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“Critically analyze and discuss the impact of e-commerce on business strategy, supply chain, logistical operations, and business models.”
Introduction
Electronic commerce can be defined as the buying and selling of commodities and services or the transmission of data over an electronic network i.e. the internet. E-commerce first came into existence in the 1960s when several business undertakings started using Electronic Data Interchange (EDI) to share business-related documents with other business firms (SearchCIO, 2017). The model uses a wide range of applications including emails, shopping carts, online catalogs, web services, etc so that it can conduct business activities most efficiently and cost-effectively.
The current e-commerce scenario around the globe can be said to be termed as growing at an unparalleled rate. The trend of smartphone, tablets, etc. have increased the use of software and apps and this has given a boost to the shopping addiction of the masses. Due to the invention of the e-commerce model, the whole case relating to shopping has become virtual and enjoyable (Experts, 2017). Thus e-commerce is a huge platform that has a significant impact on the various functions of the business including the business strategy, supply chain model, logistical operations, and overall business model (Liu et al., 2016). E-commerce has brought about a major change for the business section and the customer section. The simple e-store model acts as a cost-efficient tool for businesses since it allows them to increase their sales in the competitive marketing scenario. Appendix 1 highlights the fact that the retail e-commerce sales ratio is expected to increase to around 200 percent between 2014 and 2020 (Experts, 2017).
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Business operations within the online environment
The evolution of technology and the internet has tremendously influenced how business is carried out in the online environment. The changes in Information Technology (IT) have remodeled how firms conduct their business operations. In the online setting, businesses conduct operations differently as compared to the physical setting (Gagliano, Caniato & Spina, 2003). Due to the change in technology businesses need to automate the manual processes so that the processes can be performed at a much faster pace. When a business operates within the online environment it has to take into consideration several elements such as the features of the online business setting, the function of the online model, and its effect on the entire business (Smallbusiness.chron.com, 2017).
Features of online business environment – The e-commerce environment has several unique features like the ability to communicate and share relevant information via the internet, establish direct and one-on-one communication with the customers or clients, strengthen the internal engagement between the managers and the employees, etc. Since businesses have to function in the changed business environment, they have been forced to alter their business strategy and models so that they can adapt to the online business environment (Smallbusiness.chron.com, 2017).
Functions of online business setting – The introduction of the internet has brought about a notable change in the business setting. It allows business companies that operate in the online environment to find unique ways to minimize their operational expenditure and save capital while producing goods and services (Smallbusiness.chron.com, 2017). The changing online environment has prompted business firms to strengthen their supply chain and logistical function (Johnson & Whang, 2002). Businesses have enhanced their supply chain model by simplifying the communication model with their distributors, warehouses, and retailers.
Effect on the business functions – The traditional business setting has been transformed into a new and improved virtual business environment. Such business entities have altered their business functioning aspects so that they can sell their commodities and services in the market and generate the pipeline for stronger business sales (Rayport & Jaworski, 2002).
Online Business and Revenue Model
In the e-commerce setting, a careful and well-implemented strategic model can allow business undertakings to have a profitable business in an intensely competitive environment. As per Laudon & Traver (2009), an e-commerce revenue model can be defined as a plan that is adopted by business concerns to generate revenue for online business operations (Laudon & Traver, 2009). This revenue model has several similarities with that of the brick-and-mortar business.
In the e-commerce context, there are fundamentally five kinds of revenue models that can be used by online businesses to strengthen their revenue generation capacity. Advertising revenue model – As per Laudon & Traver (2009), in this e–commerce revenue model the business websites offer the users’ content services and forums for advertising. Thus the client businesses purchase the advertising space from the service provider and make the payment for promoting their particular message. The media websites such as television channels, and newspapers use this revenue model (Laudon & Traver, 2009).
Subscription revenue model – In the subscription revenue model, the customers are allowed to access varieties of offerings such as a library of information, join an online community, receive an ongoing service, etc. for a specific subscription fee. The e-commerce retailers that use this form of revenue model are dating websites (Fernie & Sparks, 2014).
Transaction fee revenue model – A business concern receives the transaction fee for enabling or performing a specific transaction. An apt example is the eBay website where the users need to pay a specific fee to the website owners for posting about their product or service offering (Laudon & Traver, 2009). Thus the e-retailer e-Bay offers an online market setting to the sellers and it receives a fee payment every time a transaction takes place.
Sales revenue model – As per the sales revenue model, the companies can earn revenue by selling commodities, services, or information to the customers. The companies such as Flipkart, Amazon, etc. that sell music, apparel, etc to consumers adopt the sales revenue model to strengthen their market position in the competitive online industry.
Affiliate revenue model – The affiliate revenue model enables the business to generate revenue by offering another offering i.e. Thus the business site steers the business to an affiliate to receive a referral fee from the resulting sales. Example – MyPoints is a popular website that adopts this e-commerce revenue model to link business firms with potential customers by offering promotional deals to the members.
Thus the various business organizations that operate in the online environment need to adopt the most effective revenue model that suits their business operations and business objective. Laudon & Traver (2009) said that a carefully-planned revenue model can enable a business to exploit the internal and external elements that operate in the e-commerce business environment and thus have a sustainable existence in the competitive business setting (Laudon & Traver, 2009).
Today e-commerce technology plays a vital role in the business setting since it influences the business strategy and its overall functional aspects. The various functions such as the business strategic model, supply chain function, logistical operations, and business models need to be carefully designed by the business concerns so that they can identify unique and distinct e-commerce opportunities (Laudon & Traver, 2009). The e-commerce opportunities can be defined as the intended marketplace of the business concerns that operate in the virtual setting. The technological strength of the online environment must be assessed by the concerns since it has the power to affect the entire business process (Gleghorn & Harper, 2015).
The internet and the web changes that have taken place in recent years have affected the strategy, structure, and process of businesses that function in the e-commerce platform. The key features of e-commerce technology teat play a crucial role in the online business environment include ubiquity, global reach, universal standards, richness, interactive ability, customization, information density, and social networking technology (Laudon & Traver, 2009).
The ubiquity changes the industry structure which ultimately creates new marketing channels and thus increases the overall market size. Due to the vast global reach, e-commerce technology lowers the barriers to entry and enables competition at the global level. As per Wang, Wang & Liu (2016), the higher competition in the e-commerce platform creates universal strategies and further enables broad-scope strategic models (Wang, Wang & Liu, 2016). The altered industry structure strengthens the after-sales strategies and overall richness of online business operations (Rushton, Croucher & Baker, 2014). The simpler interaction between the service provider and service user reduces firm costs since the exact needs of the customers are met. The customization feature reduces the threat of substitutes and minimizes the value chain costs (Laudon & Traver, 2009). The better sharing of information enables businesses to have a more transparent and honest relationship with suppliers and customers. Social networking technology empowers customers and the business.
Change in business model
As per Wang, Wang & Liu (2016), the role of the Internet in the business setting has stimulated the e-commerce participants to modify the functional aspects of business operations so that they can have a profitable and sustainable existence in the new online setting (Wang, Wang & Liu, 2016). The major change that the business faces affects the overall business process. The key areas that get altered in the online environment due to the involvement of the internet and other information technology models have been highlighted in this section.
Business Strategy – To adapt to the competitive online setting, the e-commerce participants modify their business strategy to achieve superior long-term results in the most cost-efficient manner. Business firms focus on major elements including the customers and the business profits. The business concerns intend to make unique offerings in the market so that the customers would derive maximum satisfaction and delight by purchasing it (Laudon & Traver, 2009). Even though the internet is a new and creative marketplace, the very same principles of business strategy apply here. Different business strategies such as the differentiation strategy or the cost competition strategic model are applied by the firms so that they can adopt a new and efficient set of business processes to have an advantage against the industry competitors (Laudon & Traver, 2009).
Supply Chain Model – In the e-commerce business setting, a careful and well-thought supply chain model must be adopted by the e-commerce business concerns. A poor model can pose numerous challenges relating to inventory control for the entity. To have a robust supply chain model generally the e-commerce businesses set up an official website and share the details relating to the products or services that are offered (The Balance, 2017). Then they appoint another party to manage the physical inventory, shipping operations, and customer returns (Kumar, Tiffany & Vaidya, 2016). The main processes that are followed in the e-commerce supply chain model include product sourcing, drop shipping, and whole suppliers (The Balance, 2017).
Logistical Operations – The e-commerce logistical model is the vital driver of change that the e-commerce participants must carefully plan and execute. This function has a key impact on the distribution network infrastructure of the online business participants. Since the past couple of decades, e-commerce has rapidly expanded and thus retailers have been encouraged to establish e-fulfillment distribution channels to have better control over their logistical operations (Transportation Management Company | Cerasis, 2017). Appendix 2 highlights the evolution of retail logistics due to the technology change.
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Business Model – The e-commerce business model can be defined as the set of well-planned operations and business processes that have been developed to help the e-commerce concern earn profits in the competitive market setting. The main objective of the e-commerce business model is to utilize and leverage the distinctive features of the Internet and the World Wide Web (Cao, 2014). The key elements that are involved in the e-commerce business include the value proposition, revenue model, market opportunity, competitive setting, competitive advantage, market strategy, organizational development, and management team. Appendix 3 highlights these elements in a tabular form (Laudon & Traver, 2009). It highlights the main questions that the business undertaking needs to answer to effectively function in the e-commerce platform.
Impact of e-commerce on the supply chain
The e-commerce model and the elements that operate in the business environment have a strong influence on the supply chain management (SCM) of the e-commerce business undertakings. The SCM is a tactical tool whose intention is to network productive resources by applying integrative business technologies (Harsono, 2014). The impact of e-commerce on the supply chain management of the e-commerce participants is felt in various areas including the procurement model, product and service design, the manufacturing model, planning of demand and supply model, fulfillment and e-fulfillment model, service and support approach, and e-working technique (Harsono, 2014).
Direct and indirect procurement model – As per Ross (2016), e-commerce has a direct impact on the direct and indirect procurement of goods and services. The e-commerce model is beneficial for online retailers that are involved in direct procurement because of the size of the direct spend (Ross, 2016).
Product and Service Design – E-commerce can enhance the quality of the product design and thus minimize the design time scale. This fundamentally enhances the overall interaction between the designers, engineers, manufacturers, and suppliers.
Manufacturing – The e-commerce model offers innovative solutions to the manufacturing function of the e-commerce participants. It allows them to adopt a flexible and responsive approach and makes sure that the demand and supply model is more productive.
Demand and Supply model – The networks, computers, and overall e-commerce model strengthen the demand and supply model of the businesses. The demand and supply planning tools are increasingly used in the e-commerce platform so that the effectiveness of the planning solution can be upgraded (Ross, 2016).
Fulfillment and e-fulfillment – E-commerce can revolutionize how goods and services are ultimately delivered to the end-user. It can virtualize the inventory model and thus it can change the relationship between the final customers, retailers, wholesalers, and manufacturers (Harsono, 2014).
Service and Support – E-commerce can enhance the effectiveness of the service force of supply chain management. It is the area where the value proposition undergoes significant change. The impact of e-commerce is limited in this area.
E-working – It is the area in supply chain management where the impact of e-commerce is very strong. Since most employees have access to the intranet of the concern, they are given e-working tools like knowledge management systems, etc to work across time and space. This further strengthens the supply chain model (Harsono, 2014).
Conclusion
Electronic commerce has brought about revolutionary changes in the business setting. It has influenced the business processes, supply chain model, logistical operations, and the business model. The e-commerce technology in the form of the Internet offers information visibility which strengthens the business and its operations. Its impact is felt in various areas of concern.
Business concerns that operate in the online environment must understand the different aspects of e-commerce so that they can modify their business operations as per the specific requirements. Since the impact of e-commerce is felt in key areas of business concerns, the changes in business functions have been discussed.
References
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Appendix 1
Figure 1: Retail E-Commerce Sales Ratio
Source: (Experts, 2017)
Appendix 2
Figure 2: The Evolution of Retails Logistics
Source: (Transportation Management Company | Cerasis, 2017)
Appendix 3
Figure 3: Key Elements of a Business Model
Source: (Laudon & Traver, 2009)
