The Distribution Industry in the Nordics:

An e-business Perspective

Industry Analysis by Anthony Leong © Copyright 1998

The worldwide value of electronic commerce revenues is expected to hit $208 billion US by 2001, of which 88% will be business-to-business, according to a forecast by Forrester Research. Leading the business-to-business sector will be wholesale and retail revenues, which are expected to climb to $89 billion by 2001. Consumer on-line revenues are expected to contribute $25 billion US. This is a marked jump from the situation in 1997, in which the total worldwide electronic commerce revenues was estimated by Forrester to be $10 billion US.

The Internet will have an enormous impact throughout the distribution supply chain, affecting not only the way that consumers shop, but also the way businesses acquire and distribute goods. With its relatively good telecommunications infrastructure and growing information technology base, the Nordics is an environment conducive to the growth of Internet business applications. However, because of the fragmented nature of the European consumer market and the economic slowdown being experienced on the domestic front, the rollout of e-business in the Nordics will not be easy. The task will be even more challenging for distribution companies in the Nordics (encompassing retail, distribution, and wholesale businesses), which have been at the mercy of slackening consumer demand, weakening export markets, increased pressure to operate 'leaner and meaner', technological innovations, and an evolving retail consumer.

Furthermore, there are numerous obstacles hindering the rollout of e-business distribution initiatives, including:

• consumer concerns (such as security and privacy)
• hurdles that businesses must overcome (such as the high cost of acquiring customers and channel conflict)
• larger issues that will have implications on the proliferation of e-business worldwide (such as taxation, encryption, privacy, and a weak infrastructure)

Fortunately, there are a number of 'best practices' being used by successful Internet businesses which are helping to overcome such e-business roadblocks.

This article will provide an overview of the distribution industry in the Nordics and the potential application of e-business initiatives. In addition to providing background information on the economic and communications environment, this article will identify the current state and trends of the distribution industry. The impact of e-business on the distribution supply chain will then be described, as well as the potential roadblocks businesses may encounter. Finally, a series of e-business recommendations will be made, based on best practices that are currently in use.

The economy of the Nordic region has seen moderate growth in recent years, with GDP growth varying between a low of around 2% for Sweden, and a high of 4-6% for Finland. In addition to the variable growth rates, the source of GDP growth was different for each country.

Private consumption comprises a disproportionately large component of GDP in Denmark, and the moderate growth seen in GDP was the result of tight fiscal policies, high interest rates (relative to neighbouring economies), and a high income tax burden, all of which had moderating effects on consumer consumption. Another large contributor to GDP, exports, have also risen slowly, the result of a strong Krone between 1995 and 1997 that reduced foreign demand for Danish goods.

The service sector accounts for almost two-thirds of the Finnish economy, and GDP growth has been buoyant with the widespread optimism among households and businesses. Good growth in private consumption, particularly in the retail trade, along with record low inflation rates (the lowest among all European countries) have also helped to boost the Finnish economy.

Exports are another large sector of Finland's economy, comprising 30% of GDP, and growth has been brisk in recent years, including a record-breaking growth rate of 13% posted in 1997. In contrast, Norway's economy is dominated by energy and energy-based production (crude oil, natural gas, and metals).

While a strong offshore oil and gas sector have provided good growth for Norway's GDP, they also make the Norwegian economy subject to fluctuations in global commodity prices. Sweden's GDP has mainly been fueled by exports and business investment. Private consumption has contributed less to GDP growth, though some strong growth was seen towards the end of 1996, and continued throughout 1997.

The outlook is not as optimistic, given the worldwide economic turmoil, which is affecting each member of the Nordics differently. GDP growth is expected to remain moderate for Denmark. Rising disposable incomes, the result of income tax reductions and rising wages, have helped fuel private consumption in the past year. In combination with rising property prices, which have grown 10% annually in the past four years, there was genuine concern that the Danish economy was on the verge of overheating. However, with the weakening global economy, it is doubtful that a wage-price spiral will occur, and GDP will continue to grow at a sustainable pace.

The outlook is expected to be similar for Finland, with a combination of weakening exports, lowering unemployment, and growing private consumption leading to moderate GDP growth.

Norway's outllook is not as optimistic, with the world price of oil, Norway's economic engine, falling. Private consumption and business investment is expected to shrink with the doubling of bank interest rates from 5 to 10% in 1998, and this is being exacerbated by political uncertainty arising prime minister Bondevik's lengthy bout with depression.

Finally, Swedish economic growth is expected to be low, with reductions in exports being tempered by improvements in domestic demand.

The Nordics telecommunications market has been undergoing deregulation during the 1990s, which has brought about a reduction in the cost of telecommunications services. In fact, some of the Nordic countries, particularly Sweden and Denmark, now have no restrictions on competition. In the past, where Internet users with private access would have to pay both an Internet subscription fee as well as the per-minute local telephone charge while they were connected, the increasing competition among Internet service providers has helped to bring down the cost of access.

Furthermore, the information technology base has also been growing steadily. According to INTECO Corporation, the home PC annual growth rate is outstripping that of business PCs: 25.1% vs. 12-15%. With respect to the penetration of advanced Internet technologies, the 1998 IDC report "The West European Forecast for Internet Usage and Commerce" found that Internet penetration was the highest in the Nordic countries. Finland and Norway actually have more Internet users per capita than the United States (231.1 and 244.5 users per 1000 inhabitants vs. 203.4 users per 1000 inhabitants, respectively).

However, despite these high penetration numbers, when these figures are translated into actual numbers of users, the numbers are less impressive: a total of 4.5 million users. Regardless, these growth rates indicate that a healthy future for e-business in the Nordic region.

The Nordic countries have all experienced a rise in consumer demand in recent years. This has come about because of growth in disposable incomes arising from low inflation rates (in August 1998, the Swedish CPI inflation rate was at 0%), shrinking unemployment, rising wages, low interest rates (except for Denmark and more recently Norway), and reduced tax burdens. The increased consumer demand has generally been spearheaded by strong demand for consumer durables and automobiles. However, with the increasingly pessimistic outlook arising from the prolonged Asian economic flu, it is believed that consumer demand has already reached its peak in the early part of 1998, and growth for the latter part of 1998 and beyond will be lower.

In addition to the changing economic environment, retailers must also contend with the changing consumer. Martin Sorrell, the chief executive of the WPP Group plc, one of the world's leading communications groups, has pointed a number of consumer trends that are forcing retailers to re-examine the way they service their customers. More working women, changing work patterns, increasing shortages of free time, and rising consumer expectations in quality and service are making consumers demand more from the retailers they deal with.

An increasing number of shoppers can be characterized as the 'get in and get out' type of shopper. These types of consumers are driven by a shortage of time, and seek out convenience. A boom in two-income families, shift work, and an expanding work week that has cut leisure time-- these have all contributed to the growth in the number of 'get in and get out' shoppers. As a result, consumers are on average spending less time on each shopping trip. Furthermore, having survived the lengthy economic downturn of the early Nineties, they have shifted their shopping paradigm from impulse buying to precision shopping. A Coopers & Lybrand study conducted in 1995 found that consumers were cutting impulse spending and were more likely to postpone a purchase than buy on credit.

What this all means is that the average retail consumer today is spending less time shopping, shopping less frequently, but spending more on each shopping trip. In order to capture the increasingly fickle shopper, retailers must not only offer a greater value proposition, but must also be able to deliver it in a timely and convenient manner. Successful retailers are meeting these challenges via a number of different initiatives.

Having high in-stock rates, meeting or beating the industry standard of 98% (which refers to the likelihood that a given product will be on the shelves when a customer looks for it), is a function of how well the retailer's inventory replenishment functions are managed. Information technology is not only allowing retailers to reduce cycle times and improve service levels, but is also helping them manage their acquisition costs better by streamlining the formerly labor-intensive ordering and receiving processes.

Customer relationship marketing aims to foster customer loyalty and to develop an ongoing dialogue with a retailer's customers. Taking cues from the airline and hospitality industries, retailers have developed loyalty programs that identify and reward its best customers. For example, supermarket chain Tesco was the first to launch a loyalty card program in the United Kingdom grocery sector. Through the use of the loyalty card, Tesco store managers are now able to identify and know his or her store's top 500 customers on a personal basis. Not only are the top-tier customers recognized by store staff, but they are also invited to special in-store events. Furthermore, they are offered a wide range of value-added incentives, such as having their cars cleaned while they shop, being able to order groceries on-line, or having access to exclusive financial services. In Denmark, a number of retailers in different sectors (including grocery chain Favor, sports supply retailer Sportmaster, and oil company Statoil) have formed an alliance to offer a loyalty program that awards points to customers which can be redeemed for merchandise.

Rapid growth in the areas of business services, high-tech manufacturing, and international trade have led to more geographically-dispersed production, and an even greater need for timely delivery. This, in turn, has further accelerated the use of outsourcing for the distribution function.

The current challenge that Nordic distributors and wholesalers are up against is achieving a more efficient management of the whole supply chain, which will then reduce lead times, increase margins, increase service levels, reduce inventories, and ultimately react faster to customer needs. For wholesalers and distributors to survive, they are increasingly being called on to compete on the basis of cost, quality, and time.

Retailers, attempting to juggle the divergent goals of higher in-stock rates and lower carrying costs, are demanding smaller and more frequent store deliveries. Thus, the burden is then placed on the distributor or wholesaler to better manage transportation costs and logistics information. At the same time, retailers are demanding increased shipping accuracy to reduce retailer-level costs of detailed checking and receiving. As a result, pressure is being placed on distributors and wholesalers to reduce order cycle time and improve the flow of material along the supply chain.

The demands for reduced cycle times and increased coordination of material flows have given rise to an increased need for optimizing information flows along the supply chain. This has led to the growing use of information technology within distribution, including the application of warehouse management systems (WMS) and enterprise resource planning (ERP). With the increasing ability to closer match inventory requirements with actual consumer demand, supply chain management (SCM) has helped companies achieve reductions in both the amount of inventory flowing between manufacturers and the consumer, and the time taken to traverse the entire supply chain.

With lower inventory requirements and shorter holding times, this has had numerous effects on the economics of distribution, such as a reduced amount of warehouse space required by firms, and changes in the roles and relationships of distributors and wholesalers. More manufacturers and retailers are contracting out logistics services, and are also demanding a wider range of services from their logistics suppliers. On-time performance, service quality, speed, reliability, willingness to customize service, order cycle time, and computer system capabilities have all become key success factors in distribution. Successful distributors and wholesalers are responding to this paradigm shift by evolving.

Many distributors and wholesalers are using lean practices to drive cost out of the supply chain. The Consumer Markets Global Supply Chain survey, conducted by KPMG Peat Marwick LLP, found that significant improvements in cost, cycle time, and inventory turns could be achieved using principles such as:

• the minimal use of inventory
• pull systems
• reducing the number of suppliers
• bringing the buyer into the distribution process

For example, retailers were able to replenish in as little as six days for domestic durables and 14 days for non-durables. Higher inventory turn rates, reflecting lower inventory levels, were also reported as the result of lean practices.

There is also an increased amount of collaboration between distributors and retailers to improve supply chain performance. For example, the practice of crossdocking, in which products are moved from a supplier's truck through a distribution center and onto a store-bound vehicle without stopping in a pick or reserve area, requires extensive cooperation and communication between the players that comprise the supply chain. The KPMG study found that 96% of retailers regularly share information with their suppliers, some on a daily basis, in order to have tighter control of supply chain structures and minimize the costly effects of coordination failures. The most common means for this information sharing is electronic data interchange (EDI), though there are still about half that rely on manual order management processes, such as mail or fax.

Other distributors, particularly in the computer hardware industry, are creating customer loyalty by differentiating themselves through increased service offerings. For example, top tier hardware distributors in the United States, such as Tech Data Corp. and MicroAge Inc., are now offering more value-added services to their resellers, such as channel assembly programs (where orders are configured to customer specifications at the distributor level), help desk, technical support, and network management. This, in turn, is allowing the value-added resellers (VARs) to reinvest the saved time and costs into higher-level consultative activities.

The worldwide value of electronic commerce revenues is expected to hit $208 billion US by 2001, of which 88% will be business-to-business, according to a forecast by Forrester Research. Leading the business-to-business sector will be wholesale and retail revenues, which are expected to climb to $89 billion by 2001. Consumer on-line revenues are expected to contribute $25 billion US. This is in marked contrast to the situation in 1997, in which the total worldwide electronic commerce revenues was estimated by Forrester to be $10 billion US.

Within Europe, Forrester Research estimates that on-line revenues from business trade, consumer retail, and content will grow from $1.2 billion US in 1998 to $64.4 billion US in the year 2001. The bulk of this rapid growth will come from business-to-business commerce ($56.7 billion US), with consumer and retail content accounting for $4.6 billion US and $3.1 billion US, respectively. Business trade is expected to be the engine for Internet growth, due to its focus on both regional and international markets, the introduction of the euro, and a higher Internet penetration in the business world. Within the business-to-business sector, European wholesalers will rack up $20 billion US in on-line trade in 2001, whereas transport is expected to have limited e-commerce development at $154 million US.

On the retail side, consumer-focused businesses will have to contend with lower Internet penetration into homes and the numerous fragmented national markets of the European continent. Thus total on-line consumer retail trade is expected to account for $165 million US of European e-commerce revenues in 1998, and mushroom to $4.6 billion US by 2002. This growth will primarily be fueled by the gradual decline in access costs as more European telecommunications markets become deregulated. However, other factors, such as the growing consumer acceptance for using credit cards to pay for on-line transactions (especially by veteran Internet users), and the increasing bandwidth through new Internet connection devices (cable, satellite dishes) and faster modem speeds, are also expected to contribute to this growth.

Forrester Research has also suggested some creative approaches to building a consumer-focused on-line business in developing European markets:

• Since more Europeans have Internet access at work, businesses should tailor products and services to appeal to an office-based audience. For example, grocers in the United Kingdom experimented with selling groceries on-line to people at work: Waitrose to ICL employees, Sainsbury's to HP employees, and Safeway to IBM employees. Orders placed over the Internet by the employees would then be dropped off at the end of the working day in the office car park.
• One approach for countering the fragmented nature of the European market would be to aggregate demand at an on-line trading hub or having an e-business with a global focus.
• To counter the low penetration of the Internet into European homes, some companies are getting their customers on-line by providing inexpensive Internet access and then levying fees or cross-selling services. In the United Kingdom, grocery retailers Tesco and Nationwide are selling branded Internet connections from British Telecom. By owning the entry point on to the Internet, these grocery retailers are able to place their content in front of consumer's every time they log-on, and open up the possibilities for future commercial opportunities, such as on-line shopping or banking.
• The leaders of European on-line retail commerce will have to justify the expense of going on-line by offering value-added service. By augmenting the on-line transaction with richer support offerings, the consumer will be able to earn back the added cost of on-line access.

According to a Datamonitor study conducted in 1997, an average of 9% of on-line homes in Western Europe have made on-line purchases, and this percentage is expected to grow to 34% by 2002. However, in order for retailers, wholesalers, and distributors to exploit this new channel effectively, they must understand how the Internet will affect their respective businesses, the evolving Internet consumer, and the impact of the Internet on shopping habits.

As the number of these Internet consumers continues to grow in the coming years, it is important for retailers to understand who they are, why they shop on-line, how they shop on-line, and what they are buying.

The latest Jupiter communications survey finds that the typical on-line shopper (as opposed to Internet user) has a median age of 33 and an average household income of $59,000 US. 59% of on-line shoppers are single, 57% have a university degree, 30% are professionals, and 34% have children under the age of 18 in their households. However, under this broad categorization, there are several growing segments.

Women comprise 40% of Internet consumers, and their numbers are growing, as over half of the new users signing onto the Internet are women. According to the eMarketer Group, women are expected to comprise 51% of the on-line population by 2002. 75% of these women are working full-time and have an average annual household income of $63,000. 80% of these women surveyed by the e-tailing Group stated that they believed it to be more convenient to shop on-line and appreciate the 24x7 availability of on-line shopping services. Jupiter Communications predicts that female consumers will spend $3.5 billion on-line for groceries, apparel, and books by the year 2000. As a result, this demographic group is being increasingly targeted by marketing organizations.

A second significant target group of Internet consumers are children and youth under the age of 18, also known as the Baby Boom Echo (all children born between January 1977 and December 1997), which includes approximately 25% of the population. Despite their limited disposable income, they do exert enormous purchasing clout by having an influence on many family purchasing decisions, which is purported to be 20 cents on every dollar that is spent. Furthermore, their numbers are expected to increase significantly in the coming years. For the first time since 1978, the number of teenagers is expected to rise in 1998 and grow 25% by the year 2010. This demographic shift should be of note to retailers, whether on-line or off-line, as these teen consumers have disposable income with few responsibilities. Another boon to on-line retailers is the fact that this demographic group has the greatest access to interactive digital technologies, primarily via the Internet, which is why author Don Tapscott has coined them the 'Net Generation'. Because of their unprecedented access to information, the Net Generation is more analytical, media-savvy, and informed than previous generations. Furthermore, today's under-26 computer users, who are already twice as likely as most baby boomers to buy on-line, are moving in to their prime shopping years. So not only are their numbers growing, but they will be buying more in the years to come.

Baby Boomers, the parents of the Net Generation, are currently an untapped market. These Internet users, between the ages of 35 and 50, comprise 15% of all Internet users, and also control a disproportionately large share of disposable income in the country. However, as a whole, they tend to spend less of their income on retail goods and services, and more on family purchases, such as vacations, college funds, move-up homes, cars, and investments.

Seniors, those over the age of 50, tend to be late adopters of technology, and their exposure to the Internet is primarily through the use of e-mail and on-line chat. A survey conducted in 1998 by @plan in conjunction with the Gallup Organization, found that there are more than 4.3 million active Internet users aged 55 and older worldwide. Furthermore, this group tends to have the greatest net worth, and have generally have made most of their big-ticket purchases. 40% of those surveyed reported a household income of $75,000 US per year, while 26% reported an annual income in excess of $100,000 US. With higher-than-average disposable incomes, this group has shown a higher-than-average propensity to shop on-line. They are 39% more likely to purchase books on-line, 85% more likely to buy business equipment on-line, and 27% more likely to buy investments on-line than the average Internet user.

Internet shopping is being driven by a number of factors. A PointCast survey, conducted in 1998, uncovered the reasons for on-line shopping to be convenience (66%), avoidance of crowds (44%), prices (42%), the ability to purchase items not available locally (39%), selection (26%), speed, and delivery (19%). An Ernst & Young survey found that Internet consumers find buying on-line a satisfying experience, citing the ease of comparison shopping (56%), on-line merchandising (52%), and ease of navigation and speed (50%). Furthermore, the improvement of overnight and second-day delivery services is also spurring the growth of Internet shopping in a similar fashion to how it aided the growth of catalog shopping in the Eighties.

This increased on-line shopping activity also seems to be cannibalizing existing shopping habits, according to the "Consumer On-line Shopping Report" from CyberDialogue Inc. Among those surveyed who had purchased on-line, 23% said that the Internet decreased the time they spent shopping, 19% said they shopped less at stores, and 14% reported using mail-order catalogs less.

Research is showing that the Internet is having a profound influence on how consumers make their purchasing decisions, and that it is indirectly driving a significant amount of off-line sales. In a survey conducted by Ernst & Young in early 1998, 32% of consumers with on-line access surveyed stated that they had purchased products or services on the Internet, and only 4% of consumers made more than 10 purchases per year. However, 64% of those surveyed stated that they researched products on-line and then purchased them through traditional retail channels. Furthermore, 90% of those surveyed stated that on-line research is key to making purchase decisions, and is in fact accelerating the purchase decision process. This finding was supported by an ActivMedia study in 1998 which found that when consumers were on-line, 91% were checking competing prices, while 89% were researching products or services.

When consumers actually do buy on-line, the real-world behavior of precision buying seems to be carrying over. A 1998 Jupiter/NFO survey of on-line consumers found that 77% of Internet buyers were going on-line with a specific purchase already in mind, and 79% of those shoppers visited several sites before making a purchase. This finding raises the possibility for the use of shopping 'bots' in the future as a tool by which retailers can attract on-line shoppers by streamlining their comparison shopping.

According to Forrester Research, the top-selling product categories on the Internet in 1997 were (in order of decreasing revenues): computer hardware and software, travel, entertainment (books, music, movies, games), gifts and flowers, and apparel. By the year 2001, the rankings of these product categories are predicted to remain more or less the same, with the exception of travel overtaking the lead position from computer hardware and software. Within these broad categories, Forrester estimates that PCs, pornography, CDs, and gift items (flowers) make up just over half of all on-line consumer revenues. But what determines which product categories do well, and which ones do not?

The success for on-line sales of a particular product seems to be governed primarily by three factors:

• How well the target market of the product matches the demographic profile of Internet users.
• The efficiency of using the Internet as a sales channel, such as the ease by which the sales transaction can be conducted on-line, and the proportion of shipping expenses relative to the value of the product.
• The degree of consideration required in order to make the purchase.

The list of the top-selling product categories seems to support these observations. The demographic make-up of Internet users, according to the 1998 GVU World Wide Web survey, is predominantly male (by a small margin), university-educated, with an above-average household income, and an average age of 35 years. Many of the top product categories are well suited for this audience, such as computer-related products, travel, and entertainment.

Items that make efficient use of the Internet as a sales channel include computer products (for example, software can be downloaded instead of shipped, and computers are of sufficient high value that the shipping expense becomes almost inconsequential), entertainment, apparel, and travel.

With the explosion of Internet retailing, a number of Internet retailing business models have emerged: dynamic catalogs, dynamic auctions, and more recently, the dynamic bid.

The Internet is making the auction process more open, giving everyone equal visibility to descriptions, asking price, last offer, and time remaining. Sellers are better able to capture the momentum of the participants, as bidders are able to react instantly to each other's actions. Taking advantage of the added interactivity are two emerging auction models: third-party and proprietary/in-house auctions.

The use of the Internet by wholesalers and distributors in the future will vary depending on the industry sector. For example, it is predicted by Forrester Research that in 2002, 30% of large-sized and 15% of medium-sized wholesalers and business retailers in electronics, office supplies, and scientific equipment will have 20% of their sales via the Internet, growing from a current dollar value of $2 billion to $168 billion US. In contrast, because EDI is so prevalent in the transportation industry, no more than 6% of firms in that industry will conduct business-to-business transactions over the Internet, amounting to little over $300 million US in revenues.

However, the greatest impact that the Internet will have on the wholesaling and distribution industries is the emergence of new intermediaries that will act as 'information warehouses'. In addition to distributing goods across the supply chain, these information warehouses will also manage the information flow between manufacturers and retailers. By aggregating information from the manufacturers, these new intermediaries will allow retailers to search, create, and compare various offerings all in one place. Furthermore, these information warehouses will form deeper service-oriented relationships with retailers, working with them to ensure the right mix of products and services, as well as helping to manage the order and logistics activities of the retailer.

The Internet is serving as a tool for assisting wholesalers, distributors, and retailers as a new means by which to coordinate the movement of products along the supply chain. The adoption of this business-to-business electronic commerce is being driven by the lower purchasing costs, reductions in inventories, lower cycle times, more efficient/effective customer service, lower sales/marketing costs, and new sale opportunities afforded by this new channel. While this type of coordination has traditionally been done with manual order management processes, and more recently with EDI, the Internet is providing a more cost-effective and more easily adaptable vehicle for collaboration. The key communications technology criteria needed for electronic supply chain management to work are a common physical communications infrastructure, common data representation, guaranteed data integrity, fault-tolerant communication systems, secure message transport, predictable performance, and guaranteed user authentication. Unfortunately, while the Internet meets the first two criteria, there is still much work to be done in order to meet the last five.

Businesses began sending and receiving purchase orders, invoices, and shipping notifications electronically by EDI in the late Seventies, and it gained significant market acceptance, especially among the larger companies with established supplier networks. Today, businesses trade over $150 billion in goods and services using EDI over value-added networks (VANs), and typically save themselves 5-10% in procurement costs. Furthermore, according to a survey conducted by Computer Economics, 59% of companies report a positive return on their EDI investment, and only 19% report a negative return. For example, RJR Nabisco estimates that processing a paper purchase order costs the firm about $70 US, whereas an EDI order costs only 93 cents.

However, traditional EDI required the use of VANs, which were expensive to set-up and maintain, depending on the amount of data transmitted. This high cost acted as a barrier to its rollout among smaller companies. However, the Internet's extensive industry support, low cost, and easy internationalization make it an ideal and cost-effective alternative for supply chain management. Furthermore, the use of the Internet opens the door for companies to do business with new suppliers and with small or medium-sized businesses which formerly could only communicate via fax or phone.

Furthermore, the usability and accessibility of EDI channels can be vastly improved through the addition of Web interfaces. Letting users access sophisticated supply chain management systems using Web interfaces requires minimal up-front investment, is inexpensive to maintain, and is far more trouble-free than complex client/server approaches.

Procurement is another business activity that is rapidly-evolving due to the Internet, taking advantage of the reduced costs and cycle times made possible from with the ease of access to supplier information, and the ability to automate the procurement process. One example of how the Internet has influenced procurement is the development of the dynamic bid, mentioned earlier.

In the past, if a company were interested in finding a new supplier, they would post a request for quote (RFQ). Prospective suppliers would then submit bids to the company to try and win the business. However, this process was time-consuming and was limited in reach. By placing the bidding process on-line, request packages are now better able to reach more bidders, and the entire process can be automated, thereby reducing procurement times.

• cut procurement cycles in half (bids can even be evaluated and awarded the same day that GE receives it)
• reduced procurement processing costs by 30%, reduced the number of procurement staff
• induced suppliers to reduce prices via on-line bidding
• provided the sourcing department with at least 6-8 additional days per month to concentrate on strategic activities

Furthermore, by being able to reach a wider base of suppliers on-line, this led to greater competition among suppliers for GE's business, which resulted in lower acquisition costs (up to 20%). Since then, GE has now offered its TPN as a service for other companies who are interested in automating their procurement processes.

The reach of the Internet is providing businesses increased global visibility and the ability to service customers internationally. In the past, such globalization was usually an advanced stage of development, requiring extensive capital, personnel, and strategic alliances with in-country partners. Now, once a business has established a web presence, they are accessible to anyone in the world with an Internet connection and a browser. Factors that are increasing the ease by which businesses can become global businesses include:

• tariffs and other trade barriers are falling, with numerous regional free-trade agreements in effect around the world, including the European Union, NAFTA, Mercosur, and ASEAN
• the amount of global trade is increasing, with the value of goods and services traded globally increasing 130% in real terms since 1980
• the transaction costs of processing international orders, including communications and shipping, has drastically been cut, making it cost-effective to deliver anywhere in the world
• 91% of the worldwide telecommunications market is opening up to more competition, which will result in both lower long distance telephone charges, and cheaper Internet access

However, the increased global reach of businesses via the Internet raises new issues, for both retailers and wholesalers/distributors. Many businesses, particularly in North America, are finding it difficult to fulfill the international orders they receive, and are turning away orders because they do not have the processes in place to fill them. How do businesses globalize their distribution or retailing practices? There currently are three distribution models for globalization: single source, independent distributors, and global network.

Forrester Research has proposed an Instant Global Acid Test for evaluating a company's international sales prospects. This test poses the following questions:

• Does the product generate more than $50 US revenue for every pound/cubic foot in order to cover the cost of express shipment, which is usually $10-40 US per pound?
• Does the product meet legal requirements for shipping, and is it legal to ship to the destination country?
• Is there sufficient international demand for the product, or in other words, will international sales generate at least $1 million US in first-year revenues or represent more than 10% of the company's overall sales (whichever is larger)?

If a product passes the Instant Global Acid Test, it is recommended to keep the selling process as simple as possible, use existing list prices plus shipping and handling, internationalize the web site for target countries, and use logistics companies, such as FedEx or DHL Worldwide, for shipping. If the product does not pass the Instant Global Acid Test, it is recommended that the order be politely declined and a reason why provided. However, this decision should be re-evaluated every six months and there should be a mechanism in place to capture expressed interest in the product from foreign markets.

A more complex method of increasing global reach is through the use of independent distributors. Most companies will find it necessary to form alliances in foreign markets to sell their product, unless the company possesses strong international branding (such as Coca Cola), or the product requires little service or localized marketing.

In this distribution model, the company would still internationalize their web site such that potential customers are given full product information, but for the purposes of completing a sales transaction, they are referred to an in-country distributor. Of course, integrating independent distributors into a company's operations can be complex. These distributors must be screened for the ability to process orders on-line, commit to disclosing sales figures on a timely basis, and the ability to devote adequate resources to the product. Furthermore, it is recommended to provide these partners with an electronic commerce platform to ensure system-wide compatibilities and uniform worldwide quality.

Only the largest multi-nationals can justify a global on-line network and distribution centers in all major markets. However, the formation of such a global network can help a company aggregate their purchasing to reduce their procurement costs and take advantage of regional differences in pricing.

The barriers to the further rollout of e-business in retail distribution affect both consumers and businesses equally, albeit from differing perspectives. The reasons given by consumers for not fully embracing Internet commerce transactions, uncovered by numerous studies, include concerns over security, purchase risks, privacy, lack of convenience, and the persistence of old habits. On the other hand, businesses are concerned about the risk of fraud and theft, the increasing complexity of e-business transactions, the high cost of acquiring customers, and possible sales channel conflict.

Another barrier to the acceptance of Internet transactions is the fact that consumers cannot 'see' the merchandise, and therefore are unable to judge product quality. A 1997 survey conducted by America's Research Group asked several consumers about the degree of trust they had for shopping at a store versus shopping at a web site, and the consumers responded with almost a 10:1 preference of shopping in a 'real' store. Furthermore, the same survey found that 26.9% of consumers did not want to buy anything they could not see or touch.

Privacy is another concern of potential Internet consumers. The GVU World Wide Survey conducted in 1998 found that 26.9% of consumers were reluctant to make on-line purchases because they did not believe that the information that they provided would be kept private.

Convenience is also another barrier to on-line shopping. 22.6% of those questioned in the 1998 GVU World Wide Web survey said that they could find what they wanted more easily or quickly at a local retail outlet, sidestepping the lag time between order placement and the delivery of the merchandise. Convenience also has implications into other e-business applications, such as electronic payment systems. For example, the SET payment system, which is touted as a more secure means for purchasing on-line with their credit cards, may be difficult for consumers to implement. The software installation process has been labeled as 'not very intuitive' and consumers must also register with a financial institution before they can conduct on-line transactions.

Finally, companies conducting e-business with consumers will have to overcome entrenched shopping habits. The America's Research Group survey found that 14.9% of consumers always buy in stores, 11.6% like to pay cash, and 11.1% simply enjoy shopping too much. As bandwidth increases and on-line buying becomes less of a hassle, these percentages should go down, however, much like the experience of banks with the rollout of automatic tellers, there will always be a small minority who will insist on face-to-face shopping experiences.

Another barrier for e-business is the increasing complexity of e-business transactions. Though it is now much easier to set up an e-business presence today with the numerous off-the-shelf e-commerce applications available, the bar for interactivity and functionality of web storefronts is constantly being raised. Integrating front-end customer systems with back-end order entry applications often requires a major investment in time, energy, and money.

Affiliate programs, banner ads, loyalty programs, one-to-one marketing, business-to-business bidding applications, and web-based EDI are all increasing the complexity of the technology infrastructure that web-based retailers and distributors need to have in place. Security requirements are also proving to be more complex and expensive to implement. For example, for the SET security protocol, retailers and their banks must install software that will accept SET-based payments. However, the vendors of these software products are all interpreting the SET standard in different ways. If the consumer and retailer happen to use different banks and they each were to install different software packages, the two banks may not be able to 'talk' to each other, and the credit card payment may not be accepted. In order to implement a web commerce solution today, the minimum investment needed is $10,000 with annual maintenance and support costs amounting to 20% of web costs. For all retailers, the average investment is $250,000 US.

In addition to the technical barriers of e-business, there are the organizational challenges that companies face. e-business initiatives have impacts throughout the supply chain, and so customers, suppliers, partners, and other stakeholders must all be brought on board.

A number of other issues plague European businesses with respect to the rollout of e-business: taxation, encryption, privacy, and limited infrastructure.

Concerns over the taxation of Internet transactions may have an impact on the growth of e-business. Currently, all electronic commerce forecasts implicitly assume the absence of any form of Internet taxation, and it is unknown the extent to which such taxation would reduce these growth projections.

In June of 1998, the Internet Tax Freedom Act was passed in the United States, placing a moratorium on taxing Internet sales and services for three years, and creating a temporary commission to study state and local electronic commerce issues. Certain state Governors oppose this moratorium, citing loss of state tax revenues, and seek uniform taxes on both electronic and mail order retailers. Other states have passed laws, such as the California Internet Freedom Act, banning the levying of new on-line taxes, including fees for access, Internet services, and goods sold over the Internet. However, the limitations of these new laws is that they ban the levying of 'new' taxes on Internet transactions-- existing taxes can still be applied. Currently, there are ten states tax Internet retailers like mail-order companies, with retailers required to collect taxes in states where they have a physical presence, such as offices, warehouses, or servers. Other states rely on consumers to report the sales tax on their purchase, though there is currently no way of enforcing this.

In the middle of 1998, the European Commission (EC) declared that European Union (EU) consumers who buy and receive products or services over the Internet are required to pay value-added tax (VAT) on them, even if the order was fulfilled by an overseas supplier. Their argument was that in the absence of taxation on Internet transactions, there would be unfair competition for EU retailers who already have to tax their products and services for private consumption. Furthermore, it was recommended that all Internet transactions be taxed as services, whether they were goods purchases on-line but shipped by mail, or digital goods that are downloaded. However, the EC has admitted that such a taxation scheme would be difficult to implement. In fact, a number of loopholes are currently being exploited. For example, Compuserve exploited a loophole by claiming that because its on-line subscription services were being delivered from its United States head office, its subscription fees were VAT-exempt, much to the chagrin of European Internet service providers. Another example would be United Kingdom consumers purchasing CDs from the United States and not declaring the VAT-- which winds up cheaper than buying the CDs in a local store and having to pay the VAT.

Encryption is another political 'hot potato'. On the one hand, security is a huge concern among consumers and retailers alike, and it is believed that electronic commerce will never take off until consumers feel that they can safely provide personal details over the Internet. On the other hand, the best means by which to protect the integrity of e-business transactions is through encryption. However, the United States government is against the proliferation of computer encryption technology on the basis of national security, as it could be used to aid criminals and terrorists. Though there are currently no restrictions on the use of encryption technology in the United States, the FBI is pushing to restrict the domestic use of encryption, much to the dismay of privacy advocates and US software manufacturers.

Furthermore, there are restrictions on the export of encryption software from the United States, as they are considered munitions. Since 1996, the export regulations have relaxed, allowing the export of 56-bit encryption. However, restrictions still remain on software featuring 128-bit encryption, which is the current digital standard. These restrictions have implications for both Netscape and Microsoft, whose latest browsers feature 128-bit encryption. Because of export rules, the browsers they sell outside of the United States and Canada use a lower encryption standard. The latest moves to ease export restrictions further have hit a snag following heavy resistance from law enforcement officials.

Thus, not only is the encryption and national security debate hindering the rollout of better encryption technologies within North America, it also has global implications. A number of European firms have come out with their own competing 128-bit encryption algorithms and are free to sell them globally. However, the US government may exert pressure on European governments to either have the 'keys' to the security algorithms handed over, or have the sale of these encryption technologies restricted. Furthermore, because of the widespread use of Netscape and Microsoft browsers by most Internet users in the world, it is doubtful that these competing security algorithms will gain much popularity.

The EU has passed the European Data Directive, a privacy directive stating that consumers must give unambiguous consent for their private data to be used by web sites. This directive, which is scheduled to begin on October 25th 1998, requires that non-European companies meet the same privacy standards for data processing under European laws or else they would be barred from doing business with Europe.

Unfortunately, this privacy directive is at odds with the way many web sites based in the United States handle the personal data of its visitors. Furthermore, Privacy International has warned that it will target American on-line businesses in the fall of 1998 if their confidentiality contracts do not meet the directive's requirements for guaranteeing the confidentiality of any European's personal data that is shipped stateside for processing. If any privacy complaints are lodged against any American businesses, millions of on-line transactions between the United States and Europe could be blocked, from travel reservation systems, to credit-card processing centres.

Another barrier that European businesses must overcome is the limited infrastructure in place to support Internet commerce initiatives. In this case, 'infrastructure' not only refers to the technological aspects, but is also relevant to the skill set of European businesses and the political environment in which they operate.

Currently, most of Europe's internal Internet traffic is actually routed through the United States, reducing the performance of the network. As a result, the limited European bandwidth is creating difficulties for e-business initiatives. For example, in the European e-Christmas experiment carried out in 1997, the web storefronts of the participating companies experienced significant delays and frustrated shoppers as a result of the limited bandwidth.

Though some initiatives have been started to build the backbone needed to support the future growth of the Internet in Europe, this infrastructure development is proceeding slowly. One of the reasons for the slow build-out is that many of the new telecommunications providers are eschewing Internet services to concentrate on building more profitable core businesses, such as long-distance.

However, even with the proper backbone in place, there is a dearth of e-business know-how in the European marketplace. Without any local high-profile e-business success stories on the scale of Amazon in the EU, businesses have few role models to emulate. Furthermore, companies are finding that there is a shortage of Internet talent among local workers. As a result, hardware vendors in Europe are finding that their business customers are often requesting professional consulting services with their equipment purchases.

Finally, the development of electronic commerce is not a top priority for many European governments, who are more concerned with other real-world issues such as unemployment and the rollout of the euro.

Over the past few years, with the evolution of the Internet as a new distribution channel linking suppliers with consumers, a number of e-business best practices have come to light. Through the use of these best practices, companies have been able to achieve one or more of the following:

• generate traffic for their web site
• convert browsers into buyers
• reduce the costs of doing business
• increase profitability

Branding a retail concept in the real world is all about creating an image, feeling, or attitude within a consumer's mind that helps create a powerful bond between the retailer and the consumer, favorably influencing purchase behavior.

On the Internet, with consumers unable to 'see' or 'touch' the merchandise they are buying, consumers tend to purchase items that are standardized so that they know what to expect. For example, on-line clothing retailers are finding that the best-selling clothing items on the Internet are recognizable basics such as jeans, khakis, and T-shirts. A brand is one of the few means by which a consumer can judge the consistency and quality of an on-line offering-- a Compaq computer is a Compaq computer, whereas a computer from XYZ Corporation would be a more nebulous entity. Several surveys conducted recently support this assertion.

Internet retailers are ensuring high visibility for their offerings by quickly snapping up prime real estate on the shopping channels of popular on-line services (such as AOL and Compuserve), search engines (such as Yahoo! and Lycos), and on-line communities (such as Netscape or Microsoft Network). These established high-traffic sites, also referred to as portals, serve as the entry points for many Internet consumers and are used by the majority of both new and experienced users as navigational aids. For example, over 10 million consumers use AOL as their entry point onto the Internet, which is more than the combined total of subscribers on all the other dial-up Internet service providers combined. Second in consumer popularity is Yahoo!, where 41% of the Internet population check into on a regular basis. Not only do these high-profile sites aggregate Internet traffic for retailers, thereby providing a higher concentration of 'eyeballs', but from the consumer's perspective, they serve as a form of qualification, a reassurance of the retailer's legitimacy. According to an e-tailing Group study, this trend is expected to continue, with 25% of annual on-line revenues in the year 2000 being contributed by purchase transactions initiated at these affiliate sites.

Some enterprising retailers have taken this one stop further by actually owning the customer's Internet connection. In the United Kingdom, grocery retailers Tesco and Nationwide are selling branded Internet connections from British Telecom. By owning the entry point on to the Internet, these grocery retailers are able to place their content in front of consumer's every time they log-on, and open up the possibilities for future commercial opportunities, such as on-line shopping or banking.

In 1997, the IBM World Avenue Mall, which housed many on-line storefronts, closed its doors due to lower-than-anticipated traffic. One of the reasons offered for the cybermall's failure was inadequate promotion of the service in IBM's print and television ads. Likewise, in order for an Internet retailer to stand out from the millions of web sites, and reach potential customers who may not use the Internet on a regular basis, they must use real world promotional programs to increase their visibility. Becoming 'real wired' involves placing the web address on:

• every piece of advertising or promotional copy that is produced (such as business cards, annual reports, advertisements, and brochures)
• on every piece of property owned by the retailer (such as buildings and delivery vehicles)
• direct mail pieces to existing and potential customers notifying them of the web presence and what they can do there

Several demand generation models have emerged on the World Wide Web, with the most popular being banner ads, portal affiliations, and syndicated selling.

Banner ads are clickable graphic links that take the Internet user to another web site, and this ad space is sold at a fixed monthly fee. The click-through rates are typically low for banner ads, ranging from between 1% to 13%. This means that for every 100 visitors who view a page containing a banner ad, on average, between 1 to 13 people actually click on the ad, depending on how well the web site's audience matches the advertiser's target audience. Because the banner ad advertising rate is fixed, regardless of how many visitors actually click-through to the advertiser's web site, the acquisition cost per customer can be high.

In a world where consumers suffer from computer glitches, browser crashes, and slow modem speeds, it is important to make the on-line shopping experience as hassle-free as possible. Some strategies that have assisted retailers in making their web sites more user-friendly include:

'Sticking' is what retail analysts call the creation of a community around a product. In creating such a community, visitors are encouraged to linger longer in a store and are provided with an incentive to return. In essence, creating a community makes a store a 'fun place to shop'. In the real world, the Disney Store is a perfect example-- a brightly decorated store with themed merchandise that offers in-store activities for kids and attractive offerings for their parents. Another good example would be the Chapters chain of bookstores, where customers can peruse the store's offerings in comfortable chairs, look for hard-to-find books, or meet friends over coffee. Home improvement stores have also gotten into the creation of communities, by offering demonstrations and professional advice for would-be home renovators.

The key to creating a community around a product is to augment the customers' experience with the product, thereby encouraging them to return, which would hopefully drive further sales. For example, community-building activities can include:

• the creation of a knowledge base that will provide customers with information on product offerings (such as a catalog)
• providing sound advice to assist with decision-making (such as movie reviews)
• providing information on new uses for products (such as providing recipes for a food product)
• providing message boards that allow your customers to speak with each other (such as a 'household cleaning tips' exchange)

The value in a community lies not in the product itself-- it lies in what the retailer can do to create new value for the customer by enriching the experiential aspects of the purchasing process. This would be achieved through initiatives such as the provision of valued content on the products, or offering a forum where customers can speak with other like-minded individuals.

Some web retailers are taking advantage of the dynamic nature of the Internet by updating their product listings and pricing on a minute-by-minute basis, following the lead of airlines (such as American Airline's NetSAAver Fares program) and computer mail-order companies who use real-time technology to hold on-line close-out sales. This then allows the retailer to liquidate their overstock and obsolete inventory without sacrificing margin to a third-party liquidator, and to sell limited-run merchandise. Another benefit of real-time merchandising is that it also encourages of the retailer's customers to drop in on the site frequently for new updates.

Many first-time buyers 'test the waters' by submitting a small initial order, which they believe to be 'safer'. The size of this initial order will typically range from 10 to 30% of the average order size, depending on the brand strength of the product being purchased. For example, Forrester Research has found that JC Penney shoppers are often willing to place larger first orders than shoppers at less well-known on-line retailers. It is often not until the fourth order that the customer usually reaches the 'average' order size.

By building up consumer trust quickly, a retailer can convince more browsers to make purchases, and increase the average order sizes for its newest customers. Strategies for building up this trust and lowering the customer's perception of risk in the ordering process include:

Internet retailers have lower costs associated with maintaining a physical infrastructure, labor, and carrying inventory than their real-world counterparts. For example, rent and depreciation represent less than 4% of Amazon's sales, compared to 13% for the traditional bookstore. Instead, the majority of on-line retailing costs, besides the cost of acquiring customers, comes from servicing customer orders.

On the other side of the value chain, some retailers have found innovative ways of infusing scale economies into the delivery process. Grocers in the United Kingdom experimented with selling groceries on-line to people at work: Waitrose to ICL employees, Sainsbury's to HP employees, and Safeway to IBM employees. Orders placed over the Internet by the employees would be dropped off at the end of the working day in the office car park. Not only did these programs target the affluent and short-of-time customers, but they have made the delivery process more efficient for the supermarkets who were able to reach a large number of customers with a single delivery.

In addition to site navigation, another area that many web sites perform poorly in is the efficiency by which customers can pay for their purchases. In the real world, if customers spend too long lining up to pay for their purchases, they will either abandon their purchases or make a conscious decision to shop somewhere else in the future. A survey conducted by Forrester Research found that Internet customers currently abandon up to two-thirds of 'virtual shopping baskets', and they suggest that the number of abandoned baskets should be no more than 5-10%.

An administrative task that many on-line retailers must deal with are queries from customers regarding the status of their order-- answering questions such as 'has it been shipped?', 'where is it?', and 'when is it due to arrive?' For a retailer processing hundreds of orders per day, this can become a time-consuming burden. By having a self-service feature that allows customers to check on the status of their order, or an automated process by which e-mail reminders are sent to customers apprising them of order status, not only are customer concerns allayed, but retailers are able to reduce the amount of administrative overhead.

In the real world, it is far less expensive to convince existing customers to buy more, than it is to attract new customers. This same rule applies to the domain of Internet retailing. Currently, Amazon finds that 58% of their orders come from existing customers. Not only is it less time-consuming to service these customers (i.e. they know what to expect, they need less assistance, they can be processed via 'one-click' ordering), but repeat customers are five times more likely to make a purchase than a visitor who has never purchased anything before. By converting more first-time purchasers into repeat buyers, the on-line retailer can achieve higher growth rates at less expense than retailers who only focus on getting new customers to their web site.

Forrester Research recommends that the ratio of repeat to total visitors should be between 15-25%, and that this number should approach 40-60% as overall Internet traffic grows. A number of incentive systems have been developed to convert first-time buyers into repeat purchasers, many of them mimicking real-world initiatives: excellent customer service, loyalty programs, one-to-one marketing, and outbound marketing programs.

In a recent survey conducted by Forrester Research, the primary method by which on-line retailers created loyalty and repeat purchases was through excellent customer service. Simply by making the site navigation and order processing hassle-free experiences, properly managing the customer service function, and delivering the customer's order in a timely manner, retailers encourage their customers to make repeat purchases.

Although customer relationship marketing, also known as one-to-one marketing, has been a growing trend in real-world retailing, there are very few such marketing applications on retailer web sites. Regardless, Forrester Research see big growth in the application of one-to-one marketing to on-line retailing, with the introduction of Internet technologies that are able to identify individual visitors at a retailer's web site and then push content onto the visitor based on some pre-determined preferences.

The Open Personalization Standard is expected to be widely used by 1999 in the next generation of web browsers. OPS is anticipated to vastly increase the ability of Internet retailers to understand the interests of their visitors, though there is still much industry disagreement over its rollout. Under this scheme, consumers can choose to store personal information, hobbies, and other interests onto their hard drives. Retailers would then be able to access these profiles when the consumer visits their web site, allowing the retailer the opportunity to better target their offerings to the consumer.

Another recent software offering aimed at improving one-to-one marketing is the Dynamo 3.0 Web Server from Art Technology. AOL, Fidelity, and Kodak have already signed up for this new product which will allow the development of user profiling and tracking, billing, and ad-management applications. One interesting feature of this new software is its Dynamo Ad Station module, which tracks information about a user without the use of cookies. Instead, it looks at the user's browser traits, the referring domain, and where the user visits on the web site.

Outbound marketing refers to follow-on marketing initiatives aimed at strengthening the relationship between the Internet retailer and the customer. A prospective customer may only visit a retailer's web site once, and there is no guarantee that the customer will ever return. The objective of outbound marketing is to develop a relationship with the customer as soon as possible, and then periodically broadcast messages to the customer to build 'Internet Mindshare'. This way, instead of waiting for the customer to return to the retailer's web site, which may never occur, the customer is kept apprised of the retailer's offerings. Outbound marketing programs that are employed by retailers include newsletters and e-mail reminders.

Collaboration with supply chain partners via the Internet is allowing distributors, wholesalers, and retailers to maintain higher in-stock rates, reduce cycle times, reduce inventories, and lower inventory carrying costs through enhanced coordination of supply and demand activities. There are several examples of businesses involved in collaboration activities over the Internet.

The Collaborative Planning, Forecasting, and Replenishment Program (CPFR), which is in pilot in 1998 with an expectation of full rollout by 1999, refers to standards and guidelines for better forecasting and restocking. This system allows companies to collaborate in determining future demand for products, by sharing information with respect to the availability of products in stock, promotion schedules, POS sales history, and store-level sales expectations. In this collaboration process, the retailer and supplier electronically post their latest sets of sales and production forecasts on the Internet. A server-based application then compares the two forecasts and flags differences between them that exceed a pre-determined safety margin. The end result of this collaborative process is that the right amount of product reaches the right retail location at the right time. For retailers, this results in increased sales from higher in-stock rates and lower on-hand inventories. For distributors and wholesalers, this means lower warehouse storage requirements and reduced on-hand inventories.

According to Ernst & Young, it is believed that the implementation of CPFR could yield an inventory reduction of $250-350 billion US across the entire American economy. One company that made excellent use of CPFR was Warner-Lambert, which began sharing strategic plans, performance data, and market insight with Wal-Mart Stores Inc. over the Internet. Through this collaboration, Warner-Lambert was able to increase its products' shelf-fill rate from 87% to 98%, which earned the company an additional $8 million in sales, which is equivalent to the revenues of a new product launch. Not surprisingly, Warner-Lambert is hoping to use the Internet to expand the use of CPFR to all its suppliers and retail partners in the future.

e-business offers tremendous opportunity for companies within the distribution industry of the Nordics to introduce new sales channels, reduce costs, streamline product flows, and ultimately improve profitability. However, there are a number of obstacles that may hinder the growth of e-business, arising from consumer concerns, business concerns, and global issues. By implementing established best practices that are being used by the Internet's most successful businesses, firms in the United Kingdom can overcome these hurdles and take advantage of the tremendous growth that is anticipated for electronic commerce.