In-Depth
E-Commerce: “I” Before “E”: Logistics and the Emergence of Inter-Enterprise Solutions
Friction-free commerce. That’s the promise of e-business. In the ideal world, buyers identify and order what they want from the comfort of their homes and offices. The goods arrive at the designated location shortly thereafter. Payment is handled electronically. No fuss, no muss. The buyer gets a great price because costs associated with traditional business methods have been cut. The seller makes money.
Not surprisingly, reality does not match the ideal. As online purchasing increases, companies discover that picking, packing, shipping and delivering goods quickly and cost effectively presents enormous challenges, including inventory management, controlling the customer experience and understanding the true cost of the sale.
First, Web-based selling has changed the selling cycle. Online buyers control the timing of their purchasing decisions. They do not depend on a sales representative or catalogue sales.
Second, online sellers feel that they have to "own" the complete customer experience from browsing to installation. In many cases, that requires an expansion of services. In the traditional retail environment, for example, customers generally take their goods home themselves. Online retailers are responsible for home delivery.
Inventory management and "last-mile-to-the-home" responsibilities add costs to each online transaction. But many companies either cannot calculate those costs, or simply ignore them. Many companies charge a flat rate for shipping, even though their costs vary. Others believe that they must charge the same price for goods sold online as they do for goods sold through traditional channels, even though the costs are not the same. In fact, in a recent survey by Forrester Research, more than half the respondents lost money on online selling because of their pricing strategy for shipping.
Unfortunately, only the largest companies (those who process more than 10,000 orders a day), or very small companies (those with only a couple of products and a handful of orders a day) will find it cost-effective to handle fulfillment on their own. The rest will have to use third-party suppliers for those services.
Beyond the Enterprise
Companies have had to examine alternatives for automating, streamlining and enhancing the efficiency of their fulfillment and logistics activities, ranging from order picking and inventory management to shipping and delivery.
While this process began in major multi-national companies with the spread of ERP and supply-chain systems, like SAP and i2 Technologies, it has accelerated as companies have integrated e-commerce alternatives into their traditional sales and marketing methods. And while traditional ERP implementations were difficult and time consuming – one IT professional in the late 1990s described an enterprisewide installation of SAP to me as similar to undergoing a corporate root canal – they are simple tasks compared to what companies face now.
"What we are talking about is moving beyond enterprise to inter-enterprise solutions," says Kenneth Bob, Senior Vice President of Descartes Systems, a provider of integrated e-logistics solutions. He suggests that companies will have to build relationships with many partners along the road to fulfillment, and the activities of those partners will have to be coordinated so that sellers can ensure customer satisfaction, while understanding and controlling their costs.
According to Bob, e-logistics solutions must be evaluated according, to several criteria. "The technology must be easy for companies to join," he says. In practice, for an e-logistics solution to work, the different players on each step of the process are going to have to process, share and communicate critical information. Consequently, each company’s choice of technology has an impact on the others. Each choice must be able to communicate with the others.
At the same time, e-logistics software must incorporate a high degree of security. Logistics partners should only be able to see the specific information they need to see and not have entrée into confidential corporate information. Balancing security and openness is a tricky business.
With those issues in mind, perhaps, the key technical process for inter-enterprise solutions is the concept of semantic reconciliation. The same piece of information – a customer identification number, for example – may be described differently in the order-processing system, the inventory management and order picking software, the transportation scheduling program and the customer service database. An e-logistics system must be able to understand and manage those differences.
Builders of enterprise data warehouses have long faced the problem of semantic reconciliation between, let’s say, sales operations and manufacturing. Inter-enterprise solutions can raise the complexity of the issue by several orders of magnitude.
As a result of the difficulties, Bob observes, IT managers have just started to investigate the possibilities and payoffs of implementing inter-enterprise e-logistics solutions. "A lot of people are talking and shopping," he says. The choices they make will have a significant impact on the development of e-commerce.
About the Author: Elliot King is an Associate Professor of Communications at Loyola College in Baltimore, Maryland. He can be reached at (410) 356-3943, or via e-mail at eking2@prodigy.net.