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16th August,
2015
SUPPLIER RELATIONSHIP CHALLENGES FOR E-COMMERCE
URVI MISHRA
DOMS , IIT ROORKEE
Supplier relationship challenges for e-commerce
E -commerce is the core technology of knowledge economy. Focusing on e-commerce and nurturing it is an
inevitable choice to be the part of growth story.
E-commerce strengthens the supply chain by sharing real time information with the different parties. It helps the
overall supply chain system in a huge way by reducing the cost of servicing and response time. Information
about the marketplace such, as consumer tastes, demand patterns, and inventory, is one of the most valuable
resources within a supply chain. Information exchange between the buyer and supplier constitutes an important
dimension in supply chain.
E-commerce has existed for a long time, but mainly in the form through private networks, such as EDI
.Advancement of information technology in the last decade has introduced an alternative of e- commerce
transaction, e-marketplace, through the Internet. The supplier management could be in any of the above
mentioned form EDI or e-marketplace depending on the business requirement.
A buyermayalso maintaindifferentformsof relationshipswithdifferentsuppliersbecause of differentneedsfrom
variousfunctional areas.
Major Characteristics of EDA and e marketplace
Characteristic EDA E marketplace
Initial Setup Cost High Low
Monitoring Cost Low High
Interdependency High low
Transaction Cost Low High
Information Sharing High Low
Challenges faced in different forms of supplier relationship management
Product Complexity
A standardized product doesn’t not require a regressive list of attributes to define it and a buyer can choose a
supplier from e marketplace based on the cost effective one. Implementation of EDI based system imposes
major cost based challenges in such a scenario. If there are large number of heterogeneous product offerings in
the market, buyer search costs can result in substantial inefficiencies.
Opportunisms
If buyer and supplier are willing to build a long term relationship they will not act entirely based on the self-
interest and they are likely to discourage opportunistic behavior.
E-marketplace participants have less information sharing activities and little transaction specific investment.
Thus, there are more opportunities and fewer penalties when one engages in opportunism. In e marketplace
exchanging parties face the self-interest based exchanges frequently.
E.g.: Offering Low quality product/ service, Delay in payments by the buyer.
In the same instance the high level of transaction specific investments involved in EDI reduces opportunistic
behaviors from participants.
Environment Uncertainty
Environmental uncertainty is defined as the extent that uncertainty decreases as an industry matures; the
benefits that accrue to integration presumably decline .Firms face high environment uncertainty because of the
limited information exchange among participants.
Whenever there are specific decision to be made related to Inventory or procurement ion analysis detailed
information based on dynamic data mining becomes essential.
From the operational perspective, EDI becomes important to overcome these challenges whereas e marketplace
can only be used until it satisfies the minimal information requirement of supply chain system.
Environmental Concentration
Environmental concentration is defined as the extent to which a buyer perceives that resources are controlled by
few suppliers and provide most of its resources to many manufacturers.
A high setup cost and complexity of EDA based system is a big hurdle for implementing it when the
environment concentration is high.
E-marketplace can only provide a limited advantage in help searching for the lowest cost supplier if there are
only a few suppliers supplying a unique product.
Environmental Dynamism
It is defined as the change in consumer demand for manufactures product.
In e marketplace where decisions are primarily cost driven and information sharing is kept minimum between
the exchange parties usually all the decisions have been made without any prior knowledge about the changes in
marketplace. Supplier works under the threat of losing the potential market.
EDI helps exchange parties to reduce uncertainty in consumer demand. In addition to the information exchange,
the relational norm should guide the supplier to a flexible response towards the buyer’s request.
Conclusion
Every firm has to take strategic decision for supplier relationship building while considering the vital factors
and requirements. Future trends, current market condition, cost effective medium, product complexity and
procurement requirements are few of the major things that should always be considered for building a good
supplier relationship.

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Supplier relationship challenges for e commerce

  • 1. 16th August, 2015 SUPPLIER RELATIONSHIP CHALLENGES FOR E-COMMERCE URVI MISHRA DOMS , IIT ROORKEE
  • 2. Supplier relationship challenges for e-commerce E -commerce is the core technology of knowledge economy. Focusing on e-commerce and nurturing it is an inevitable choice to be the part of growth story. E-commerce strengthens the supply chain by sharing real time information with the different parties. It helps the overall supply chain system in a huge way by reducing the cost of servicing and response time. Information about the marketplace such, as consumer tastes, demand patterns, and inventory, is one of the most valuable resources within a supply chain. Information exchange between the buyer and supplier constitutes an important dimension in supply chain. E-commerce has existed for a long time, but mainly in the form through private networks, such as EDI .Advancement of information technology in the last decade has introduced an alternative of e- commerce transaction, e-marketplace, through the Internet. The supplier management could be in any of the above mentioned form EDI or e-marketplace depending on the business requirement. A buyermayalso maintaindifferentformsof relationshipswithdifferentsuppliersbecause of differentneedsfrom variousfunctional areas. Major Characteristics of EDA and e marketplace Characteristic EDA E marketplace Initial Setup Cost High Low Monitoring Cost Low High Interdependency High low Transaction Cost Low High Information Sharing High Low
  • 3. Challenges faced in different forms of supplier relationship management Product Complexity A standardized product doesn’t not require a regressive list of attributes to define it and a buyer can choose a supplier from e marketplace based on the cost effective one. Implementation of EDI based system imposes major cost based challenges in such a scenario. If there are large number of heterogeneous product offerings in the market, buyer search costs can result in substantial inefficiencies. Opportunisms If buyer and supplier are willing to build a long term relationship they will not act entirely based on the self- interest and they are likely to discourage opportunistic behavior. E-marketplace participants have less information sharing activities and little transaction specific investment. Thus, there are more opportunities and fewer penalties when one engages in opportunism. In e marketplace exchanging parties face the self-interest based exchanges frequently. E.g.: Offering Low quality product/ service, Delay in payments by the buyer. In the same instance the high level of transaction specific investments involved in EDI reduces opportunistic behaviors from participants. Environment Uncertainty Environmental uncertainty is defined as the extent that uncertainty decreases as an industry matures; the benefits that accrue to integration presumably decline .Firms face high environment uncertainty because of the limited information exchange among participants. Whenever there are specific decision to be made related to Inventory or procurement ion analysis detailed information based on dynamic data mining becomes essential. From the operational perspective, EDI becomes important to overcome these challenges whereas e marketplace can only be used until it satisfies the minimal information requirement of supply chain system. Environmental Concentration Environmental concentration is defined as the extent to which a buyer perceives that resources are controlled by few suppliers and provide most of its resources to many manufacturers. A high setup cost and complexity of EDA based system is a big hurdle for implementing it when the environment concentration is high. E-marketplace can only provide a limited advantage in help searching for the lowest cost supplier if there are only a few suppliers supplying a unique product. Environmental Dynamism It is defined as the change in consumer demand for manufactures product. In e marketplace where decisions are primarily cost driven and information sharing is kept minimum between the exchange parties usually all the decisions have been made without any prior knowledge about the changes in marketplace. Supplier works under the threat of losing the potential market.
  • 4. EDI helps exchange parties to reduce uncertainty in consumer demand. In addition to the information exchange, the relational norm should guide the supplier to a flexible response towards the buyer’s request. Conclusion Every firm has to take strategic decision for supplier relationship building while considering the vital factors and requirements. Future trends, current market condition, cost effective medium, product complexity and procurement requirements are few of the major things that should always be considered for building a good supplier relationship.