Chapter 20: Adoption of e-business solutions in food supply chains – Delivering Performance in Food Supply Chains

20

Adoption of e-business solutions in food supply chains

M. Vlachopoulou and A. Matopoulos,     University of Macedonia, Greece

Abstract:

The aim of this chapter is to increase understanding of e-business adoption in the food supply chain. In the first part of the paper an analysis of the concept and the context of e-business are presented along with a classification of the various e-business applications based on the dimensions of involvement and complexity. Next emphasis is given to the issue of e-business adoption. In particular an analysis of the factors that influence the adoption process is provided by exploring the specific characteristics of the food industry as well as the potential impact of the use of e-business solutions. These factors are not only related to the company but also to the supply chain of each company and the actual value of e-business applications. The chapter concludes that in many cases e-business is wrongly considered as a sole application and its adoption as mainly an intra-firm issue. Finally future trends are considered and discussed.

Key words

e-business adoption

e-business research

food chain

ICT

20.1 Introduction

The information and communication technology (ICT) revolution and the introduction of e-business applications in the mid-1990s brought to companies an excellent opportunity to facilitate, improve and in some cases to even transform their business processes and their way of doing business. In many business environments, ICT and e-business have been an established driver of change and a source of competitive advantage (Tatsis et al., 2006). However, in the food industry, in contrast to other sectors, e-business adoption rates have been rather slow despite the potential benefits (E-business watch, 2006). What are the reasons for this? Which factors explain the low e-business adoption rates? What are the specific characteristics of the food industry that play a role in the adoption process? These are some of the issues that will be discussed in the chapter. In particular, the aim of this chapter is to increase understanding of e-business adoption in the food supply chain, by emphasizing analysis of the factors that influence the adoption process and also by exploring the specific characteristics of the food industry, as well as the potential impact of the use of e-business solutions. The chapter comprises four sections. In the first section, the concept and the context of e-business are presented. Next, the e-business adoption process is explored, along with the affecting factors. In the third section, the chapter explores the potential impact of e-business on the food supply chain by providing case studies and surveys that have been published in the literature. Finally, the chapter closes with a section referring to future trends for the sector.

20.2 Approaching e-business

20.2.1 Concept and context of e-business

More than a decade after the introduction of the Internet, what is included under the term e-business is still in debate, with the relevant literature offering a plethora of definitions and approaches. Some authors for example, do not consider the creation and the exchange of script messages as an e-business application (Watson et al., 2000; Reedy et al., 2000). In other surveys, e-commerce is perceived as an equivalent of e-business, ignoring the fact that e-business applications vary in complexity (Lockett and Brown, 2001). In Table 20.1, a short presentation of some of the definitions that have been proposed is provided. While definitions present some variations, most of them recognize the role of e-business in improving relationships between different business entities and in offering opportunities for the evolution and the improvement of the enterprise at many levels.

Table 20.1

Definitions of e-business

Author E-business definition
Glover et al., 2001 Use of information technology and electronic communication networks in business information exchanges for the completion of transactions
Sawhney and Zabin, 2001 Use of electronic networks and relative technologies for the facilitation, improvement and transformation of a business process or system in order to create superior value for current or future customers
Turban et al., 2001 Use of telecommunication networks, not only for buying and selling, but also for customer service, business partners’ cooperation and execution of transactions within an organisation
Kalakota and Robinson, 2001 Complex fusion of business processes, enterprise applications and organizational structure necessary to create a high-performance business model
Bocij et al., 2003 All electronic exchanges of information, internally in the company or with external users, supporting a wide range of business processes
Brown and Lockett, 2004 Use of the Internet or other electronic means of communication for the execution of transactions, processes and cooperation between entities in markets
Koh and Maguire, 2004 E-business refers to information systems solutions packages used by enterprises for electronic business transaction purposes to meet customer requirements in business-tobusiness (B2B) and business-to-consumer (B2C) environments
Croom, 2005 Use of systems and open communication sources for information exchange, business transactions and knowledge-sharing between organizations

In this chapter e-business is approached, not as a single application, but rather as an all-encompassing term, which encapsulates a number of applications varying from the simple use of e-mail to more complicated collaborative platforms. The preferred definition for e-business in this chapter is the one by Brown and Lockett (2004). According to them: ‘E-business includes a number of applications that vary in complexity and could be defined as the use of the Internet or any other electronic medium for the execution of transactions, the support of business processes and the improvement of collaboration opportunities among entities’. In Fig. 20.1, different e-business applications are depicted based on the dimensions of complexity and involvement. Complexity refers to the technical characteristics and the requirements of the applications, while involvement refers to organizational changes, capital investments and also to the focus of the application, whether it is intra-firm or extra-firm.

Fig. 20.1 Classifying e-business applications.

For example, applications of low complexity and low involvement require minimum investment in technology, minor organizational changes, take an operations-related perspective, and their focus and major impact is intraorganizational. In contrast, applications of high complexity and involvement are more expensive, often require organizational changes, have a longer term perspective and the focus or impact expands the boundaries of the firm. The application of e-mail for example, is one which has minimum technical requirements, is a low capital investment application and requires minor or no changes to a company’s modus operandi.

A more complex application is the one of electronic marketplaces. E-marketplaces are platforms that facilitate transactions, financial services and order management. They bring together buyers and sellers or offers and requests, respectively. This type of application is more complex than the use of e-mail and often involves a certain level of investment and commitment. Usually, such e-marketplaces are imposed by business leaders or consortiums (who are responsible for organizing and controlling the e-marketplace).

Collaboration platforms, such as collaborative planning forecasting and replenishing (CPFR) are even more demanding applications, since they involve increased technical challenges (e.g. common standards for sharing information and security protocols for securing proprietary information of the parties involved). Therefore, these platforms require higher capital investment and often changes in the way the company operates so as to create shared processes among the supply chain parties. Increased trust between the supply chain parties is also needed. A very successful CPFR business paradigm is the one between Procter and Gamble (P&G) and Wal-Mart, where Wal-Mart’s marketing information was integrated with P&G’s manufacturing systems to streamline order and replenishment processes across their firm-level boundaries (Kim and Mahoney, 2006). This CPFR arrangement between Wal-Mart and P&G revealed that the successful implementation of these collaborative platforms depends not only on extensive information sharing but also on mutual understanding and commitment to the dedicated partners from repeated interactions (Holmstrom et al., 2002; Kim and Mahoney, 2006).

20.2.2 Critical issues in e-business research

Research into e-business covers a number of areas, such as e-readiness, e-activity and e-impact (E-business watch, 2007). E-readiness is the ‘state of play’ of a country’s ICT infrastructure and the ability of its consumers, businesses and governments to use ICT for their benefit (Economic Intelligence Unit, 2007). Specifically, e-readiness is defined as a weighted function of the following criteria: connectivity and technology infrastructure, business environment, social and cultural environment, legal environment, government policy and vision, and consumer and business adoption. E-activities refer to the business processes that can be facilitated or altered by e-business applications, such as e-marketing, e-procurement and e-invoicing. Finally, e-impact refers to the implications for individual enterprises or for the value systems of the industry (E-business watch, 2007).

Most research conducted so far has focused mainly on the e-activity aspect of e-business, while less emphasis has been given to e-impact or to e-readiness. In addition, there are some other issues that are worth mentioning regarding e-business. The first issue is related to the fact that much of the existing research has focused on large firms (Fillis et al., 2003), where successful examples have been identified in many cases. The second issue concerns the fact that often the benefits that have been reported in the various surveys are quite generic and are not linked to specific impact on specific business processes. Another basic problem in many surveys is the lack of a specific definition of e-business adoption and in many cases the adoption process has been approached in a very generic way.

In this chapter, in an effort to avoid generalizations regarding e-business adoption, it is proposed that the following dimensions should be taken into account when approaching the issue of adoption (Van der Veen, 2004):

• Dimension of activity: this is related to the way the company is supported by e-business. Companies may not fully adopt or fully reject e-business applications. The rationale is that there might be cases where companies adopt e-business applications for specific processes, while reject it for others.

• Dimension of application: this is related to the use of particular e-business applications, which present a specific level of complexity (e.g. e-business applications varying from very low complexity to very high complexity). This distinction goes beyond a theoretical and conceptual approach, but also has practical value in the sense that it affects the adoption of the applications. Considering e-business as a sole application would result in difficulties in understanding the specific impact. As a result, in this research the complexity levels proposed by Brown and Locket (2004) are taken into consideration.

• Dimension of value creation: refers to the value or the impact generated for the company as a result of the adoption of e-business.

• Dimension of the intensity of use: this is related to the frequency of e-business use. In other words, very intense use of a specific e-business application would mean that the company relies on this very application which will have significant implications if it is not used.

20.3 Factors affecting e-business adoption: taking a food chain-based approach

The issue of e-business adoption is not strictly an intra-firm issue owing to the interactive nature of e-business applications. The specific characteristics of the food sector, in addition to the structure of food supply chains, are expected to influence the adoption process greatly. Based on a literature review and specifically the suggestions of Kwon and Zmud (1987), Tornatzky and Fleischer (1990), Martin and Matlay (2001) and Patterson et al. (2003), factors affecting the adoption of e-business have been classified into three major categories (Fig. 20.2): factors related to e-business applications in the specific sector, intra-firm factors and factors related to the characteristics of food supply chains. An analysis of these factors follows.

Fig. 20.2 Factors affecting e-business adoption (from Matopoulos et al., 2007).

20.3.1 Factors related to e-business applications

Factors in this group deal with the appropriateness of e-business applications in specific business fields. The factors that have been recognized in the literature are the following: operational compatibility, relative advantage, complexity and the cost of e-business applications (Davis et al., 1989; Rogers, 1995; Mehrtens et al., 2001; Sadowski et al., 2002).

Operational compatibility deals with how compatible the e-business applications are with the existing activities of companies (Rogers, 1995). Under the food prism, the element of operational compatibility is linked to the specific characteristics of the product and the sector. For example, a processing company has rather different e-business applications options to use in comparison to a company that sells fresh produce, owing to time constraints, the perishable nature of the product or even the need for physical interaction with the product. The very nature of food products is an important element, which needs to be taken into consideration when examining trust formation in the sector. Hofstede et al. (in press), for example, argue that trust between companies is not mediated appropriately by existing e-business solutions, because of the difficulty of examining food quality: no examination is possible in some electronic transaction environments and there is a perceived risk in performing a transaction via e-commerce.

The relative advantage refers to the expected benefits and the usefulness that will arise from e-business applications in comparison to other applications (Rogers, 1995). To a great extent, this is related to the existence or not of a killer application. These applications are perceived to offer a specific path of best practice, which companies find hard to ignore. Complexity refers to the difficulties that a company is expected to face in understanding and using the applications (Davis et al., 1989; Rogers, 1995; Van der Veen, 2004). Finally, cost involves managers’ perceptions regarding the capital needed for investment in order to use these e-business applications.

20.3.2 Intra-firm related factors

These factors are related to companies’ characteristics. These characteristics are the availability of financial resources, the emphasis management puts on adoption by the administration of the company, the availability of human resources and the competitive attitude of the company. The availability of financial resources, although it is undoubtedly related to the cost of applications (analysed in previous section), in the current phase is correlated to the financial health of the company. Many authors believe that this factor is a critical one in the adoption process of e-business (Stokes, 2000; O’Gorman, 2000; Fillis, 2002). In the European food sector for example, low e-business adoption rates have been linked to the size of companies, since the majority of companies operating in the sectors are small and medium-sized enterprises (SMEs) characterized by limited availability of financial resources (European Commission, 2002).

Besides the size of the company, an important factor is the management emphasis and the commitment of top managers to the adoption process. It is also related to the business mentality of company’s administration. In general, the role of top management in the adoption of ICT applications has been clearly recognized in the literature (Dewar and Dutton 1986; Damanpour, 1991; Henderson et al., 2000). In many cases, particularly when it comes to SMEs, these intra-firm related factors become equally, if not more important than every other factor (Fillis et al., 2003).

The availability of human resources is associated with the existence of employees who have the knowledge and experience to use e-business applications (Mehrtens et al., 2001). Finally, the competitive attitude of a company is allied to its perception of the way in which it will improve its competitive position and whether or not this could be achieved by the adoption of e-business applications (Dos Santos and Peffers, 1998; Sadowski et al., 2002; Waarts et al., 2002). The food sector, in particular, is a very competitive one owing to a number of factors such as market globalization and deregulation, the abolition of constraints in the movement of products, the existence of powerful companies and the increased needs of customers for service (Nitchke and O’Keefe, 1997; Folkerts and Koehorst, 1998; Marion, 1998; Saxowvsky and Duncan, 1998). Companies are therefore seeking ways to respond to these changes and to add efficiency to their processes, by reducing costs and by shrinking response times in their effort to survive. E-business has been considered by many to be able to improve the performance of companies in many different business sectors, including the food sector (Tucker and Jones, 2000; Tan, 2001; Lee and Whang, 2002).

20.3.3 Factors related to the supply chain

These factors take into consideration the external environment of the company and its interaction with other companies. In particular, such factors are the complexity of the supply chain, the existence of critical mass of users, the level of collaboration and the nature of relationships. The complexity of the supply chain is defined by the number of entities that interact with a particular company, their proximity, and the number and the complexity of transactions. The more complex the structure of a supply chain the more imperative the adoption of e-business applications becomes, given that the company has increased coordination needs. The food supply chain is one containing many entities (Matopoulos et al., 2005) and many transactions either as a result of a product’s seasonality (implying changing suppliers) or as a result of the interaction of companies without proximity. The perishable nature of the products also affects order patterns, by necessitating small orders on a more frequent basis. E-business is considered to provide solutions to the above problems and as a result it is expected that companies with more complex supply chains will appear to have greater will to adopt e-business. Many global food retailers are using Internet-based platforms in order to manage their extensive supply base, to reduce lead times and to shrink the ‘time to shelf’ lifecycle for new products that have been developed by their suppliers.

The factor of critical mass of users is associated with the existence or not of companies in the supply chain of the firm that are using e-business applications (Markus, 1990). This factor has been recognized as a determinant of the adoption of e-business-based applications, particularly when it comes to applications which are related to communication, since it affects the expected benefits and the relative costs (Rogers, 1995; Kraut et al., 1998). Similarly, some industry organizations have agreed to adopt specific ‘standards’ or industry-accepted e-business solutions in an effort to increase the level of interaction between companies, for example, the RosettaNet® (in the ICT and electronics industries) or papiNet® (in the pulp and paper industry). Solutions for data exchange have been agreed between a limited number of companies operating in the same supply chain. In 2000, for example, 17 international retailers founded the WorldWide Retail Exchange (WWRE) to enable participating retailers and manufacturers to simplify, rationalize and automate supply chain processes, thereby eliminating inefficiencies in the supply chain. The WWRE was the premier Internet-based business-to-business exchange in the retail e-marketplace, enabling retailers and manufacturers to reduce costs substantially across product development, e-procurement and supply chain processes.

The level of collaboration is also an important factor. Based on the work of Winer and Ray (1994), Spekman et al. (1998) and Wang and Archer (2004), regarding the stages in the relationships between companies, as the interaction develops from cooperation to collaboration, the adoption of e-business applications increases. Long-term relationships between organizations which are characterized by trust have been proved that provide a basic motive for electronic integration (Konsynski and McFarlan, 1990). Lack of trust is a crucial barrier towards the uptake of e-business applications which needs further attention. Interorganizational trust has been recognized as central to the adaptation of e-business applications. A very important issue related to trust generation is the influence of culture. This is extremely important as the food sector is characterized by cross-country transactions and exchanges. Moreover, food SMEs have specific requirements concerning trust formation as they often do not trust the medium itself. This could be particularly the case in electronic marketplaces and electronic auctions for agricultural commodities, which are sold by farmers to other companies. Given that the aforementioned types of electronic transaction of commodities are not based on long-term relationships (in order to become more cost efficient and to control quality), but mostly on the price criterion, some kind of accreditation (third party institution-based trust) is needed for all participating entities in order to assure the quality of the products offered.

The nature of relationships includes characteristics such as power and dependence. Many researchers have shown that pressure from the environment of a company (e.g. suppliers and customers) affects the adoption of e-business (Norris, 1988; Mehrtens et al., 2001; Daniel and Grimshaw, 2002). Pressure from supply chain partners could also affect the adoption of various ICT applications. Partner companies that are characterized by close collaboration present increased dependence and adopt easier applications such as e-business (Patterson et al., 2003). For example, it is well known that retailers, such as Wal-Mart, put pressure on its suppliers to adopt electronic data exchange (EDI) (Premkumar et al., 1997), and lately has done the same by putting pressure on its hundred biggest suppliers in an effort to adopt RFID technology (Wailgum, 2004).

20.4 View of the evolution and current state of e-business uptake in the food industry

The introduction of the Internet and the development of e-business more than a decade ago has changed, even transformed, much of the traditional way of doing business. In the food sector, similar to many others, the introduction of the Internet and the advent of e-business was initially expected to bring about radical advances in the business to consumer (B2C) relationship, rather than the business to business (B2B) relationship. However, in practice the opposite has occurred. Most of the benefits and opportunities brought by e-business were taken up by its B2B part. Only a very limited number of e-marketplaces proved sustainable and those that have particularly relate to B2B transactions. In contrast, B2B e-business has followed a growing pattern over the years, with companies gradually implementing e-business applications into their agendas. In Fig. 20.3, the relevance of ICT and e-business in ten sectors in Europe for the year 2006 is presented, according to a survey conducted by the organization E-business watch for the year 2006/07.

Fig. 20.3 Relevance of ICT and e-business in 10 sectors in 2006 (from E-business Watch, 2007).

It is evident from Fig. 20.3, that the food sector in Europe has comparatively one of the lowest rates of involvement in terms of relevance and diffusion of the applications in the sector, particularly for e-sourcing and procurement, e-marketing and sales and ICT use for innovation. In contrast, higher rates seem to exist for more operational related applications such as e-logistics/SCM.

Analysing e-business deployment in the context of the food industry is a very complex task owing to the strong links of the industry with the different sectors in the food chain. In many cases food companies rely and have links with many non-food companies. For example, the industry has links with non-food sectors like chemicals, food technology, packaging and machinery, but the industry also forms the link between agriculture and food retailing. Moreover, the food sector comprises various subsectors with distinct characteristics. Some of the major subsectors include fruit and vegetables, dairy products, beverages, snack foods, flour and bakery products, confectioneries, meat and poultry products, fish and marine products and fats and oils. Another, important issue that needs to be considered is the fact that for many companies their customers are the end consumers. From the results of the survey it is evident that the food industry has a good level of development of internal process integration and supply chain-related activities.

20.5 Conclusions and future trends

A review of e-business adoption research has revealed that in many cases e-business is wrongly considered as a sole application and its adoption as mainly an intra-firm issue. The initial goal of this chapter was, first of all, to provide a clear understanding of the context and concept of e-business and subsequently to propose and analyse factors that affect its adoption, particularly in the context of the food chain. In terms of future research, a review of the literature revealed several key areas where more research is needed. First, a significant weakness is that in many cases e-business studies have focused more on identifying the potential benefits of its adoption, rather than the actual benefits or the exact impact of the adoption. There is a need to measure the impact of e-business in specific processes, based on specific criteria. Up until now, the focus of research has been on the deployment of e-business and the differences between SMEs and large enterprises, whereas regional and sub-sector differences were rather neglected. Therefore, given the characteristics of the food sector, it would be very interesting to identify, if any, the differences across the different sub-sectors of the food industry and the regional differences in adoption across the world.

In terms of future trends, the B2B part of e-business will definitely follow a pattern of increasing uptake. It is very likely that pressure from large manufacturers and retailers on smaller players will continue to grow as the benefits of e-business become more obvious, more tangible and therefore more requisite. Particularly, more interest in its deployment will be expressed for those applications focusing on reducing the time for non-value adding activities, such as invoicing, order taking and processing and forecasting, with regard to the B2C part of e-business, it seems that currently we are experiencing the beginning of a new wave of B2C, with new companies entering the market. However, in comparison to the past, these new wave companies seem to have designed more sustainable business models and moreover their customer base consists now of ‘new’ more educated consumers than in the past. Thurow (2001), in an effort to explain B2C business failures, stated that: ‘Sociology always beats technology, but eventually sociology changes . . . What my generation finds strange and uncomfortable (e.g. buying a car on the Internet without a test ride) will seem completely normal to our grandchildren’. It seems that this change to which Thurow (2001) was referring, will be completed in less than a generation.

20.6 Sources of further information and advice

Key books

E Issues in Agribusiness: The What, Why and How by Kim Bryceson (2006) discusses the use of electronic-based applications by agribusiness. The book outlines what exactly ‘electronically enabled’ agribusiness is, why agribusiness wants to embrace the electronic era, and how it can go about doing it. It also discusses cutting edge innovations in agribusiness systems such as precision farming and livestock electronic identification, risk management, supply and value chain management, knowledge management and e-governance. Finally, it reviews the underlying technological challenges, e-enabled business models and e-strategies, management concepts and innovative education programmes.

Scientific associations

The European Scientific Association EFITA (European Federation for Information Technology in Agriculture, Food and the Environment) is a federation of European National Associations of scientists and professionals who deal with the design, development, use and management of modern information and communication systems in the agri-food sector. The focus of EFITA is on the utilization of modern information technology for the development and the economic and environmental sustainability of the agri-food sector with its institutional infrastructure and the agricultural and commercial enterprises along the food production chain. http://www.efita. net/

Websites

http://www.etrustproject.eu/ A European Commission funded initiative which has the objective of facilitating the uptake of e-commerce technologies by food sector SMEs to support the exploitation and take up of the power of business-to-business (B2B) e-commerce technology for cost efficiency in food chains enhancing the competitiveness of the European food sector.

http://www.ebusiness-watch.org/ e-Business Watch is the European Observatory in the field of ICT and e-business policies.

http://www.oecd.org/sti/ict OECD Committee for Information, Computer and Communications Policy.

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