2 E-commerce applications
2.1 An example – supply chain management
Before looking at the wide variety of e-commerce application areas that have flourished over the last decade in more detail, it is worth looking at one which may not be familiar to a reader, but which saves companies huge amounts of resources. The application involves a supply chain. A supply chain is a set of relationships between a number of companies who have a symbiotic relationship with each other in that one company supplies commodities or services to other companies which, in turn, supply commodities or services to other companies, and so on.
The example was originally described by Kalakota and Robinson (1999) in their excellent management introduction to e-commerce. It concerns the processes involved in getting a bottle of Listerine mouthwash to the shelves of a retail chemist. It consist of the following steps:
In Australia a farmer sells his or her eucalyptus crop to a processing company that extracts the eucalyptus oil from the leaves.
The oil is then sold to a distributor in New Jersey.
At the same time as the eucalyptus oil is being extracted natural gas is being drilled in the Saudi Arabian desert in order to produce the alcohol that is added to the raw ingredients of the mouthwash.
Union Carbide ships the alcohol to Texas City, Texas, where the company that manufactures the mouthwash (Warner Lambert) has its factory.
Farmers in the mid-west of America grow corn which is used in the manufacture of Sorbitol which both sweetens and adds bulk to the mouthwash. This is harvested and sent to the factory in Texas City.
The ingredients are mixed and the mouthwash manufactured.
The final bottles of mouthwash are sent to wholesalers or to the warehouses of chains of chemists from where they are distributed to individual retail outlets.
Figure 1 shows the information flows in this supply chain. This is an example of a supply chain. It represents a typical e-business application. There are a number of commercial imperatives for Warner Lambert: first, it should not overstock bottles of Listerine and incur costs because its resources are tied up in unsold goods; on the other hand, it should always stock enough bottles to satisfy demand in the time that the reordering and replenishing processes can take place. Second it should be able to get as quick a response to an order for raw materials as possible. This requires every company in the supply chain to move quickly to process an order from a company which follows it in the chain. An empty warehouse would be a disaster for Warner Lambert. A third commercial imperative is for the elimination of waste bureaucracy and indirect connections between companies from the supply chain. This is again connected with responsiveness: the more paper that is used and the more companies have to communicate using devices such as email the slower the process of reorder and replenishment will be. The ideal here is for a company higher up in the supply chain to share its data with companies further down the chain. For example, Warner Lambert should ideally be able to look at the stocks of the wholesalers and initiate a replenishment of those stocks when it discerns that they are becoming low – provided, of course, that some pre-agreement has been made about the quantities involved. An important point about an application such as this one is that information should be kept confidential as it flows across the internet.
E-commerce and e-business
Internet terminology is still in a state of flux; nowhere is this more evident than in the past use of the terms e-commerce and e-business. Both have been used to describe any business activity which uses the internet. However, some consensus is emerging in that the terms are gradually being employed in a more focused way. The term e-commerce is increasingly being used to describe online retailing, for example the use of the web to sell books. The term e-business is increasingly being used to describe all business activities using the internet, not just online retailing.
All these imperatives lead to one conclusion: the fact that each of the entities involved in the process of manufacturing the mouthwash should be connected together. Even the farmer should be able to communicate with the buyer of eucalyptus leaves by typing in crop yields using, say, wireless technology.
Connecting companies together using network technology is not new: companies such as Procter & Gamble (The mouthwash example is an e-business application) have been leaders in this for years. However, the internet provides an infrastructure which enables individuals and companies to connect using a technology whose details are open to all and which can be easily implemented on virtually every computer in existence. The internet also provides a common interface to computing resources via a browser: everyone from the farmer in Australia to the manager of a retail chemist will be familiar with such technology and use it well.
A myth about e-commerce
One of the myths about e-commerce is that it is a comparatively recent phenomenon. Even in the early days of the internet when connections between individual computers were achieved by hand dialling using a telephone, there were a number of internet companies which had been set up to sell photographs and other graphic images of naked ladies and gentlemen. The earliest e-commerce applications were those associated with pornographers; indeed, a number of commentators have opined that the demands made upon the internet by pornographers have speeded the development of a number of technologies such as streaming video and the deployment of new business models.