traditional in- Analysis of the case supports much of the earlier discussion
house IT infrastructure used to run operations. This creates a and provides empirical evidence of the status of the adoption
reluctance to change which, together with the non-strategic of B2B e-commerce in the supply base of Princes Soft Drinks,
perspective adopted by industry, means that opportunities to UK.
re-shape business around I-commerce are being missed
(Wagner et al., 2003). The scale of the problem has been
highlighted in a number of surveys, which are summarised in
A case from the FMCG sector
Table I. The case study concerns the development of an e-business
Empirical data on the micro reasons manufacturers are strategy for Princes Soft Drinks. It presents a survey of the
apparently so reluctant to adopt e-commerce is scant and company’s supply base, and discusses how the findings of this
typically limited to the identification of generalisable factors informed the strategy development process. By contrast to the

Table I Summary of surveys undertaken into the adoption of e-commerce


Source Findings
e-commerce enquiry conducted by the UK Office for National 70% of smaller businesses in the manufacturing sector were using computer
Statistics (Williams, 2001) technology
Less than 50% had internet access in the food and clothing sector
66% of manufacturers had no immediate plan to develop e-commerce for
selling or buying products
Regional surveys within the UK (Scotland – Wagner et al., 2003; Reluctance on the part of SMEs to trade electronically and to use the internet to
and Wales – Quayle, 2002) achieve this
50% of those using e-commerce were doing so only because of pressure from
their major customers (Quayle, 2002)
European-wide study (Cagliano et al., 2003) Use of internet-mediated e-commerce within manufacturing supply chains
described as “low”
Multiple sector survey of 120 international companies Only 25% of companies recognised the strategic importance of internet
(Dutta and Biren, 2001) technology and were using it to develop new business models by re-engineering
their supply chains and to explore new ways of adding value
International study (Baldwin et al., 2001) More advanced use of the internet in technologically advanced countries such
as UK, France, Germany, USA than those that lack technological infrastructure,
e.g. Slovenia

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

Table II Drivers and barriers to the adoption of e-commerce


Drivers (reactive – R, proactive – P, strategic – S, tactical – T) Barriers
Pressure from others in the supply chain (R) Costs of acquiring and maintaining an e-commerce capability (Quayle, 2002,
Williams, 2001, Clegg, 2001)
Internal pressure to maintain an e-commerce presence (R) Concerns about security and control (Quayle, 2002, Williams, 2001,
Davila et al., 2003)
Re-structuring of the supply chain (P,S) Lack of knowledge of the internet and e-commerce (Williams, 2001,
Wagner et al., 2003)
Exploration of new business models – e.g. the role of Lack of senior management understanding, attitude and vision (Clegg, 2001)
intermediaries and distributors (P,S)
Cost reduction – e.g. transaction processing, inventory Lack of skills/technology/training in-house (Clegg, 2001, Wagner et al., 2003)
holding, purchase price (P,T)
Improved process efficiency – e.g. reduced lead times, Resistance from employees – based on fear, inertia, lack of faith (Quayle, 2002)
improved procurement and production practices and logistics (P,T)
Business process integration – integration of purchasing and Poor availability of external skills (Clegg, 2001)
sales with other business functions (P,T)
Improvements in supply chain relationships (P,S) Resistance from suppliers – unwilling to drop proprietary systems and a lack of
equipment and time (Quayle, 2002)
System compatibility (Clegg, 2001, Davila et al., 2003)
Incoherence and perceived lack of security and flexibility – internet-specific
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(Quayle, 2002)

multiple sector surveys considered in table I, the survey Table III Key components of alternative business eras in retail supply
conducted as part of this study is focussed within the UK soft
Supply chain management era Network era
drinks supply chain. As such, whilst adding to the findings of
previous studies, it also elaborates on them by providing a The age of reason: efficiency The age of possibility: opportunity
more detailed company perspective of the issues. Taking costs out Putting value in
Introverted Customer-focused
Practical context: the FMCG sector Chain starts at the DC
Within the FMCG supply chain a distinction is made between (distribution centre) Chain starts with the consumer
consumers – the end users of a product, and customers –
Logistics productivity Marketing productivity
retailers through which products are sold to consumers (Cox,
Physical distribution Information management
2003/2004). Typically, manufacturers of FMCG products
Economies of scale Network economics
must use retailers to access their consumers and as a
Negative feedback Positive feedback
consequence the balance of power in the tier-1 distribution
channel is on the side of a small number of extremely Focus on volume Focus on value
powerful, competing names, such as Wal-Mart, Marks and Source: O’Keeffe, 2001
Spencers, Sainsbury, Tesco, etc. These organisations, by
virtue of their position in the supply chain, are the change
agents in the FMCG sector, often instigating moves which Tier-1 companies in the FMCG supply chain typically
have profound implications for tier-1 suppliers, e.g. the produce finished products for eventual sale to consumers via
introduction of product tracking using bar coding retailers and as such form the interface between a small
technologies provided suppliers with little alternative but to number of powerful retail customers and a plethora of smaller
do the same. A more recent example is the demands Wal- industrial suppliers of both specialised and commodity
Mart have made on their top 100 suppliers to use RFID products. Thus tier-1 organisations wishing to develop an e-
(radio frequency identification) tagging (Lamb, 2003). If the
business strategy can find themselves in the unenviable
expected savings materialise as expected, other retailers will
position of being squeezed between e-committed retailers on
follow and tier-1 suppliers will have to respond. These
the outbound side and e-reluctant suppliers on the inbound
initiatives reflect a general shift from a focus on volume and
side, a situation with the potential to create considerable
internal efficiency to an external one on value and consumers
tension for the parties concerned.
(O’Keeffe, 2001). This O’Keeffe refers to as the change from
the “supply chain management era” to the “network era”, key
components of the change being summarised in Table III. Princes soft drinks
However, this by no means describes the sector as a whole. The Princes Food Group is wholly owned by the Mitsubishi
The UK soft drinks industry, continues to adhere to the Corporation and is the largest UK supplier of own-label
earlier supply chain management model characterised by processed grocery products. The Soft Drinks division within
fierce price competition, with “powerful buyers and the group is the major supplier of fruit juices, carbonated,
traditionally weak sellers” (O’Keeffe, 2001); i.e. an ready-to-drink and dilute-to-taste soft drinks in the UK. It
environment in which cost reduction is a management principally supplies own-label drinks to major supermarket
mantra. retailers. It is a market where there has been much negative

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

pressure on prices to the extent that suppliers have been organisations that operated a SAP ERP system. However,
forced to cut costs, improve process efficiency and push price whilst SAP is the global leader in providing ERP solutions for
reductions back up the supply chain to lower tier suppliers. large organisations its adoption is far from universal and many
Figure 1 illustrates the position of Princes within its supply companies – large and small – make use of alternative ERP
network. packages. Thus, Princes’ use of this application had been
In 2001 it became clear that Cotts Beverages UK, one of restricted to only a small number of its total supply base (i.e.
Princes’ major competitors, was enjoying business benefits to those that used SAP).
from the implementation of an internet-based supply chain The company was aware of many national and
management software solution (Tinham, 2001). Facing multinational manufacturers that were implementing
intense pressure in the FMCG marketplace, the report that internet-based systems to improve the quality and the value
Cotts were enjoying significant benefits from internet-based of the information that they exchanged with their business
fulfilment generated considerable interest within Princes. If partners, the objectives of such collaborative initiatives being
Cotts’ system was delivering reduced supply chain costs and to improve the overall performance of the supply chain
improved supply chain processes then the ensuing business (Fernie et al., 2000). Faced with this knowledge, the need to
benefits of lower selling prices and improved delivery review supply-side (inbound) transactional mechanisms and
adherence represented a significant competitive threat. the potential threat posed by Cotts, Princes felt compelled to
Since the early 1990s Princes had been communicating explore the opportunities that the new and emerging B2B
electronically downstream with the major supermarket solutions could create within a FMCG supply chain. In
retailers using EDI. Different technological approaches were particular, they were interested in establishing the positions
used for different customers meaning that Princes has had to and views of the organisations within their supply base on the
invest in alternative solutions in order to trade downstream. adoption of possible B2B solutions and what the current and
The use of EDI enabled transactional data to be imported anticipated impact of the internet on B2B communication
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into and exported out of SAP - Princes’ Enterprise Resource and business transactions might be. The results of the
Planning (ERP) system - quickly and accurately. The use of investigation were to inform the development of a B2B e-
EDI, together with the integration of transactional data into commerce strategy that would take the company forward into
Princes’ SAP system, had increased the effectiveness of the the twenty-first century.
company’s outbound, demand-side supply chain. During this As a tier-1 business within an aggressive market, Princes
period however, communication with suppliers had remained was in a very challenging position, squeezed between e-
largely unchanged, relying on a combination of telephone, fax committed customers on its demand-side and potentially e-
and the traditional postal service. During the latter part of the reluctant suppliers on its supply-side. In order to develop and
1990s, Princes had explored the possibility of adopting EDI implement future strategic direction for the use of e-
links with suppliers, but high costs and technological issues commerce in all its B2B interaction, there was an urgent
had prevented its adoption. At this time, with the rise of the need to investigate the existing position of its supply-side
internet, communication with suppliers was increasingly partners, and to determine the prevailing degree of
taking place via Email. Whilst this often proved more enthusiasm for e-commerce.
effective than telephone communication, it was generally
unable to handle the transactional data that was required and Study design issues
this was frequently sent via fax or post. The company began Prior to undertaking this research, Princes’ knowledge of its
to pilot an application called “Business Connector” which suppliers’ views on e-commerce was largely anecdotal. The
used the internet to transmit transactional data between development of future strategy without formal knowledge or

Figure 1 The Princes soft drinks supply network

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

understanding in this area would have been unwise. There the appropriate respondent by name, to encourage their co-
was therefore a critical need to carry out an exploratory study operation and to ask if they would participate in the study. 54
that would yield clear findings for the particular case of this (88 per cent) responded positively and were sent the
supply chain. In the sense that it should allow the company to questionnaire. Of these, 39 completed questionnaires (72
focus on understanding the dynamics present within a single per cent of the 54) were received in time for the subsequent
setting (Eisenhardt, 1989) and to develop an enhanced analysis. Whilst this response does not cover the entire
understanding of real world events (McCutcheon and Princes’ supply base, it is estimated that it represents over 85
Meredith, 1993), the study needed to be case-based. Within per cent of all annual procurement transactions measured by
the development of the case study however, it was considered value and volume. Additionally, the responding organisations
essential to gather the views of as many members of the included all but two of the company’s top 20 suppliers
supply network as possible. Detailed dyadic data relating to a (measured by annual value). The constitution of the
single supplier relationship with Princes, whilst interesting, respondents means that the findings of the research are
would be inadequate for the purposes of this work; it would likely to reflect the views of those suppliers with a high level of
not truly reflect the views of all supplying organisations, nor commitment to Princes and possibly to those that have a
would it necessarily gather the multi-disciplined perspective positive view of e-Business. A research methodology
necessary to inform the development of an e-business incorporating interviews with the collaborating suppliers
strategy. Accordingly, a study design based on the collection would have facilitated a higher level of analysis that would
of data through a supply-base wide survey was considered undoubtedly have led to greater depth of understanding.
most appropriate. However, the primary purpose of the study was for the rapid
Survey research, i.e. the statistical analysis of data gathered collection of data that would inform the development of
by large-scale data collection techniques such as postal strategy. The findings are largely descriptive.
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questionnaires (Barnes, 2001), is the most popular approach


used in OM research, representing approximately 60 per cent Study findings
of the published research in this field (Forza, 2002). A major Of the respondents, 51 per cent indicated that their
advantage of this approach is that the techniques used are organisations had formulated a B2B strategy. Of these,
recognised and largely approved of by the research several had not yet started implementation and most had not
community. Additionally, data collection can be undertaken completed it. Of the strategy-formulators, 33 per cent
quickly and for relatively little cost. The means by which the identified the use of EDI as part of the strategy, and 28 per
questionnaire is administered can have a significant influence cent mentioned the use of their SAP ERP systems within it.
on response rates and hence the value of the results obtained. Business integration with XML-based documents, along with
In this case, care needed to be taken in the design of the the development of websites and portals were other common
questionnaire and also its method of implementation to themes. Of those without a B2B strategy, all indicated that
ensure that as comprehensive picture as possible from the they expected to formulate one. The percentage of this group
supply chain could be built up. looking to their key customers to contribute to the
formulation totalled 63 per cent.
Study methodology and limitations All survey respondents currently used at least two methods
Princes’ procurement strategy had been to work in of communication with their business partners, and the
partnership with a small number of suppliers who majority used at least four methods. The most popular
themselves were major players within their particular methods of communication were email, fax, and phone, used
sectors, and to develop strong relationships with them. As a by 92 per cent, 92 per cent and 90 per cent of respondents
consequence of this consolidation strategy, Princes’ supply respectively. By contrast, use of the internet (excluding email)
base consisted of approximately 100 suppliers. Of these, 61 had only a 13 per cent adoption rate. Whilst the traditional
were selected to take part in the survey. The selection criteria postal service was no longer used by approximately 40 per
applied was that the volume of business from each should cent of the sample, its use remained far more widespread than
exceed 1 per cent of Princes’ annual purchases. A survey non-Email communication via the internet.
questionnaire was designed for which completion would be In line with the literature-based discussion earlier in the
unsupervised. It was structured around the following key paper, respondents’ views of the 3 options were sought: EDI,
email and the internet/websites.
themes and topics:
.
current approaches adopted by suppliers in relation to The adoption of email as a channel for B2B communication
has been rapid and far-reaching and has been described as the
B2B strategy and current communication methods;
.
suppliers’ views of the specific electronic communication primary technical focus for organisations involved in
developing an e-commerce capability (Clegg, 2001). Of the
channels, i.e. EDI, Email and internet/websites; and
.
a section on organisational details. survey respondents, 95 per cent used email and many saw it
as equally essential to business as the telephone or computer.
The majority of the questions were of the “closed” type as It was used for both demand-side and supply-side
these were felt to be most suitable for the easy unsupervised transactions. Transactional security and difficulties of back-
completion of the questionnaire, but where it was thought office integration were considered important issues, but the
that qualitative data might improve the understanding of the speed, ease of use and low cost of email meant that it
issues, “open” questions were also included. remained the preferred medium of many organisations and for
Given the relatively small number of responses possible it many transaction types. It is seen as less useful for payment
was considered important that a high response rate was and invoicing transactions than for transactions such as
achieved. To this end, the 61 supplier companies were notification of order acceptance, dispatch confirmation,
contacted prior to dispatch of the questionnaires to identify forecasting, ordering and acknowledging receipt. Most users

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

process email messages by printing or downloading to private exchanges were the predominant platform used,
spreadsheet software, although 15 per cent of respondents although this may be because many of Princes’ suppliers are
are able to integrate some of the messages directly to internal already hooked into an exchange that has been set up by one
business systems. The disadvantages cited for email included of their competitors. General websites are the second most
the high volumes of email communication (including junk used platform. A wide range of business processes were being
mail), inefficient processing methods and lack of security. The executed through the internet, including both demand-side
percentage of respondents who expect the importance of and supply-side transactions. Examples included ordering,
email as a B2B communication channel to increase numbered order acceptance, dispatch notification, and delivery receipt.
97 per cent. Less common uses are for invoicing, forecasting, and
Of the respondents, 59 per cent were using, or had used, payment. Unlike EDI, the majority of messages transmitted
EDI. Of these, 70 per cent had adopted it because it was a through the internet were processed manually and were not
requirement from their customers. There was no indication of interfaced directly into internal business systems. The most
the importance of this channel for individual businesses commonly cited reason for the lack of adoption of internet
relative to other channels, but intuitively this adoption rate B2B communication was that this did not represent a business
seems high. This may be explained by the relatively high priority. Other reasons included the view that the technology
adoption rate in the FMCG sector as a whole, where – as was still too immature to be of significant benefit, and that
discussed earlier – tier-1 suppliers are frequently required to customers did not want to use it. However, all respondents
use it by the major retailers and distributors who appear to expect its use to increase in the future. As shown in Figure 2,
have the power to force its adoption (Hill and Scudder, perceived benefits of using the internet to communicate
2002). A number of Princes’ suppliers – described as “dual included lower costs, ease of use, high availability of
suppliers” in Figure 1 – are themselves tier-1 suppliers to information, flexibility and speed. These benefits were
retailers and would therefore already be using EDI (e.g. the
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expected to contribute to business benefits such as


sugar suppliers). Others supply to customers in the chemical improved customer service, forecasting and business
industry where use of EDI is relatively high. Additionally it integration, increased processing and labour efficiency,
may have been influenced by the fact that the average stronger business partnerships, and reduced processing
turnover of the responding companies was £372m, suggesting errors, transaction costs and inventory holdings.
that small organisations were not equally represented in the As indicated in Figure 3, perceived disadvantages included
sample. In the survey, EDI is most used for conducting security issues, a lack of universal standards, insufficient
supply-side transactions, with comparatively few on the technical knowledge, loss of personal interaction, and the
demand-side. Of those using EDI, more than 50 per cent inefficiency of the internet. Respondents identified
had interfaced it with their internal business systems. Others technological needs in order to implement internet
either download the EDI output to spreadsheet systems or use communication including requirements for an XML
hard copies. The major reason cited for non-adoption of EDI infrastructure, for software middleware[2] and for
by the other respondents was lack of demand from their integrative hardware.
customers rather than for cost or technology reasons. There
appears to be a possible link between the adoption of EDI and
Study summary
company turnover – with adopters tending to have higher
As summarised below, the study’s findings indicated that the
turnover than non-adopters. Of all respondents, 59 per cent
development of a B2B procurement strategy needed to take
believe that they will be using EDI for business transactions in
account of three key factors:
the future. Only 35 per cent of respondents felt that the
importance of EDI would increase as a channel for B2B Technical issues
communication. Overall, this suggests that the scope for Technical barriers to the implementation of generic B2B
future EDI adoption is limited, with those perhaps that have software solutions were found to be:
already invested in the technology continuing to derive benefit .
the immature nature of the B2B marketplace and of the
from it. The most cited advantage perceived for using EDI is software available within it;
the efficiency gains that derive from its use for transaction . the lack of universal standards for e-Business middleware
handling. Other benefits mentioned – but with much lower that can integrate internal business processes with e-
frequency - included improved partnerships, reduced costs, Business messages and transactions; and
and volume efficiency. Evidence that supports an observation .
a lack of evidence of the ability of B2B software to
made by Hill and Scudder (2002) following their survey of the synchronise supply chains, to improve collaboration or to
use of EDI in the American food industry as a vehicle for deliver sufficient return on investment (Fontanella, 2001).
improving supplier coordination that companies “may see
EDI as a tool for improving efficiencies rather than a tool for Particularly important to Princes was the costs already sunk in
developing supply chain management” (ibid, p. 383). The the company’s ERP system (SAP). This had given the
most cited disadvantages relate to costs, inflexibility and company a high degree of internal integration with many
technical complexity. Others included general poor adoption business processes being automated and capable of sharing
rates, the need for dedicated one-to-one links, the danger of information easily. Thus, MRP, purchasing and accounts
obsolete technology, security and the multiplicity of modules worked together to automate the procurement
standards. process from order generation through to settlement.
Although 67 per cent of respondents claimed to use the Documentation was also generated automatically and could
internet (excluding its use for email) to communicate with be channelled via a variety of media; currently the preferred
partners, only 13 per cent were regularly using internet channel was automated fax. The e-commerce proposal for any
platforms for business communication. Of the adopters, future implementation needed to take account of these issues.

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E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

Figure 2 Perceived advantages of internet communication


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Figure 3 Perceived disadvantages of internet communication

Customer/commercial issues leading edge ERP systems to those using stand alone PCs. It
Competition within the grocery retail industry continues to be was evident that few had coherent strategies for developing
intense and retail customers continue to exert pressure on future B2B initiatives. Thus, any solution reached by Princes
their tier-1 suppliers. Price pressures increased during the had to be capable of operating over a variety of channels and
time in which this research was undertaken. In such a communicating in a variety of formats.
business climate, the justification for capital investment can Furthermore, in order to achieve full integration of the
be problematic. Clearly, this very practical commercial supply chain, information needs to flow seamlessly up and
constraint also applied to Princes’ suppliers. Thus, there down the chain in the same way that using internal business
was a need for solutions that would minimise capital and systems enables the exchange of data within an individual
other forms of investment. organisation. Partnerships incorporating mutual trust are a
Supplier issues prerequisite of securing the open exchange of information
It was clear that the approaches taken to B2B varied between between agents, which is necessary to integrate inter-business
Princes’ suppliers. The technical sophistication of their processes. Cultural change is necessary to develop such
approaches to internal business processes also varied from partnerships, which must be based on trust, collaboration and

360
E-business strategy development: an FMCG sector case study Supply Chain Management: An International Journal
M. Webster, R. Beach and I. Fouweather Volume 11 · Number 4 · 2006 · 353 –362

a unified vision of the supply system. For many of Princes’ Arguably this uncomfortable position is a general feature of
suppliers, the volume of trade does not justify the financial tier-1 supply within the FMCG sector. In addition to
and resource-based investment needed to develop this level of informing strategy development for Princes, this study may
collaboration and for others, the nature of the trading have more far-reaching implications within the FMCG sector
relationship precludes its achievement. High levels of inter- and beyond. For organisations (suppliers) with just one
business integration and collaboration are not considered customer who wants to trade using a particular approach (e.g.
appropriate for all partnerships. Thus the B2B solution for EDI) the associated investment may be seen as too large and
Princes would have to be based around a few key suppliers uncertain. On the other hand, if the supplier has several
(typically those with a high volume of transactions) whilst customers demanding the same approach then the investment
providing functionality for trading with others. may more easily be justified. Where customers demand
different approaches, the supplier must apportion the
Discussion and conclusions investment among the different relationships. This process
of investment may ultimately lead to structural changes within
The constitution of the respondents to the Princes survey the industry via the development of a range of tier-1 supplier
means that the findings of the research are likely to reflect the types, defined by their approach to the use of e-commerce. At
views of those suppliers with a high level of commitment to one extreme will be small specialised suppliers using the same
Princes and possibly to those that have a positive view of e- solution across all their relationships, and at the other will be
commerce. Given this, the findings are somewhat depressing. large organisations that can afford to maintain several means
The lack of enthusiasm for e-commerce in general and for of electronic trading. As a supplier, Princes falls within the
internet-mediated solutions in particular, supports the latter category, whilst the majority of its own suppliers fall into
evidence summarised earlier in the paper that industry is the middle ground of having multiple customers, insufficient
not yet ready for full scale adoption of internet-mediated B2B
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financial resource to fund a variety of solutions and hence


e-commerce. However, although it has shown the use of little enthusiasm for e-commerce. As shown in figure 1 a few
internet-enabled transactions to be limited, a notable statistic exceptional “dual suppliers” fall into the same category as
is the number of respondents that use email to communicate Princes – typically where they supply directly to the retailers
within the supply chain and who see it as growing in also. This view of future industry re-structuring has parallels
importance. Perhaps, where the benefits are clear and the to developments within the automotive industry where tier-1
costs and risks acceptable, companies are willing to adopt new suppliers have increased in power and size, and are able to
technology, to identify its limitations and to exploit its trade with a range of customers using alternative e-commerce
potential. This case-based evidence supports the findings of solutions[3].
Hawkins and Prencipe (2000), that manufacturing
organisations are tactically orientated. Equally clear is the
fact that they are predominantly reactive rather than proactive Notes
in their approach.
The adoption of contemporary e-commerce solutions 1 Groupware is a range of software tools and associated
requires co-operation with external members of the supply technology that is used to support groups of people
chain. Considering the particular position of tier-1 suppliers working together. Typically, this includes a number of
in FMCG chains where the nature of relationships has personal computers, laptops or other terminals connected
traditionally been transactional and adversarial, it is clear that in real time by a network. The span can range from a
the development of an e-commerce strategy is extremely single room to full global reach achieved by internet links.
problematic. As evidenced within this study, these 2 Middleware is defined here as a separate software
organisations are squeezed between powerful e-committed application that interfaces between two disparate
retail customers and e-reluctant suppliers. The cautious, applications and enables the transfer of information and
customer driven approach adopted by the Princes’ suppliers is the synchronisation of activities between the two
understandable, but difficult to incorporate into a “one-size- applications.
fits-all” supply-side e-commerce strategy. For Princes, the 3 The ideas discussed in the final paragraph were stimulated
findings of the survey meant that the development of a by the comments of an anonymous reviewer. We are
coherent, universal e-commerce strategy for its supply-side grateful for the contribution.
was not possible. The majority of its suppliers additionally
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