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
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.
Introduction
Electronic commerce (e-commerce) refers to the conducting of business
transactions over electronic/computer networks, including the internet, (Barnes
and Hunt, 2001) and therefore encompasses processes related to the buying,
selling and trading of products, services and information, (Gunasekaran et al.,
2002). There has been considerable publicity given to the use of e-commerce in
business-to-consumer (B2C) markets, where transactions involving such
activities as ordering goods, personal banking and share trading are becoming
increasingly commonplace. However, the use of e-commerce for business-to-
business (B2B) transactions has been widely identified as an area with
significant potential for cost saving and future revenue generation (Barnes and
Hunt, 2001). For businesses, B2B can mean electronic interaction with members
of the supply base, i.e. for inbound procurement, and with customers for
transactions relating to their procurement activity.
In the current business environment the adoption of e-commerce is seemingly
unavoidable – ” … e-commerce is no longer an alternative, but an imperative.
[However] many companies are struggling with the most basic problem: what is
the best approach for establishing and doing business in the digital economy?”
(Lee, 2001, p. 349). This suggests that, in moving into an e-commerce business
environment – over which there is little choice – there is a need to develop an e-
business strategy that will inform and direct future operations. Lee goes on to
argue that in addressing this problem, there is no simple prescription or
established business model for companies or industries and that developing an
e-capability often entails making a paradigm shift, radically altering traditional
approaches to doing business (Lee, 2001). It 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 and solutions, but
also the coherence and integration of these 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 this
paper – presented after theoretical background – explores the situation faced by
Princes, a tier-1 supplier in the UK soft drinks industry. It considers the
difficulties faced by first tier organisations in the supply chains for FMCG (also
known as Consumer Packaged Goods Cox, 2003/2004), and the implications of
these for the development of e-business strategy.
Within the broad definition of e-commerce, it is clear that there are alternative
technological routes by which e-commerce can be achieved – the internet being
only one possibility. Moreover, both within the literature and in practice, there is
confusion over the terminology used in this area, with some authors using the
term “e-commerce” synonymously with that of “e-commerce mediated via the
internet”, or “I-commerce” (e.g. Manecke and Schoensleben, 2004, Yen and Ng,
2003). The increasing accessibility of the internet and the wide availability of
standard browsers is encouraging the expansion of e-commerce via the internet
(Gunasekaran et al., 2002). However, technology options for conducting
commerce electronically still include telephone, facsimile, electronic mail (email),
Electronic Data Interchange (EDI) together with the internet. Structuring their
discussion of the impact of e-commerce on operations, Gunasekaran et al.
(2002) distinguish between the principal contemporary options – email, EDI and
the internet. This distinction mirrors the structure of the empirical research
undertaken in support of this paper. The three options are discussed below.
Email was one of the first applications to run on the internet and involves the
direct transmission of text messages between 2 users. Using email provides the
simplest form of e-commerce. It replaces paper, fax and telephone
communication between members of a supply system (Beynon-Davies, 2004). It
is quick and uncomplicated, but lacks the sophistication provided by EDI and
internet-mediated e-commerce solutions.
Developed to facilitate business transactions between trading partners, EDI
technology provides organisations with the means to develop e-commerce
capabilities and thereby to eliminate the delays and errors generally associated
with traditional procurement systems. It provides a (limited) collection of
standard message formats that businesses may use to exchange data including,
for example, orders, delivery notes and invoices (Beynon-Davies, 2004). It has
been in existence for over 20 years and has been championed mostly by large
manufacturing and retail companies who use it to link suppliers into their
business processes. On the inbound supply-side of an organisation’s operations,
improved record accuracy, lower data entry costs, reduced inventory holdings
and improved inventory turn ratios are cited as benefits; whilst on the outbound
demand-side improved responsiveness to orders and enquiries and increased
business opportunities are cited (Davis and O’Sullivan, 1998).
Unfortunately, the technological solutions developed for 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. Consequently, EDI technology-enabled e-commerce is typically
characterised by closed groups of users whose transaction volumes are high, as
it is these organisations that are most likely to benefit from the expected
improvements in operational efficiency. The costs of switching between EDI
systems are also high (Hawkins and Prencipe, 2000), and this limits the ability of
group members to go elsewhere. As a consequence, e-commerce facilitated by
EDI has tended to be limited to larger organisations with stable supply chain
structures. It is less popular with smaller organisations or those in non-stable
supply networks where the costs of participation are prohibitive.
Increasingly, the internet is being promoted as a means to facilitate
collaboration between members of supply chains, to result in cost savings, more
efficient operations, improved customer service and potential for innovation and
new business opportunities (e.g. Wagner et al., 2003, Hawkins and Prencipe,
2000, Baldwin et al., 2001, Timmers, 2000). Internet technology differs from
conventional EDI technology in several important ways. It is relatively
inexpensive. It is based on open standards and therefore supports numerous
applications, which can process small transaction volumes cost effectively and
can be configured to accommodate changes in users with ease (Hawkins and
Prencipe, 2000). It is also a public network that is globally available, providing
access to customers and suppliers worldwide. Moreover, applications are not
limited to inter-firm transactions. Internet and Web technology can be used
within the organisation to manage workflow, co-ordinate activities and improve
process efficiency through the sharing of information (Rowlatt, 2001,
Gunasekaran et al., 2002). Intranets, the term used to describe these private
communication networks, secured behind firewalls (Beynon-Davies, 2004) are
typically based on groupware[1] applications (Gunasekaran et al., 2002). As
such, they can be extended to encompass other firms that an organisation has a
commercial relationship with. The resulting Extranet configurations can be used
to facilitate closer relationships with customers and suppliers, to improve the co-
ordination of (supply chain) activities, and to improve communications between
the functions and individuals of an organisation (Davis and O’Sullivan, 1998).
The benefits cited for internet-mediated e-commerce solutions over proprietary
EDI solutions are summarised as speed, consistency, immediate access, lowered
transaction costs, flexibility and extensibility – i.e. the potential to access further
applications via a web-server – (Manecke and Schoensleben, 2004). Conversely,
internet-mediated solutions are said not to match the robustness and capacity of
EDI for carrying out B2B e-commerce (Lee, 2001).
Despite the obvious benefits offered by internet-mediated e-commerce there is
little indication that its functionality is being widely harnessed in practice
(Hawkins and Prencipe, 2000, Wagner et al., 2003). Evidence suggests that
smaller businesses, in particular, are failing to appreciate its potential benefits
(Williams, 2001) and that the majority of e-commerce transactions continue to
be associated with conventional EDI technologies and larger organisations
(Hawkins and Prencipe, 2000). The following section draws on a range of
published literature to develop a macro view of the causes of this and of the
scale of the problem.
The adoption of e-commerce solutions in supply chains
In order to link with the subsequent empirical work within the paper, this section
is structured around the perspective of a tier-1 FMCG organisation, interacting
demand-side with its retail customers and supply-side with its ingredient and
raw material suppliers. However, the data, upon which it draws, is not specific to
the FMCG sector.
For some time, EDI has been the technological choice of large manufacturing
and retail companies for managing transactions within their supply chains. (e.g.
Beynon-Davies, 2004, McIvor and Humphreys, 2004). For these major
commercial and industrial players, e-commerce has become their preferred way
of operating and, provided their suppliers buy-in to the technology, represents
an effective and efficient means of conducting e-commerce. Therefore, for these
organisations, there is little need to consider the opportunities offered by the
internet. Additionally, it has been said that the internet has provided no new
sales opportunities for FMCG retailers, and that they therefore have little
incentive to develop online interaction (Brown, 2000). Although this has been
identified specifically at the demand-side of retailers, it may be expected that
they would have an equivalent reluctance to develop internet-mediated e-
commerce solutions on their supply-side. Thus, there may be little incentive to
move away from the traditional EDI interaction with their tier-1 suppliers.
On the supply-side, there is far less consensus and standardisation of approach.
Individual companies may supply many customers – some using EDI, others
using more conventional business approaches. In this situation the arguments
for considering the relatively flexible and accessible internet-mediated e-
commerce appear compelling. However, evidence suggests that industry is not
rushing to adopt e-business and that attitudes are predominantly reactive
(Wagner et al., 2003). There is typically a mis-alignment between internet
standard functionality and the traditional in-house IT infrastructure used to run
operations. This creates reluctance to change which, together with the non-
strategic perspective adopted by industry, means that opportunities to 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 Table I.
Empirical data on the micro reasons manufacturers are apparently so reluctant
to adopt e-commerce is scant and typically limited to the identification of
generalisable factors drawn from multiple sector studies. Table II draws on
published literature to develop a view of the factors that are thought to be
influencing decisions to develop e-commerce capabilities using internet
technology. These are classified as either drivers or barriers. The drivers for
adoption have been categorised as either reactive or proactive, and either
strategic or tactical (Hawkins and Prencipe, 2000).
Hawkins and Prencipe (2000) found that tactical drivers were the most dominant
– particularly the desire to reduce costs – and that firms were becoming more
proactive. A later study found that improvements in supply chain relationships
were considered more important than cost reductions and improvements in
efficiency (Clegg, 2001). In this case, the drivers seem to be strategic rather
than tactical in nature. It has also been noted that the approach most frequently
adopted, particularly amongst organisations already conducting business
through conventional channels, is exploratory and experimental (Williams et al.,
2001, Malone, 2001). This suggests that a cautious and possibly opportunistic
view of the technology prevails and that an important factor influencing the
extent and effectiveness with which e-commerce is adopted may be an
organisation’s perception of the risks and benefits associated with the
technology.
The preceding sections of the paper have introduced the principal options for
developing a B2B e-commerce capability, and have explored the current status
of e-commerce implementation. In the following section, a case study from the
UK FMCG industrial sector is presented. Analysis of the case supports much of
the earlier discussion and provides empirical evidence of the status of the
adoption of B2B e-commerce in the supply base of Princes Soft Drinks, UK.
A case from the FMCG sector
PrincesSoft Drinks. It presents a survey of the company’s supply base, and the
case study concerns the development of an e-business strategy for discusses
how the findings of this informed the strategy development process. By contrast
to the multiple sector surveys considered in table I, the survey conducted as
part of this study is focussed within the UK soft drinks supply chain. As such,
whilst adding to the findings of previous studies, it also elaborates on them by
providing a more detailed company perspective of the issues.
Practical context: the FMCG sector
Within the FMCG supply chain a distinction is made between consumers – the
end users of a product, and customers – retailers through which products are
sold to consumers (Cox, 2003/2004). Typically, manufacturers of FMCG products
must use retailers to access their consumers and as a consequence the balance
of power in the tier-1 distribution channel is on the side of a small number of
extremely powerful, competing names, such as Wal-Mart, Marks and Spencers,
Sainsbury, Tesco, etc. These organisations, by virtue of their position in the
supply chain, are the change agents in the FMCG sector, often instigate moves
which have profound implications for tier-1 suppliers, e.g. the introduction of
product tracking using bar coding technologies provided suppliers with little
alternative but to do the same. A more recent example is the demands Wal-Mart
have made on their top 100 suppliers to use RFID (radio frequency
identification) tagging (Lamb, 2003). If the expected savings materialise as
expected, other retailers will follow and tier-1 suppliers will have to respond.
These initiatives reflect a general shift from a focus on volume and internal
efficiency to an external one on value and consumers (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.
However, this by no means describes the sector as a whole. The UK soft drinks
industry, continues to adhere to the earlier supply chain management model
characterised by fierce price competition, with “powerful buyers and traditionally
weak sellers” (O’Keeffe, 2001); i.e. an environment in which cost reduction is a
management mantra.
Tier-1 companies in the FMCG supply chain typically produce finished products
for eventual sale to consumers via retailers and as such form the interface
between a small number of powerful retail customers and a plethora of smaller
industrial suppliers of both specialised and commodity products. Thus tier-1
organisations wishing to develop an e-business strategy can find themselves in
the unenviable position of being squeezed between e-committed retailers on the
outbound side and e-reluctant suppliers on the inbound side, a situation with the
potential to create considerable tension for the parties concerned.
Princes soft drinks
The Princes Food Group is wholly owned by the Mitsubishi Corporation and is the
largest UK supplier of own-label processed grocery products. The Soft Drinks
division within the group is the major supplier of fruit juices, carbonated, ready-
to-drink and dilute-to-taste soft drinks in the UK. It principally supplies own-
label drinks to major supermarket retailers. It is a market where there has been
much negative pressure on prices to the extent that suppliers have been forced
to cut costs, improve process efficiency and push price reductions back up the
supply chain to lower tier suppliers. Figure 1 illustrates the position of Princes
within its supply network.
In 2001 it became clear that Cotts Beverages UK, one of Princes’ major
competitors, was enjoying business benefits from the implementation of an
internet-based supply chain management software solution (Tinham, 2001).
Facing intense pressure in the FMCG marketplace, the report that Cotts were
enjoying significant benefits from internet-based fulfilment generated
considerable interest within Princes. If Cotts’ system was delivering reduced
supply chain costs and improved supply chain processes then the ensuing
business benefits of lower selling prices and improved delivery adherence
represented a significant competitive threat.
Since the early 1990s Princes had been communicating electronically
downstream with the major supermarket retailers using EDI. Different
technological approaches were used for different customers meaning that Princes
has had to invest in alternative solutions in order to trade downstream. The use
of EDI enabled transactional data to be imported into and exported out of SAP –
Princes’ Enterprise Resource Planning (ERP) system – quickly and accurately.
The use of EDI, together with the integration of transactional data into Princes’
SAP system, had increased the effectiveness of the company’s outbound,
demand-side supply chain. During this period however, communication with
suppliers had remained largely unchanged, relying on a combination of
telephone, fax and the traditional postal service. During the latter part of the
1990s, Princes had explored the possibility of adopting EDI links with suppliers,
but high costs and technological issues had prevented its adoption. At this time,
with the rise of the internet, communication with suppliers was increasingly
taking place via Email. Whilst this often proved more effective than telephone
communication, it was generally unable to handle the transactional data that
was required and this was frequently sent via fax or post. The company began to
pilot an application called “Business Connector” which used the internet to
transmit transactional data between organisations that operated a SAP ERP
system. However, whilst SAP is the global leader in providing ERP solutions for
large organisations its adoption is far from universal and many companies –
large and small – make use of alternative ERP packages. Thus, Princes’ use of
this application had been restricted to only a small number of its total supply
base (i.e. to those that used SAP).
The company was aware of many national and multinational manufacturers that
were implementing internet-based systems to improve the quality and the value
of the information that they exchanged with their business partners, the
objectives of such collaborative initiatives being to improve the overall
performance of the supply chain (Fernie et al., 2000). Faced with this
knowledge, the need to review supply-side (inbound) transactional mechanisms
and the potential threat posed by Cotts, Princes felt compelled to explore the
opportunities that the new and emerging B2B solutions could create within a
FMCG supply chain. In particular, they were interested in establishing the
positions and views of the organisations within their supply base on the adoption
of possible B2B solutions and what the current and anticipated impact of the
internet on B2B communication and business transactions might be. The results
of the investigation were to inform the development of a B2B e-commerce
strategy that would take the company forward into the twenty-first century.
As a tier-1 business within an aggressive market, Princes was in a very
challenging position, squeezed between e-committed customers on its demand-
side and potentially e-reluctant suppliers on its supply-side. In order to develop
and implement future strategic direction for the use of e-commerce in all its B2B
interaction, there was an urgent need to investigate the existing position of its
supply-side partners, and to determine the prevailing degree of enthusiasm for
e-commerce.
Study design issues
Prior to undertaking this research, Princes’ knowledge of its suppliers’ views on
e-commerce was largely anecdotal. The development of future strategy without
formal knowledge or understanding in this area would have been unwise. There
was therefore a critical need to carry out an exploratory study that would yield
clear findings for the particular case of this supply chain. In the sense that it
should allow the company to focus on understanding the dynamics present
within a single setting (Eisenhardt, 1989) and to develop an enhanced
understanding of real world events (McCutcheon and Meredith, 1993), the study
needed to be case-based. Within the development of the case study however, it
was considered essential to gather the views of as many members of the supply
network as possible. Detailed dyadic data relating to a single supplier
relationship with Princes, whilst interesting, would be inadequate for the
purposes of this work; it would not truly reflect the views of all supplying
organisations, nor would it necessarily gather the multi-disciplined perspective
necessary to inform the development of an e-business strategy. Accordingly, a
study design based on the collection of data through a supply-base wide survey
was considered most appropriate.
Survey research, i.e. the statistical analysis of data gathered by large-scale data
collection techniques such as postal questionnaires (Barnes, 2001), is the most
popular approach used in OM research, representing approximately 60 per cent
of the published research in this field (Forza, 2002). A major advantage of this
approach is that the techniques used are recognised and largely approved of by
the research community. Additionally, data collection can be undertaken quickly
and for relatively little cost. The means by which the questionnaire is
administered can have a significant influence on response rates and hence the
value of the results obtained. In this case, care needed to be taken in the design
of the questionnaire and also its method of implementation to ensure that as
comprehensive picture as possible from the supply chain could be built up.
Study methodology and limitations
Princes’ procurement strategy had been to work in partnership with a small
number of suppliers who themselves were major players within their particular
sectors, and to develop strong relationships with them. As a consequence of this
consolidation strategy, Princes’ supply base consisted of approximately 100
suppliers. Of these, 61 were selected to take part in the survey. The selection
criteria applied was that the volume of business from each should exceed 1 per
cent of Princes’ annual purchases. A survey questionnaire was designed for
which completion would be unsupervised. It was structured around the following
key themes and topics:
current approaches adopted by suppliers in relation to B2B strategy and current
communication methods;
suppliers’ views of the specific electronic communication channels, i.e. EDI,
Email and internet/websites; and
a section on organisational details.
The majority of the questions were of the “closed” type as these were felt to be
most suitable for the easy unsupervised completion of the questionnaire, but
where it was thought that qualitative data might improve the understanding of
the issues, “open” questions were also included.
Given the relatively small number of responses possible it was considered
important that a high response rate was achieved. To this end, the 61 supplier
companies were contacted prior to dispatch of the questionnaires to identify the
appropriate respondent by name, to encourage their co-operation and to ask if
they would participate in the study. 54 (88 per cent) responded positively and
were sent the questionnaire. Of these, 39 completed questionnaires (72 per cent
of the 54) were received in time for the subsequent analysis. Whilst this
response does not cover the entire Princes’ supply base, it is estimated that it
represents over 85 per cent of all annual procurement transactions measured by
value and volume. Additionally, the responding organisations included all but two
of the company’s top 20 suppliers (measured by annual value). The constitution
of the respondents means that the findings of the research are likely to reflect
the views of those suppliers with a high level of commitment to Princes and
possibly to those that have a positive view of e-Business. A research
methodology incorporating interviews with the collaborating suppliers would
have facilitated a higher level of analysis that would undoubtedly have led to
greater depth of understanding. However, the primary purpose of the study was
for the rapid collection of data that would inform the development of strategy.
The findings are largely descriptive.
Study findings
Of the respondents, 51 per cent indicated that their organisations had
formulated a B2B strategy. Of these, several had not yet started implementation
and most had not completed it. Of the strategy-formulators, 33 per cent
identified the use of EDI as part of the strategy, and 28 per cent mentioned the
use of their SAP ERP systems within it. Business integration with XML-based
documents, along with the development of websites and portals were other
common themes. Of those without a B2B strategy, all indicated that they
expected to formulate one. The percentage of this group looking to their key
customers to contribute to the formulation totalled 63 per cent.
All survey respondents currently used at least two methods of communication
with their business partners, and the majority used at least four methods. The
most popular methods of communication were email, fax, and phone, used by
92 per cent, 92 per cent and 90 per cent of respondents respectively. By
contrast, use of the internet (excluding email) had only a 13 per cent adoption
rate. Whilst the traditional postal service was no longer used by approximately
40 per cent of the sample, its use remained far more widespread than non-Email
communication via the internet.
In line with the literature-based discussion earlier in the paper, respondents’
views of the 3 options were sought: EDI, email and the internet/websites.
The adoption of email as a channel for B2B communication has been rapid and
far-reaching and has been described as the primary technical focus for
organisations involved in developing an e-commerce capability (Clegg, 2001). Of
the survey respondents, 95 per cent used email and many saw it as equally
essential to business as the telephone or computer. It was used for both
demand-side and supply-side transactions. Transactional security and difficulties
of back-office integration were considered important issues, but the speed, ease
of use and low cost of email meant that it remained the preferred medium of
many organisations and for many transaction types. It is seen as less useful for
payment and invoicing transactions than for transactions such as notification of
order acceptance, dispatch confirmation, forecasting, ordering and
acknowledging receipt. Most users process email messages by printing or
downloading to spreadsheet software, although 15 per cent of respondents are
able to integrate some of the messages directly to internal business systems.
The disadvantages cited for email included the high volumes of email
communication (including junk mail), inefficient processing methods and lack of
security. The percentage of respondents who expect the importance of email as
a B2B communication channel to increase numbered 97 per cent.
Of the respondents, 59 per cent were using, or had used, EDI. Of these, 70 per
cent had adopted it because it was a requirement from their customers. There
was no indication of the importance of this channel for individual businesses
relative to other channels, but intuitively this adoption rate seems high. This
may be explained by the relatively high adoption rate in the FMCG sector as a
whole, where – as discussed earlier – tier-1 suppliers are frequently required to
use it by the major retailers and distributors who appear to have the power to
force its adoption (Hill and Scudder, 2002). A number of Princes’ suppliers –
described as “dual suppliers” in Figure 1 – are themselves tier-1 suppliers to
retailers and would therefore already be using EDI (e.g. the sugar suppliers).
Others supply to customers in the chemical industry where use of EDI is
relatively high. Additionally it may have been influenced by the fact that the
average turnover of the responding companies was £372m, suggesting that
small organisations were not equally represented in the sample. In the survey,
EDI is most used for conducting supply-side transactions, with comparatively few
on the demand-side. Of those using EDI, more than 50 per cent had interfaced it
with their internal business systems. Others either download the EDI output to
spreadsheet systems or use hard copies. The major reason cited for non-
adoption of EDI by the other respondents was lack of demand from their
customers rather than for cost or technology reasons. There appears to be a
possible link between the adoption of EDI and company turnover – with adopters
tending to have higher turnover than non-adopters. Of all respondents, 59 per
cent believe that they will be using EDI for business transactions in the future.
Only 35 per cent of respondents felt that the importance of EDI would increase
as a channel for B2B communication. Overall, this suggests that the scope for
future EDI adoption is limited, with those perhaps that have already invested in
the technology continuing to derive benefit from it. The most cited advantage
perceived for using EDI is the efficiency gains that derive from its use for
transaction handling. Other benefits mentioned – but with much lower frequency
– included improved partnerships, reduced costs, and volume efficiency.
Evidence that supports an observation made by Hill and Scudder (2002)
following their survey of the use of EDI in the American food industry as a
vehicle for improving supplier coordination that companies “may see EDI as a
tool for improving efficiencies rather than a tool for developing supply chain
management” (ibid, p. 383). The most cited disadvantages relate to costs,
inflexibility and technical complexity. Others included general poor adoption
rates, the need for dedicated one-to-one links, the danger of obsolete
technology, security and the multiplicity of standards.
Although 67 per cent of respondents claimed to use the internet (excluding its
use for email) to communicate with partners, only 13 per cent were regularly
using internet platforms for business communication. Of the adopters, private
exchanges were the predominant platform used, although this may be because
many of Princes’ suppliers are already hooked into an exchange that has been
set up by one of their competitors. General websites are the second most used
platform. A wide range of business processes were being executed through the
internet, including both demand-side and supply-side transactions. Examples
included ordering, order acceptance, dispatch notification, and delivery receipt.
Less common uses are for invoicing, forecasting, and payment. Unlike EDI, the
majority of messages transmitted through the internet were processed manually
and were not interfaced directly into internal business systems. The most
commonly cited reason for the lack of adoption of internet B2B communication
was that this did not represent a business priority. Other reasons included the
view that the technology was still too immature to be of significant benefit, and
that customers did not want to use it. However, all respondents expect its use to
increase in the future. As shown in Figure 2, perceived benefits of using the
internet to communicate included lower costs, ease of use, high availability of
information, flexibility and speed. These benefits were expected to contribute to
business benefits such as improved customer service, forecasting and business
integration, increased processing and labour efficiency, stronger business
partnerships, and reduced processing errors, transaction costs and inventory
holdings.
As indicated in Figure 3, perceived disadvantages included security issues, a lack
of universal standards, insufficient technical knowledge, loss of personal
interaction, and the inefficiency of the internet. Respondents identified
technological needs in order to implement internet communication including
requirements for an XML infrastructure, for software middleware[2] and for
integrative hardware.
Study summary
As summarised below, the study’s findings indicated that the development of a
B2B procurement strategy needed to take account of three key factors:
Technical issues
Technical barriers to the implementation of generic B2B software solutions were
found to be:
the immature nature of the B2B marketplace and of the software available within
it;
the lack of universal standards for e-Business middleware that can integrate
internal business processes with e-Business messages and transactions; and
a lack of evidence of the ability of B2B software to synchronise supply chains, to
improve collaboration or to deliver sufficient return on investment (Fontanella,
2001).
Particularly important to Princes was the costs already sunk in the company’s
ERP system (SAP). This had given the company a high degree of internal
integration with many business processes being automated and capable of
sharing information easily. Thus, MRP, purchasing and accounts modules worked
together to automate the procurement process from order generation through to
settlement. Documentation was also generated automatically and could be
channelled via a variety of media; currently the preferred channel was
automated fax. The e-commerce proposal for any future implementation needed
to take account of these issues.
Customer/commercial issues
Competition within the grocery retail industry continues to be intense and retail
customers continue to exert pressure on their tier-1 suppliers. Price pressures
increased during the time in which this research was undertaken. In such a
business climate, the justification for capital investment can be problematic.
Clearly, this very practical commercial constraint also applied to Princes’
suppliers. Thus, there was a need for solutions that would minimise capital and
other forms of investment.
Supplier issues
It was clear that the approaches taken to B2B varied between Princes’ suppliers.
The technical sophistication of their approaches to internal business processes
also varied from leading edge ERP systems to those using stand alone PCs. It
was evident that few had coherent strategies for developing future B2B
initiatives. Thus, any solution reached by Princes had to be capable of operating
over a variety of channels and communicating in a variety of formats.
Furthermore, in order to achieve full integration of the supply chain, information
needs to flow seamlessly up and down the chain in the same way that using
internal business systems enables the exchange of data within an individual
organisation. Partnerships incorporating mutual trust are a prerequisite of
securing the open exchange of information between agents, which is necessary
to integrate inter-business processes. Cultural change is necessary to develop
such partnerships, which must be based on trust, collaboration and a unified
vision of the supply system. For many of Princes’ suppliers, the volume of trade
does not justify the financial and resource-based investment needed to develop
this level of collaboration and for others, the nature of the trading relationship
precludes its achievement. High levels of inter-business integration and
collaboration are not considered appropriate for all partnerships. Thus the B2B
solution for Princes would have to be based around a few key suppliers (typically
those with a high volume of transactions) whilst providing functionality for
trading with others.
Discussion and conclusions
The constitution of the respondents to the Princes survey means that the
findings of the research are likely to reflect the views of those suppliers with a
high level of commitment to Princes and possibly to those that have a positive
view of e-commerce. Given this, the findings are somewhat depressing. The lack
of enthusiasm for e-commerce in general and for internet-mediated solutions in
particular, supports the evidence summarised earlier in the paper that industry
is not yet ready for full scale adoption of internet-mediated B2B e-commerce.
However, although it has shown the use of internet-enabled transactions to be
limited, a notable statistic is the number of respondents that use email to
communicate within the supply chain and who see it as growing in importance.
Perhaps, where the benefits are clear and the costs and risks acceptable,
companies are willing to adopt new technology, to identify its limitations and to
exploit its potential. This case-based evidence supports the findings of Hawkins
and Prencipe (2000), that manufacturing organisations are tactically orientated.
Equally clear is the fact that they are predominantly reactive rather than
proactive in their approach.
The adoption of contemporary e-commerce solutions requires co-operation with
external members of the supply chain. Considering the particular position of tier-
1 suppliers in FMCG chains where the nature of relationships has traditionally
been transactional and adversarial, it is clear that the development of an e-
commerce strategy is extremely problematic. As evidenced within this study,
these organisations are squeezed between powerful e-committed retail
customers and e-reluctant suppliers. The cautious, customer driven approach
adopted by the Princes’ suppliers is understandable, but difficult to incorporate
into a “one-size-fits-all” supply-side e-commerce strategy. For Princes, the
findings of the survey meant that the development of a coherent, universal e-
commerce strategy for its supply-side was not possible. The majority of its
suppliers additionally supplied other tier-1 and retail customers, with the result
that they were unwilling and unable to invest in a Princes-specific approach.
Princes only feasible option at this stage was therefore to continue with a
piecemeal approach to supply-side e-commerce in the hope that technical
developments would ultimately lead to improved accessibility and greater
standardisation.
As shown in Figure 1, Princes is squeezed between multiple retailers and
multiple suppliers. Whilst there is some coherence of approach to e-commerce
among the retailers (EDI) the study has found that there is no common
approach or purpose within the supply base. Princes finds itself forced to adopt
different prescribed systems at its demand-side but unable to develop a unified
approach at its supply-side. Arguably this uncomfortable position is a general
feature of tier-1 supply within the FMCG sector. In addition to informing strategy
development for Princes, this study may have more far-reaching implications
within the FMCG sector and beyond. For organisations (suppliers) with just one
customer who wants to trade using a particular approach (e.g. EDI) the
associated investment may be seen as too large and uncertain. On the other
hand, if the supplier has several customers demanding the same approach then
the investment may more easily be justified. Where customers demand different
approaches, the supplier must apportion the investment among the different
relationships. This process of investment may ultimately lead to structural
changes within the industry via the development of a range of tier-1 supplier
types, defined by their approach to the use of e-commerce. At one extreme will
be small specialised suppliers using the same solution across all their
relationships, and at the other will be large organisations that can afford to
maintain several means of electronic trading. As a supplier, Princes falls within
the latter category, whilst the majority of its own suppliers fall into the middle
ground of having multiple customers, insufficient financial resource to fund a
variety of solutions and hence little enthusiasm for e-commerce. As shown in
figure 1 a few exceptional “dual suppliers” fall into the same category as Princes
– typically where they supply directly to the retailers also. This view of future
industry re-structuring has parallels to developments within the automotive
industry where tier-1 suppliers have increased in power and size, and are able to
trade with a range of customers using alternative e-commerce solutions[3].

 
 
 
 
 
 
Figure 1The Princes soft drinks supply network

 
 
 
 
 
Figure 2Perceived advantages of internet communication

Figure 3Perceived disadvantages of internet communication

 
 
 
 
Table ISummary of surveys undertaken into the adoption of e-commerce

 
 
 
 
Table IIDrivers and barriers to the adoption of e-commerce
 
 
 
 
 
 
Table IIIKey components of alternative business eras in retail supply