E-Business Strategy Development: an Fmcg Sector

4 April 2017

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.

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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 Electronic commerce (e-commerce) refers to the conducting f 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-toconsumer (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 ignificant 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 ecommerce 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. 49). This suggests that, in moving into an e-commerce business environment – over which there is little choice – there is a need to develop an ebusiness 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 The current issue and full text archive of this journal is available at www. meraldinsight. com/1359-8546. htm Supply Chain Management: An International Journal 11/4 (2006) 353–362 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10. 1108/13598540610671806] 353 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 ecommerce can be achieved – the internet being only one possibility. Moreover, both within the literature and in ractice, 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 ecommerce.

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 internetmediated 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 se 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 usiness 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 ystems 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 usiness 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, pplications 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 ecommerce (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. E-business strategy development: an FMCG sector case study M. Webster, R. Beach and I.

Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 354 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 pportunities 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 ecommerce 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 tandardisation 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 ebusiness and that attitudes are predominantly reactive (Wagner et al. , 2003). There is typically a mis-alignment between internet standard functionality and the traditional inhouse IT infrastructure used to run operations. This creates a reluctance to change which, together with the non-strategic erspective 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 apability, and have explored the current status of ecommerce 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 The case study concerns the development of an e-business strategy for Princes Soft Drinks. It presents a survey of the company’s supply base, and discusses how the findings of this 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 Statistics (Williams, 2001) 70% of smaller businesses in the manufacturing sector were using computer 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; and Wales – Quayle, 2002) Reluctance on the part of SMEs to trade electronically and to use the internet to achieve this 0% 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 (Dutta and Biren, 2001) Only 25% of companies recognised the strategic importance of internet 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 E-business strategy development: an FMCG sector case study M. Webster, R. Beach and I. Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 355 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 ore 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 irtue of their position in the supply chain, are the change agents in the FMCG sector, often instigating 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 nitiatives 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 nvironment 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 ebusiness 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 ide, 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 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) Internal pressure to maintain an e-commerce presence (R) Re-structuring of the supply chain (P,S) Exploration of new business models – e. g. the role of intermediaries and distributors (P,S) Cost reduction – e. g. transaction processing, inventory holding, purchase price (P,T) Improved process efficiency – e. g. reduced lead times, improved procurement and production practices and logistics (P,T) Business process integration – integration of purchasing and sales with other business functions (P,T)

Improvements in supply chain relationships (P,S) Costs of acquiring and maintaining an e-commerce capability (Quayle, 2002, Williams, 2001, Clegg, 2001) Concerns about security and control (Quayle, 2002, Williams, 2001, Davila et al. , 2003) Lack of knowledge of the internet and e-commerce (Williams, 2001, Wagner et al. , 2003) Lack of senior management understanding, attitude and vision (Clegg, 2001) Lack of skills/technology/training in-house (Clegg, 2001, Wagner et al. , 2003) Resistance from employees – based on fear, inertia, lack of faith (Quayle, 2002) Poor availability of external skills (Clegg, 2001)

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 (Quayle, 2002) Table III Key components of alternative business eras in retail supply Supply chain management era Network era The age of reason: efficiency The age of possibility: opportunity Taking costs out Putting value in Introverted Customer-focused Chain starts at the DC (distribution centre) Chain starts with the consumer Logistics productivity Marketing productivity

Physical distribution Information management Economies of scale Network economics Negative feedback Positive feedback Focus on volume Focus on value Source: O’Keeffe, 2001 E-business strategy development: an FMCG sector case study M. Webster, R. Beach and I. Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 356 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 nable 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 ecommerce 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 ecommitted customers on its demand-side and potentially ereluctant uppliers on its supply-side. In order to develop and implement future strategic direction for the use of ecommerce 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 Figure 1 The Princes soft drinks supply network E-business strategy development: an FMCG sector case study

M. Webster, R. Beach and I. Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 357 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 he 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. he 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 ere 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 cooperation and to ask if they would participate in the study. 4 (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 ikely 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 rganisations 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 aper, 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 backoffice integration were considered important issues, but the peed, 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 E-business strategy development: an FMCG sector case study M. Webster, R. Beach and I. Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 358 process email messages by printing or downloading to preadsheet 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. . 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 uture 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, rivate 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 hrough 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 nformation, 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 ommunication 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 e 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. E-business strategy development: an FMCG sector case study M. Webster, R. Beach and I. Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 359 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 artnerships, which must be based on trust, collaboration and Figure 2 Perceived advantages of internet communication Figure 3 Perceived disadvantages of internet communication E-business strategy development: an FMCG sector case study M. Webster, R. Beach and I. Fouweather Supply Chain Management: An International Journal Volume 11 · Number 4 · 2006 · 353–362 360 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 elationship precludes its achievement. High levels of interbusiness 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 ecommerce.

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 osts 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 raditionally 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-sizefits- 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 supplyside 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 r 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 ustomers 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 rade with a range of customers using alternative e-commerce solutions[3]. Notes 1 Groupware is a range of software tools and associated technology that is used to support groups of people working together. Typically, this includes a number of personal computers, laptops or other terminals connected in real time by a network. The span can range from a single room to full global reach achieved by internet links. 2 Middleware is defined here as a separate software application that interfaces between two disparate applications and enables the transfer of information and he synchronisation of activities between the two applications. 3 The ideas discussed in the final paragraph were stimulated by the comments of an anonymous reviewer. We are grateful for the contribution.

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