should help smaller businesses become ecommerce enabled
The technology is available; we
just need to make it happen through a collaborative
effort and right ecommerce solution
The advantages of connectivity, e-commerce and exploiting other tools for more effectively purchasing products or reducing supply chain inefficiencies
Supply chain management for small and medium sized businesses)
are clearer to small businesses than to larger ones;
they just do not have the resources to implement them. The reason is simple: small businesses, in many cases, compete with some of the largest companies but do not have the same bargaining power when it comes to purchasing raw materials or being able to force suppliers to expedite a delivery when absolutely
necessary or the technology savvy to implement ecommerce
solutions. If they can do anything to get that extra penny out of their costs, they are in a more competitive position.
The major problem facing small businesses in any industry, however, is the lack of availability of suitable products that enable them to do that. As e-marketplaces
(Related article: Online marketplaces for small and medium sized businesses)
are trying to build their businesses, their focus is on increasing the number of transactions. Since large companies typically conduct more business transactions, there is a greater tendency to design products for them and to pursue their participation more aggressively. To many in the business world, this means that the game has not changed a whole lot. Wasn’t the Internet supposed to be the greatest equalizer?
Issues before small- and medium-sized suppliers
While discussing the unmet buy-side needs of this highly diverse and fragmented group of companies, I came up with the following themes that were consistent:
- Need for relatively simple system requirements for e-commerce. They simply do not have the resources to build a new IT department and then be forced to update their systems every quarter because of revisions and upgrades.
- Flexibility with regards to minimum requirements to
participate in other online marketplaces; for instance, the number of transactions or the value of business conducted in a given period.
- Less stringent requirements for approval to be included. Small suppliers generally need more cash-flow and credit help.
An equally important, but not as critical yet, is enabling these suppliers to sell online and to streamline their back-end processes. Most estimates put the number of small businesses at this stage at just 10-30%. This does not appear to be a serious problem right away since customers continue to buy through traditional channels and the point at which they will no longer do business with a company that is not integrated into their system is about 12 to 18 months away. (This period can shrink somewhat as the slowdown in the economy puts increasingly higher pressure to cut costs. While companies like Wal-Mart have different requirements for large and small companies, for instance look at how they are approaching the
RFID issue, at some point Wal-Mart may have no choice but to insist that each and everyone of their supplier connect with Wal-Mart's ERP system).
The turmoil in the business world is not likely to subside any time soon as we see slower growth in the economy, higher competition from overseas suppliers and, consequently, pressure to reduce costs. Some of the tools available today already enable small businesses to take advantage of purchasing over the Internet (though my understanding is that only about a quarter of the companies use the Internet to procure even office supplies, airline tickets, and other similar products that every company should be doing today). While it may be difficult to procure specialized raw materials for small-volume buyers right now, they can definitely start with other products. This will not only reduce cost but also make the company’s executives more web-savvy and hopefully speed up the implementation in other areas.
The second solution,
shown in the chart below, that I am proposing may appear to be less practical right away but I would like to generate debate on this issue. The larger companies have already made significant investments into their IT infrastructure to address the realities of business today. Since the new economy thrives on partnerships and alliances, the larger companies should allow smaller companies
(I would say that they could start off by allowing their
suppliers and business partners at least to do it right
away) to take advantage of their bargaining power, IT infrastructure, and memberships of e-marketplaces. Or in other words, they should allow smaller companies to access their IT infrastructure on either a subscription or per transaction basis. This will be a win-win situation for everyone because once the IT infrastructure has been set up, the marginal cost of an additional transaction approaches zero.
(Related link: eCommerce strategies for small businesses)
I am convinced that we can still compete in a healthy environment while enabling everyone to grow.
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