CONNECTING THE REAL AND THE ETHEREAL: THE KEY TO E-COMMERCE SUCCESS

The Internet has given rise to two types of businesses that didn't exist five years ago - dot-coms and clicks-and-mortars - and dramatically accelerated the growth of a third: manufacturers moving to a direct sales model. Each of these new business types comes to e-commerce with a unique roster of assets and liabilities.

Clicks-and-mortars, for example, have existing brand strength to draw on but also the challenge of reinventing that brand online - along with the challenge of "e-commercizing" complex legacy computing systems. Dot-coms have the freedom to build their brand and their front-end and back-end systems from scratch, but givenwith the heavy financial burden of doing so, little leeway to make even the smallest of mistakes. Manufacturers generally have strong supply chains in place but not the customer service needed to cultivate and maintain one-on-one relationships.

Each business type has unique and serious issues to contend with. Yet, in the end, many of these issues are rooted in a singular challenge shared by any company doing business online: the need to get products from their pictures on the Web site to customers' front doors in a way that makes customers happy and the business profitable.

It's a simple enough proposition from the customer's viewpoint - I buy from an online business, and the business delivers what I pay for. Customers see a straight line leading from your virtual storefront to their doorstep. What they don't see is what businesses see all too well: the complex web of behind-the-scenes machinations needed to make this simple proposition real. Financial reconciliation, manufacturing, warehousing, delivery, customer support, product return centers, reporting and analysis - all are essential spokes in the process that keeps products rolling out to the customers who pay for them. All are separate, discrete functions that must somehow be integrated into a smooth system - and all are magnified in difficulty by a factor of 100 when the company decides to expand internationally.

Building a streamlined supply chain that delivers products efficiently from point A to point Z is fast becoming the Holy Grail for any company doing business online. This need has stimulated the growth of a new industry devoted to helping companies synchronize effective supply chains for online commerce, generally called e-logistics. Unfortunately, neither the companies nor their customers are content with their e-logistics progress to date. The table below, for example, shows the number of companies that are very satisfied with a number of different links in their supply chain (Source: International Data Corporation).

Customers Feel the Pain of Supply Chain Gaps

The current holes in e-business supply chains show up clearly in an e-shopping study recently completed by Electron Economy. The study analyzed the back-end logistics of 60 top business-to-consumer e-retailers from the vantage point of the impact they have on customers. Online reE-retailers included in the study represented a wide range of markets, including apparel, toys, mass merchants, entertainment, technology, e-procurement, home and garden, and so on. In the course of the study Electron Economy bought and returned more than 250 items. The results of the study show that the e-logistics processes adopted by many e-retailers - or their simple lack of e-logistics processes - could be alienating rather than attracting customers.

Inventory management is a prime example. One-thirdOne third of all e-tailers in the study provide no inventory information to customers during the order process. Customers place an item in their shopping basket, check out, and receive an order confirmation. Only later - usually much later, and often by postal mail - are they told that the item they ordered is out of stock. Because these e-tailers have not connected their inventory systems to their online storefront, they're turning buying customers into angry customers as well as forcing many time-consuming background steps that eat at their efficiency and profitability.

Another indication of breaks in the supply chain is the lack of post-purchase communication offered by many e-tailers. E-tailers relentlessly woo potential customers through attractive, content-rich Web sites that promise an effortless shopping experience. But once customers hit the buy button, they are often left to trust in fate that their package will actually arrive. A lack of post-purchase communication leaves customers feeling neglected, as if their order has been jettisoned into a black hole. But, surprisingly, nearly 50 percent of the e-retailers in the Electron Economy study don't provide order status online - likely not because they don't want to, but because they can't. Forty-one percent don't provide adequate order confirmations, and 61 percent don't provide basic shipping confirmations.

Yet another area that reveals missing links in the supply chain is reverse logistics. No business likes to get returns from their customers, but handling them in an efficient, timely way can strengthen a customer relationship rather than sever it. While an admirable 53 percent of the e-retailers ion the study credit their customers within seven days, 13 percent take two weeks, 13 percent take longer than two weeks, and 15 percent of the online businesses never credited the purchases made returned during the course of the study. All of these statistics point to lapses in the supply chain that endanger e-retailers' ability to attract and retain a loyal customer base.

Five Requirements for Today's Supply Chains

Assembling a supply chain that is a competitive advantage and not a customer turn-off or profit sinkhole is the most immediate hurdle most online businesses face. As e-tailers analyze current systems and plan for enhancements - or complete overhauls - five key requirements rise to the top.

Visibility. The true benefit of supply chain integration is the ability to corral information about every item and process in the supply chain and then make that information available at the right place at the right time. Effective e-logistics opens a window into the supply chain that enables every involved party to track in real-time the flow of information, goods and funds moving through the system. When the supply chain is blind, members must base decisions on guesstimates rather than hard data, or spend huge amounts of time manually adding to their discrete system the bits and pieces of information thrown over the wall from other members. When the supply chain is visible, every link in the chain automatically has the information it needs to perform its tasks in the most efficient and effective way possible. This visibility can also be extended to customers, so they can easily track the progress of their order or return through the system.

Intelligence. Visibility enables supply chain members to recognize kinks in the system; intelligence can automatically straighten out the knots. An intelligent supply chain identifies supply chain issues and resolves them based on automated rules. When a problem arises, e-tailers can proactively manage customer expectations or solve the issue without customers ever knowing there was a behind-the-scenes hiccup. An intelligent system can also self-optimize, making performance adjustments based on predefined business rules.

Scale. Every element of the supply chain adds a new layer of complexity to the system. Unless the supply chain foundation is extensible, every new product or partner or process becomes a liability, not an opportunity. E-tailers that neglect to design their e-logistics for easy expansion can easily find themselves handcuffed to a system that makes it difficult and costly to grow.

Open platform. Today's volatile business climate makes rigid, inflexible business systems a significant liability. As well as being built for growth, supply chains must be built to accommodate change - and accommodate it quickly. Prior to the Internet, supply chain integration was most often done through electronic data interchange (EDI), a proprietary system usually difficult and time-consuming to modify. An open platform adhering to Internet standards helps ensure that a supply chain can stay tuned to the fluctuating needs of the e-business and its supply chain partners. Openness also ensures that the supply chain system can seamlessly accommodate existing back-end and front-end systems.

Cost-efficiency. Two previous approaches to streamlining the supply chain - EDI and virtual area networks (VANs) - proved to be extremely expensive. Their complexity drove up costs, which made it difficult to fulfill companies' initial hopes for significant return-on-investment. A key requirement for today's companies competing under global market pressures is an e-logistics system that reduces operations costs as well as the costs of growth.

Methods of Attack

Companies wrestling with the huge issues surrounding e-logistics have three choices for attacking the challenge: They can choose to build and manage all operations in-house, they can outsource development and management, or they can elect a hybrid model. Each option has its own benefits and drawbacks.

In-House Management. Companies with a small presence on the Internet often run their operations in-house. As sales volumes increase, these companies often find it difficult to keep pace with customer demand and the complexities escalated by a growing supply chain. To manage customer interactions after each sale, order fulfillment, product delivery, customer service, financial reconciliation and reporting, companies must build a complex infrastructure that, in many cases, runs the danger of being too rigid and even outdated before it is complete.

Outsourced Management. Outsourcing the individual tasks of e-commerce operations enables businesses to take advantage of the specialized expertise of each partner, which can reduce costs. However, managing multiple partners requires expertise in multiple disciplines and can draw resources from other business efforts. More challenging than managing individual partners is the effort needed to integrate them so they can share information. Consider, for example, one shopping basket that spans four countries, 16 time zones, three currencies and six warehouses - a not impossible situation in today's business environment. The amount of time, money and effort needed to synchronize every puzzle piece needed to fulfill this one order could be staggering. Businesses that choose to outsource need a partner that can integrate complex operations-preferably within a consistent information architecture.

Hybrid Management. Some e-businesses will choose to main a portion of their e-logistics operations, such as customer service call centers, while outsourcing other parts. This hybrid model requires that in-house and outsourced components be linked together. This takes more that the formidable task of integrating systems. It also requires standardized business processes across in-house and outsourced resources. Companies choosing a hybrid management model need a partner with an open system that can integrate seamlessly with pre-existing front-end and back-office systems, both inside the company and out.

InternetTONE: INTELLIGENTLY CONNECTING SUPPLY AND DEMAND

InternetTONE is an open, intelligent technology infrastructure designed to help any company doing business online build an efficient and integrated supply chain that becomes a key competitive weapon. It was built on a fundamental premise: positive customer experiences translate directly into business advantage. InternetTONE connects online businesses' virtual and physical operations in a way that ensures customers are served quickly and reliably.

InternetTONE Answers Key Supply Chain Requirements

InternetTONE integrates all of the disparate pieces that come together to create a supply chain. But unlike many supply chains that exist as flow charts documenting how to manually move data from one partner's isolated system to another's, a supply chain based on InternetTONE operates as a single, intelligent, orderly flow of funds, goods and information. It meets all the requirements for successfully creating an operational core that enables e-tailers to thrive and grow.

Visibility through Common Infrastructure, Common Services. InternetTONE provides a common infrastructure that integrates as few or as many partners as necessary into a consistent supply chain system. This unity provides the visibility needed to ensure smooth, fast and reliable interactions among supply chain partners - the kind of steady commerce flow that ensures customers get what they want when they want it.

By making the supply chain visible, InternetTONE gives all partners the information they need to perform their tasks as efficiently as possible. It also gives customers the ability to track their orders through any point in the process and from any access point, including cell phones, handheld devices, standard browsers, and broadband or narrowband networks.

Built-In Intelligence Drives Optimization, Self-Correction. InternetTONE not only opens a window into the supply chain, it also provides the means for the supply chain to automatically optimize and solve problems itself. It does this through two types of intelligent commerce agents:

Rule-driven agents, which respond to events in the supply chain based on the distinct business rules defined for each member. These reactive agents automatically correct and optimize the system based on business-rule exceptions as they occur.

Goal-driven agents, which proactively perform actions based on probabilities, patterns and predicted outcomes. This enables the supply chain to act on issues before they affect customers and, in some cases, reduce inventory, transportation and other logistics costs.

Extensible Architecture Covers the Future Today. The InternetTONE platform is designed to easily accommodate new additions to the supply chain, so that growth is an opportunity rather than a danger. Products, partners and processes can all be snapped into the system with no disruption to the supply chain's commerce flow.

Openness Accommodates Current Systems, System Changes. InternetTONE's open architecture enables it to connect to any front-end or back-office infrastructure, any front-end commerce application, and any physical infrastructure service or asset provider. For example, InternetTONE complements a company's existing ERP systems and call centers. "Smart adapters" link every element in the supply chain, integrating disparate pieces into a united whole, while executing according to partner-specific business rules that can be defined at every connection point. These links are designed to be customized and recustomized as the business environment and the needs of the supply chain members change.

Cost-Efficiency Reduces the Price of Growth. InternetTONE was created to help companies reduce their operating costs. Tapping into an existing e-logistics system eliminates both the cost and the time of constructing a system from scratch. It also reduces the need for additional investments in technology infrastructure. Because it encompasses existing technology and asset infrastructure, InternetTONE maximizes existing operations in a way that allows them to scale without a linear increase in their cost structure.

How InternetTONE Works

InternetTONE is based on two key technologies: Java and XML.

• Java is a multithreaded, object-oriented language with the powerful ability to handle all memory management automatically. InternetTONE uses a Java-based portable implementation language that lets companies easily incorporate incremental changes, features, capabilities and updates to the supply chain as it evolves.
• InternetTONE uses XML (Extensible Markup Language) to integrate multiple enterprises into a single supply chain. XML will be the standard for open information exchange on the Web. It combines the strengths of EDI and HTML to enable data to be processed by machines and humans alike. With XML, no retrofitting is required to link legacy systems and information into the supply chain.

Based on this foundation, InternetTONE comprises a Transaction Manager, which manages all communications among partners in the supply chain, and an XML-based gateway at every point where the Transaction Manager ties into another component, such as a warehouse management system or data store. These gateways seamlessly integrate all systems in the supply chain.

Transaction Manager. The Java-based Transaction Manager is a high-performance, fault-tolerant component that handles all the communication that passes between supply chain partners. Because the Transaction Manager is a Java application, it is open, scalable and extensible. It guarantees the arrival of messages and ensures they are secure.

XML Gateway. At each point where a client or infrastructure partner ties into the Transaction Manager is a gateway. The gateway comprises two parts, an adapter and a translator. Partners' systems for transportation, delivery, inventory and so on communicate with the XML translator, which then passes the messages to the adapter.

How Businesses and Partners Connect. Online businesses and their partners connect to the Internet TONE gateway through a Java thin client that is customized for each company's systems. This small-footprint client then communicates through the gateway adapter to the XML translator. Electron Economy has created all the necessary XML document-type definitions (DTDs), so the company's developers, Electron Economy's consultants, third-party consultants or all of the above can easily customize each translator, using free development tools, to communicate with each system in the supply chain.

After initial deployments, the online business at the hub of the supply chain can continue modifying the connections to account for any growth or changes the supply chain may experience. Once an online business is connected to Internet TONE, they can use the services of any partner that is also connected to InternetTONE. Likewise, any partner connected to InternetTONE can make its asset or service available to any online business that is also connected to InternetTONE.

Precision Operations. Once an online business and its partners are connected to InternetTONE, the system is operated and managed from the Electron Economy Client Operations Center. Electron Economy's team of experts ensures a smooth commerce flow, and takes proactive measures to address problems on behalf of clients. Exception conditions for which automated responses are not possible result in trouble tickets, managed according to client specific, condition-specific methodologies developed alongside business rules, with status always available on any order.

Clients have as much access as they require to their transactions and Control Center functions, and receive real-time metrics reports customizable in any way, through secure connections to the Electron Economy Client Operations extranet. Visibility of e-commerce metrics at all levels becomes possible, from cost breakdowns for each step within logistics, to order volumes and trends, to pricing sensitivities, to partner performance measures within Service Level Agreements.

CONCLUSION

The novelty of e-commerce is gone, and the initial awe it inspired in consumers has been replaced by specific expectations. Online businesses spent significant marketing dollars selling consumers on the promise of the Internet - that they now have easy access to what they want when they want it. But, having successfully sold the dream, many are finding it hard to deliver. Businesses moving online, whether dot-coms or clicks-and-mortars, often underestimated the difficulty of moving products from customers' shopping baskets to their doorsteps. In the midst of an e-commerce shakeout, it's now clear that an efficient, optimized supply chain is an e-commerce imperative that will play a key role in determining which online businesses survive to become long-term success stories.

InternetTONE provides the key requirements needed to build a supply chain that optimizes profitability while meeting consumers' e-commerce expectations. It is an open, extensible platform that links disparate businesses, systems and processes into a single commerce flow - while accommodating the existing systems and processes that each partner already has in place. It provides the visibility needed to keep a supply chain moving smoothly, the intelligence needed to proactively optimize performance, and the scalability needed to make continued growth an asset rather than an issue. It also provides an open architecture that enables companies and their supply chains to stay flexible and responsive to industry fluctuations.

InternetTONE is built on a sound technology platform that draws on the strengths of Java and XML, which are fast becoming the standards for information exchange over the Internet. It is designed and managed by a group of e-commerce experts with deep expertise in operations, logistics and customer service. These experts understand how to match the expectations of your customers with a commerce flow that lets you operate as efficiently and profitably as possible. Considering the stakes, your e-business can settle for nothing less.

ABOUT ELECTRON ECONOMY

Electron Economy has combined advanced Internet technology and world-class supply chain expertise to pioneer the commerce-enabling technology infrastructure called InternetTONE. More than a messaging platform, InternetTONE integrates disparate business processes into one commerce flow - managing the funds, goods and information across enterprises, exchanges and networks. In addition to lowering cost and improving cycle time, InternetTONE thinks and acts on its own by efficiently resolving supply chain complexities before they impact customers.

Electron Economy combines InternetTONE and value-added services as the foundation for its Commerce Operations solution. Commerce Operations enables enterprises to effectively manage all of the pieces behind the buy button, including trading partners, business processes, transactions and exceptions across the supply chain. For more information, visit the company's web site at www.electroneconomy.com. Founded in April 1999, Electron Economy, Inc. is privately held and is based in Cupertino, CA.

APPENDIX: InternetTONE FUNCTIONALITY

Order Management

• Order Submittal - Initiates the management of all aspects of InternetTONE. We are integrated with leading front-end e-commerce applications as conduits for receiving orders, as well as with ERP and other legacy financial systems. We are capable of receiving both simple and complex orders.
• Order Status Updates - Enables complete visibility into the order processing procedure. Order status changes are event driven in the sense that when specific events occur in an order's lifecycle, the order's status is changed to reflect that the event has occurred.
• E-mail Capabilities - Ability to provide e-mail notification of the occurrence of different value chain related events to both the client and the end customer. Such notifications are event driven and triggered by different updates that occur within InternetTONE Transaction Manager. E-mail messages are configurable and client specific.
• Transportation (Delivery and Carrier) Integration - Communicates directly with delivery providers, e.g., FedEx, UPS, USPS, to process order delivery. InternetTONE allows orders to be tracked from the point of origin to their destination. Leveraging InternetTONE, companies can be assured that their delivery commitments to customers are accurate while being the most cost-effective method.

Inventory Management

• Inventory Availability Information - Gives clients and consumers insight into the actual inventory levels of products offered for sale on a client's web site. By providing synchronized inventory information, InternetTONE can help prevent backorders and stockouts. Based on product relationships, our technology can suggest product replacements for out of stock items.
• Replenishment Information - Facilitates inventory threshold tracking, replenishment notification and automated replenishment.

Financial Settlement

• Customer Authorization
• Customer Payment Settlement
• Returns Settlement
• P.O. Processing
• Credit Authorization

Returns Management

As a complete commerce-enabling infrastructure, InternetTONE greatly eases the returns process with the management of Return Materials Authorization generation, acceptance, rejection and expiration.

Exceptions Management and Reporting

• Partner Operations Center - Provides our infrastructure partners a view into InternetTONE's Transaction Manager to monitor order status and address any related concerns.
• Control Center - Provides clients reports and current data to more effectively manage their business.
• Client Operations Center - Web-based issue and exception tracking and management tool used by Electron Economy to support clients during and after an integration engagement.