Developing an E-Commerce Strategy

Scott Haraburda, PE, Chemical Demilitarization, US Army, Newport, IN The internet offers all businesses-large and small-a powerful tool for marketing, selling, and buying products or services. This system is commonly referred to as e-commerce.

By Edited by Rick Dunn November 1, 2000

Scott Haraburda, PE, Chemical Demilitarization, US Army, Newport, IN

The internet offers all businesses-large and small-a powerful tool for marketing, selling, and buying products or services. This system is commonly referred to as e-commerce.

The rapid increase in the use of e-commerce by business and industry indicates how important this tool is becoming. Every business should have an e-commerce strategy.

As buyers, plant engineers should understand what is behind the supplier or potential supplier at the other end of that internet connection. In other words, it helps to know something about the e-commerce strategies their suppliers and potential suppliers are using.

Many organizations offer assistance in developing an e-commerce strategy. Take advantage of them. Strive to design your system to minimize bottlenecks and obstacles. Following are some of the considerations for e-commerce strategies.

E-commerce is looked at by some as the current fad for business today. But it is much more than that. When asked where the internet ranks on his list of priorities, Jack Welch, General Electric CEO, answered: "It is number 1, 2, 3, and 4." And according to Derek Slater, a senior writer for CIO magazine, "E-commerce is the most recent step in the evolution of business transactions. It replaces (or augments) the swapping of money or goods with the exchange of information from computer to computer."

Why would a company want to do this? Sending data over the internet is certainly cheaper, faster, and more convenient than sending a messenger or making a phone call. When used for e-commerce, the internet lets even "mom and pop" businesses compete on the global market with very little capital investment. For this reason, plant engineers need to be wary of whom they’re dealing with over the internet.

Using the internet for commerce has dramatically increased in the past few years. A study done by the University of Texas revealed sales revenue over the internet in 1998 was more than $300 billion and employed more than 1.2 million workers. These figures are increasing rapidly.

Push to e-commerce

While many businesses see e-commerce as a way to build sales and reduce costs, many more find it necessary just to stay competitive. According to one Virginia consulting firm, a person-to-person financial transaction costs an average of $1.07 to conduct. Online over the internet using e-commerce, this same transaction costs less than $0.01. Although many services and transactions can be conducted over the internet using e-commerce, it is doubtful that internet services will completely replace those servicing people in-person today. Many customers still need or want in-person services.

For small companies, entering the internet requires very little expense. Having an e-commerce site lets "the store" stay open 24 hr/day and 365 days/yr. Furthermore, the company catalog can be updated in a few clicks; and information about potential customers can be collected. Some software systems even offer attractive e-commerce systems. One system, for example, charges a small set-up fee, then $10/mo, plus 2.15% of all credit card sales and $0.20/transaction.

However, larger companies can expect to spend over $1 million to build an e-commerce system. According to a survey conducted by the Gartner Group, the cost of an e-commerce site will increase 25% annually over the next 2 yr, and that 79% of the total cost is labor related. Hardware and software costs were each about 10% of the total. Most industries spend between $1 and $5 million, while those having "market differentiator" sites were developed at costs between $5 and $20 million.

At a minimum, an e-commerce system should offer customer service that distinguishes it from the other e-commerce sites, as well as from other routes of commerce. And it should build customer confidence and trust in the reliability of the products being marketed.

Overcoming the obstacles

E-commerce has many obstacles, such as the security issues of encryption (privacy), electronic authentication (ability to form contracts), and intellectual property rights (patents and copyrights). Other hurdles center on the internet system itself, such as the infrastructure and software. Additional problems include commerce, such as tariffs, taxation, and internet monetary standards.

Security is probably the biggest obstacle in the internet system. Many types of scams could affect a business that uses e-commerce. These scams include price manipulation, illegal pyramid schemes, inside trading, and unlicensed professional services. A business e-commerce strategy should include a process that guarantees security for both buyers and sellers.

Another obstacle present on the internet is counterfeits, which account for a predicted $25 billion of online sales in 1999. If a customer buys a product online, he may not know if what he receives is genuine or a fake. Few users have the time or even the inclination to check the authenticity of every tool or product purchased. With this fact in mind, it might be wise to include in the strategy a guarantee on items sold through e-commerce.

Entering e-commerce requires a company to think globally. According to Ann Grackin, a member of the Avicon Group, a consulting firm that develops internet business strategies, "Once an electronic commerce storefront is established, you become a global trader. You need to be responsive in a multicultural, no-boundaries world." This need applies to buyers and sellers alike.

Most internet transactions today are paid by credit card, but many companies do not want to use credit cards or the new "purchasing cards." A useful e-commerce strategy, therefore, might include alternative methods for monetary transactions.

Each of the obstacles described here must be addressed before a company can establish a viable e-commerce strategy. A business must know its customers and suppliers, know the types of systems they use, and must tailor its e-commerce strategy accordingly.

Corporate executives have rapidly come to the startling conclusion that companies that do not move fast to enter e-commerce risk losing business to smaller rivals who do. In many ways, e-commerce has leveled the industrial and business playing fields. Businesses that barely existed a few years ago may soon be the largest in the not-too-distant future. A company today without an e-commerce strategy risks much.

Sites of assistance

A number of organizations are available to provide assistance in developing an e-commerce strategy. -CommerceNet was formed to promote and advocate interoperable e-commerce systems. Organization has more than 500 corporate global members and any system with global aspirations should consider the interoperability issues this group addresses. -Computer Systems Policy Project develops and advocates public policy positions on technology and trade issues. Use the Guide to global electronic commerce readiness on the site to evaluate your system. -Electronic Commerce Interest Group is a forum to discuss problems and priorities involving the evolution of the internet. Site is one way to learn what other organizations are doing in e-commerce. -Global Business Dialogue believes conflicting policies, rules, and regional regulations are obstacles to online economy and seeks strengthened international coordination. -Net-Bill emerged because lack of a common currency on the internet has become an obstacle to e-commerce development. The organization is a proposed third-party billing system developed by Carnegie Mellon University.