Operations Management Article Review: "Alternate Channels of Distribution E-commerce Strategies for Industrial Manufacturers"

E-Commerce is an industry driven by a desire to seek greater market share, and tap into the resources and market facilitated by electronic communications, in addition to the possibility of lower costs and a chance to outperform competitors. This article is an analysis of a journal research study/article entitled "Alternate Channels of Distribution: E-Commerce Strategies for Industrial Manufacturers'. Specifically, the study analyzes E-Commerce channels of distribution that address the trend/shift from traditional channels of distribution. In the study, 5 different channel models are proposed and analyzed for benefits, disadvantages, and operations advantages. The models include the following and are described thereafter: Direct sale to the end user; supplier as information controller; distributor-controlled channel; mixed channel distribution and independent 'infomediary' channels.

[b]TECHNIQUE 1: DIRECT SALE TO END USER:[/b]

This is the simplest of the article's 5 channels as it involves direct communication with the manufacturer/supplier through the supplier's website. The supplier then transports the product to the client through an outsourced transportation company. This transportation company is also known as a 'third party logistics provider' Amazon.com is listed as an example of a company utilizing the direct e-sale to end user method. The benefits of this first method are that it has the potential to lower inventory by quickening the flow of information and making forecasting more accurate. But warehousing inventory may also be increased by having to store inventory otherwise held by distributors and retailers. Furthermore, all the responsibilities held by the distributor and retailer are then put on the back of the supplier to deal with. For example, sales force, technical troubleshooting, information management, and financial services. Another disadvantage of the direct channel method is that key relationships with distributors and retailers are threatened because of the pirating of traditional customer contact through the retailer, distributor channels.

[b]TECHNIQUE 2: SUPPLIER AS INFORMATION CONTROLLER:[/b]

In this method, the supplier maintains the same website but channels orders to distributors instead of meeting the clients demand directly. The primary differences are the greater control of information by the supplier, use of electronic communication with distributors and retailers, and 'marginalizing' of retailers through a stronger supplier and distributor responsibility. Although the retailers can still participate in this method, the distributors have greater contact with the customers as made possible by the supplier information control. This method can reduce value-added costs created by retailing and has the potential to be competitive in terms of cost and enhanced inventory management. The alienation of retailers would be inconsequential from a business perspective so long as the supplier and distributor uptake of retail responsibility is adequate and does not lose market share to customers who prefer the retail channels.

[b]TECHNIQUE 3: DISTRIBUTER-COTROLLED CHANNEL[/b]

Control is handed off to the distributor and the different parties involved work together to produce a more balanced logistics chain. In this instance a fair amount of outsourcing takes place relieving the burden of stacked responsibilities for the supplier and distributor. Consequently, a more effective and focused operations results making for quicker timing in delivery, shipments etc. The advantages of this method are that additional responsibilities such as customer service, financial services, and sales are outsourced and/or spread out among the channels making for a more focused operation on each of the individual channel levels. A more focused distributor operation with information control would primarily allow for an enhanced inventory management system and thus lower costs in this sense. A disadvantage of this method is that costs may not be reduced significantly if improved forecasting and inventory management does not occur due to poor management. Also, should a competitor (manufacturer) choose a more direct channel, this may underscore the distributor-controlled channel's effectiveness.

[b]TECHNIQUE 4: MIXED CHANNEL:[/b]

A hybrid of the previous 3 channels, the 'mixed channel' is more responsive to customer and product driven needs. For example, at the industrial level, customers may deal directly with the supplier and at the small, high volume retail levels customers may deal with the retailer. What's more, inventory levels, supply channels, information control and outsourcing can all be optimized for the best responsiveness, forecasting and logistical support necessary to remain competitive in the service sense. A downside of this method however, is it may not reduce cost significantly due to the high adaptability requirements and the corresponding increase possibility of supply chain cooperation complications.

[b]TECHNIQUE 5: INDEPENDENT INFOMEDIARY: [/b]

This channel is different from the other channels in that it outsources information services to a 'third party infomediary'. This third party is an independent company that attempts to sell slow moving products and inventory for the supplier, distributors and retailers. It does so in a similar manner to monster.com which channels an employer markets with an employee market in an attempt to bring them together more effectively for a 'sale'. The main advantage of this method is the opportunity for increased sales, decreased inventory costs and higher revenue due to the offloading of slow moving inventory. On the flip side, retailers and distributors may find the independent 'infomediary' threatening to their profit levels and consequently damper the relationship with the supplier.

[b]CRITIQUE:[/b]

The aforementioned article is informative about a variety of options for e-channel distribution, however, it left out important internal and external factors pertaining to the operational functions of the channels. One of these elements is efficiency in the sense that an E-commerce operation requires expensive software, automation, logistics planning and inventory management. If the company choosing any one of the above 5 methods does not do these things it risks losing money in addition to consumer demand and competitiveness through an inefficient operation. What's more, it is somewhat misleading that so many scholars contributed to this paper as the opinions are credible but haphazard in their warnings for companies to have a strong long-term business plan before utilizing an e-commerce channel. For example, the questions of which channel is appropriate and under what conditions is not significantly elaborated in the article. This leaves one wondering which e-commerce channel alternative is worth its cost and whether the channels are even worth pursuing.

Not every manager has the time or funds to inform himself/herself and his/her organization of all issues by digging through a multiplicity of information sources and thus, may seek a more informative and extensive article on e-channeling. This is not to say, it is not evident that for any issue or topic to be valid, a perceived specialized and focused knowledge of the immediate issue is required. What it is to say is the tone of the Alternate channels of distribution article relies on this assumption too much. In other words, the article's content is a thin slice of the broader context. The inquirer is left wondering what the deeper underlying issues of each e-commerce channel is as the authors mention advantages and disadvantages of each method but do little to support and justify their claims. For example, 'Split-case distribution' is one aspect of e-commerce through the distributor controlled e-channel we are not told about. The term refers to when "cases of goods are split open on the receiving dock and the individual items from the case are stored on shelves or in bins in the warehouse for individual distribution." (Alexander)

Within the article is a statement warning to companies to think out their long-term goals before applying the techniques mentioned. This can also be interpreted as a brief acknowledgement of the unmentioned cost issues, warehousing and distribution complexities. The cost of e-distribution in the more reformed channels of e-distribution is only lightly mentioned in the article and is elaborated further in the case of Webvan Group Inc., a grocery distributor. "Webvan Group Inc.'s recent $1 billion contract with Bechtel Corp. to build grocery distribution centers casts a new spotlight on the role of distribution infrastructure in electronic commerce. If webvan's ambitious strategy is successful, brick-and-morter companies may have to rethink their plans to use existing distribution networks and warehouse to support their e-commerce initiatives." (Clinton)

What is implied in this statement, is that brick and mortar companies are a slice below the rest when it comes to revamping into an e-commerce operation and have more than just a computer to install. Another unanswered question is what are the market prospects for companies wishing to complete, switch over or initiate an e-commerce endeavor? According to an 'E-business for Scientists and Engineers' in 2000 researchers surveyed were held as being the most likely to buy books and computers online. (Studt) Of course researches are not the only market segment, but the point is we don't know which business are most likely to succeed in the transition to any one of the e-commerce channels.

Still another issue is the matter of security in online transactions. When shopping online one often discovers the daunting but real world web warning that states a web site is not secure and can be read by others. This is not likely to be very comforting to a potential investor, large buyer or group of consumers who value their money. In terms of efficiency, money can be lost in an uncalculated e-commerce initiative that does not adequately take into account e-security.
All in all, the article leaves one wondering whether or not the channel techniques actually work, how, when and if they should be applied. Nevertheless, a novice researcher or operations manager looking for some insight into e-commerce techniques for supply chain management could benefit from the mapping and relatively clear presentation of different methods provided by this article. That is , the article is a starting point for e-commerce initiatives, but not an ending point in terms of being informed.

Source(s):

Daniel F. Jennings, F.B. Lawrence, R. Narayan, G.L. Stading, R.J. Voukurka and G.M. Zank. 'Alternative Channels of Distribution E-Commerce Strategies For Industrial Manufacturers.; Production and Inventory Management Journal. Third/Fourth Quarter 2001.

Alexander, Steve. 'E-Commerce distribution' Computerworld; Framingham; March 20, 2000.

Clinton Wilder. 'E-Commerce distribution takes new approach.' Information week; Manhasset; July 19, 1999.

Studt, Tim. 'What can you buy online-and where?' Research & Development; Barrington; April 2000.