E-business in FMCG

8/7/2019 E-business in FMCG

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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 businesstransactions over electronic/computer networks, including the internet, (Barnes

and Hunt, 2001) and therefore encompasses processes rela ted 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 ³e-commerce´ synonymously with that of ³e-commerce mediated via the

internet´, or ³I-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 enqui ries 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 benef it 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-stablesupply 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, Hawk ins 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 (Rowla tt, 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 chainsIn 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 l ittle

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 foradoption 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 con ducting 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 fro m 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 ³supply chain management era´ to the

³network era´, key components of the change being summarised in Tabl e 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 ³powerful 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 w ere

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 ensuingbusiness 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 ³Business 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 va lue

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 -commercestrategy 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 smallnumber 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 ³closed´ 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, ³open´ 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 c onstitution

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 implementationand 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 o f 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 wides pread 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 busi nessesrelative 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 ³dual 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 inves ted 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 ³may 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 becausemany 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¶sERP system (SAP). This had given the company a high deg ree 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 conclusionsThe 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





the investment m

¡ m¢ £

e 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 ³dual 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

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



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

Tabl e III K ey components of alternative business eras in retail supply

E-business in FMCG

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