Trading partnerships

The final consideration in this section is trading partnerships. Potentially, the impact of trading in the online environment is a change in the number of suppliers and the structure of the supply chain. In the case of Bass Breweries, adoption of an e-procurement system led to a reduction in the number of suppliers but engendered closer cooperation between the buyer and the retained suppliers.

Additionally, organisations are engaging in the exchange process with an increasingly wide range of trading partners: for example, manufacturers are directly selling to consumers, which can result in channel restructuring. There is evidence of such changes resulting from adoption of Internet technologies to buyer-supplier relationships within the financial service industry: large banking corporations supplying financial services directly to cherry picked retail customers via the Internet. Disintermediated market transactions of this kind are efficient because they remove the need to compensate agents and intermediaries in the supply chain. High-tech transactional solutions of this kind pose a serious threat to 'retail' banks that rely on a physical branch network to serve their most valuable customers (Ellis-Chadwick et al., 2002). Channel restructuring can also mean adding trading partners. A barrier for many organisations wishing to operate in digital markets is the lack of technological and logistical knowledge. Faced with this situation, a possible solution is to buy in expertise. New media intermediaries offer a wide range of services from web development and management to operational logistics. Wrigley and Lowe (2001) suggest that delivery and a company's capacity to fulfil orders is a critically important limiting factor that affects the growth of online reseller markets following the collapse of the dot-com bubble, circa 2000. Indeed, it is possible that the more an organisation is in a position to take advantage of such limiting factors the more likely will be the shift towards the online trading environment.

Other notable innovations with the potential to alter online channel relationships are:

• Infomediation - a related concept where middlemen hold data or information to benefit customers and suppliers.

• Channel confluence - occurs where distribution channels start to offer the same deal to the end-customer.

• Peer-to-peer services - music swapping services such as Napster and Gnutella opened up an entirely new approach to music distribution with both supplier and middleman removed completely, thus providing a great threat but also an opportunity to the music industry.

• Affiliation - affiliate programmes can turn customers into sales people. Many consider sales people as part of distribution. Others see them as part of the communications mix.

Restructuring of the channel to market through the use of Internet technologies can deliver significant benefits in improved efficiency and reduced costs.

This section has focused on the potential impact of the Internet on the exchange process, the buying function and trading relationships. Through the use of Internet and network technologies it is becoming possible for an organisation to build a highly streamlined sales channel online. In many organisations, there are no observable stages between inbound logistics and distribution to the final customer. There is minimum human intervention in the whole supply process, which raises the question: To what extent are trading relationships becoming 'transactional' rather than 'relational'? Perhaps this is because organisations have been developing strong links with suppliers and other stakeholders through the use of technology, which has resulted in many activities being outsourced and the creation of new and different arrangements of trading networks. Deise et al. (2000) describe value network management as 'the process of effectively deciding what to outsource in a constraint-based, real-time environment based on fluctuation'. (For discussion of customer relationship management techniques see Chapter 6.) A key point to remember is that whatever the incremental changes taking place at various stages of the trading relationship, for many organisations, trading relationships are becoming a more strategic issue. There are greater opportunities to create competitive advantage by redefining the participants of the exchange process and developing competitive differentiation by rethinking sales and service processes.

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