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The Impact of E-commerce on Organisational Strategy, Supply Chains and Logistical Operations

Nyamweya is a global researcher with many years of experience on practical research on a diversity of topics

Introduction

Electronic commerce or E-commerce involves the selling and buying of commodities and or services, exchange of funds over an electronic network or basically the internet. The businesses majorly occur either as business-to-consumer, consumer to-business, or business to-business. The word-e-commerce is often interchanged with e-business. E-commerce began to develop in the early 1960s, when electronic data interchange (EDI) developed as a way of sharing business documents with other business. In 1979, the Institute of American National Standards came up with ASC X12 as a global standard for companies to share documents and data through electronic networks.

Today, there are various online malls and virtual stores on the internet where all forms of consumer products are sold and bought. Amazon, eBay, and Alibaba are popular examples of virtual stores dominating the B2C market. Consumers are now purchasing endless quantities of items from virtual stores, e-tailers, from each other, and conventional mortar and brick stores with e-commerce abilities. In the modern business environment, companies that have not yet embraced e-commerce are at a great disadvantage. This report presents an analysis of the impact of e-commerce on organisational strategy, supply chains and logistical operations. The essay begins by analyzing business within the online environment, a discussion of disruption and its impact, Oonline business and revenue models within the context of e-commerce, and an evaluation on the role of e-commerce technology in developing strategies that support unique and distinct e-commerce opportunities. The subsequent part discusses the impact of e-commerce and supply chain followed by a conclusion of the analysis.

Understanding of Business within the Online Environment

SLEPT Environment analysis

SLEPT is an acronym used by managers in the business environment to help them organize their thoughts and assist them in ensuring that they undertake a holistic analysis. The acronym stands for Social, Legal, Environment, Political, and Technological. Each of the categories incorporates crucial external factors that affect the strategic direction of an organization (Businesscasestudies, 2018).


Figure 1.1 SLEPT Analysis

Various factors are determining the businesses in the online environment. They include the social, legal, economic, political and technological. For social, the perception of consumers plays a significant role in determining the usage of the internet. The internet has been considered to be a very useful instrument for any business, whether small, large, national, local or global one (Zinkan, 2011). Additionally, this framework has also facilitated a permanent interactive forum with these consumers. This heightened interactive capability with consumers harbors positive implications to businesses which have considered the internet as a medium to promote their interests locally, nationally and globally (Kawai, and Tagg, 2017). It is clear that society is changing on a constant basis. Examples of this change include the ever changing fashions and consumer preferences. Social media is continually growing on a constant basis. Social networking sites such as Facebook, Twitter are becoming popular tools of communication among young people and businesses. Young consumers are getting used to computers and mobile phones. The Digital technology is increasingly being preferred by people to shop online (Pappas, 2016).

The Legal/Ethical factors play an important role in online commerce as they determine the means by which products can be sold or bought on the internet. Indeed, the disclosure identity and other personal information by the consumers have been regarded as a privacy issue obstacle in online shopping (Gautam, 2016). A study by Zhaolin (2015) found out that many websites are notorious for collecting consumer’s information without instilling adequate measures to protect such information. Some do not have adequate privacy policies, which discourage consumer adoption of online shopping.

Variations in the economic performance in different nations are a matter of concern for many companies operating online. The aspect of operating across borders is often complicated by currency, quality and price differences. The businesses will need to make a comparison of the monetary value and set the price taking in the cost of production and distribution. Therefore, prices will be higher in some places and lower in other places depending on the variation in economic performance (Angelika, 2012).

Government and transnational organisations also play a significant role in the control and future adoption of the internet. Consequently, different governments have their own policies, principles, roles, decision-making procedures, rules and programs which shape the use and development of the internet. These rules can either affect a business either positively or negatively (Masters, 2014).

As it regards to technological factor, today’s business environment is characterized by innovation and change. Consequently, organizations are required to adequately comprehend and act to an ever-changing customer preference and demands. Further, these firms are also required to develop strategies that enable them to mitigate imminent risks as well as in developing agile supply chains. The dominance of technology and innovation in the business world have led to decision making being fast paced, with very little time to consult with others or gather sufficient evidence (Kawai, and Tagg, 2017). The desire of reaching consensus within a shortest time possible has significantly reduced individuals and businesses appetite for deliberation and debate.

Disruption

The role of technology has led to the development of new business models that enable organisations to employ technology to improve their returns and achieve a competitive advantage. Indeed, the current age has seen an extreme change, characterised by increasing consumer power, emerging technologies, and changing business models. Smaller organisations such as AirBnB and Uber which were little known in their early days rose out of nowhere to become recognized brands in their respective industries, thanks to technology. The nature, scope and velocity of disruptions that are being encountered today are unprecedented (Rahman, 2017).

In typical sense, disruption occurs when smaller but agile organisations exploit the potential of technology in changing the way an industry operates (Arnaud et al, 2017). The reason why bigger companies find it difficult to respond is because they already have in place a rigid culture of working, resistance to change and legacy system (Rahman, 2017). While smaller organisations are following the footsteps of bigger ones, consumer’s roles and perceptions are changing consistently. Notably, consumers are finding it convenient to trade peer to peer while looking for authenticity, the lowest cost, coupled with a concern with nature. Today, there is a blurring line between who is a consumer and who is a producer. Thus, there is emergence of new companies with no physical assets but which are proving to be more profitable. These companies mainly thrive on enabling peer to peer interactions through the use of digital technologies (Marc, 2018).

Notably, the internet has created opportunities and challenges for both start-ups and extant businesses which deal with customers directly. Concerning supply chain, the internet has led to emergency of new intermediaries while replacing others (Rahman, 2017). Business entities are now more than ever required to embrace new technology in order to enhance their sustainability, improve their relationship with consumers, and enhance loyalty among their customers. Competitors are emerging consistently as well as new products, and research methods. These aspects and many more have stirred business to develop strategies of remaining competitive, creative and innovative in the vast market environment (Arnaud et al, 2017). Through the internet, it has become possible for business organisations to improve their competitive edge by making their products unique and gauging on customer preferences.

Arnaud et al (2017) postulate that disruption technology need not be better compared to what is currently offered in the market. Furthermore, there is a potential of disruptive technology damaging the overall market economics to some level. For instance, the new technology could be less costly than the conventional one. However, it still offers the required features. The development of e-commerce retailing has influenced consumers to consider purchasing their products online instead of going to the physical store. In most cases, online stores have lower prices than the brick- and mortar stores (Marc, 2018).

Online business and revenue models within the context of e-commerce

Online & Offline Business

Online businesses have key variations from their offline counterparts. For instance, online ventures have an advantage of speedy communications which have enabled businesses to build a closer relationship with their customers (Zinkan, 2011). On the other hand, offline business consists of the conventional brick-and-mortar businesses which serve customer from physical stores. While offline ventures may be ideal for the older generation who do not prefer to shop online, online business ventures are popular for young generation who are conversant with digital devices and technology for shopping. Nonetheless, online ventures do not offer a “personal touch” exhibited in a offline/physical store (Hearst, 2018).

Among the concerns of online business environment is the role of privacy. Online businesses are required to gather information concerning users (Zhaolin, 2015). This is to help them improve their business as well as in meeting the customers’ needs. Among the information collected include names, credit card information, contact information, address among others. Such information may subject users to vulnerability if not used appropriately (Hearst, 2018). In this regard, companies doing online businesses are required to adhere to a relevant privacy policy in protecting user’s personal information.

Business model

Freemium

Freemium is essentially a combination of the word “free” and premium to explain a business model whereby; services are offered on a free and premium basis (Rui, 2016). In this model, business operators offer users basic and simple services for free. The aim is for the user to try and if interested for advanced features, he or she will have to get it at a premium. The model is commonly used by many software and game companies who normally provide basic software free for the user to try. However, the free software has limited capabilities. All people can access the basic feature, but for the advanced services, the user has to pay a premium to access them (Wasserman, 2011). An example is Grammarly software tool which is used by writers to correct grammar mistakes. Although limited features can be accessed by anybody, more detailed ones can only be accessed through subscription.

Multi-sided-platforms

Multi-sided platforms (MSPs) refer to technologies, services or products which create value basically by facilitating direct interactions between two or and more dealers, customers as well as a group of customers and other participants ((Hagiu and Wright, 2014). Popular examples of MSPs include Airbnb (connecting house renters and house owners), Rakuten, Taobao, Alibaba, and eBay (connecting sellers and buyers). According to Glen (2013), MSPs which may consists of products, services or technologies add value by facilitating direct interactions between two or more participants. Basically, they serve two or more client bases and enable transactions between the parties taking part in the business.

Long-Tail Model

The long tail is a model that enables businesses to improve their profitability from selling low volumes of items that are hard to- find to many clients rather than selling large quantity of a reduced number of common items ((MediaDailyNews, 2014). This term was formulated by Chris Anderson in 2004. According to this model, products which had low sales volume or those which were in low demand could collectively make up a market share which effectively exceeds or rivals the relatively few current blockbusters or bestsellers. Basically, the concept focuses on less popular products which are in the lower demand. According to Anderson, the goods can be made to be more profitable since customers are moving away from the mainstream market. The model is supported by a growing rate of online stores which have alleviated the competition for shelf space and enable large volumes of goods to be sold via online markets (Bingham and Spradlin, 2011).

The need to obtain as much revenue as possible as well as in establishing a market from consumer demographics of the long tail has motivated many businesses to embrace a variety of long-tail marketing approaches (Bingham and Spradlin, 2011). A majority of these techniques are based on extensive utilization of internet technologies. Among these approaches include the New Media marketing represented by the Social Media Marketing, Buzz Marketing transmission of business information through online or actual world environment, Search Engine Optimization which includes the marketing of websites on search engines, and Viral Marketing which entails the use distribution of marketing messages through existing social networks (MediaDailyNews, 2014).

Revenue model

Revenue model is a description of how a business makes money. In other words, the approach a business decides to use to generate income. There are different revenue approaches used by businesses in generating money through online markets. Figure 1.2 below presents an example of revenue model.

Figure 1.2 Examples of Revenue Models source: (Laniado, 2013).

As shown in figure 1.2, different approaches used by business in generating income include direct product sales of products/services, rental or subscription of services, advertisement services (which may include banner adverts, and or sponsorship). Other methods also include commission-based sales (which may include auction, affiliate, and marketplace), and sales of syndicated content or services (Laniado, 2013).

The role of e-commerce technology in developing strategies that support unique and distinct e-commerce opportunities

It has been generally accepted that today, the internet is playing a key role in people’s lives. In the world of businesses, jobs, relaxation, communication or findings information, technological innovations have hugely facilitated the development of these aspects (Watson, 2017). Indeed, the virtual world is a complex, permissive and vast environment which has aroused the interest of marketers and businesses all over. The magnificent potential extant in the virtual world has stirred the development of businesses. It has also subsequently stimulated the promotion and appearance of concepts such as e-business (electronic business), and e-commerce (electronic commerce). Over time, e-commerce has not only proved to be a viable electronic alternative but also a profitable way of doing business (Apăvăloaie, 2014). Business organizations need to make a metamorphosis by moving from conventional business practices to new ways of interacting with stakeholders. What this implies is that businesses have to comprehend the kind of technology that enables them to make this type of metamorphosis.

Electronic commerce normally creates a top of divergent technologies. The different technologies create an integrated, layered infrastructure that facilitates the deployment and development of electronic commerce applications.

Figure 1.3 Electronic commerce infrastructures (source: Apăvăloaie, 2014)

As shown in figure 1.3 above, every layer is founded on the layer beneath it and cannot work without it. Although at the lowest cadre, the National Information Infrastructure is the bedrock of electronic commerce. This is because all traffic has to be transmitted by one or more of the communication networks constituting the national information infrastructure (NII). The message distribution infrastructure is basically software for receiving and sending messages. The core purpose of this infrastructure is to deliver message from a particular serve to a customer. Electronic Publishing infrastructure enables organisations to publish a range of multimedia, text and other contents. On the other hand, Business Service Infrastructure works by supporting common business practices. Almost every business survives through making money and as such, they will have to collect payments for the goods or services sold to clients. In this respect, The Business Service Layer plays a crucial role in supporting safe transmission of funds and credit card numbers. It does this by offering and enabling transfer of electronic funds as well as in providing encryption. This layer has to include facilities for authentication and encryption. Finally, Electronic Commerce Applications sits on top of all the other layers. The application has an encryption which protects a customer’s credit number and has a messaging protocol which helps in transporting messages between producers/manufactures and customers (Watson, 2017).

The impact of e-commerce on the supply chain

The impact of e-commerce on the supply chain is normally felt on the kind of operations done including areas of interaction within the supply chain as well as the operation of the supply chain between a business and its geographic boundaries. In essence, e-commerce affects all basic areas of supply chain operations (Brown et al, 2012). This is right from design, service support, buying and selling, and fulfillment. For example, e-commerce directly and indirectly affects the procurement of services and goods (Arkadiusz, 2017). Consequently, e-procurement has its greatest impact on compliance and change management. Direct procurement is a representation of a bigger price of many organisations compared to indirect spends. This owes to the size and volume of direct spends (Strauss, and Frost, 2012). In this regard, the combination of procurement solutions and e-commerce with the extant MRP and ERP systems has the capability of offering larger savings in efficiency.

E-commerce has also the capability of improving the quality and value of product design; improve the interaction between, manufacturers, suppliers, engineers, designers as well as in reducing design time-frames. Moreover, e-commerce solutions have a potential of improving flexibility to companies in the manufacturing aspects as well as make these companies to be more responsive regarding the products they manufacturer (Ellen, and Bret, 2013). This owes to the fact that e-commerce has enabled mass customisation of the manufacturing system which companies can deliver. Through e-commerce, the manufacturing systems have been made to be more responsive and flexible while also ensuring that the supply and demand planning are made to be more effective. Additionally, another area where e-commerce has made a significant level of impact is in regard to support and service. Accordingly, e-commerce has notably facilitated the transformation of the efficiency of field service forces while altering the way repairs and returns are managed (Yee, and Seog-Chan, 2013). In this aspect, it is clear that value proposition has driven radical change and will continue to do so in future.

Olenski (2018) observes that as artificial intelligence (AI) continue to develop and grow in its capabilities so does its impact on people and businesses. Consequently, businesses will be looking to capitalize on the potential generated by AI to improve their performance and operations. The carefully developed AIs will not only be able to enhance operations but also help businesses in adapting to new needs through feedback loops from other models that are already deployed. On his part, Roberts (2016) argues that AI application in business operations will help in flagging unnecessary expenses, as well as the costs related to policy violations. This will reduce errors, save time and create a higher level of efficiency.

Conclusion

The aim of this essay was to analyse the impact of E-commerce on Organisational Strategy, Supply Chains and Logistical Operations. Today more than ever, businesses are required to embrace e-commerce if it wants to improve a competitive advantage, as well as profitability. This follows the evolution of technology and globalisation and businesses which are left behind in this are at a competitive loss. Accordingly, organisations have been forced to redesign their strategies in light of e-commerce environment. In conducting their businesses online, businesses have to use a variety of business approaches revenue models. They include Freemium, Multi-sided-platforms, and Long Tail Model. Among the revenue approaches identified include direct product sales of products/services, rental or subscription of services, advertisement services (which may include banner adverts, and or sponsorship). Other methods also include commission based sales (which may include auction, affiliate, and marketplace), and sales of syndicated content or services. E-commerce has also had a significant impact on supply chain management. Key areas that has been affected or improved as a result of e-commerce include the procurement of goods and services, creating efficiency in the supply chain process, improving the value and quality of product design as well as improve the interaction between, manufacturers, suppliers, engineers, designers as well as in reducing design time-frames. Additionally, e-commerce solutions has a potential of improving flexibility to companies in the manufacturing, aspects as well as make these companies to be more responsive regarding the products they manufacture.



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