E-commerce: collaboration or coercion?

E-commerce (collaborative commerce) has been heralded as the next ‘big thing’. Indeed, according to industry leaders it will become the dominant form of e-commerce by 2004, with customers and suppliers sharing information and integrating systems to enable shared planning responsibilities, transaction processing and so forth. It sounds positive, but in practice, for many smaller suppliers c-commerce can feel more like ‘coercion’ than ‘collaboration’, with large firms demanding that suppliers do business via their proprietary systems, or lose it. Yet according to Payroll Alliance (March 2001), small or medium-sized enterprises (SMEs) employ 55.5% of the private sector workforce and produce 40% of UK GDP. There are 3.75 million SMEs in the UK, many suppliers to and customers of large manufacturers. So this should make them a force to be reckoned with, even if the initial decision to collaborate is taken by a large organisation. Collaborative commerce can bring benefits for both sides: cost savings, improved competitiveness, increased quality, greater efficiency and better customer and supplier relationships. Greater integration with suppliers enables manufacturers to streamline process flows and improve productivity. Rather than simply responding to order requests, suppliers can anticipate procurement needs by taking advantage of direct links to their customers’ sales forecasts and inventory targets. Counting the benefits One major auto manufacturer predicted that by removing the collaboration lag in engineering and manufacturing, it could save £280 million by 2004. And according to Neil Mitchell, vice president of marketing and strategic alliances for collaborative software solutions specialist Centric Software: “Savvy manufacturers recognize that collaborative-commerce is no longer a competitive differentiator, but a competitive necessity.” But according to a report from Warwick Business School, only 20% of SMEs have a written e-strategy, compared with 79% of large firms, and 80% of SMEs cited digital integration as the main barrier to electronic supply chain management. This is corroborated by Justin Morris, IT manager of SME company Gower Chemicals: “Because there isn’t just one standard system, it can be complex to operate electronic relationships up and down the supply chain.” Moreover, systems like EDI or ERP can be prohibitively expensive for SMEs, and making the decision to invest raises a number of questions. What if two valued customers have different, or conflicting systems? How quickly will the system become out-of-date? How will it integrate with existing systems? What guarantees are there of business? Cases in point Ultimately, for c-commerce to be collaborative it should bring benefits to both parties. For example, manufacturer of electronic subassemblies Crawford Hansford & Kimber (CH&K) implemented a bespoke scheduling system that links to a key customer’s materials requirements planning (MRP) system. The customer provides a 12-month forecast of its requirements, including two months of firm orders. This triggers CH&K’s system to create purchase orders, stock and binning up labels, and to track manufacturing through to final inspection and despatch. The system provides the customer with a quicker, more versatile service, and has increased CH&K’s productivity while reducing overheads. Admittedly, the impetus behind integration is often customer-led. As John Simmonds, managing director of CH&K, says: “Ultimately, customers have more power.” But clearly there were mutual benefits here. Then again, auto parts manufacturer Krupp Camford’s suppliers have to be prepared to use c-commerce technology to deliver the speed and reliability its customers in turn demand. Krupp established a Supplier Development Programme to encourage its suppliers to build their system capabilities as much as possible in terms of supply chain transaction processing, business process automation, CAD data interchange and so on. In the end, everyone benefits here too. Citing his supplier extranet, Krupp sourcing specialist James Smethan says: “Everyone involved can add comments to a notice board. This is very useful in managing projects, and in dealing with problems and concerns.” Whether through genuine desire for collaboration, or as a result of coercion, it is clear that greater integration between customers and suppliers can deliver benefits to both parties. And if analysts and industry leaders are to be believed, c-commerce is inevitable. So it is vital for both large and small companies to find a way to make this work. Manufacturers need to encourage suppliers to work in partnership, and adopt new technology, rather than coercing them. This could be through part-funding of new systems, guarantees of work for a set timeframe, or access to and training on their systems. SMEs also need to be proactive in dealing with their large customers – by being creative in response to integration issues, by sharing experiences with other SMEs and by communicating openly with customers. Closing the gap It does work. Bellhouse Hartwell, for example, supplies sheet metalwork, and one of its major customers is BAe Systems. Although the two companies met regularly to review every aspect of the supply chain process, there were still flaws in the way they worked together, particularly on data transfer: order, manufacture and delivery data were frequently not up-to-date, affecting scheduling for both companies, and costing time and money. So they set up an Internet-based system – a neutral environment with high-security corporate firewalls where engineers and purchasing teams could access BAe data. This benefited both companies, resulting in productivity savings of £50,000, a four-day reduction in lead times and a 20% reduction in order backlogs – as well as faster-moving, smaller inventory and less waste. Clearly, if c-commerce is to become truly collaborative, it needs suppliers and customers to start working together now like this. If this happens, collaborative commerce could become a reality far sooner than 2004. Further help and advice This article is sponsored by UK online for business, a DTI-led Industry/Government partnership aimed at encouraging UK business – particularly smaller businesses – to exploit technology. It provides impartial, jargon-free advice on e-commerce and offers practical advice on supplying electronically. For more information: call the Infoline on 0845 715 2000 e-mail info@ukonlineforbusiness.gov.uk visit www.ukonlineforbusiness.gov.uk UK online for business’ Partners Programme offers large companies the opportunity to promote the benefits of e-commerce to SMEs. For more information e-mail partnership.programme@dti.gov.uk UK online for business: www.ukonlineforbusiness.gov.uk/supply Chartered institute of Purchasing & Supply: www.cips.org Institute of Logistics and Transport: www.iolt.org.uk Federation of Small Businesses: www.fsb.org.uk ecentre UK: www.e-centre.org.uk