E-commerce: Untangling the supply chain

Understanding the relationship between e-commerce and the supply chain is a new ball game for New Zealand business, reports ADAM GIFFORD.

What put the nail in the dotcom coffin was the shopping season last Christmas, when dozens of the new web-based retailers proved unable to deliver the children's presents as fast as Santa and his reindeer used to.

Billions of dollars of shareholder and venture capitalist wealth disappeared like smoke up the chimney, as people realised this stuff was harder than it looked.

"From a technology point of view, a year ago everyone was talking about e-commerce, which was seen as a new and separate thing," says Lindsay Rewcastle, head of Supply Chain Consulting.

"Now people understand e-commerce is just part of doing business, and they're starting to use the term marketplace rather than e-commerce.

"They see the marketplace as the front end of a supply chain."

That means supply chain planning and optimisation tools and ERP (enterprise resource planning) systems like that made by German software company SAP, which automate a firm's back end financial, manufacturing and distribution processes, are coming into their own.

For New Zealand firms, good logistics and supply chain management have been crucial for survival for a long time.

Internally it's not too hard. New Zealand has had next-day nationwide distribution for a long time. But internationally, this country has to contend with some of the longest supply chains on the planet.

"New Zealand is now just one part of the supply chain," Mr Rewcastle says.

"A lot of manufacturers are moving to Australia and further off to Asia. It's no longer a matter of making something in New Zealand and distributing to a New Zealand wholesaler. We are at the end of the chain."

He says that while New Zealand business understands the issues of supply chain and logistics, it doesn't yet understand their relationship with e-commerce marketplaces.

"The problem with e-commerce is the big ideas, the big marketplaces, are being driven out of the United States and Europe. We will be at the tail end of that."

Indeed, the only marketplace with international aspirations being put together here is the Lignus timber industry exchange being developed out of Christchurch by brothers John and Rodney McVicar, which allows registered members to trade any sort of timber in any sort of currency between any countries in the world.

But local companies are claiming world-leading expertise in e-commerce, and trying to take that to other countries.

Genie Systems is aiming its OrderWare business-to-business e-commerce product at the world's mid-sized companies, who are being ignored by some of the bigger players vying to sign up Fortune 500 giants.

IT distributor Renaissance Corporation used what it learned over the past three years, moving sales to the net and refining its supply chains, to create a separate company, Conduit, capable of handling the web front-end and back-end logistics needs of any company.

Then there's Fetch (Freightways Electronic Trading and Commerce Hub) which gives e-commerce web sites a customisable window into the Freightways Group. When online shoppers click on the delivery options - same day, overnight, next two days - they are generating an order into one of the Freightways companies to collect that item and deliver it to them.

Fetch general manager David Tombs said about 55 companies are interested in using the service. The first sites to go live in the next week or so include the Sandeli sandwich company, St Pierre Sushi, the Fresh Flower Company and Wholly Bagels from Wellington.

Case Study: Conduit

Why did you get into e-commerce?

Renaissance faced competitive pressures and shrinking margins. Three years ago we recognised that if we didn't find a new way of doing business, we wouldn't have a buisness.

What did you do?

We developed a transactional web site and took it to the market. It was the first in the industry of that type, certainly with that degree of interaction with the back office.

What benefits has it had?

Significantly reduced the cost of transactions and freed up our people from processing orders, allowing them to be far more customer-focused. Also provides
data so product management staff can see what is happening more effectively.

How have you measured this?

We've measured this fiscally, by transaction levels and by measuring margin retention and revenue and transaction growth compared to the cost of staffing.

What difficulties have you had?

Customers didn't jump just because we had a website up – we had to add significant value to change the way they did their business. The internet is only suitable for 20 to 30 per cent of our transaction business. The rest of our customers wanted an interface to their back office systems, which we hae provided.

In hindsight, would you have done anything differently?

We've been down a few blind alleys but we've constantly found ourselves ahead of the market.

What next?

Renaissance is looking to grow the product set and its offerings to the market, and aims to have 80 per cent of transactions done electronically in the near future. Conduit is on course to be listed on the Singapore sharemarket, and is establishing itself in the Asia Pacific region.

Links:

www.conduit.co.nz


Herald Online feature: e-commerce summit

Official e-commerce summit website