Business Forum: What is a 'commerce chain,' anyway?

By Isaac Cheifetz
Published October 14, 2002

Somewhere there is a business-jargon graveyard.

The corporate world is prone to popularizing buzzwords describing new trends and concepts. Most of these have a half-life of about 18 months; the Internet revolution generated its fair share.

But some jargon is substantive, not frivolous. Occasionally, buzzwords are so powerful and simple that they become key terms in our everyday business vocabulary. A recent example is intranets.

The past five years have seen intranets (Internet networks internal to an organization) become the standard for distributing decision-empowering information within organizations.

Computing infrastructure that previously was difficult and expensive to build is now nearly routine, enabling the creation and delivery of customized content with a speed and ease previously unimaginable.

A term with potential

Like intranets, the term "commerce chain" has the potential to become standard usage.

We are all familiar with the "supply chain" -- the concept of a series of companies adding value to a product, from raw materials to finished goods. The supply chain describes companies seeking to collaborate across their industry, "upstream" (with suppliers and vendors) and "downstream" (with customers).

Companies participating in a supply chain typically share information to increase efficiencies in workflow, sales forecasting and inventory management. Optimizing the supply chain has been the goal of logistics departments for decades.

The commerce chain takes the supply-chain concept and extends it both horizontally and vertically.

Horizontally, it uses the flexibility and scale economies of intranets to automate workflow, adding feedback loops so customer needs can be identified and customer demand can be forecasted -- information that then is shared throughout the supply chain.

Vertically, the commerce chain calls upon companies to collaborate on projects beyond those traditionally considered part of their industry. Examples include closing the loop on the financial aspects of commerce, through automated payment clearinghouses, or transportation, working with third-party logistic providers. This trend is new but substantive.

Virtual widgets

As we have learned through trial and error the past decade, there are not magical qualities to the Internet -- business rules and realities still apply.

The biggest difference is that the standardization and flexibility of Internet technologies are enabling information technology to mature as an engineering discipline.

In a 1999 article in the Atlantic magazine, management guru Peter Drucker observed:

"The truly revolutionary impact of the Information Revolution . . . is something that practically no one foresaw . . . the explosive emergence of the Internet as a major worldwide distribution channel for goods, for services. . . . This is profoundly changing economies, markets, and industry structures.

"What has made it possible to routinize processes is not machinery; the computer is only the trigger. Software is the reorganization of traditional work, based on centuries of experience, through the application of knowledge and especially of systematic, logical analysis."

6 keys to success

Here are my six key principles for successfully navigating on the commerce chain:

• Competition is now between entire supply chains rather than individual companies. These teams of suppliers, customers and partners are fluid, with companies ultimately seeking to optimize their own profitability.

To keep their value proposition high, companies increasingly are capturing and analyzing the information, which is the byproduct of their interactions with their value chain.

• Relationships still matter. The vertical exchanges and "B2B" business-to-business auction sites so popular three years ago mostly have been replaced by private corporate exchanges. Companies prefer to do business with a short list of established vendors before sending a request to the public market.

• Big dogs eat first. Market factors, not Utopian ideals, determine who gets cost savings from commerce-chain optimization.

Market leaders are competing by attempting to embed, and even impose, their e-commerce business workflow standards on their suppliers, customers and partners' systems. Wal-Mart, Toyota and General Electric are expert at wringing costs out of their commerce chain -- and keeping most of the savings for themselves.

• By using entrepreneurial judo, smaller players in a commerce chain can succeed in spite of their size.

For example, contract manufacturers expert in "lean manufacturing" will be rewarded for their speed, process maturity and flexibility with higher profit margins. Commodity manufacturers, who often are captive to key customers, will be stuck with low margins.

• Process trumps technology. Technology magnifies the quality of your processes, good or bad. It has the impact of a race car: A skilled driver will speed around the track; a mediocre driver will hit the wall that much sooner.

Companies are learning to use information technology to solve business problems, not simply as an end in itself.