THE INTERNET HAS BECOME A WORLDWIDE MARKETPLACE, AND BUSINESS-TO-BUSINESS TRANSACTIONS ARE BEGINNING TO WORRY TRADITIONAL BRICKS-AND-MORTAR MARKETERS. IS YOUR ORGANIZATION BUYING ONLINE? IF NOT5, SHOULD IT? LET'S TAKE A LOOK.
When Henry Ford produced his first car, the Model T, it had no battery. To start the car, you stood in front and turned the crank. That's about where we are today with online ordering-the Internet still takes a lot of cranking.
Not to worry, it's improving, and the battery should arrive any day now. When it does, you'll be placing online orders quicker than you can say, "I love e-commerce!"
Time and timing-two powerful words in everyone's life today-no one has enough time, so timing every activity becomes critical. Fitting everything into the workday, and the after-workday, gets harder and harder. We have voice mail, e-mail, and the fax to help us manage time, and now we have the Internet. The driving forces behind the Internet are the power of information and the power of when-it's there when you want it, day or night, seven days a week.
E-commerce, without question, is big news today and will be even bigger news in the next few years. By some estimates, e-commerce, including the business-to-business segment, will account for nearly $2 trillion of annual economic activity by 2004. It's not difficult to understand why individuals and entire families like to shop online-it saves time in a too-busy world. With nearly every adult family member working today, every minute of nonwork time becomes precious.
Going from store to store to find the best price is a thing of the past-no one wants to spend the time. Price shopping on the Web is faster but doesn't always produce the best price. Consumers know this but feel the trade-off is worth it. Purchase considerations for your business or office should involve not only dollar costs, but also transaction costs, which include total employee time involved.
Transaction costs
In 1991, economist Ronald H. Coase won the Nobel Prize in economics, in large measure for his theory that businesses exist to eliminate transaction costs between buyers and sellers. This seeming oversimplification of why profit-making organizations exist seems to have new meaning in today's worldwide economy. Coase points out, however, that the cost of organizing and operating a business can sometimes be greater than the savings made by reducing transaction costs.
That seems to be the situation with many start-up online sellers. Consider Amazon.com, whose business is growing exponentially, as it loses more and more money. When it and other online merchants eliminate or reduce one-time costs of getting started, they should become profitable.
Transaction costs include any costs, including the cost of time, associated with deciding what to buy, placing the order, receiving delivery, making payment, and getting the product or service to the end user. In other words, all costs connected with the transaction, except for the product or service itself.
Some of these costs are hidden, such as time spent placing an order. Since office supplies represent less than 1 percent of the total cost of running an office, it's easy to see why transaction costs can exceed product costs.
That's why many corporations today purchase from only a few suppliers, usually online, with as little human intervention (think dollars) as possible. Some organizations have eliminated their entire purchasing departments and shifted this responsibility to department heads. Each department is given a budget, and each one places its own orders, usually to approved vendors with whom prices have been negotiated in advance. Vendors accumulate the orders and deliver them on a set schedule. Each department's order is packed separately and delivered to the appropriate department. The customer is billed electronically, and funds are also transferred electronically. Not a single piece of paper is involved, except for the packing slip accompanying each delivery. Assuming that the dealer, distributor, retailer, and manufacturer use these same efficient online methods in their operations, significant savings can occur.
What about service?
It's ideal to reduce labor costs, but what about service? Buying online is great, but what if you have questions or problems? Unfortunately, many online sellers are doing a poor job with customer service. You want to order a specific item, but you can't find it under any product category. You don't know if it's not stocked or if you're looking under the wrong category. You need help. Is there a tollfree number? Searching through screen after screen takes time, and that increases your transaction costs.
Although they're improving, many Websites today must be considered primitive. They'll have to get a whole lot better before gaining mass acceptance. The Internet remains primarily an information source. Web marketing is not only new, but dominated by individuals and organizations who understand computers and software, but have little business experience. And, it shows.
For the most part, e-commerce entrepreneurs sell merchandise they don't make or own, ship it from someone else's warehouse, and deliver it in a truck they don't own, driven by a driver they don't employ. This arrangement makes it extremely difficult to monitor and control service levels.
Yet, improvements are being made and are expected to continue.
Clicks or bricks
The typical sales pitch of online merchants is that they can sell for less because they're not burdened with expensive retail rents, printing catalogs, inventory investments, and real live salespeople. There's some truth to this, but their outsourcing costs can be quite high.
When trying to decide whether to buy supplies, furniture, or services online from a commercial dealer or at a retail store, consider your total cost. Price is important, but what's your cost in human terms as well as dollars? In addition to price and transaction costs (mostly time spent by your employees), factor in employee satisfaction and loss of productivity due to equipment failure or receiving the wrong product or no product at all. Also, fill rate is critical.
Then there's the aggravation factor. Working with poor-quality furniture, equipment, and supplies drives most people up the wall. Beware of off-- brand specials at low prices. Rather than deciding between .coms and bricks-and-mortar, compare new offerings with your present vendors. If you're happy with your current suppliers, the only question is, "Will I be happier with another?"
Retail stores and commercial dealers are not going away. The only change will be that most will offer, as many do now, a choice of how you want to buy-walk-in and carry away or order by phone, fax, or online-- and receive delivery. Printed catalogs will continue to be distributed but will be used less as more and more customers rely totally on the Web.
Other benefits
Many online sellers of office products provide at no charge a number of information and control devices that go beyond traditional order confirmation and tracking. They may offer, for example, such services as:
* establishing budgets for each department
* setting up a list of items approved for purchase
* instant access to historical purchase data
* regular reports of purchases by department, location, or other category.
These services are particularly helpful to large organizations with numerous departments and branches.
US Office Products (USOP), one of the largest commercial dealers, allows customers to check, in real time, the inventory of any product in any of their warehouses to see if there's enough product on hand to fill the customer's order. USOP also acts as a portal for other vendors, such as E-- Fax, E-Letter, national Yellow Pages, and Stamps.com.
USOP, Staples, Office Depot, and similar businesses now partner with noncompetitive vendors to promote one another's products and services. There's usually a small rebate or other incentive to get customers to buy from partner companies. This cross-marketing technique benefits all partners and may be useful to some customers, if for no other reason than it saves time.
To click or not to click
In a few years, we'll look back at the first time we ordered online and consider the process quaint. Early days of e-commerce will seem so slow, having required so many keystrokes, and so many screen freezes. We'll think of ourselves as pioneers. After all, the World Wide Web was only a few years old at the time and still finding its way. The e in e-commerce could stand for efficiency, rather than electronic, because that's the driving force behind its rapid growth.
For now, online purchasing may not be as efficient for you as more traditional forms of procurement. In the meantime, compare your total costs ordering the traditional way with total costs of ordering online, including transaction costs in both instances. Regardless of the answers you get, you may want to order some items online just for the sake of the experience you'll rain.
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