Order Fullfilment and Supply Chain in E-Commerce - Case Study Example

Note : Word Count is REDUCED to 2,568 or 10.3 pages INCLUDING Table of Contents BUT EXCLUDING References and Appendix. I also rearranged and highlighted the MAIN sections and follow the “SUGGESTED” format rather than your friend’s or my experienced format. Thanks! ORDER FULLFILMENT AND SUPPLY CHAIN IN E-COMMERCE Table of Contents Executive Summary 3 Introduction 4 Theory and Concepts 4 E-Commerce definition and concept 4 Features of E-Commerce 7 Supply Chain in E-Commerce 8 Order Fulfilment in E-Commerce 10 Key Findings and Discussion 12 Case Study (Amazon.com and BestBuy.com) 13 Recommendation and Conclusion 16 References 17 Appendix 18 Executive Summary E-Commerce is doing business online electronically. The common process involved in online retailing includes accepting and processing real-time orders and same day delivery. The study found that business organisations participating in E-Commerce must build their reputation through quality and timely delivery of goods. Supply chain and order fulfilment in E-Commerce are improved versions of traditional model. The advantages of E-Commerce over traditional commercial activity in most part are enabled by advanced communication technology and the low-cost global network offered by the Internet. Examination of Amazon and BestBuy, a well-known online retailer suggests that innovative supply chain and order fulfilment management is the key to success while the opposite result to failure. These include short supply chain cycle, consistent flow of information across the chain, fast and reliable delivery, and appropriate infrastructure for real-time order processing. Introduction E-Commerce is doing business electronically online and it involves accepting real-time orders, processing, and same day delivery. Moreover, the success of E-Commerce or online retailing depends on reputation and trust that in essence is achieved in not only the quality goods but also timely delivery of goods that in turn is highly reliant on supply chain and order fulfilment mechanism. The following sections discusses the concept of E-Commerce and its important features, the characteristics of supply chain and order fulfilment in E-Commerce, investigation of Amazon.com and BestBuy.com E-Commerce strategy, presentation of key findings, discussion, recommendations and conclusion. Theory and Concepts E-Commerce definition and concept E-Commerce or Electronic Commerce as the term implies is generally about doing business electronically. However, according to authors Tapscot, Lynch & Lundquist and Silverstein as cited in , its concept include performance of business transactions, buying and selling of products and services digitally, data transmission, and information and communication technology-based business interactions. In other words, the concept of E-commerce is to redefine the relationship between buyers, sellers, and intermediaries in domestic as well as international markets and to offer new means of accessing information and arranging prices . However, argues that concept of E-Commerce also include building trust as it reduces the complexity in society particularly in buying and selling online. In a more profound explanation , suggest that E-Commerce is also about aspirations to directly generate revenue using electronic networks. It enhanced traditional commerce by automating transfer and processing information. For instance, E-Banking is considered a branch of E-Commerce because it provides financial services electronically 24/7.. Therefore, the concept of E-Commerce is also about providing unique and relatively beneficial services online. E-Commerce as noted by is a marketing strategy motivated by “drivers” such as product transferability online, assets, infrastructure, demands, and competition. As shown in the figure below, business participation in B2B (Business-to-business) and B2C (Business-to-business) E-Commerce in Australia increased significantly simply because they want to share the commercial benefits of E-Commerce. Figure 1- Online sales of Australia business in 2001 and prediction for 2004 The growth of E-Commerce in Australia in a survey conducted by the National Office of the Information Economy in late 2000 suggest that of Australian SMEs or Small Median Enterprises are involved in B2B such as online procurement of materials- 17%, buy products online for personal and business use- 12%, and purchasing software in the Internet – 37% . Figure 2- Australian SMEs sharing the benefits of E-Commerce Features of E-Commerce The most common known features of E-Commerce according to the of the United Kingdom are those that distinguish it from traditional commercial activity and these include marketing goods and services through a website containing catalogues and virtual shopping cart. Another is interactive online order forms where customers can place their orders and pay through credit cards. More importantly, E-Commerce type of marketing is available 24 hours a day and available to almost all shoppers around the world. However, suggested a more detailed set of E-Commerce features as enumerated below. Offers rich set of opportunities for entrepreneurs and intrapreneurs E-Commerce automates order processing, offers various online opportunities, and improves overall efficiency. Expansion of competitive space E-Commerce allows expansion of competitive space at lower cost thus more customers, better economies of scale, and time-efficient management. Enhanced primary and supporting functions of value chain On the supply side, E-Commerce create additional value for suppliers and partners through online, timely, and persistent management of information associated with documentation, order processing, financing, and collection. Reduced cost, increase customer satisfaction, and enhance competitive advantage E-Commerce reduces cost associated with manufacturing, processing, and distributing goods. It has short cycles thus can respond to customer needs in real-time and enhance reputation and competitiveness. Improvements in interactions and efficiency of market or exchange mechanism It is the ability of E-Commerce to improve supply and demand side of the market mechanism through efficient allocation of resources, reduced systemic waste and improved system responsiveness. Supply Chain in E-Commerce By definition, a supply chain is a set of activities linking the flow of services from suppliers to customers such as ordering, receipt of materials, production, and distribution of finished products . With the objective of building competitive infrastructures, supply chain in traditional business include managing and integrating key activities such as sourcing, procurement, conversion, and logistics that often involved collaboration and coordination between suppliers, intermediaries, and customers . In E-Commerce, features inherent in traditional supply chain is almost similar except those that are affected by technologies associated with E-Commerce such as elimination of intermediary institutions because of more efficient computer and communication technologies. Another is real-time processing demanding more efficient and fast logistics, and demand for transparency to all parties . However, since technology can make tracking and regulating supplies simpler, supply chain management in E-Commerce is fast and simple . According to , supply chain cycle times such as order taking and processing is reduced dramatically in E-Commerce because it often take only minutes and seconds rather than days and hours in traditional supply chain. The association between E-Commerce, electronic technologies, and the Internet resulted to changes in traditional supply chain management because of increased price visibility and comparability competition requiring efficient and fast response to market demand . In other words, E-Commerce supply chain to some extent make up for the inadequacies found in traditional version . The difference between traditional and E-Commerce supply chain may be best described in a comparative table as shown below. Table 1- Supply Chain Comparative Table Activities /Functions Traditional Advantage /Disadvantage E-Commerce Advantage /Disadvantage Infrastructure Private dedicated network Requires large capital investment Internet Lower cost as it share global network Communication Advance technologies like XML, OBI, IOS, etc. Flexible electronic links between organisations Determination of inventory requirement Push-based Huge stocks are maintained based on forecast and trends. Pull-based . Initiated on the basis of consumer demand Product promotion and advertising Promotion, schemes, deals and discounts advertised through print media Manufacturer distribution and retailer determined by consumer demand Exchange of documents Fax, phone, mailing, etc. EDI services Order Fulfilment Origin Retail Stores Warehouse Order Fulfilment in E-Commerce “The success of e-business depends on order fulfilment” . Order fulfilment is the process of taking sold products from an inventory, packaging, and shipping to customer . It is a highly integrated process and often involves a number of functions and people from different companies working together to meet customer’s delivery expectations . In E-Commerce, order fulfilment entails speed and reliability mainly because of time-based competition. For instance, an Internet-based E-Commerce sale in 2005 is about $172 billion and 70% of these online purchases were shipped by air while the most common factor in the failure of online retailers is unreliable order fulfilment . According to , only retailers should deliver products in the soonest possible time because E-Commerce customers are now accustomed to fast deliveries of ordered goods. Moreover, online customers often demand assurance for online retailers such as security, business legitimacy, and reliability of order fulfilment thus appropriate infrastructure for product delivery is critical. As discussed above, getting products to the customer is evidently a primary concern in E-Commerce as aside from the need to deliver products in a timely manner, shipping products to customers is often costly. For this reason, E-Commerce retailers include shipping and handling fees in the price of the product. Others negotiate a flat rate for each item but this is not always the case because in view of competition, some of them elect to offer free shipping . According to , final customer order fulfilment in e-Commerce is in the distribution centres or factory warehouses rather than retail stores. This is because online orders are required to be picked, packed, and shipped in real-time. In other words, order fulfilment in e-Commerce is conducted farther back in the supply chain. Key Findings and Discussion Order fulfilment and supply chain in E-Commerce as discussed earlier appears to improve its traditional versions through advanced electronics and availability of global network such as the Internet. As discussed earlier, it is essential for order fulfilment to be fast and reliable because of not only time-based competition but also maintenance of reputation and customer satisfaction. The Amazon.com and Best Buy case studies and review of literature suggest that strategic and innovative supply chain result to higher sales while the common downfall of online retailers is poor order fulfilment reputation. Certainly, appropriate infrastructure for product deliver is necessary thus, online retailers must establish a beneficial partnership with carriers particularly those that can deliver goods in a timely manner at lower cost. The difference between traditional supply chains in terms of order fulfilment is in the origin of the products to be shipped to customers. For instance, traditional supply chain typically used retail stores, which in essence is the last point in the supply chain. In contrast, E-Commerce’s order fulfilment originates for the warehouse or at mid-point in the supply chain because of time constraints imposed by online business environment. In summary, supply chain and order fulfilment in E-Commerce bring the following benefits. Purchase goods anytime and anywhere (customer). Automatic and fast order processing (customer and retailer). Ability to reach international customers and suppliers at lower cost (retailer). Larger competitive space (retailer). Additional value for suppliers and partners through consistent and timely information exchange (suppliers and retailers). Reduced supply chain cost (manufacturer and retailer). Enhanced customer satisfaction (retailer) Case Study (Amazon.com and BestBuy.com) In 1996, Amazon went online to sell music CDs, books, and to increase its sales, Amazon management invested in state-of-the-art web design, supply chain systems, and order fulfilment software . In 2012, Amazon diversified to consumer electronics, sporting goods, toys and hobbies, home and kitchen supplies, and others. In line with its commitment to persistent technology upgrade, Amazon purchased a major provider of mobile and robotic warehousing technology to ensure fast and accurate customer order fulfilment . Best Buy on the other hand is a “brick-and-mortar” (a company that already has an actual business facility before they offered online services) with over 300 stores around the United States. Its online offerings are similar to Amazon.com but it has a number of physical stores working in tandem with its E-Commerce website as opposed to fulfilment centres of Amazon.com . The backbone of Amazon’s online business is its own fulfilment centres where it stocks inventory of its products. Contrary to Best Buy with existing physical stores and offering options to pick up goods ordered online in its local stores, Amazon established an integrated network of facilities to pack and ship customers order . In 2010, Amazon already has 11 order fulfilment centres in North America, 8 in Europe, and 6 in Asia. Most of these centres are located outside major urban areas thus giving Amazon low-cost alternative in terms of land value and real estate taxes. According to , Amazon’s order fulfilment is the “gold standard” of Internet fulfilment that allow Amazon to gain competitive advantage and prevent third party fulfilment centres provider from offering their services to competitors. In contrast, although Best Buy has the advantage, its order fulfilment is poor mainly because of inventory shortages as a result of poor coordination between their online retailer site and local stores . As shown in the figures below, Amazon’s order fulfilment centres brought greater competitive advantage and higher revenue while BestBuy.com failed due to significant online purchasing failure. Figure 4- Percentage of revenue generated by own order fulfilment centres Figure 5- Percentage of Online Purchases Processed by BestBuy.com Certainly, Amazon cannot do this without an efficient supply chain that BestBuy failed to have. In the beginning, Amazon used an information intermediary to forward customer request to the manufacturer who will actually fulfil the order. However, this strategy does not last long because Barnes and Noble, built its own Internet presence to compete with Amazon . However, seeing the opportunity to redesign its business strategy away from its linear relationship with the Internet, Amazon focused on building a value network while BestBuy, realising its past mistakes, its online retailer website is now fully integrated with its local stores. Similar to Amazon, BestBuy created a value network providing 24/7 customer care, user forums and reviews, and so on . The Amazon value network include value-adding activities such community building, direct customer ordering and registration of customers, access to catalogues, and availability of payment and processing throughout the supply chain . In addition, since transportation capabilities is a critical part of Amazon’s strategy, Amazon partnered with carriers that can deliver customer orders quickly and consistently, and charge reasonable shipping rates . Similarly, integration and improvement in Best Buy supply chain and order fulfilment strategy renewed its reputation and now serving 60% of their customers online . Recommendation and Conclusion For businesses wishing to expand or improve their online presence, this study recommend the use of E-Commerce as it has a number of advantages over traditional push-based approach such as consumer demand driven operation, electronic and Internet-enabled improvement in supply chain and order fulfilment processes, short supply chain, global reach, flexible inter-organisation link, B2B and B2C capable, and In conclusion, E-Commerce supply chain and order fulfilment mechanism is more efficient compared to traditional push-based supply chain as it is short and order fulfilment is done at mid-point of the chain. Its advantages are mostly coming from use of advanced electronics and Internet-enabled low-cost global network that enable timely delivery of customer online orders. However, real-time processing is demanding thus logistic strategy and infrastructure should reliable. Although BestBuy.com failed in the beginning, this online retailer and Amazon.com are excellent examples of efficient E-Commerce or online retailing mainly because they built an excellent infrastructure that can meet online customer demands and expectations. References Appendix A. Amazon.com Online Store B. BestBuy.com Online Store Read More