E-commerce "E-nabling" your business development and operations

This article identifies the leverage that IT can have on business processes. As such it is a valuable check list to match the quality of your own processes against, to determine what scope there is to use IT to improve those processes. It also discusses the considerations necessary to design e-commerce-friendly, business processes. In particular we will be seeking to identify the potential leverage that e-commerce may bring to bear on the process. That potential leverage should provide the justification for the enhancement of your processes and the possible deployment of these tools. However software is expensive and mistakes are common. Be careful and we suggest you read "IS / IT Strategy Determination, software selection and Implementation", and "Implementing Enterprise Resource Planning (ERP) Systems" immediately after reading this.

Links to related training and further reading on left

The influence of electronically enabled processes, now generically termed e-commerce has had and will continue to have an increasingly profound impact on:

Customer expectations
Customer supplier relationships and particularly their commercial communications.
Product Strategy (See "Postponement and Mass Customisation")
Manufacturing Strategy (See "Postponement and Mass Customisation")
Operations Planning & Control
Inventory management (See "Agile Manufacturing")
The business processes which support these

In business-to-business communications electronic transfer of funds and electronic order information transfer has been practised for about 20 years now. We implemented our first Electronic Data Interchange (EDI) system for sending schedule updates to suppliers in 1985. We were also regularly paying employees by electronic bank transfers in 1987.

The technology has progressed from analogue voice telephony through:

Paper tape remote data entry
Magnetic tape transfer
Local area networks
Wide area networks
Fax
E-mail
Digital telephony
Text messaging
The Internet

By opening up a new route to market using e-commerce you need to consider all aspects of servicing this channel, including culture, structure and systems such as office procedures, technical product help, internal manufacture, planning and control, communications, and logistics.

Fully integrated customer ordering to supplier sales order processing and onwards through their manufacturing scheduling and out into the next tier of the supply chain is still rare but is becoming more common. The main obstacles however are not the technology. "Demand Management" illustrates a number of issues and data standards are also a problem. For example if you are selling your product to 10 customers, each will probably identify your product by their own product identification code (SKU). So it is extremely difficult for you to interpret quickly their order or forecast information into a meaningful form for you to use in your planning systems.

It is becoming more common for customers to make their point of sale information from their own outlets available to suppliers. But this raw data needs accumulation and interpretation. There have been catastrophic examples of suppliers being unable to accommodate the sales and the sales data forwarded through electronic means within their internal processes.

Also you need to consider the organisational and cultural issues involved in introducing any change. These are discussed in three associated articles:

Below is a list of processes common to many organisations. (For non-manufacturing businesses you can leave out a few of these headings but not many, unless you are a sole trader retailer!) Now let us look at each of these in turn and discuss the impact of e-commerce on the functions.

Operations Processes

Lead Generation

The Web has the widest possible audience and tools to find you, if you set up your Web site properly. However your shop window will then be open for 24 hours a day 7 days a week. Are you ready for that? What level of expertise is required at what times to support:

the web-site?
the leads?
customer expectation?

Contact tracking

This process tracks an identified potential customer and the activity involved in the selling process from initial contact through to receipt of the order and follow up beyond that. Software systems have been available for many years now to diarize events in this process, objectives, paperwork, standard letters, follow up dates, visit frequency, visit reports, etc. This system also actually controls the sales process and sales people. Depending on your "conversion rate" (the ratio of contacts to orders/repeat orders), there may be a mass of information to collate, analyse and interpret in order to control this process. This data may be collected remotely from regional sales people, and may involve entering sales enquiries remotely. The issue here is not the technology to provide the transfer of information (which is available), but the support infrastructure back at base to assimilate this information and react to it. Companies with a lower conversion rate are likely to benefit more than companies with a high conversion rate. However if your conversion rate is very low (as it will be if you view web site visits as a lead) the process really starts when the lead actively pursues the interest. Companies with high conversion rates are less likely to lose sight of the lead and will therefore benefit less. If your conversion rate is between 5%-60% you should be considering these processes. Software functions to support this are shown in " Customer Relationship Management (CRM)".

Sales enquiry handling

This process defines the product required. Traditionally this process has required the production of a product catalogue, specifying options and variants available, and incoming sales enquiries are matched to the catalogue and a cost estimate or quotation process commenced on the basis of it. The new process requires an Internet based product catalogue supported by decision support tools to lead the client through a foolproof process to product selection and a help facility to deal with the exceptions. The product catalogue must be accurate and up to date and available in a form that can be assimilated by a potential customer, so that they can specify the product they want in an unambiguous way.

Again the issue is not that these tools are available but that the infrastructure exists to maintain this information and deal with the exceptions.

It is common to sub contract the web site design itself. The common fault however is that it is assumed that this is a one off process. Up to date maintenance and help is essential with ongoing support to ensure that this is kept up to date. It is also necessary to ensure that e-communication is supplemented when necessary by person to person contact. Like me, you must be totally frustrated by automated telephone answering computers. In three cases I have put the phone down and that supplier lost my business because of them. When will your potential customers be looking at your web site and require answers to technical questions?

In a global economy your web site is available for 24 hours and is likely to be accessed in all of these 24 hours from different parts of the world. It used to be 9-5, but this is no longer necessarily so. How will you deal with out of hours questions? What level of expertise is required at what times?

Basically there are two types of sales enquiry process.

Tracking low volumes of complicated bids for high value products. This is in the nature of a project. Companies in this category should consider project management tools. The web-site should contain helpful high level advice, guidance, capabilities, track record, (in fact a bit like this one).
Tracking high volumes of enquiries for low value items. This becomes a problem of setting up a reliable, timely process to ensure all enquiries get answered in reasonable time. Companies in this category should consider web-enabled processes, particularly if they have geographically dispersed customers. N.B. Be very cautious about prolonged exchanges of e-mails. They tend to degenerate. (See Email etiquette.)

If products or services are configured to individual customer requirements, consideration should be given to web-enabled product selection processes or possibly configuration, knowledge-based, tools. (See "Postponement and Mass Customisation.")

Consideration should also be given to protecting confidential information useful to a competitor. (See security in general comments later.)

Software functions to support this process are shown in "Customer Relationship Management (CRM)".

Cost estimating

This process confirms the product requirements, and estimates the cost of providing it, as part of the process of checking that the selling price that can be obtained in the marketplace is profitable. This process is commonly supported by either simple spreadsheets or more sophisticated knowledge based modelling tools.

The issue here is not the calculation tools themselves, but ensuring that the product catalogue is accurate and up to date and that the decision rules for costing calculation are specified and maintained accurately. If products or services are configured to individual customer requirements, or are constantly changing, consideration should be given to web-enabled processes. (See Postponement and Mass Customisation.)

Quotation Management

In an e-world the potential customer wants their quotation now, on line, based on the options and variants they have selected. They need to understand the implications of carriage, packing, tax, and delivery times where they are, not where you are. How can you deliver that service in the middle of the night? Tracking high volumes of enquiries for low value items. This becomes a problem of setting up a reliable timely process to ensure all enquiries get answered in reasonable time. Companies in this category should consider web-enabled processes particularly if they are geographically dispersed. Consideration should be given to protecting confidential information useful to a competitor. (See security in general comments later.)

Quotations can generally be pre-formatted. We view this as good practice anyway to eliminate omissions and improve consistency. Once pre-formatted it is possible to apply automated procedures including web-enabled generation.

Software functions to support this process are shown in " Customer Relationship Management (CRM)".

Sales Order Processing

This is no longer a paper purchase order. It is either:

A fax
An e-mail
Credit card payment with order or pro forma invoice
Direct order entry by the customer into your sales order processing system, not via your sales department staff
A new schedule of requirements from established customers coming down the telephone line
Line items on an electronic shopping list
A CAD drawing
EPOS data from your customer with their SKU numbers acting as a Kanban to replenish their stock
You visiting the customer's premises and topping up their stock, electronically capturing the sale remotely
Receipt of bar coded Kanbans
An order received from your Internet site
Etc.

Or maybe all of these. How will you deal with a variety of these methods at once? How will you deal with credit checking? The order may require picking and despatch by the following morning. How will you deal with that? If you publish prices, how will you make those prices relevant to a global customer including carriage and currency issues?

Companies with high volumes of sales orders for low value items should consider automated processes with direct order entry by customers via the Web or some other form of EDI for repeat orders or schedule handling. This should include passing these orders directly into their back office systems such as ERP. Also see "17. Financial Administration".

Product design, New Product Introduction, Process Planning, Production / inventory planning and control, and manufacturing are covered in more detail in the following pages:

Supplier selection

(This topic is covered in more detail in Previous Best Practice B007 Strategic Purchasing1:(Make vs. Buy, Selecting Suppliers, Commercial Relationships)

In a world that has shrunk because of improved communications there are a number of aspects of e-commerce, which have both enabled and changed the process of supplier selection.

Researching potential suppliers is now largely an Internet occupation. Most companies now have a web-site with product & process capabilities stated.
Credit ratings are available on-line
International sourcing is significantly easier
Virtual networks of pre-qualified suppliers are much more common (see Lean Supply Chains and Agile Manufacturing).
Technical data and drawings can be electronically transferred around the world, enabling co-operative product development. Video conferencing can enable face to face communications without living on aircraft.

However to gain competitive advantage from these tools your buyers need to understand how to exploit them. They also need processes that can catalogue the results of the much wider searches made possible by these tools, and the ability to be proactive in maintaining lists of potential suppliers and their capabilities. See Agile Manufacturing) Methods of supplier comparison are shown in "Previous Best Practice B007: Strategic Purchasing 1: Make vs. Buy, Selecting Suppliers, Commercial Relationships). This is not necessarily with a view to changing suppliers (there needs to be a good reason to change), but to apply competitive comparison data with existing suppliers to keep them on their toes and provide additional leverage. You also need a process and a mechanism to efficiently maintain these data. All companies should now be actively using the Web for supplier selection.

Enquiry / Quotation handling

Basically there are two types of enquiry process.

Bids: Tracking low volumes of complicated bids for high value products. This is in the nature of project management. Companies in this category should consider project management tools. Spreadsheets will help to structure checklists of competitive comparisons.
Quotations: Multiple simple quotations for items that are used periodically or regularly. Companies needing to do this often should consider automating the process with diarized tracking systems. This may become an annual review of service requirements, and commercial re-negotiation.

Companies should not be switching suppliers regularly for low value items anyway, (See Previous Best Practice B020: "Reducing administration of low value items".) This limits the benefits to be gained by e-commerce, although analysis of historic or future spending may be aided by other IT tools including reports from purchase ledgers or ERP systems.

Cost estimating

This process confirms the product requirements and estimates the cost of providing it as part of the process of checking that the selling price that can be obtained in the marketplace is fair and reasonable. This process is commonly supported by either simple spreadsheets or more sophisticated knowledge based modelling tools.

The issue here is not the calculation tools, but that the decision rules for costing calculation are specified and maintained accurately.

Purchase Order Processing

This is no longer a paper purchase order. It is either:

A fax
An e-mail
Credit card payment with order or pro forma invoice
Direct order entry by you into your suppliers sales order processing system
A new schedule of requirements sent down the telephone line
A new schedule sitting on your customers' server
Line items on an electronic shopping list
A CAD drawing
EPOS data acting as a Kanban to replenish stock
Supplier topping up your stock, electronically capturing the purchase
Receipt of bar coded Kanbans
An order sent to your suppliers Internet site
ERP schedules
Self billing
Etc.

Or maybe all of these. How will you deal with a variety of these methods at once? How will you deal with monitoring supplier performance and capacity? The order may require picking and despatch by the following morning by the supplier. How will you deal with that? Companies with high volumes of purchase orders for low value items should consider automated processes or other supply methods including schedules, supplier top up, Lean Supply Chains / Just In Time methods, electronic Kanban, third party kitting, and ERP systems etc. (Also see Agile Manufacturing, and Implementing ERP Systems). Also see Financial Administration below. All companies should now be considering the automation of this process in two ways:

Inexpensive items in small quantities: Fax, credit card or web based buying
Repeating requirements: Electronic Data Interchange (EDI)

(See Previous Best Practice B020: "Reducing administration of low value items")

Supplier control

It is now possible as a by-product of purchasing to capture information on supplier performance that was quite difficult to maintain before.

The administration of payment can largely be automated (provided that the account's people pay suppliers on time.) The process of delaying payments to suppliers drowns purchasers with unnecessary administration and reduces their bargaining power. (It is hard to get an urgent delivery if the supplier's previous bill has not been paid!) (See Previous Malpractice M001: Paying Suppliers Late)
Because receipts are now booked in against purchase orders, the purchase orders are updated dynamically by the goods receipt area avoiding the need to do this in the purchasing area. Late deliveries are highlighted daily (because they have not been booked in), making expediting less of a panic action.
Quality problems are captured automatically in goods inwards or in the shop, and the implications fed to purchasing proactively by the internal systems.

These developments can be used to change the role of purchasing from a paper chasing exercise into a proactive continuous improvement driver. The role then becomes one of collating the performance information and acting proactively on it, in a timely way. This requires the development of processes to drive this improvement including:

Performance monitoring (See Focused Improvement Systems and Service Level Agreements)
Feedback & reporting systems (internal & to suppliers)
Regular supplier meetings / visits leading to the capture and collation of new types of information, including capability, other customers, supplier systems, key personnel, their suppliers, risks, etc.
Implementation of supplier development programmes
Monitoring of these programmes (See Previous Technique T011: Three strikes and you are out)

Purchasing Logistics

There is now a whole new set of ways of dealing with supplier logistics. Many of these are listed in "Lean Supply Chains". These are often enabled by concepts of electronic communications. However they need new methods of planning, monitoring and control. (See Previous Best Practice B020: "Reducing administration of low value items").

Despatch / Delivery

It is now common to out-source transport, which brings with it a need to identify potential carriers. Some customers will collect. Some customers maintain "consignment" stocks (still owned by the supplier). Some customers will have distribution centres. You will deliver some items to points of use at customers. You will have some customers who require advance delivery notification. You will have electronic or physical Kanban replenishment orders. It is now becoming more common to supply electronic documentation. Bar coding is often necessary. Picking documentation can be generated remotely and printed in the warehouse. Advanced shipment notification can be provided electronically, and your goods can be tracked throughout their journey. Bills of lading and load calculation, route planning, and fleet management systems are also available. All these have major implications for the despatch process.

Again it is not the technical facilities that cause most of the problems, it is the lack of robust procedures, capacity, and skills and training of the staff, who are often low paid and originally packers or drivers. Despatch has undergone a major revolution requiring literacy, numeracy and computer skills. It is also one of the most common causes of customer dissatisfaction.

Installation / Servicing / Spares / After-sales

Installation is now often done by customers using web-based instructions or products which they can adapt themselves. Often a product includes electronic adaptation methods (e.g. downloading). Service manuals are on-line web based, or CD based documents. Product recall is an electronically aided process. Spares are ordered via the web. The provision of internal processes to reliably support these activities is essential. Remember this is where customer perception is most influenced. These include:

Treating documentation as a component that is part of your product. Then subjecting it to the same change control and testing, as you would any other part of your product. (See Previous Best Practice B025: Version Control.) A service manual or instruction booklet that was written for your service / installation engineer will not be adequate for customer based servicing.
Assume the village idiot will use your remote electronic information products. We call this gorilla testing!
Use "help" facilities intelligently to support the remote activity. This may include troubleshooting guides, menus, fast tracks, question and answer, decision tables, and straightforward jargon free use of language.
A picture tells a thousand words.
Issuing reminders. Your software tells you that you have not updated your virus checker recently, or that your service interval is up, or you have just run out of warranty, or you really need to spend some money now because your product is now out of date and old fashioned.

Personnel Administration

All business processes can be influenced by electronic methods and personnel administration is no exception. The skills management and manpower planning, recruitment, training and payroll administration processes can be significantly assisted by electronic means. (Payroll Administration is covered in Previous Readers Questions "Q016: ERP functions required for Shop Floor Control, performance and payroll reporting".)

Financial administration

If you have many customers the financial administrations of credit checking, credit control, invoicing, and debt collection can be either eliminated or greatly reduced by electronic means. Pro forma invoices can be replaced by credit card purchases via the Web.

If you have many suppliers the financial administration of issuing purchase orders, goods receipt, invoice registration, cheques, other supplier payments, can largely be eliminated provided you are prepared to accept the principle that suppliers should be paid according to the agreed method and terms of payment. This can be achieved in a number of ways including credit card payment, BACS / Swift, "Self- Billing", "Back-flushing" (See Materials Management & Stock Control ), and replacing item purchases with supply contracts.

Management accounting

No self-respecting accountant in anything but the smallest business would today be trying to operate internal financial control without the use of a computer aided budgetary control system contained within a general ledger. However my experience of such systems is that they can actually prevent the company from changing because:

They exert financial constraints on companies that are trying to grow in response to increased demand.
They do not exert financial constraints until too late on companies who desperately need to contract because their order book is in steep decline.

Provided these systems are managed in the following manner they can be very beneficial:

They are part of a dynamic planning process where estimates to completion rather than statements of history are used as control processes
They are relevant accurate and timely without being precise
Control systems exist to monitor variances and questions are asked if significant variances are encountered

Quality Control

Systems are now available to assist the documentation of procedures for ISO purposes, and more importantly to make one version of the procedures available centrally in a computer server that is available to everyone. (See Previous Best Practice B003: "Procedures and Documentation"). Secondly systems are available to support quality management including SPC, inspection/test results, product data, product traceability, etc. However these systems will do little to improve quality if other factors are not present including:

Quality Planning
Contingency planning
Commitment to a quality culture
Measures of performance
Quality awareness
Continuous improvement

(See Focused Improvement Systems)

Maintenance

(See Maintenance Repair and Overhaul)

Systems are available to assist breakdown analysis, preventive maintenance, and spare parts stock control. However although the measurement of mean time between failures has been understood for decades, preventive maintenance has been slow to gain acceptance, as opposed to fix it when it goes wrong, except in the transport industry. If Total Productive Maintenance (TPM) is employed the maintenance function's role is then elevated to include major work, setting maintenance schedules and standards, the quality control of maintenance, facilitating continuous improvement and making the plant easy to maintain. IT has role to play in this. Spares catalogues can now be made available in Web or CD form rather than paper. But beware of holding all the spares stocks that your supplier recommends!

Repair & Overhaul Businesses

(See Maintenance Repair and Overhaul)

This is covered in more detail in but there are now a number of tools to assist the necessary processes, including capacity and materials management, forecasting, training manuals, and work scheduling.

Development Processes

Marketing

The Web may also provide alternative routes to market. There are many examples of Web enabled products and services including retailing, marketing, diagnostics, software, and many more, particularly time critical, distress purchase, rare, or geographically dispersed products and services or markets. "Position" is less important because your shop window is as near as the nearest Web portal provided that your customers are likely to find your site. (See Customer Relationship Management (CRM))

Business Planning

Use of IS/IT in the context of this article has a potential bearing on the products, services, markets, routes to market, bargaining power, competitive advantage, as well as overcoming the internal constraints of complexity, uncertainty, flexibility, and capability. In particular IS/IT has great potential to integrate internal and external processes although in some cases these facilities are immature and should be approached as risky.

World macro and company micro modelling tools exist to assess opportunities & risks for larger companies. Correlation is an important tool to explore relationships and the strength of those relationships. For example there is a high correlation between the weather and the sales of garden equipment. So global warming effects will have a long-term effect on the sales of garden equipment. However it does not give much indication as to what market share you can expect, or the emergence of competitors or substitute products. Other inputs are required and statistical methods are employed to assess probability. However these are largely backward looking based on previously established relationships. There is a significantly greater creative input required in this process which can only come from having a business planning process which structures that creativity. (See Step Change training: S05 World Class Change Management)

Change Programme Management, Continuous improvement, and Supplier development.

IS/IT has a low impact on maintaining an active change programme, Continuous improvement, and Supplier development.

General Comments

Agile Manufacturing can be considerably enabled by the use of IS/IT giving higher levels of customer service and satisfaction. (See Agile Manufacturing)
Improved customer supplier communication can lead to improved management of the whole supply chain. (See Demand Management and Lean Supply Chains).
Knowledge is becoming an important product. As part of your product offering you should be considering the way you provide help and advice in relation to the capabilities offered by electronic means.
During the early days of use of anything new there is a phenomenon known as the "novelty curve". This simply means that initially greater use of the new thing will arise because of its novelty. Initially therefore you need to ensure that there is sufficient capacity to accommodate this need. Later usage will settle down to a more predictable pattern. It is in this initial phase that reputations are made or damaged!
Much has been said about the security threats posed by the Internet in particular. This has three aspects:
- Threat of damage to the facility by vandals or accident.
- Protecting the privacy of your information from industrial espionage or accidental leakage.
- Fraud.

Some protection will be afforded to you if you pass our test 25 Questions to ask your IT specialist, but be vigilant.

There is little law written about the Internet and it crosses political frontiers. Be careful about the legality of commercial transactions, copyright, personal data and patent law. Web-sites should not contain confidential, offensive, or blasphemous information.
Do not leave the internal support processes to chance. Think about the risks and benefits to the customer and yourself before you offer the service and what modern information technology can do to aid your current processes. The pace of change is accelerating. Difficulties are caused by revolution not evolutionary changes. Get ready now, not when you get your first electronic order.
Finally you need an IS /IT Strategy to exploit IT properly (See IS / IT Strategy Determination, software selection and Implementation) and this should be accompanied by an IS / IT Policy (See Previous Best Practice B032: IS / IT Policy (why you should have one, what it covers, and how to implement it)

_________________________________________________________

Bookmarks for this topic above:

Our full range of training

Relevant Training / Workshops

Expert Systems / Tools

Relevant Further Reading

Top

To discuss your consulting or training needs with one of our independent consultants or trainers please Contact Us

Whilst great care has been taken to provide relevant, accurate, practical, advice based on our considerable process design and development experience, this will almost certainly require interpretation into the context of your unique business. Please be careful in doing so and if in doubt seek expert advice. We would welcome your feedback!

SM Thacker & Associates

Independent Best Practice Training & Consultancy

Highlights of our full range of training courses / Workshops:

Bookmarks for this topic below:

Relevant Training Course / In-house Workshop Highlights:

Expert Systems / Tools:

Relevant Further Reading: The following further articles were mentioned in this paper: