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Business-to-Consumer (B2C) E-CommerceIn business-to-consumer e-commerce , on-line businesses try to reach individualconsumers. Lets examine the different models that on-line businesses use to generaterevenue. In the advertising revenue model , a Web site offers its users information onservices and products, and provides an opportunity for providers to advertise. Thecompany receives fees for the advertising. Yahoo.com derives its primary revenue fromselling advertising such as banner ads.

In the subscription revenue model , a Web site that offers content and servicescharges a subscription fee for access to the site. One example is Consumer ReportsOnline ( www.consumerreports.org), w hich provides access to its content only tosubscribers at a rate of $3.95 per month. Companies using this model must offercontent perceived to be of high value that is not readily available elsewhere on the In-ternet for free.

In the transaction fee model , a company receives a fee for executing a transaction.For example, Orbitz ( www.orbitz.com) charges a small fee to the consumer when anairline reservation is made. Another example, E*Trade Financial Corporation, anon-line stockbroker ( www.etrade.com ), receives a transaction fee each time it executesa stock transaction.

In the sales revenue model , companies sell goods, information, or services directly to customers. Amazon.com, primarily a book and music seller, Travelocity.com, anairline and hotel reservations provider, and DoubleClick Inc. ( www.doubleclick.net), acompany that gathers information about on-line users and sells it to other companies,all use the sales revenue model.

In the afliate revenue model , companies receive a referral fee for directing busi-ness to an afliate or receive some percentage of the revenue resulting from a re-ferred sale. For example, MyPoints.com receives money for connecting companieswith potential customers by offering special deals. When members take advantage of the deal, they earn points that can later be redeemed for goods.

In addition to the Internet, companies use other technology to help manage supply chains. For example, intranets are networks internal to an organization. Intranetsallow a company to network groups of internal computers together to form more ef-fective information systems. Typically, members of the organization communicate in-ternally on the intranet. Organizations can link intranet systems of the Internet toform extranets . The extranet can be expanded to include both a companys suppliersand customers. Typically, real-time inventory status is available on the extranet as wellas production schedules. Extranets allow suppliers and customers to see within theorganization. The primary difference between the Internet, intranets, and extranets iswho has access to the system. The Internet is wide open, the intranet is open to mem-bers of an organization, and the extranet is open to members of the organization aswell as to suppliers and customers.

Consumer Expectations and Competition Resultingfrom E-CommerceOn-line retailing, or business-to-consumer e-commerce, has shifted the power fromthe suppliers to the consumers. This shift in power has occurred because the Internetgreatly reduced search and transaction costs for the consumer. It was estimated as early as April 2001 that some 100 million people and over 80 percent of all individuals withInternet access had purchased something (either a product or a service) on-line. In

MAJOR ISSUES AFFECTING SUPPLY CHAIN MANAGEMENT 1

Business-to-consumere-commerce (B2C)On-line businesses sell toindividual consumers.

Advertising revenue

modelProvides users withinformation on services andproducts and provides anopportunity for suppliers toadvertise.

Subscription revenuemodelA Web site that charges asubscription fee for access tits contents and services.

Transaction fee modelA company receives a fee foexecuting a transaction.

Sales revenue modelA means of selling goods,information, or servicesdirectly to customers.

IntranetsNetworks that are internal toan organization.

Afliate revenue modelCompanies receive a referrafee for directing business toan afliate.

ExtranetsIntranets that are linked tothe Internet so that suppliersand customers can beincluded in the system.

http://www.consumerreports.org/http://www.orbitz.com/http://www.etrade.com/http://www.doubleclick.net/http://www.doubleclick.net/http://www.etrade.com/http://www.orbitz.com/http://www.consumerreports.org/

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addition, millions more customers researched products on-line and subsequently bought those items off-line. The capability to quickly search, evaluate, compare, andpurchase products gives the consumer considerable power. Examples of successful B2Cbusinesses are Amazon.com, eBay, BMG Music Service, Barnes&Noble.com, ColumbiaHouse, Half.com, and JCPenney. E-tailers have penetrated signicantly the followingmarkets: computer hardware and software, books, travel, music and videos, collectiblesand antiques, and event tickets.

Since customers have access to so many suppliers, it is important for suppliers todifferentiate themselves by providing customers with excellent value. Dell ComputerCorporation, Gateway, Inc., L.L.Bean, Inc., Lands End, Inc., Amazon.com, UPS, andFedEx are good examples of companies that put a premium on values such as pre-ferred customer service, short lead times, and/or quality guarantees. Dell differentiatesitself with short lead times. The company does this by warehousing most of the com-ponents used to assemble its computers within 15 minutes of the assembly facility andbuilding customized computers in an assemble-to-order strategy.

Consider how Lands End usestechnology in its business. LandsEnd went on-line in 1995. Thecompany sold only $160 worthof gear the rst month. Today,Lands End is one of the nationslargest apparel retailers on-line.The company has a live chatroom that allows customers toask questions about merchan-dise. It also offers a shoppingwith a friend service that allowsa customer, his or her friend orfriends, and a customer service

representative to be linked together. Lands Ends virtual model highlights how fartechnology has advanced. A few strokes on the keyboard and the shopper is able toproduce an on-screen model with his or her body measurements. Even though thisvirtual model is not perfect, over 1 million shoppers have built their own models atthe Lands End site.

An additional issue here is how companies handle the return of unwanted merchan-dise and provide for product exchanges or refunds. The Boston Consulting Group(BCG) reported that the absence of a good return mechanism was the second-highestreason shoppers cited for not shopping on the Web. There are methods for handlingreturns. An on-line company often rst requires authorization to return an item, thenthe customer must pack up the item, pay to ship it back to the company, insure theitem, and then wait for a credit to be made. Once the item is returned, the originalseller must unpack the item, inspect the item, check the paperwork, and try to resellthe item. Typically, neither the buyer nor seller is happy with the process.

Another approach allows the customer to drop the returned items at collection sta-tions (sometimes the physical stores of the company, for example, Staples, Inc., Sears,OfceMax, Inc., etc.). The returned items can then be sold from the receiving store orpicked up in bulk and returned to the distribution point. Another approach is to com-pletely outsource returns. FedEx and UPS provide such services.

LINKS TO PRACTICELands End, Inc.

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In addition to buying products on-line, consumers also buy on-line services.Finance, insurance, real estate services, business services, and health services are thelargest on-line service industries. Business services include consulting, advertising andmarketing, and information processing.

Service organizations are categorized either as those that do transaction brokeringor those that provide a hands-on service. An example of transaction brokering is acompany providing nancial services that has stockbrokers acting as intermediariesbetween buyers and sellers of stock. An example of a hands-on service is a legal ser-vice that interacts directly with the consumer to create a legal document. In general,most service organizations are knowledge- and information-intense. To provide valueto consumers, these service companies must process considerable information (legalservices or medical services) and employ a highly educated and skilled workforce(lawyers and doctors).

GlobalizationAs globalization continues to increase, supply chains cover greater geographical dis-tances, face greater uncertainty, and can end up being less efcient. Beginning in 2004,prices for steel, oil, copper, cement, and coal began rising at double-digit rates. Theseincreases led buyers to look globally for lower-cost alternative suppliers. After pur-chasing items offshore, companies were challenged with moving the commoditiesover longer distances. This increase in volume resulted in a transportation capacity crunch and led to higher transportation rates. The lack of capacity slowed down sup-ply chains, causing inventory levels to rise. The U.S. Commerce Department reportedan increase in the level of inventory by November 2004 to 1.24. This means that ittook approximately $1.24 of inventory to support every dollar of sales. In 2008, trans-portation rates went even higher due to the very high fuel costs. These higher costshave prompted companies to reexamine their offshore sourcing and to considerreturning to onshore suppliers.

Ocean carriers have predicted that the volume of goods shipped from Asia to theUnited States will continue to have double-digit annual increases. Most of these in-bound goods are shipped through U.S. West Coast ports. The higher trade volume hascaused port congestion in California and Washington State. In an effort to ease portcongestion, ocean carriers introduced larger ships for use on the transpacic routes.While it was hoped that these larger ships would add needed capacity and reduce op-erating costs, only a few U.S. ports are capable of handling the larger ships. The shipstake longer to unload and reload, tying up the port for ve to seven days rather thanthe normal two days. The longer port time has reduced terminal efciency. Previously,importers were allowed more free time (the time cargo may occupy assigned spacefree of storage charges) for containers at U.S. port terminals. Container free time basi-cally provided a cheap form of portable warehousing for importers. Because of theterminal inefciency, container free time has been reduced and ports have increasedstorage capacity in an effort to turn equipment around faster.

Another issue is border security. Since September 11, 2001, the U.S. Bureau of Cus-toms and Border Protection (CBP) has implemented new requirements. Essentially,these programs result in additional processing time. The CBP has also increased in-spections at ports of suspicious cargo, creating additional port delays.

As supply chains expand globally, they share some common logistical characteris-tics. For example, with ocean shipping, goods tend to arrive at a warehouse in very large quantities. Because of bulk arrivals, greater break-bulk activity is required.

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