1 / 2006
European Commission
Disclaimer
Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The views expressed in this report are those of the authors and do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a warranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For detailed advice on corporate planning, business processes and management, technology integration and legal or tax issues, the services of a professional should be obtained.
Acknowledgements
This report was prepared by Databank on behalf of the European Commission, Enterprise & Industry Directorate General. It is part of a deliverable in the context of e-Business W@tch, which is implemented by a team consisting of empirica GmbH (co-ordinating partner), Berlecon Research, Databank, DIW Berlin, Lios Geal Consultants, RAMBLL Management and Salzburg Research, based on a service contract with the European Commission. e-Business W@tch would like to thank Mr Ilias Vlachos of the Athens University, who is member of the Advisory Board in 2006, for supporting the work on this study.
Contact
For further information about this Sector Study or the e-Business W@tch, please contact:
Databank S.p.A. Via Spartaco 19 20135 Milan, Italy Fax: (39) 02 55 002 1 databank@databank.it
e-Business W@tch c/o empirica GmbH Oxfordstr. 2, 53111 Bonn, Germany Fax: (49-228) 98530-12 info@ebusiness-watch.org
European Commission Enterprise & Industry DirectorateGeneral Technology for innovation, ICT industries and e-business Fax: (32-2) 2967019 entr-innov-ict-ebiz@ec.europa.eu
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Table of Contents
Executive Summary ................................................................................................... 5 1 Introduction ......................................................................................................... 9 1.1 1.2 2 About e-Business W@tch ................................................................................................ 9 "e-Business" the conceptual framework................................................................... 13
Context and Background................................................................................... 19 2.1 2.2 Sector definition scope of the study.......................................................................... 19 Industry background ...................................................................................................... 20 2.2.1 2.2.2 2.3 Size of the EU food and beverage industry ......................................................... 20 Trends and challenges......................................................................................... 23
Adoption of ICT and e-Business in 2006 ........................................................... 29 3.1 3.2 Use of ICT Networks ....................................................................................................... 29 ICT Skills, Outsourcing and ICT Budgets..................................................................... 33 3.2.1 3.2.2 3.3 Demand for ICT skills and skills development ..................................................... 33 Outsourcing of ICT services and ICT investments............................................... 34
Standards, Interoperability and ICT Security Issues .................................................. 37 3.3.1 3.3.2 3.3.3 3.3.4 Types of e-standards used................................................................................... 38 Use of Open Source Software ............................................................................. 40 Interoperability challenges ................................................................................... 41 ICT security measures ......................................................................................... 42
3.4
Internal and External e-Integration of Processes ........................................................ 44 3.4.1 3.4.2 3.4.3 Use of software systems for internal process integration .................................... 44 Deployment of e-invoicing.................................................................................... 46 Use of ICT for cooperative and collaborative business processes...................... 47
3.5
e-Procurement and Supply Chain Management .......................................................... 49 3.5.1 3.5.2 B2B online trading: companies placing orders online.......................................... 49 e-Integrated supply chains: SCM, financial e-processes and ICT links with suppliers ............................................................................................................... 54
3.6
e-Marketing and Sales .................................................................................................... 56 3.6.1 3.6.2 Companies receiving orders from customers online............................................ 56 e-Integration of marketing processes: CRM and ICT links with customers ......... 59
3.7
3.8
Drivers and Inhibitors for the Uptake of e-Business................................................... 68 3.8.1 3.8.2 Drivers of e-business adoption ............................................................................ 68 Barriers to e-business adoption ........................................................................... 69
3.9 4
Summary.......................................................................................................................... 71
Current e-Business Trends and Implications.................................................... 74 4.1 Internal Process Automation in the F&B industry....................................................... 76 4.1.1 4.1.2 4.1.3 4.1.4 4.2 Introduction .......................................................................................................... 76 State-of-the-art Applications................................................................................. 77 Product Lifecycle Management: a new approach to product development ......... 82 Summary of main points and conclusions ........................................................... 83
Supply Chain Management and Customer Relationship Management..................... 84 4.2.1 Use of SCM .......................................................................................................... 85 Case Study: SCM Optimises Deliveries at Bldina, France ............................................. 88 Case Study: LogisticsXP distribution collaboration........................................................... 97 4.2.2 4.2.3 Use of CRM........................................................................................................ 103 Summary of main points and conclusions ......................................................... 111 Case Study: ICT in support of crm at Godiva Chocolatier Europe ................................. 105
4.3
Mobile Applications ...................................................................................................... 112 4.3.1 4.3.2 Introduction ........................................................................................................ 112 Technologies and applications........................................................................... 112
Case Study: La Bella Easo, Spain .................................................................................. 116 Case Study: Wi-Fi implementation at Pastificio Riscossa .............................................. 121 4.3.3 4.4 Summary of main points and conclusions ......................................................... 126
RFID in the F&B industry ............................................................................................. 126 4.4.1 4.4.2 4.4.3 Introduction ........................................................................................................ 126 RFID: areas of applications and expected benefits ........................................... 127 Summary of main points and conclusions ......................................................... 136
Conclusions ..................................................................................................... 137 5.1 Business impact ........................................................................................................... 137 5.1.1 5.1.2 5.2 Implications for enterprises ................................................................................ 137 Implications for industry structure ...................................................................... 143
References ............................................................................................................. 151 Annex I: The e-Business Survey 2006 Methodology Report .............................. 153 Annex II: Expanded Tables Data by country....................................................... 163 Annex III: Glossary of Technical Terms ................................................................ 168
4
Executive Summary
NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the General Industrial Classification of Economic Activities within the European Communities, known by the acronym NACE and originally published by Eurostat in 1970. 5
There is new evidence that the F&B sector is reducing the gap to other sectors in basic ICT infrastructure which was evident in the e-Business W@tch Survey of 2005. Positive signals can be seen in the remote network implementation data from the e-Business Survey 2006, with figures for F&B markedly above the 10 sectors average. The low importance apparently assigned to training and ICT skills in general within the F&B sector gives cause for concern: only 50% of large companies reported practicing regular ICT training. Outsourcing of ICT processes has grown slightly, particularly in medium-sized enterprises. Standards and interoperability are a hot topic in the F&B sector, due to regulatory impacts (such as traceability) that require improved communication among the different players of the value chain. Presently, the most diffused standard is EDI, notably among the sectors large companies. The use of open source software clearly increases by firm size in this sector, as its lower price is balanced by the need of internal competences to develop and adapt it to the company's requirement Survey data reveal a good diffusion of ERP in F&B industry: ERP appears to be a stepping-stone towards further evolution of e-business, and often includes procedures common to SCM and CRM software solutions. Accounting systems have an even wider diffusion, extending widely within small and micro enterprises. e-Procurement use in the F&B industry still lags behind the 10-sectors average, probably due to the centralisation of purchasing activities in the large companies that dominate this sector. Where present, e-procurement does not seem a driver for systems evolution. SCM, on the other side, shows a remarkable growth, probably due both to regulatory constraints of food safety and traceability, as well as to the competitive advantages linked to a better management of the supply chain. e-Marketing and sales are focused mainly on the distribution chain and are, therefore, usually considered as part of the SCM or ERP systems. CRM systems are used mainly by large companies in a B2B environment, while a more B2Coriented approach is typical of this sectors micro-enterprises and SMEs. Innovation through ICT solutions is mainly perceived as a process innovation, with an interesting accent on customer services and on the creation of customer communities. Meeting customer expectations joins competitive advantage and regulatory constraints as the main drivers of ICT and e-business adoption in this industry. Company size and cost are the main barriers to e-business adoption reported in F&B. Companies that do not practice e-business said that they feel that they are "too small" for doing e-business, and/or that they cannot afford the required technologies. Other barriers (e.g. security concerns, the complexity of technology) are perceived as less relevant.
"Wi-Fi" is short for wireless fidelity, a popular term for a high-frequency wireless local area network (W-LAN). Wi-Fi technology is rapidly gaining acceptance as an alternative or complementary infrastructure to a wired LAN. "RFID" is short for Radio Frequency Identification. RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders. 7
Business impact
The use of ICT and e-business in the F&B industry has its main impact in areas related to production and logistics. As regards marketing and sales, the potential of e-business is not fully exploited for the benefit of manufacturers. Large retailers exert their power in this area and tend to maximise the advantage of their direct control over customers. In general, the powerful ICT systems and e-business solutions of large companies enable more advanced practices, which can yield greater achievements in terms of savings and efficiency. Nevertheless, there are areas traceability being the most important among them where SMEs are adopting ICT and e-business on a relatively large scale, and where a significant impact can already be observed.
Policy implications
At a general level, policies to promote ICT adoption among F&B companies, notably the smaller ones, should aim at improving the development of infrastructure (including skills and standards) and the legal and regulatory environment, as well as at creating a favourable business environment. The analysis of findings from the survey, the case studies and desk research conducted for this report point at the following issues which could be relevant for policy-making: Improve e-skills, especially among SMEs. ICT and e-business are changing the way business is conducted in the F&B industry. There is evidence that many small companies face difficulties in coping with these changes. A lack of e-skills, i.e. a proper understanding of e-business, is one of the reasons.4 Measures in this area could aim at promoting entrepreneurial and managerial understanding of ebusiness applications. Providing more information about e-business in a way which is adequate for small firms could support their decision-making. The development of skills in change management, for example how reorganise work processes with support of e-technologies, could be encouraged. Facilitate F&B compliance with quality and safety criteria. An important application area for ICT in the F&B industry is to ensure compliance with quality and safety regulations. Therefore, firms could be supported by measures such as the provision of relevant information and training in how to use ICT in this field. Promote a favourable environment for innovation. F&B firms need to continuously innovate. e-Business policies aiming at a favourable environment for innovation could include the promotion of value chain co-operation, the sharing of good practices among F&B firms and the participation of SMEs in business networks. Standardisation. Policy measures in the area of standardisation should focus both at the sector and at the cross-sector level. They could include supportive actions to stimulate increased participation of SMEs in standardisation initiatives.
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, page 27. Available at www.ebusiness-watch.org (resources) and case study La Bella Easo in Section 3.3 of this Report. 8
1
1.1
Introduction
About e-Business W@tch
Policy background
The European Commission launched e-Business W@tch in late 2001 to monitor the adoption, development and impact of electronic business practices in different sectors of the economy in the European Union. The initiative is rooted in the eEurope Action Plans of 2002 and 2005. The eEurope 2005 Action Plan defined the goal "to promote take-up of e-business with the aim of increasing the competitiveness of European enterprises and raising productivity and growth through investment in information and communication technologies, human resources (notably e-skills) and new business models".5 e-Business W@tch has been an important instrument for the European Commission to assess the developments and progress in this field. The i2010 policy6, a follow-up to eEurope, also stresses the critical role of ICT for productivity and innovation, stating that " the adoption and skilful application of ICT is one of the largest contributors to productivity and growth throughout the economy, leading to business innovations in key sectors" (p. 6). The Communication anticipates "a new era of e-business solutions", based on integrated ICT systems and tools, which will lead to an increased business use of ICT. However, it also warns that businesses "still face a lack of interoperability, reliability and security", which could hamper the realisation of productivity gains (p. 7). In 2005, in consideration of globalisation and intense international competition, the European Commission launched a new industrial policy7 to create better framework conditions for manufacturing industries in the coming years. Some of the policy strands described have direct links to ICT and e-business developments. One of the new sectorspecific initiatives covered by the policy is the taskforce on information and communication technologies (ICT) competitiveness. The taskforce with stakeholders representatives focuses on identifying and proposing measures to remove obstacles that inhibit ICT take-up among enterprises. Another initiative is to conduct a series of competitiveness studies, to include for ICT, food, and fashion and design industries, in order to analyse trends affecting the competitiveness of these industrial sectors. These policy considerations constitute the background and raison d'tre of e-Business W@tch as an observatory of related issues and a core theme for the analysis. Within this
"eEurope 2005: An information society for all". Communication from the Commission, COM(2002) 263 final, 28 May 2002, chapter 3.1.2 "i2010 A European Information Society for growth and employment." Communication from the Commission, COM(2005) 229 final. "Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing - towards a more integrated approach for Industrial Policy." Communication from the Commission, COM(2005) 474 final, 5.10.2005 9
broader policy context, two further important facets regarding the mission of the initiative are relevant. First, e-Business W@tch studies focus on sectors (and not on countries). Second, special emphasis is placed on developments and implications for small and medium-sized enterprises (SMEs). e-Business W@tch is one of several policy instruments used by DG Enterprise and Industry in the field ICT industries and e-business. Other instruments include the e-Business Support Network (eBSN a European network of e-business policy makers and business support organisations), the eSkills Forum (a task force established in 2003 to assess the demand and supply of ICT and e-business skills and to develop policy recommendations), the ICT Task Force, a group whose work is to draw together and integrate various activities aiming to strengthen Europe's ICT sector, and activities in the areas of ICT standardisation, as part of the general standardisation activities of the Commission.8
The 2006 ICT Standardisation Work Programme complements the Commission's "Action Plan for European Standardisation" of 2005 by dealing more in detail with ICT matters. 10
Methodology
e-Business W@tch combines quantitative and qualitative research elements. The quantitative analysis of ICT and e-business adoption by firms is based to a large extent on representative surveys among decision-makers in European enterprises ("e-Business Survey"). Interviews are conducted by telephone, based on a standardised and computer supported questionnaire (CATI9 method). In total, more than 25,000 enterprises were interviewed in the surveys of 2002, 2003 and 2005. The most recent survey (conducted in April/May 2006) covered more than 14,000 enterprises from 10 sectors in all EU Member States and most EEA and Candidate Countries.10 The e-Business W@tch Surveys have won recognition by the international research community as a useful instrument for piloting new e-business metrics. The experience gained from this piloting is used, for example, by Eurostat for planning and developing their own survey of ICT use by businesses. e-Business W@tch complements the statistical picture by a more detailed presentation of concrete e-business activity in individual enterprises from the sectors covered, mainly in the form of brief case studies. About 75 case studies are conducted in 2006 adding to more than 100 case studies conducted in previous years. Evidence from the survey and case studies is backed up by desk research and interviews with industry representatives and e-business experts.
Computer Assisted Telephone Interviews, a widely used method in representative household or decision-maker surveys. The EEA (European Economic Area) includes, in addition to EU Member States, Iceland, Liechtenstein and Norway. Candidate Countries, which are candidates for accession into the EU, are (as of May 2006) Bulgaria, Croatia, Romania and Turkey. 11
10
The mission of e-Business W@tch is to monitor, analyse and compare the development and impact of e-business in different sectors of the European economy not the sectors themselves. Its objective is to provide reliable results, based on commonly accepted methodologies, which are not readily available from other sources and will trigger the interest of policy-makers, researchers, and other e-business stakeholders for more in depth analyses or statistical surveys. e-Business W@tch has adopted a wide-angle perspective in its approach. The necessary trade-offs are transparently depicted in each of its deliverables.
11
NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the General Industrial Classification of Economic Activities within the European Communities, known by the acronym NACE and originally published by Eurostat in 1970. See website: "selection of sectors" (www.ebusiness-watch.org/about/sector_selection.htm) 12
12
1.2
constant search for opportunities to cut costs. This has probably been the most important promise of electronic business: cutting costs by increasing the efficiency of business processes, internally and between trading partners in the value chain.
Glossary
Definitions by standardisation groups (ISO, ebXML) The term "business transaction" is a key concept underlying the development of e-standards for B2B exchanges. Therefore, definitions have been developed by the various standards communities as an underpinning for their practical work. Examples are: Business: "a series of processes, each having a clearly understood purpose, involving more than one party, realized through the exchange of information and directed towards some mutually agreed upon goal, extending over a period of time [ISO/IEC 14662:2004] Business transaction: "a predefined set of activities and/or processes of parties which is initiated by a party to accomplish an explicitly shared business goal and terminated upon recognition of one of the agreed conclusions by all the involved parties even though some of the recognition may be implicit" [ISO/IEC 14662:2004] e-Business transaction: "a logical unit of business conducted by two or more parties that generates a computable success or failure state [ebXML Glossary]
If transactions are conducted electronically ('e-transactions'), this constitutes eCommerce. Transactions can be broken down into different phases and related business processes, each of which can be relevant for e-Commerce. The pre-sale (or pre-purchase) phase includes the presentation of (or request for) information about the offer, and the negotiation about the price. The sale / purchase phase covers the ordering, invoicing, payment and delivery processes. Finally, the after sale / purchase phase covers all processes after the product or service has been delivered to the buyer, such as after sales customer services (e.g. repair, updates).
14
Exhibit 1-2: Process components of transactions Pre-sale / pre-purchase phase Information about offer Price comparisons Negotiations between seller and buyer Sale / purchase phase Placing an order Invoicing Payment Delivery After sale / purchase phase Customer service Guarantee management Credit administration Handling returns
Practically each step in a transaction can either be pursued electronically (online) or nonelectronically (offline), and all combinations of electronic and non-electronic implementation are possible. It is therefore difficult to decide which components actually have to be conducted online in order to call a transaction (as a whole) electronic. In this context, during 2000 the OECD proposed broad and narrow definitions of electronic commerce both of which are still valid and useful:13 While the narrow definition focuses on 'internet transactions' only, the broad definition defines e-Commerce as "the sale or purchase of goods or services, whether between businesses, house-holds, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. The goods and services are ordered over those networks, but the payment and the ultimate delivery of the goods or service may be conducted on- or offline" (OECD, 2001).
Glossary
Definition of key terms for this study e-Transactions: Commercial exchanges between a company and its suppliers or customers which are conducted electronically. Participants can be other companies ("B2B" business-to-business), consumers ("B2C"), or governments ("B2G"). This includes processes during the presale or pre-purchase phase, the sale or purchase phase, and the aftersale / purchase phase. e-Commerce: Electronic Commerce. The sale or purchase of goods or services, whether between businesses, house-holds, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. (OECD) e-Business: Electronic Business. Automated business processes (both intra- and inter-firm) over computer mediated networks. (OECD) e-Interactions: Electronic Interactions include the full range of e-Transactions, and in addition collaborative business processes (e.g. collaborative design) which are not directly transaction focused.
13
In 1999, the OECD Working Party on Indicators for the Information Society (WPIIS) established an Expert Group on Defining and Measuring Electronic Commerce, in order to compile definitions of electronic commerce which are policy relevant and statistically feasible. By 2000, work of the Group had resulted in definitions for electronic commerce transactions. 15
The addendum regarding payment and delivery is an important part of the definition, but can be debated. The difficult question is which processes along the different transaction phases constitute e-Commerce and which do not (see Exhibit 1-2). The OECD definition excludes the pre-sale or purchase phase and focuses on a specific part of the sale / purchase phase, namely the ordering process. e-Business W@tch follows the OECD position on this issue.14 e-Commerce, defined in this way, is a key component of e-business, but not the only one. In recent years, it has been increasingly acknowledged among policy and research communities that the focus on e-commerce transactions may be too narrow to capture the full implications of e-business. A wider, business process oriented focus has been widely recognised. Reflecting this development, the OECD WPIIS15 proposed a (broader) definition of 'e-business' as "automated business processes (both intra-and inter-firm) over computer mediated networks" (OECD, 2004, p. 6). In addition, the OECD proposed that e-business processes should integrate tasks and extend beyond a stand-alone or individual application. This definition reflects an understanding of e-business that encompasses more than ecommerce transactions. The broad concept of e-business also includes the digitisation of internal business processes, as well as cooperative or collaborative processes between companies which are not necessarily transaction-focused. Collaborative edesign processes between business partners are a typical example from industrial engineering. The OECD definition implicitly indicates that the focus and main objective of electronic business is to be found in business process automation and integration, and the impacts thereof. To bridge the gap between 'e-Commerce' and 'e-Business', it was proposed in earlier years (mainly around 2000) to use the term 'c-Commerce' (collaborative commerce). Although this concept was rather abandoned when the new economy bubble burst, it has some value as it stresses the role of ICT for cooperation among enterprises. If web service and other emerging technologies (e.g. RFID, mobile applications) hold their promise, the digital integration of B2B trading processes could be taken to a new level, possibly with a considerable impact on industry structure. If so, it could be worth revisiting the former 'c-Commerce' concept.
14
This is reflected in the updated wording of the respective survey questions in 2006, when for "placing / accepting online orders" was asked instead for "purchasing / selling online". Working Party on Indicators for the Information Society 16
15
A value chain logically presents the main functional areas ('value activities') of a company and differentiates between primary and support activities. However, these are "not a collection of independent activities but a system of interdependent activities", which are "related by linkages within the value chain" (p. 48). These linkages can lead to competitive advantage through optimisation and coordination. In fact, it is exactly here that ICT have a major impact, as they are a key instrument to optimise linkages and thus increase the efficiency of processes. The value system expands this concept by extending the perspective beyond the single company. The firm's value chain is linked to the value chains of (upstream) suppliers and (downstream) buyers, resulting in a larger set of processes the value system. e-Commerce, i.e. electronic transactions, occurs within this value system.
Exhibit 1-3: Value chain framework of a company by Michael Porter
Support activities
Firm infrastructure Human Resources Management Technology development Procurement Inbound Logistics Operations Outbound Logistics Marketing and sales Service
Primary activities
Source: Adapted from M.E. Porter (1985) simplified presentation
Key dimensions of this framework (notably inbound and outbound logistics, operations, and the value system) are reflected in the Supply Chain Management (SCM) concept. Here, the focus is on optimising the procurement-production-delivery processes, not only between a company and its direct suppliers and customers, but also aiming at a full vertical integration of the entire supply chain (Tier 1, Tier 2, Tier n suppliers). In this concept, each basic supply chain is a chain of sourcing, production, and delivery processes with the respective process interfaces within and between companies.16 The analysis of the digital integration of supply chains in various industries has been an important theme in sectors studies previously prepared by e-Business W@tch.
16
cf. SCOR Supply-Chain Council: Supply-Chain Operations Reference-model. SCOR Version 7.0. Available at www.supply-chain.org (accessed in March 2006). 17
17
See, for example, "An innovation-friendly, modern Europe". Communication from the Commission, COM(2006) 589, 12 October 2006. Cf. Carr, Nicholas (2003). "IT Doesn't Matter". In: Harvard Business Review, May 2003. 18
18
2
2.1
19
NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the General Industrial Classification of Economic Activities within the European Communities, known by the acronym NACE and originally published by Eurostat in 1970. 19
Business activities
The F&B industry presents some unique characteristics, the most important of which are the complex value chain and the heterogeneous nature of the different players (e.g. farmers, input suppliers, manufacturers, packagers, transporters, exporters, wholesalers, retailers and final customers). The need for coordination and synchronization of such different entities is hindered by their different business interests, cultural attitude and size. Generally speaking, production is organised in small batch processes implying a very complex organisation and coordination of different activities. The characteristics of many food products as perishable goods largely affect the way products are managed and delivered along the value chain.
2.2
2.2.1
Industry background
Size of the EU food and beverage industry
In 2004, the EU-25 food and beverage industry as a whole (i.e. the entire NACE Division DA 15) had a turnover of 815 billion euros, transforming over 70% of EUs agricultural raw materials and employing about 3.9 million people, of whom the majority works in SMEs. France, Germany, Italy, the UK and Spain are the largest EU-25 producers with more than 70% of total EU turnover. Among the EU Member States, the leading country by turnover in 2004 was France with 138 billion euros, followed by Germany with 130 billion.
20
Germany was the country with the highest employment in this industry (about 520,000 workers), followed by Spain (430,000) and France (418,500). In total, turnover of F&B companies in the EU increased by 2% in 2004 (compared to 2003), while the workforce decreased by nearly 5% in the same period.
Exhibit 2-2: The F&B industry in the EU-25 2001 Turnover Employees billion million 785 4.4 2002 791 4.2 2003 799 4.1 2004 815 3.9 2004/2003 +2.0% -4.9%
There are about 282,000 companies in this sector. The structure is very diversified, ranging from small enterprises, often family-owned, to major multinationals. About 95.5% of companies are micro and small enterprises.
Exhibit 2-3: Structure profile of the F&B industry according to the size of companies (%) Micro comp. 1 to 9 Turnover Value added Employees Companies 7.3 8.8 16.4 78.9 Small companies 10 to 19 5.1 6.2 9.6 11.0 20 to 49 9.8 8.9 11.1 5.6 Medium companies 50 to 99 9.5 8.3 9.3 2.1 100 to 249 16.8 15.0 15.1 1.5 250 to 499 15.4 13.8 12.1 0.6 Large companies 500 to 999 14.0 14.5 10.8 0.2 1000+ 22.1 24.6 15.9 0.1
Industry structure
SMEs account for about 62% of the workforce employed in the F&B industry and for about 49% of the sector's turnover. This indicates that the productivity is higher among larger enterprises. In fact, labour productivity in micro enterprises, measured by the value added per employee, is only about one third of the productivity in large firms. In 2001, the average productivity was about 40,000 per employee. Despite its numerous small firms, the industry is dominated by a small number of very big players. Exhibit 2-4 lists the leading European companies that operate in F&B industry.
Turnover by sub-sector
The group of other food products (NACE 15.8), which includes bakery, pastry, chocolate, pasta, baby food and confectionery products, is the leading sub-sector within the F&B industry. It accounts for 26% of total turnover and 42% of the workforce. The key branches of this category are bread, fresh pastry goods and cakes (31%) and chocolate and sugar confectionery (18%). Exhibit 2-5 shows the distribution of turnover and value added for some of the sub-sectors, depending on the size of companies.
21
Exhibit 2-4: Ranking of F&B companies by sales, 2004-2005 Name Headquarter CH NL/UK UK FR UK UK NL UK DK DE UK BE UK IT FR IR NL FR NL DE DK ES NL UK IT European F&B sales billion 23.4 17.9 9.9 9.4 8.2 7.3 7.1 5.7 4.8 4.8 4.7 4.7 4.7 4.6 4.6 4.1 4.1 3.8 3.6 3.5 3.4 2.2 2.1 2.1 1.9 Source: CIAA (2005) F&B Employees (in 1000) 95.0 24.5 22.5 25.8 15.2 17.5 12.0 6.7 16.6 16.0 21.7 12.6 12.2 7.1 15.1 9.2 6.7 8.4 10.2 6.5 Main sectors
Nestl Unilever Cadbury Schweppes Danone Associated British Foods Scottish & Newcastle Heineken Diageo Carlsberg Sdzucker Allied Domecq InBev Tate & Lyle Ferrero Bongrain Kerry Group Nutreco Pernod Ricard Campina Oetker-Gruppe Vanisco Ebro Puleva Wessanen Sab Miller Parmalat
multi-product multi-product beverages, confectionery multi-product sugar, starches, prepared foods alcoholic beverages beer alcoholic beverages beer sugar, prepared foods alcoholic beverages beer sweetener, starches confectionery dairy multi-product, ingredients meat alcoholic beverages dairy multi-product ingredients rice, sugar, dairy prepared foods beer dairy, snacks, beverages
Exhibit 2-5: Distribution of the EU-25 turnover value added and employment in the F&B industry, according to the size of companies ( %) Turnover Number of employees Processed fruit and vegetables Oils and fats Dairy products Flour and starch products Animal feed Various food products Beverages F&B industry20 1 to 9 5.0 7.8 3.0 8.5 6.2 12.2 4.9 7.3 10 to 249 46.9 35.1 34.8 52.3 59.3 34.4 36.2 41.2 +250 48.1 57.1 62.2 39.2 34.5 53.4 58.9 51.5 1 to 9 3.5 9.6 3.3 6.3 5.3 14.5 3.0 8.8 Value Added 10 to 249 43.4 35.1 29.4 47.0 54.8 35.8 32.1 38.4 +250 53.1 55.3 67.3 46.7 39.9 49.7 64.9 52.8
20
International trade
Exports outside the EU-25 account for 5.5% of total turnover. The main destination market was USA, followed by Japan and Russia. Beverages and various food products sectors account for 55% of total exports.
Exhibit 2-6: EU-25 key trade figures in the F&B industry ( million) 2002 Export Import Balance 45.0 38.0 7.0 2003 43.5 37.6 5.9 2004 45.1 40.7 4.4 2004/2003 3.7 8.2 -25.4
Although from 2003 to 2004 exports increased by 3.7%, the trade balance shows an overall negative trend over the past three years. In these years, European producers suffered from high oil prices and the rise in value of the euro against other currencies. From 2003 to 2004, EU-25 imports grew by 8.2%, with Brazil, Argentina and USA being the main trading partners.
Exhibit 2-7: Origin and destination of the EU-25 F&B products ( million) Destination Countries USA Japan Russia Switzerland Canada Norway Australia South Korea Algeria Croatia Rest of the world Total M 10.1 3.6 3.5 3.0 1.5 1.3 0.9 0.9 0.6 0.6 19.1 45.1 Origin Countries Brazil Argentina USA China Switzerland New Zealand Turkey Norway Australia Chile Rest of the world Total M 4.7 3.8 3.0 1.7 1.5 1.4 1.4 1.2 1.2 0.9 19.9 40.7
2.2.2
23
In the domestic markets, the competitive scenario of this industry is rapidly changing. Pressure of regulation is getting increasingly stringent, driven by consumers awareness of quality and safety issues, along with the unfortunate occurrence of food safety crises across Europe and world-wide. There is, then, the growth of private label products which menaces the share of major brands. Major manufacturers need to respond to the growth of private labels by increasing product innovation and by increasing their own brand equity. Currently, the main factors that have an important impact on the EU industrial competitiveness and drive e-business technology challenges can be summarised as follows.
24
21
A nutraceutical is any substance that is a food or a part of a food and provides medical or health benefits, including the prevention and treatment of disease. 25
Policy example
"Smileys" - The Danes' guide to shops and restaurants The Danes have introduced "Smileys" as a simple system to help consumers choose where to shop for food or to dine. The Smileys tell consumers how well shops and restaurants comply with the food regulations. The Danish Veterinary and Food Administration (DVFA), which is part of the Ministry of Family and Consumer Affairs, is responsible for the inspections and the resulting award of Smileys. DVFA deals with food safety and health from farm to fork.
The Smiley-scheme, which was launched in 2001, has become highly popular among consumers as well as enterprises, and has proved effective in raising food safety. The Smileys appear at the top of the official food inspection reports that must be displayed visibly near the entrance in all food shops and restaurants. The Smileys are also easily found on the internet. 81% of the consumers say they would reject a restaurant with a bad Smiley. Of the relatively few respondents who have actually encountered a bad Smiley, 56% chose to eat somewhere else. 83% of the enterprises agree that the scheme is 'a good or very good idea'. Source: DVFA (www.uk.foedevarestyrelsen.dk/Forside.htm)
Public Authorities are responding to food safety concerns by imposing tougher legislation. Since January 2005, firms are required to provide one back-one forward traceability and to make information available to the authorities if required. On January 1st 2006, the so called hygiene package came into force. This legislation was adopted in 2004 to set down stricter, clearer and more harmonised rules on the hygiene of foodstuffs, specific hygiene rules for food of animal origin, and specific rules for controls on products of animal origin intended for human consumption. Under the food hygiene legislation, the onus is placed on food operators to ensure that food reaching EU consumers is safe. The operators have to apply compulsory selfchecking programmes and follow the Hazard Analysis and Critical Control Point (HACCP) principles in all sectors of the food industry. Presently, in order to comply with safety requirements, the main challenge for F&B companies is the ability to integrate their information systems with track and trace technologies like RFID.
26
Exhibit 2-8: Overview of competitive trends and related challenges in the F&B industry Competitive trends Changing relations with distribution and price-led competition Development of mega brands and private labels Food safety concerns, regulatory pressure Changing demand patterns Challenges Cost effective supply chain; integration of the supply chain Investments in innovation and rationalisation of the product portfolio Traceability along the value chain Innovation, supplier-retailer cooperation to exploit consumption data, demand forecasting Source: Databank (2006) Relevant e-business applications CRM, SCM, ERP, mobile applications PLM (Product Lifecycle Management), CRM ERP, SCM, RFID CRM
2.3
education conducted within SMEs. Moreover, the successful introduction of ICT applications could involve significant organisational changes. For SMEs it would be quite hard to fill this existing gap alone because usually they had low or non existent ICT budgets. Results also revealed that companies in the sector used e-business mainly to improve their internal processes and procedures, and in particular the efficiency of internal communication. The technologies which were found to be most commonly used by small and large enterprises alike were e-mail, websites and online banking These were followed, at a considerable distance in terms of diffusion, by EDI (Electronic Data Interchange) and ERP (Enterprise Resource Planning) systems (though very few smaller businesses used these). The most advanced technologies, such as CRM, SCM systems, and Knowledge Management solutions were used to a lesser extent and then only by larger enterprises. Conversely, there was some evidence to suggest that even micro and small firms, once they had achieved minimum technological requirements, tended to be quite active in the improvement of internal processes, thus achieving gains in performance and cost savings. This could be explained by the overall sector scenario, shaped by pressure from large suppliers and distribution, legislation, and demand requirements. It was also supported by the increasing availability of software solutions which are adapted to the requirements of SMEs and thus more affordable. In summary, the e-Business Scoreboard 2005 showed that the F&B industry had a relatively good level of development of internal process integration and supply chainrelated activities.
28
3.1
Internet access
Though a direct comparison with the 2005 e-Business W@tch Survey results is not possible (as different industry sub-sectors and countries were involved), there are indications that the use of ICT networks in the F&B industry has increased, reducing the gap with the average of the 10 industry sectors included in the e-Business Survey 2006
22
The survey was conducted in March-April 2006 using computer-assisted telephone interview (CATI) technology. Field-work was co-ordinated by the German branch of Ipsos GmbH (www.ipsos.de) and conducted in co-operation with their local branches and partner organisations. The countries covered include EU Member States, Acceding and Candidate Countries, and countries of the European Economic Area (EEA). The EU-10 cover the Czech Republic, Germany, Spain, France, Italy, Hungary, the Netherlands, Poland, Finland and the UK. 29
23
(EU-10). This improvement could partly be due to the fact that the sub-sectors addressed in the 2006 Survey are more industrially developed and manufacture products with a higher added value than the sub-sectors addressed in 2005. Following a trend, which is common to the other industry sectors analysed, in the F&B industry the use of ICT infrastructure increases in line with company size. The polarised structure of the F&B industry (with a few large, often multinational companies and many small local firms, as underlined in the chapter 2 of this report) is mirrored by the difference between employment weighted data and firm weighted, as for internet and broadband access. The difference is higher than the corresponding value calculated on the weighted average for the 10 sectors covered by the e-Business Survey 2006 (EU-10).
Exhibit 3-1: Internet access and remote access to company network Companies with internet access
Weighting % of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Food & beverages Footwear Pulp & paper ICT manufacturing Consumer electronics Shipbuilding & repair Construction Tourism Telecommunication Hospitals activities
Base (100%) N (for sector, EU-10) Questionnaire reference
95
88 85 91 100 100
72
64 61 62 78 83
n.a.
25 32 18 23 47
35
14 11 20 37 69
95
93 89 98 99 99
76
69 62 75 83 84
43 51 29 33 44 25 28 40 74 80 30 47 53 90 41
35
16 12 22 43 60
88 89 94 99 97 100 90 90 99 98
72 75 80 84 87 87 72 72 88 85
firms using computers 775 A3
64 62 68 79 74 86 64 68 85 78
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
35 17 56 69 51 41 25 38 74 39
firms using computers 775 A5
14 10 21 35 32 27 13 13 46 34
24
Read: "The average share of employees with internet access in a company from the F&B industry is 25%." 30
It is possible to record a noteworthy difference between the figures related to the company internet access (in line with the average) and the significantly low share of individual employees with internet access: a mere 25% compared with an average of 43% in other industries. The main reason of this difference is the prevalence, in the F&B industry, of employees operating in production lines, and thus not needing web access or e-mail, over clerical/office employees, concentrated mainly in the procurement and sales offices. Broadband access in the F&B industry, although on average among the 10 sectors, is slightly lower than the average in other manufacturing industries, while the remote access to company network values are quite on line with the average. The fact that the value of the remote access to company network indicator is higher than the indicator employee with internet access reflects the presence of well-developed -often proprietary- distributed ICT networks in the sales territories. The peculiar sales system of the F&B industry relies on remote access to the company network and may drive25 the implementation of mobile communication systems in the enterprise's ICT networks. Section 4.3 of this report illustrates the advantages brought by the adoption of this kind of technology.
25
as shown in an earlier e-Business W@tch Sector Study on the F&B industry, July 2005, Section 2.1 page 20. Available at www.ebusiness-watch.org ('resources') 31
W-LAN
% of empl. % of firms
Use Voiceover-IP
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
69
31 18 49 89 100
30
9 7 16 30 73
15
19 19 10 10 30
65
29 13 34 59 91
65
46 35 59 84 96
32
16 12 21 37 47
16
13 14 11 13 22
57
26 20 32 57 79
Voice-over-IP
The use of telephony services over internet networks, by means of digitized voice transfer technology, has gained momentum over the past few years. Established, as well as new telecommunication and internet service providers offer new services based on this technology which offers user companies cost saving potentials. These services are commonly referred to as "Voice-over-IP" (VoIP), as they have in common that they use the Internet Protocol (IP) to transfer voice calls. However, there are many ways for VoIP to be implemented. For example, calls can be initiated and terminated via a computer or a VoIP-enabled phone. The provision and take-up of VoIP is being driven by increasing broadband penetration. Private users typically encounter VoIP services as an internet-based peer-to-peer network service (for example Skype or Google Talk). But from the perspective of corporate users, there are more usage scenarios: corporate users can generally follow two paths if they want to benefit from VoIP; they can use either hybrid solutions or pure IP-based networks.26 Interestingly VoIP seems to be, already spreading, in the F&B industry. In 2006, 19% of all companies from the sector (accounting for 15% of employment) said that they used Voice-over-IP services (see Exhibit 3-2). Diffusion increases by size band: one in five medium-sized companies and one in three large firms reported using VoIP, indicating that companies are adopting those technologies which promise visible and immediate cost26
See e-Business W@tch Sector Study on the Telecommunications Industry, 2006. Available at www.ebusiness-watch.org ('resources'). 32
savings without creating organisational or other disruptions. These figures are similar to the average of the 10 sectors studied this year by e-Business W@tch (which indicates slightly higher percentage of companies using this technology). It can be expected that usage will increase fast over the next few years; eventually, as a common scenario depicts, all fixed network voice telephony might be converted to internet protocol. Then "Voice-over-IP" as the standard technology for telephony will no longer be the issue it is today.
3.2
3.2.1
Exhibit 3-3: Demand for ICT skills and skills development Companies with hard-to-fill vacancies for ICT jobs in 2005
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
26
11 5 11 24 70
26
14 10 16 22 50
0 0 1 1 1
16
9 7 10 21 35
27
14 12 15 29 59
22
13 9 16 28 41
1 2 0 2 6
21
11 12 11 19 35
In summary, these data confirm that differences between large and smaller enterprises apply also in their approaches to ICT skills and training, and this is not surprising. The common attitude across the sector is the overall poor concern about the importance of training (only 50% of large companies ensure regular ICT training) and about ICT skills in general.
3.2.2
Outsourcing
Firms were asked whether, in 2005, they had outsourced any of their ICT services which had previously been conducted in-house to external service providers. In the F&B industry, this is the case for about 12% of companies. This percentage increases by firmsize (see Exhibit 3-4): about one in three large companies have outsourced additional ICT services in 2005. The overall trend appears to be that more services will be outsourced in the future. Asked whether outsourcing would increase, decrease or remain the same in 2006/07 (compared to 2005), 31% of companies from the F&B industry said that they anticipate an increase, and only very few companies replied that outsourcing would rather decrease (see Exhibit 3-5).
34
By and large, the investment capability in this sector is in line with the average of all 10 sectors studied this year by e-Business W@tch. The large majority of large and mediumsized companies reported investments in ICT. Moreover, even micro firms seem quite active in this domain (see Exhibit 3-4).
Exhibit 3-4: Outsourcing and spending on ICT Have Share of ICT outsourced ICT budget as % of services in total costs 2005
Weighting % of empl. % of firms % of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
24
12 7 14 22 33
4 3 4 5 4
65
44 37 53 76 90
19
14 8 21 21 31
5 5 5 6 6
65
50 39 60 78 86
19
Base (100%)
N (for sector, EU-10) 775 507 Questionnaire reference B6 C1 * Data only indicative due to low number of observations (N ~ 25-50).
Exhibit 3-5: Outsourcing trend: percentage of companies that have increased / decreased their outsourcing activities in 2005
-4 -1 -3
11
16
21
26
31 31
Base (100%): Companies that have outsourced ICT services. N (for sector, EU-10) = 104. Weighting: in % of firms. Questionnaire reference: B7 Source: e-Business W@tch (Survey 2006)
35
Bank loans
% of empl. % of firms
Venture capital
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
77
90 91 89 71 85
5 7 4 8 4
0 1 0 0 0
0 0 1 3 1
74
82 82 81 70 67
7 8 6 8 2
1 1 1 1 1
7 2 2 2 8
449 C4
449 C4
About a quarter of all firms from the F&B industry said that they plan to further increase their ICT budgets in 2006/07. 8% said that they will cut down on their budgets (see Exhibit 3-7) compared to the current budget. Thus, a majority say that they will maintain the current level of spending. Interestingly, medium-sized companies seem to be the most active in planning further ICT investments.
27
Ideally, a question about the breakdown of investments into the different financing sources would be asked; however, only few interviewees would be in a position to spontaneously answer this question on the telephone; furthermore, such a question would be extremely timeconsuming. Thus, the only feasible solution was to ask for the major source. 36
Overall, present and planned investment in ICT positions the F&B industry in line with the average of all sectors. Within this general trend, the effort of medium-sized firms seems to be particularly interesting. As for planned investments, this group is apparently the most promising. It can be argued that pressure from business partners and the increasing request for traceability and quality control are driving these companies towards ICT investments.
Exhibit 3-7: ICT budget trend: percentage of companies that plan to increase / decrease their ICT budgets in 2006/07
-15 Total Food (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
-10 -8
-5
10
15
20 23
25
30
-5 -6 -9 -12
11 20 28 25
Base (100%): Companies using computers (excl. "don't know"). N (for sector, EU-10) = 745 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: C2 Source: e-Business W@tch (Survey 2006)
3.3
28
Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998: the Directive lays down a procedure for the provision of information in the field of technical standards. Official Journal of the European Communities 21/7/1998. 37
3.3.1
XML-based standards
% of empl. % of firms
Proprietary standards
% of empl. % of firms
Other standards
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
31
6 5 11 30 67
4 5 2 10 11
20
11 10 11 20 37
3 1 3 2 12
3 2 4 10 29
11
5 6 5 10 27
19
12 10 13 24 31
38
20
40 63 71 Standard EDI
60
80 28 26
100
Internet EDI
Both
Base (100%): Companies using EDI. N (for sector, EU-10) = 132. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Questionnaire reference: G3 Source: e-Business W@tch (Survey 2006)
In order to understand the potential of XML, it is worth bearing in mind that XML is only a standard to describe the contents of a page or file. It does not guarantee consistent, comparable, shared semantic understanding. XML is a way to create common information formats and share both the format and the data on the World Wide Web, intranets, and elsewhere. XML can be used to share information in a consistent way. XML is an open standard, web enabled, protocol, network and platform independent; language independence fosters immense interoperability amongst heterogeneous systems. Not surprisingly, therefore, it has raised large interest and has gained software makers' interest as the language of choice for internet-based data exchange. However, being a meta-language, i.e. a language used to create other specialized languages, XML provides a common foundation but it requires an effort for the definition of specific terms to be used at industry and cross-industry level. The adoption of XML is generally related to web-based applications, such as eprocurement, and is generally present when e-business on the web (e-commerce) is addressed. This explains the relatively high diffusion of XML in medium and large companies, with wide distribution networks and large customer bases. The great flexibility of XML-based software and its independency from platforms, which makes it relatively immune to changes in technology, is a good fit to some characteristics of the F&B industry, such as the high variety of products and the necessity of adaptation to different distribution networks. This factor could justify the relatively higher percentage of F&B industries that declared their intention to shift from EDI to XML based standards: 7%, compared to a mere 3% in the average of all 10 sectors (Exhibit 3-10).
39
Exhibit 3-10: Companies planning to migrate from EDI to XML based standards
20
40 93 97
60
80
100
No migration plans
Base (100%): Companies using EDI. N (for sector, EU-10) = 127. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Questionnaire reference: G4 Source: e-Business W@tch (Survey 2006)
3.3.2
The findings from the survey confirm the general perception that OSS requires skilled ICT professionals and is therefore limited to large companies or companies that favour IT solutions. The lower price of open-source software is balanced by the need of internal competences to develop and adapt it to the company's requirement.
Exhibit 3-11: Companies using Open Source (OS) Software
60 50 40 30 51 50 20 10 0 Total Food (EU-10) Micro (1-9 Small (10-49 Medium (50- Large (250+ empl.) empl.) 249 empl.) empl.) All 10 sectors (EU10) 19 18 20 4 6 6 19 24 36 12 10 14 14 21 18 22
OS Operating Systems
OS Databases
OS Brow sers
Base (100%): Companies using computers. N (for sector, EU-10) = 775. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: G8 Source: e-Business W@tch (Survey 2006)
3.3.3
Interoperability challenges
Interoperability refers to the "ability of two or more systems to exchange data, and to mutually use the information that has been exchanged."29 e-Business W@tch asked companies whether they regard interoperability as critical for conducting e-business with companies from their own sector, from other sectors, and for producing their products or services. Results are fairly consistent with those obtained from the same question in 2005. e-Business W@tch also asked companies whether they experience any difficulties stemming from a lack of interoperability. According to the replies, interoperability in the F&B industry appears to be an important issue for critical activities such as invoicing and payments, which were identified more frequently in this sector than on average across all sectors studied this year by the e-Business W@tch. An even more interesting application of interoperability is in traceability software, which requires a strong interoperability
29
Definition by IEEE and ISO, cf. e-Business W@tch Special Study on e-Business Interoperability and Standards, September 2005, p. 14. Available at www.ebusiness-watch.org ('resources'). 41
among the various players in the supply chain. Regulatory aspects are also an area where the percentage of F&B industries which is significantly higher than the average reported problems (Exhibit 3-12). The relatively low percentage of F&B industries that reported problems due to lack of interoperability in the procurement area is probably due to the relatively low interest for eprocurement in the F&B sector.
Exhibit 3-12: Problems due to a lack of interoperability: firms experiencing difficulties in
Base (100%): Firms that say that interoperability is critical for their e-business. N (for sector, EU-10) = 289. Weighting: in % of firms. Questionnaire reference: G6 Source: e-Business W@tch (Survey 2006)
3.3.4
30
See e-Business W@tch Special Study on ICT Security, e-Invoicing and e-Payment Activities in European Enterprises, September 2005. Available at www.ebusiness-watch.org ('resources'). http://searchsecurity.techtarget.com 42
31
Security (TLS32). TLS is a protocol that ensures privacy between communicating applications and their users on the Internet. When a server and client communicate, TLS ensures that no third party may eavesdrop or tamper with any message. Secure server technology is normally closely linked with e-commerce activity. In the F&B industry, the relatively restricted use of e-business and e-commerce limits the necessity for ICT security systems mainly to the medium and large companies that intensively use e-business: the figures regarding this issue (Exhibit 3-13) appear to be in line with or slightly lower than the 10-sectors average. In fact, deployment figures correspond in all size-bands very closely to the percentage of firms that say that they receive online orders from customers/distributors.
Exhibit 3-13: Use ICT security measures used by enterprises Secure Server Technology
Weighting % of empl. % of firms
Firewall
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
34
18 10 29 36 62
26
15 8 21 30 45
72
51 43 66 76 95
36
20 16 23 36 64
21
15 13 17 25 39
78
62 56 73 84 94
32 33
ibidem To this end, in 1999, the European Union issued the Electronic Signature Directive. 43
The higher percentage of employees using digital signature or public key infrastructure systems in the F&B industry, than on average across the 10 sectors studied this year should be mainly attributed to the presence of large multinational companies in the F&B sector. Firewalls as a basic security measure are widely used by small, medium and large companies in the F&B industry, while micro firms still lay under the average: In fact, only 43% of micro companies use firewalls, while 85% are connected to the Internet. Thus about half of the micro companies, but also about a third of the sectors SMEs, seems to be exposed to possible intrusion.
3.4
3.4.1
enabled tracking and tracing systems and wireless technologies, and help companies managing challenges presented by multiple selling channels, rapidly changing customer needs, product diversity and innovation and global product availability. As ERP systems link business processes electronically across different business functions, they are helping to improve efficiency in operating those processes. They can, thus, be crucial in the F&B sector, where margins are relatively low when compared to other manufacturing sectors. In addition, ERP systems can play an important role in supporting the connectivity between enterprises required by regulatory aspects such as food hygiene and traceability. Therefore, the share of F&B companies adopting ERP systems (17% of small companies up to 66% of large ones, as shown in Exhibit 3-14), should not be regarded as surprising in comparison to a 10-sector average of 11%. Accounting software that can include einvoicing options (see Section 3.4.2) is well adopted even in micro F&B enterprises, where often it substitutes to some extent the functionality which ERP software has in larger firms, although on a much simpler level and with a lower potential for automating order related document flows.
Exhibit 3-14: Use of ICT systems for internal process integration Accounting software
% of empl. % of firms
Intranet
Weighting % of empl. % of firms
ERP system
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
40
16 11 19 46 72
75
58 54 71 90 93
32
10 4 17 33 66
17
11 6 13 13 37
42
23 19 28 43 76
70
57 50 70 85 88
19
11 7 16 25 45
19
13 11 13 19 42
According to the e-Business Survey 2006 results, the adoption of accounting software (other than just spreadsheet calculation programmes, such as MS Excel) goes from the 54% of micro firms to 93% of large companies (out of those that do not use an ERP system) one of the larger adoption percentages in the survey.
45
Special software systems for document management are rarely used in the F&B industry, as in most of the other sectors in 2006. These software systems are typically used to archive and manage documents of any type in digital format; this is highly relevant for example in the insurance industry (management of insurance policies), but not so much in this industry. An exception should be made for large companies that have to manage a larger number of documents related to recipes and ingredients.
3.4.2
Deployment of e-invoicing
Electronic invoicing (e-invoicing) is a business-to-business transaction in which invoices are issued and paid electronically, replacing traditional paper-based invoicing processes. Most e-invoicing solutions involve four key components: delivering an invoice from the supplier to the payer using a Web browser interface that allows the payer to review online; handling billing disputes online; electronic payment through both the payer's and supplier's financial institution; and integration with applications such as accounts payable, accounts receivable and an enterprise's ERP system. In the e-Business Survey 2006, special attention was paid to the issue of e-invoicing. It is widely recognised that the use of e-invoicing promises relatively easy-to-achieve cost savings for both parties involved (invoicing entity and receiving entity), because processing invoices in a standardised, electronic format can be accomplished much faster compared to the often cumbersome handling of printed invoices. The cost saving potential obviously depends on the number of invoices that have to be processed; companies and sectors differ widely in this respect.
Exhibit 3-15: Adoption of e-invoicing
60 50 40 30 20 10 0 Total Food (EU-10) Micro (1-9 Small (10-49 Medium (50- Large (250+ empl.) empl.) 249 empl.) empl.) All 10 sectors (EU10) Receive e-invoices 20 25 25 14 8 11 12 11 15 17 22 24 45 36 18 19 22
54
Base (100%): Companies with internet access. N (for sector, EU-10) = 722. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: D5 Source: e-Business W@tch (Survey 2006) 46
Increasingly, e-invoicing is being discovered as an effective way to reduce operating costs and improve treasury management. The shift from costly EDI-based systems to internet-based e-invoicing is helping the diffusion of this e-business practice. The presence of large distribution networks (organised distribution) as business customers in the F&B supply chain explains why the adoption of e-invoicing in this industry is above the all 10 sectors average (Exhibit 3-15). In fact more than half of the sectors large companies (the main suppliers of organised distribution) reported receiving e-invoices. When looking at those companies that actually use e-invoicing, however, the average share of e-invoices (measured as % of a company's total invoices sent or received) is slightly lower than the average figure for the total of the 10 sectors studied this year by the e-Business W@tch. On average, users report that about 10% of invoices are sent (11%) or received (9%) as an e-invoice (see Exhibit 3-16). It is also interesting to note that even if the amount of e-invoices sent is lower than on average (11% compared to 19%), the difference of turnover corresponding to e-invoices is smaller (14% compared to 17%). This shows that e-invoices is used for the fewer clients which account for a higher share of turnover presumably, the large organised distribution firms.
Exhibit 3-16: Share of e-invoices as % of total invoices
5 11 9 14
10
15
20
25
19 15 17
Base (100%): Companies sending/receiving e-invoices (without "don't know"). Read: "On average, firms that use e-invoicing say they send 11% of their invoices electronically." N (for sector, EU-10) = 153/111/133. Questionnaire reference: D6, D7, D8 Source: e-Business W@tch (Survey 2006)
3.4.3
34
"Cooperation" means splitting a common, centrally managed task into sub-tasks which are performed by different partners of the cooperation. "Collaboration" means that several partners work together on the same task at the same time. 47
As for most manufacturing sectors, the survey results show that adoption of collaborative design processes and collaborative forecasting on demand is well above the average for medium and large companies. Apparently by necessity, size, drives the adoption of such systems in order to achieve better efficiency and a reduced time-to-market. For similar reasons, and due to the peculiarities of the F&B sector (the only one dealing with perishable items in the 10 sectors considered in the e-Business Survey 2006), online management of capacity and inventory is on or above the average also for small and micro companies.
Exhibit 3-17: Online cooperation and collaboration within the value system Share documents in collaborative work space
Weighting % of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
28
10 8 14 26 62
24
11 11 9 21 61
15
6 4 7 12 27
23
10 6 14 22 49
27
14 10 19 31 47
22
10 8 14 21 41
15
7 5 8 13 25
20
11 10 13 19 41
In summary, data about internal and external integration highlight a good diffusion of ERP in F&B industry: ERP appears to be an important step towards further evolution of ebusiness, and often includes procedures common to SCM and CRM software solutions. Accounting systems have an even wider diffusion, extended to small and micro enterprises. Moreover, the pressure of organised distribution keeps the adoption of e-invoicing in the F&B sector above the 10-sectors average: e-invoices are used for the fewer clients that account for the highest share of turnover.
48
3.5
3.5.1
35
Exhibit 3-18: Companies ordering supply goods online Place orders online
Weighting % of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
54
39 32 54 58 70
86
91 94 90 77 95
14
9 6 10 23 5
14
5 2 7 16 41
57
48 44 54 60 68
74
75 73 80 76 75
26
25 27 20 24 25
16
9 7 10 16 29
Indeed, for large and medium F&B firms, the percentage of companies which reported online purchasing reaches 70% and 58% respectively, whereas if the sectors micro enterprises are considered (with 9 employees or less), this percentage is 32%. Although a direct comparison with the 2005 survey data is not possible36, a dynamic trend even among the industrys smaller companies can be recorded. More than 90% of micro and small companies that place orders online said that these orders account for up to 25% of their total procurement (see Exhibit 3-18). In other sectors, such as ICT manufacturing, consumer electronics, shipbuilding and tourism, the relative share of e-procurement is somewhat higher. In the F&B industry, only about 5% of firms (representing about 14% of this sectors employment) reported the use of software solutions or internet-based services for eprocurement (see Exhibit 3-18). This shows that there is a considerable gap between the percentage of companies placing at least some orders online and those that use special software for so doing. It can be assumed that companies without such software place orders mainly through websites or extranets of suppliers, which do not require any special e-procurement system. The digital back-office integration of procurement related processes (all the way from ordering to the receipt of goods / services) is probably not in advanced state in these cases. In other cases, especially among larger firms, it may
36
Note that the underlying question in the e-Business Survey 2006 was changed compared to previous years. In 2006, companies where asked whether they "use the internet or other computer-mediated networks to place orders for goods or services online". In previous surveys, the question was whether they "use the internet or other computer-mediated networks to purchase goods or services online". Thus, a direct comparison of figures is not recommended. 50
happen that large companies use integrated applications (ERP, SCM) rather than specific solutions for e-procurement only.
Exhibit 3-19: Sourcing and procurement processes supported by specific ICT solutions
100 80 60 40 20 0 78 75 5 7
63
67
58
52
Ordering goods/services
Base (100%): Companies using specific ICT solutions for e-procurement. N (for sector, EU-10) = 71. Weighting: in % of firms. Questionnaire reference: E8 Source: e-Business W@tch (Survey 2006)
Those companies which have procurement systems in place tend to use them for several functions, mainly for finding suppliers in the market (78%), invite suppliers to quote prices (67%) and for placing orders (52%). These findings, however, should be cautiously read due to the small number of observations.
Location of suppliers
Most F&B companies report that they order online mainly from suppliers in their own country and to a lower extent, in their own region. Even among large companies, only 20% say that their procurement activities are truly international, i.e. they buy goods or services online mainly from international suppliers. The national/regional focus of procurement activities demonstrates that e-business development has not eliminated barriers to international purchasing, such as transport costs and delivery times. Differences in taxation, accounting and the strict regulation about food are also constraints to the geographical enlargement of procurement activities. Moreover, in the F&B sector, multinational groups may leave a high degree of local autonomy to their national branches both for cost reasons and because it is still important to fulfil local requirements in terms of range of products and taste. Conversely, the low percentage of companies buying electronically at local level may be attributed to the difficulty in finding suitable suppliers (packing firms, particularly the medium and large ones, are not often located in raw material production zones (while smaller companies keep closer links with their local partners). In some cases, raw materials may be purchased from other regions for cost reasons and/or because the local production is not sufficient.
51
0 Total Food & beverages (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) 17 21 20 16
20
40 69 73
60
80 12 11
100
34 74 60
54
12 8 20
24 Mainly regional
12
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 374 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E5 Source: e-Business W@tch (Survey 2006)
52
21 Raw materials
22
14
Intermediary products
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 381 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E4 Source: e-Business W@tch (Survey 2006)
As in previous years, e-Business W@tch asked companies which purchase online whether this has had an impact on the selection of suppliers, i.e. whether the number of suppliers has rather increased, decreased or remained the same due to their eprocurement strategy. A majority of companies from the F&B industry, as in most sectors, reported that e-procurement did not have an effect on the number of suppliers (about 80%). 15% said that the number has increased, probably because e-sourcing has helped to find new suppliers in the market. Only about 5% of firms said that they have consolidated their supplier base by means of e-procurement.
Exhibit 3-22: Impact of e-sourcing and e-procurement on the number of suppliers
0 Food & beverages (EU-10) All 10 sectors (EU-10) 15 26 Increased 20 40 81 68 Stayed the same Decreased 60 80 100 5 5
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 364 Weighting: in % of firms. Questionnaire reference: E9 Source: e-Business W@tch (Survey 2006)
The apparently low impact of e-procurement on the number of suppliers is in line with the typically low volume of orders that are placed online. About 90% of those firms that place orders for supplies online said that these orders constitute "up to 25% of their total
53
orders" (see Exhibit 3-18). Moreover, suppliers of raw materials are numerous and fragmented in the F&B industry; thus, a concentration of suppliers is quite unlikely in this sector.
3.5.2
e-Integrated supply chains: SCM, financial e-processes and ICT links with suppliers
According to the survey results the implementation of SCM solutions in the F&B sector is on average higher than in the other sectors studied this year by the e-Business W@tch. With the exception of ICT manufacturing, no other sector shows such a high degree of integration between firms along the supply chain. This trend has been driven by competitive pressures and industrial regulations. As illustrated in Section 4.2, the increasing integration at supply chain level has been fostered by the relatively high degree of integration of internal processes, expressed by the indicator of ERP diffusion, that this industry has showed in the past years (see also the results of the 2005 eBusiness Survey). The attitude towards supply chain integration is remarkable across all size bands and widely increases among large firms.
Exhibit 3-23: Supply chain integration: use of SCM and ICT links with suppliers
40 30 50 20 10 0 Total Food & Micro (1-9 Small (10-49 Medium (50- Large (250+ beverages empl.) empl.) 249 empl.) empl.) (EU-10) Use SCM ICT system linked w ith suppliers All 10 sectors (EU10) 21 14 19 5 15 33 11 1 11 16 12
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: D1f, F13a Source: e-Business W@tch (Survey 2006)
e-Business W@tch also asked companies whether their ICT system was linked to that of suppliers. Interestingly, fewer firms report ICT links with suppliers compared to the share of firms with an SCM system (see Exhibit 3-23). This is apparently in contradiction to the idea of SCM where some form of linking a companys ICT with that of its suppliers can be regarded as a prerequisite. The most plausible explanation might be that SCM systems include modules that allow the exchange of data without requiring a link between different Information Systems.
54
0 Total Food & beverages (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
20 42 55 44 37 34
40 21
60 4 6 5 11 18 4 8 45
80 32 34 41 37 0 20
100
32 Internally automated
22
40 No international trade
Externally automated
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 362 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E6 Source: e-Business W@tch (Survey 2006)
In summary, the use of e-procurement by companies in the F&B industry still lags behind in comparison to the EU-10 average of the 10 sectors studied this year by the eBusiness W@tch. This should be probably attributed to the centralisation of purchasing activities in the large companies that dominate the sector. Moreover, e-procurement does not seem a driver for innovation and does not affect the number of selected suppliers. The most remarkable result of the 2006 Survey for the F&B industry is the growth of SCM across all size bands. Such a trend may be attributed both to regulatory constraints of food safety and traceability and to the competitive advantages sought from better managing the supply chain.
55
3.6
3.6.1
56
specified whether these ICT solutions include the e-sales systems used by the company's sales agents, or refer directly to B2B customers.
Exhibit 3-25: Companies receiving orders from customers online Accept orders from customers online
Weighting % of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
31
19 13 26 40 41
82
87 95 89 90 83
18
13 5 11 10 17
14
4 1 9 14 51
35
25 23 26 29 26
73
75 79 76 75 74
27
25 21 24 25 26
18
9 6 12 16 27
Those companies with specific sales systems in place tend to use them mainly for publishing offers to customers (61%) and for receiving orders from customers (57%). Answering calls for tenders is less common (about 39%), and e-sales auctions are minimal (Exhibit 3-26).
Exhibit 3-26: Marketing and sales processes supported by specific ICT solutions
100 80 60 40 20 0
61
78 39
60
19
57
66 37 34
Base (100%): Companies using specific ICT solutions for marketing / sales. N (for sector, EU-10) = 81. Weighting: in % of firms. Questionnaire reference: F11 Source: e-Business W@tch (Survey 2006)
57
The only activity in which the F&B industries appear to be slightly above the 10 sectors average is receiving online payments from customers (37% vs. 34% average) a finding that supports the data on e-invoicing described in Section 3.4.2. Theoretically, e-marketing and sales should have lessened the disadvantage that small businesses have faced for years when competing with larger businesses. Nevertheless, the results of the e-Business Survey 2006 show that the F&B sector is still below the average in this type of e-activity and, although companies may recognise the potential of ICT for marketing and sales, the migration towards web-based sales activities has not yet really taken place.
20 38
40
60 48 47
80 14 23
100
Mainly regional
Mainly national
Mainly international
Base (100%): Companies accepting orders online (without "don't know"). N (for sector, EU-10) = 210. Weighting: in % of firms. Questionnaire reference: F7 Source: e-Business W@tch (Survey 2006)
Data illustrated in Exhibit 3-28 support the previous assumption about the prevalence of B2B transactions in the F&B sector. As expected, much of the e-commerce activity in the F&B industry is either focused on B2B or is mixed. About half of those companies that accept online orders said that these are mainly from other companies (distributors, retailers, wholesalers). However, about a third said that orders are mainly from consumers, which indicates that these manufacturers have a different business model in terms of sales channels, i.e. they sell their products directly to customers rather than going through wholesale and retail intermediaries. The breakdown of these data by size band (not shown in Exhibit) highlights that micro and small companies (most likely premium brand ones) are the most active in the B2C online sales activities: 32% of micro
58
firms and 27% of small firms, compared to 18% of large firms, reported that their online selling activity is mainly addressed directly to consumers.
Exhibit 3-28: Main type of customers that order online (B2B / B2C / B2G)
0 Total Food (EU-10) All 10 sectors (EU-10) 18 20 49 39 Mainly consumers (B2C) 6 40 60 33 80 1 37 Mixed 17 100
Base (100%): Companies accepting orders online (without "don't know"). N (for sector, EU-10) = 209. Weighting: in % of firms. Questionnaire reference: F8 Source: e-Business W@tch (Survey 2006)
3.6.2
base does not justify the implementation of a complex system. An excel spreadsheet recording all the relevant information about customers may be sufficiently for their marketing strategy. CRM software suites are quite expensive and require a lot of organisational preparatory work to be effectively introduced in a company; these, as said above, could be reasons that hinder adoption among smaller firms. In other industries CRM is more widely diffused, at least among the larger companies. Examples for comparison are ICT manufacturing (31%), consumer electronics (25%), and the pulp and paper industry (22%). In some service sectors, CRM is a key application for many of the larger companies, for example in telecommunications (48%) and in the tourism industry (23%).
Exhibit 3-29: Use of CRM and integration of ICT systems with customers
40 30 20 10 0 Total Food (EU-10) 14 17 3 3 4 16 17 39
10
Micro (1-9 Small (10-49 Medium (50- Large (250+ empl.) empl.) 249 empl.) empl.)
Use CRM
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: F2, F13b Source: e-Business W@tch (Survey 2006)
e-Business W@tch also asked companies whether their ICT system is linked to that of customers. In the F&B sector, the high number of B2B transactions raises the percentage of companies reporting that they have integrated their ICT systems with those of their customers to well above the 10 sectors average (17% vs. 10%, respectively - see Exhibit 3-29). This finding brings again to the fore the importance of standardisation in this sector, as these links are often part of an integrated e-commerce scheme between companies, e.g. via dedicated EDI connections. This applies mostly to small companies: while only 4% of these use CRM systems, 10% of their ICT systems are integrated with customers. Overall, e-marketing and sales are focused mainly on the distribution chain and, therefore, usually considered as part of the SCM or ERP systems. CRM systems are used mainly by large companies in a B2B environment, while a more B2C-oriented approach is typical of micro-enterprises and SMEs.
60
3.7
37
See e-Business W@tch Sector Study on the F&B Industry, July 2005, Section 2.4 page 39. Available at www.ebusiness-watch.org ('resources') See case study Aartisderne available at http://www.ebusiness-watch.org/resources/food/food_casestudies.htm See also the e-Business W@tch special report on the role of new companies in e-business innovation and diffusion (Nov. 2006), available at www.ebusiness-watch.org ('resources')." 61
38
39
What is hard to explain, instead, is the comparatively higher percentage of micro and small enterprises, as one out of four of those that have launched new products in 2005states to have relied on ICT for product innovation.
Exhibit 3-30: ICT and Innovation activity Companies with new product innovation in 2005
Weighting % of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%) N (for sector, EU-10) Questionnaire reference
50
33 28 36 50 80
15
26 23 25 16 7
42
24 17 32 42 67
62
47 29 57 60 83
32
24 22 25 33 48
50
45 41 42 45 49
32
20 16 25 38 53
75
63 69 57 71 81
Exhibit 3-31: The role of ICT for product and process innovation Food & bev. (EU-10)
50 40 30 20 10 0 8 11 24 13
Firms w ith Firms w ith process product/service innovation in past 12 innovation in past 12 months months
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: in % of firms. Questionnaire reference: I1 I4 Source: e-Business W@tch (Survey 2006)
62
In contrast, the importance of ICT is very pronounced for process innovation, also in the F&B industry. In total, about a quarter of F&B companies (representing 42% of this sectors employment) reported having introduced new processes in 2005. Except for micro-enterprises, most of those companies confirmed that these innovations were critically linked to ICT. Data across size bands and the comparison between employment-based data and firmweighted data clearly indicate that large companies account for the highest share of ICTenabled process innovation. Manufacturing and logistics processes in F&B are getting more and more sophisticated. These processes require a strong ICT component for monitoring, controlling and integrating the various activities carried out. The need for traceability along the whole supply chain accounts for the highly relevant role of ICT (this holds true even among small firms). Investments of smaller companies, on the other hand, seem to be still more focussed on traditional production processes. The following case study on Chocpix (UK) is an example of ICT-enabled innovation in the production of chocolate. Chocpix is using an ICT-based technology (CAD/CAM40, which is not particularly common in the F&B industry, but it is widespread in other manufacturing sectors) in an innovative way. The company radically innovated a traditional production process, adopting a customeroriented approach: they ask customers what they want and deliver according to their expectations. Chocpix have established a business model in which they are retaining the mould creation and packaging expertise in-house, and under strong patent protection. Connectivity is used with partners and clients to exchange images which are used to personalise product and packaging; this allows Chocpix to meet the client expectations. Their product and business model, based on licensing, enables them to completely knit into existing chocolate manufacturing and distribution chains.
40
CAD/CAM (Computer-Aided Design/Computer-Aided Manufacturing) is software used to design products. It is typically used in manufacturing industries, such as electronics. 63
64
e-Business activities
Chocpix is a design and production company that uses the latest proven CAD/CAM technology and injection moulding equipment to produce novelty chocolate confectionery moulds and rapid prototype packaging. The novelty feature is a hidden detailed picture revealed by simply holding the chocolate up to any bright light. The company creates the moulds and packaging for the final product, while they rely on outsourced local chocolate manufacturing companies to enable them to operate without warehouses and storage as they effectively gear up for massive order quantities. The method of forming the novelty chocolate consists of first capturing the desired image into computer memory, dividing the image into a number of elements and determining an intensity value for each. By storing these values in memory it is possible to normalise or vary them for different materials, enlarge or reduce the image, or edit the image and then create a mould, for example by injection moulding equipment. This allows the production of large volumes of product at a relatively low cost. The mould can be made from different materials (e.g. metal, rubber or polythene). Several moulds can be formed in a solid block to allow a large number of products to be moulded simultaneously. Alternatively, the stored relative intensities can be used to form a die, punch or stamp.
Impact
The main value proposition is that Chocpix is able at this stage to genuinely ask the prospective customer what do you want and then deliver exactly to specifications in a surprisingly short time and in low volume quantities and still make a profit. This ability to delight the customer is the ultimate product and service holy-grail capability. There are no significant constraints. All is in place to understand the customer brief, provide complete replica prototypes and packaging for point of sale within 24 hours. The customer can then immediately see what (s)he will get in reality. This does not typically happen too often in any personalised manufacturing sector! The potential market is huge and already well defined: over 3 billion (4.4bn euros) annually is spent worldwide in the gift and seasonal confectionery sector alone. Based on the public reception and the judgement of peers in the confectionery business, the product has winner written all over it. At its very first major public launch, it won outright the award for best British innovation among 1,500 trade stands at the worlds leading chocolate exhibition (ISM, Cologne 2004). As Frank Lia, Chocpixs Managing Director, succinctly states Ive launched 50 or 60 products for other companies and have always said that if I found a new product that genuinely met all of the criteria that I have tried to apply over 23 years of working with new products, I would put my money where my mouth is so here I am!
65
Funding
Obtaining sufficient investment to get to production mode while covering the substantial initial set-up costs is not an easy matter for any high-technology small enterprise startup41. The high costs in the start-up phase were met by founder investments and some very welcome and timely funding grants from organisations chartered to support innovative businesses in the North East of England. In addition the product was promoted and investment funding sought via the BBC Dragons Den. This latter foray proved to be a disappointing experience overall, primarily it is felt because the sound-bite nature and public game show format of the programme actively militated against reasoned discussion. The recent investment by Evolve Finance (http://www.nel.co.uk/evolve/) is a very positive development, much in line with the overwhelming positive reception of the products by the public.
Licensing
Licensing Chocpix is a simple matter. Companies wanting to develop their own ranges work with Chocpix on designing the mould. Producers can take the mould and use it in their own processing facilities, or those owned by a third party supplier. The mould is simply added to the production line like any other for chocolate, so there is no additional technology needed. The cost of the licence is covered by a percentage of sales, so the up-front costs are very small. Chocpix will help companies with their design, but they can use the technology however they want. The business case for licensing is clear according to Frank Lia: The more chocolate our licensees sell, the more commission Chocpix makes. It is in everyones interest to stimulate as much growth as possible! Chocpix has already been approached by interested firms from over 20 countries including Australia. Given the distances and travel involved, the opportunity costs per new subcontracting partner average between 510,000 (7,400-15,000 euros). It includes a market visit, evaluation of their capabilities, product testing, contracts and compliance with all relevant national regulations. The latest financing round investment from Evolve will help to make this expansion possible.
41
See e-Business W@tch Special Study (2006): The Role of New Companies in e-Business Innovation and Diffusion. Available at www.ebusiness-watch.org ('resources'). 66
Local manufacturing
Chocolate, even when sold under the same brand name, is generally manufactured and flavoured to suit local tastes In addition, some retailers have particular preferences for the source of their chocolate products. For example in the UK, large retailers like Tesco, Lakeland, and BHS will only deal with companies that comply with their quality standards. Thus local expertise is needed. By subcontracting the chocolate manufacturing and packaging processes, Chocpix further avoids costs of warehousing, transport, storage and, where relevant, the fluctuating impact of tariffs for milk/cocoa beans - for example, US chocolate made in Canada can avoid the US import duties on raw materials. Another important consideration is that subcontracting manufacturing enables Chocpix and other licensed providers to easily gear up for massive orders by simultaneously contracting with several manufacturers.
References
Research for this case study was conducted by Henry J F Ryan, Lios Geal Consultants, on behalf of e-Business W@tch. Sources and references used: Interviews with Frank Lia, Managing Director, Chocpix, conducted in March 2006 Desk research, including Chocpix website, brochures, and press cuttings Lithophane-like article and method of manufacture. Patent application by inventor John Francis Dufort, see www.freshpatents.com.
Overall, in the F&B industry, the importance of product innovation is high but not directly enabled by ICT (see Exhibit 3-31). In contrast, the importance of ICT is very pronounced for process innovation, increasingly in line with a companys size and especially, in the production and logistics areas (see Exhibit 3-30). In fact, the need for traceability along the whole supply chain accounts for the relevant role of ICT in process innovation even among the sectors small firms. The Chocpix case study is an example of ICT-enabled innovation of a traditional production process. This innovation supports a new business model based on the customisation of the product according to customers requirements.
67
3.8
3.8.1
0
Fo o d (EU-1 0) 1 empl. -9 1 0-49 empl. 50-249 empl. 250+ empl.
20 40 60 80 100 47 37 43 46 63 59
20 40 60 80 100 64 42 52 65 87 70
A ll 1 secto rs (EU-1 0 0)
A ll 1 secto rs (EU-1 0 0)
Supplier expectations 0
Fo o d (EU-1 0) 1 empl. -9 1 0-49 empl. 50-249 empl. 250+ empl.
20 40 60 80 100 41 33 43 43 45
20 40 60 80 100 59 60 45 68 44 67
A ll 1 secto rs (EU-1 0 0)
41
A ll 1 secto rs (EU-1 0 0)
Base (100%): Companies saying that e-business is a part of their operations. N (for sector, EU-10) = 415. Weighting: in % of firms. Questionnaire reference: H2 Source: e-Business W@tch (Survey 2006)
68
3.8.2
20 40 60 80 100 56 83 48 36 18 55
20 40 60 80 100 42 45 52 26 62
A ll 1 secto rs (EU-1 0 0)
A ll 1 secto rs (EU-1 0 0)
38
20 40 60 80 100 31 38 20 34 4
20 40 60 80 100 28 22 35 36 5
A ll 1 secto rs (EU-1 0 0)
30
A ll 1 secto rs (EU-1 0 0)
24
Security concerns 0
Fo o d (EU-1 0) 1 empl. -9 1 0-49 empl. 50-249 empl. 250+ empl.
Legal issues 0
Fo o d (EU-1 0) 1 empl. -9 1 0-49 empl. 50-249 empl. 250+ empl.
20 40 60 80 100 36 31 32 39 26
20 40 60 80 100 23 21 22 19 15
A ll 1 secto rs (EU-1 0 0)
31
A ll 1 secto rs (EU-1 0 0)
22
69
Lack of reliable IT providers 0 P&P (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. 20 40 60 80 100 25 23 26 26 11
Base (100%): Companies saying that e-business does not play a role in their operations. N (for sector, EU-10) = 351 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H3
10 sectors (EU-10)
23
Cost of technology was also reported as a major constraint to the adoption of ebusiness by F&B companies. Interestingly, cost is perceived as being very important across all the size bands, particularly among large enterprises. While suppliers are trying to address F&B firms with sector specific and packaged solutions (see reference on ERP in Section 4.1) it appears that users are not yet convinced about their suitability and affordability. A percentage of firms ranging form 20% to 30% perceive security and legal issues as a barrier mainly to e-business adoption. Overall, results for the F&B sector do not differ significantly from the respective all sectors averages with a small emphasis placed by this sectors firms on the cost of technology, the compatibility of ICT systems and on security.
70
3.9
Summary
The e-Business Index 2006 shows that the F&B industry has a lower diffusion of ICT and e-business in comparison with other manufacturing and service sectors studied this year by the e-Business W@tch. This overall result, however, should be regarded cautiously as it hides a varied picture and, although a direct comparison is not possible between the 2005 and the 2006 data, some interesting trends have been recorded in this analysis. The synthesis of the results from the e-Business Survey confirms that the F&B industry has a relatively good level of development of internal process integration and supply chain-related activities. SCM, in particular, shows the highest diffusion among the 10 analysed sectors. This could be attributed to the peculiarity of the F&B industry which is the perishable nature of the merchandise. This imposes sector-specific tight handling times and conditions, as well as the need to monitor the origin of the product and the substances that go into it along the supply chain: the positive role that ICT can play in effectively tracking the information flows becomes quite evident in this case. It also appears that the pressure from distribution is increasingly driving F&B companies towards the adoption of e-business practices; this is illustrated by the growing diffusion of e-invoicing, inventory management and links of ICT systems with those of customers. A quite interesting trend regards medium-sized companies, which appear quite active in their investment attitude and already advanced in the adoption of solutions such as ERP, SCM and e-invoicing. However, the cost of software and the complexity of the proposed solutions still affect companies attitude, especially of SMEs, towards ICT adoption in this sector.
42
The Scoreboard is a tool to present in summary form the characteristics of the various sectors and their differing trends within e-business. Results are consistent with the needs of the firms and the characteristics of this sector. The graph indicates the importance of the main e-business activities in the F&B industry.
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See Methodology Annex for information about the structure and computation of the scoreboard. 72
Component indicators
A. A.1 A.2 A.3 A.4 B. B.1 B.2 B.3 B.4 C. C.1 C.2 C.3 C.4 D. D.1 D.2 D.3 D.4 ICT Networks Internet connectivity (index) LAN W-LAN Remote access to company network e-Integrated Business Processes Intranet ERP systems Online tracking of production time e-Invoicing e-Sourcing and Procurement Firms placing orders online Use of ICT systems for sourcing ICT system linked with suppliers Online inventory management e-Marketing and Sales CRM use Firms accepting orders online Use of ICT systems for marketing/sales ICT system linked with customers
D.1
B.1
B.2
e-Business Index 2006 (based on 16 component indicators of the Scoreboard) based on data in % of firms (emphasises activity in smaller companies)
0 Telecom Hospitals (*) Shipbuilding ICT manuf. Electronics Pulp & paper Tourism Construction Food Footw ear 46 40 38 61 56 72 83 81 20 40 60 80 100 100 94
Telecom ICT manuf. Hospitals (*) Pulp & paper Electronics Tourism Shipbuilding Food Construction Footwear 45 42 80 75 72 70 69 64
(*) The index for the hospital sector is not fully comparable to the other industries, as there are only few micro and small organisations in this sector. Thus, the apparently more intensive use of ICT is largely an artefact of the specific structure of this sector. When comparing only the large enterprises and organisations, hospitals would not be within the top rank. Source: e-Business W@tch (Survey 2006)
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Topics in focus
This chapter aims at providing insights into current ICT use and e-business activities, which are specific to the F&B industries. It does not claim to provide a comprehensive overview, as that would exceed the limits of this report. In fact, it would be difficult to realize, as ICT and e-business are relevant for nearly all core business areas of the F&B industry. Therefore, the issues analysed, as well as the case studies presented, should rather be understood as representative examples of current practice and the related opportunities and challenges. The following issues have been selected as particularly relevant for the F&B sector, in agreement with DG Enterprise and Industry and in coordination with industry federations: Internal process automation: Section 4.1 discusses the trend toward integration and automation of internal processes in the F&B industry. This trend is particularly relevant to large, international food companies, but on a lower scale it also applies to smaller businesses. Constraints imposed by food legislation and necessity to lower the time-to-market of new products are among the main drivers to the adoption of ERP solutions that integrate production, administration, sales and logistic processes. Industry size is paramount for the adoption of leading-edge technologies, such as Product Lifecycle Management, used only by large companies. Drivers, challenges and critical issue related to internal process automation are discussed. SCM and CRM: Section 4.2 discusses SCM and CRM systems to support integration along the value chain. In the F&B industry, the focus of SCM systems is on cost-reduction, optimisation of logistics operations and on the sector-specific issues of food supply safety and traceability, through the closer integration of external enterprise relations. The usage of SCM in this industry is still limited; firms implementing SCM need to address relevant organisation and technological challenges. Distribution is a major force driving F&B companies towards integration of the supply chain. Mobile applications: usage and latest developments are discussed in Section 4.3 Mobile applications and Wi-Fi systems, together with RFID applications, are strictly intertwined with supply chain management and quality assurance issues, and hence mostly adopted by large enterprises though some applications, such as sales force decentralisation and mobile/home offices, are relevant also to SMEs. The widespread diffusion of PDAs, mobile phones, laptops and other portable devices, in combination with developments in Wi-Fi technology, can help SMEs to gather, store, analyze and share data, with a timely access to accurate accounting, inventory, sales and CRM information. Wireless devices such as printers and scanners/receivers are frequently adopted along the production and distribution of food and beverages.
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RFID-based solutions: RFID (Radio Frequency Identification) technology has a substantial and growing importance in the food industry. RFID can support the flow of information along the chain, from the receipt of raw materials, right up to distribution of the finished product. This provides real time visibility of information regarding the product and processing, including traceability and location of goods. In the delivery phase, RFID may be used to verify the senders data and to trace the raw materials; during the transformation phase for food safety; and during the distribution phase for tracing the entire supply chain. Tags can be fitted with sensors that are able to memorise climatic factors (temperature, pressure, humidity) of the environment they are in. Through the most innovative applications of RFID technology, it is possible to monitor the preservations status of a substance, and receive warnings when temperatures go outside accepted ranges. Food producers are using RFID under pressure from large-scale retailers. Significant impacts are expected for sales processes, due to a reduction in waste and returns, as well as better promotion and inventory management.
Exhibit 4-1: Case studies and business examples presented in this report Section 3.7 4.1 4.1 4.1 4.2 4.2 4.2 4.2 Company / project Case study Chocpix Business example Fiorucci Business example Mathiesons Business example Heinz Case study Bldina Business example Metro Case study Logistics Exchange Programme Business example Ebro Puleva Case study Godiva Business example Krispy Kreme Case study La Bella Easo Case study Pastificio Riscossa Business example Purina-Nestl Case study Latterie Virgilio Country UK Italy UK USA France Germany Ireland Spain Topic(s) Case study about business process innovation ERP aimed at improving inventory management Integrated project of traceability Pilot project of PLM (Product Lifecycle Management) Implementation of an SCM system integrated with the companys existing ERP and legacy systems Example of retail driven SCM A collaboration programme between retail suppliers within the logistics part of the supply chain primarily for food industry. Analytical CRM Implementation of a CRM strategy in which the physical channels (shop counter, phone/fax) are complemented by ICT applications Route automation systems and order management A system for point of sale control and management Wi-Fi applications in the picking process
4.2
Belgium
Switzerland/USA Podcasting and mobile marketing Italy Implementation of RFID tagging at wheel level on Parmigiano-Reggiano
The case studies and business examples as summarised in Exhibit 4-1 together with the results from the Survey and analysis of secondary literature build the basis for the conclusions and the policy implications presented in chapter 5 of this report.
4.1
4.1.1
43 44
innovative application for internal process automation in the F&B industry: Product Lifecycle Management (PLM). The results form the 2006 Survey, presented in Chapter 3 indicate that the F&B industry is well equipped with software systems for internal process integration, in particular ERP systems.
4.1.2
State-of-the-art Applications
Business example:
Italian delicatessen producer improves its US factory Fiorucci Foods began as a small grocery market in Norcia, Italy, selling quality meats and foods to the towns residents. Today, Fiorucci is a worldwide brand for Italian specialty meats, seasonings and other fine foods. The third-generation, family-owned company has offices in Italy, the UK, France, Germany and the US, with distribution channels throughout the world. The US-based manufacturing and distribution plant produces a large range of Italian specialities, along with balsamic vinegar. Growing rapidly, Fiorucci Foods faced challenges with inventory awareness across the company. Due to the 11-month meat-curing process for its prosciutto product, for instance, Fiorucci requires strict controls and accurate reporting of inventory to ensure precise timing is met throughout the curing and production processes. With its previous system, manual tracking prohibited Fiorucci from accurately tracing all inventory, specifically byproducts, through the end of production. Additionally, by-products and trimmings of the companys signature prosciutto products were not tagged and tracked for use in other products, such as salami. As a result, the
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company lacked an enterprise-wide product tracking and costing analysis and it was unable to account for losses in raw materials. Its parent company in Italy, Fiorucci must adhere to quality control guidelines to meet authenticity requirements of the companys traditional products. In addition to company requirements, Fiorucci must comply with all federal regulations as well as customer-specific mandates, including shelf-life requirements. The company needed a better method of tracking and tracing product throughout the manufacturing process to ensure the highest quality standards for its customers. By implementing an ERP with advanced data collection capabilities (Ross iRenaissance), Fiorucci has improved inventory awareness throughout the organisation. The company weighs tags and tracks all materials accurately, eliminating the cost of wasted raw materials: by-products are tagged and tracked for use in other core products, increasing overall operational efficiencies and significantly improving the bottom line. Additionally, with enterprise-wide visibility, Fiorucci can now correctly track its product though the 11-month curing process, eliminating all errors related to manual processes. With improved inventory management, Fiorucci has significantly decreased annual adjustments on inventory. The most recent physical inventory resulted in an adjustment of less than 1%. Previous inventories had resulted in adjustments between 5 and 10%. The company has also used the improved inventory management to reduce its cost for conducting inventory checks by 80 % Removal of all but one paper document provides the company with more accurate processing of orders and the elimination of manual errors. Since orders cannot be processed without a check of inventory in the system, Fiorucci has increased order accuracy as well as the ability to verify a match between product attributes and customer specifications in real time. These improvements have greatly improved customer service levels and satisfaction. Lot-tracing capabilities enable Fiorucci to produce high-quality products with brand-protection assurance. Where it previously took up to 3 hours for successful traceability audits, Fiorucci can now complete them in less than 45 minutes. Source: www.rossinc.com/ (March 2006)
The most advanced generation of ERP and extended ERP applications may also include links across different business functions, allowing the complete integration of purchasing, production, sales, cost management, and accounting. Examples of this kind of integration were presented in the 2005 Sector Studies on the F&B industry. An example was about Granarolo45, an Italian dairy company which integrated its ERP system with sales force automation. Another example was about Utz Quality Foods (USA)46. It illustrated the
45
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, page 20. Available at www.ebusiness-watch.org (resources) See e-Business W@tch Sector Study on the F&B, Industry, September 2005, page 24. Available at www.ebusiness-watch.org (resources) 78
46
usefulness of going beyond traditional production, logistics, finance and human resources models, to integrate Customer Relationship Management, Supply Chain Management and Management Accounting systems. Previous generation applications blur the line between a companys internal and external processes. ERP systems can actually play an important role for supporting connectivity between enterprises. For manufacturing companies, ERP systems are an important "hub" for much of their e-business activities with other companies.
Business example:
Recipe and order management, oven-fresh In the business of baking since 1872, Mathiesons have grown from their base in Falkirk to be one of the largest privately owned bakers in Scotland (UK). The company is a 4th generation family business which has grown to currently employ about 600 people. The craft bakery in the centre of Falkirk supplies over 150 freshly made products daily to over 40 bakers shops, coffee shops, mall cafs and restaurants. Mathiesons substantial investment in new computer network has resulted in a fully integrated software package with on line monitoring, designed and built to their specification. This system ensures full traceability for all ingredients and products passing in and out of the bakery. By automating the bakery with real-time technology, Mathiesons can accurately trace ingredients, improve quality control and obtain up to date management information regarding sales analysis, forecasting and costing. The system includes a centralised recipe management facility that links online to display and weighing units in the bakery to control the production of mixes and finished products. The system also includes a trial recipe subsystem, allowing the recipes for new products to be refined through a series of generations. Sales orders are processed for external customers, as well as Mathiesons own shops and restaurants. The system therefore handles a mix of ad-hoc and standing orders, and automates the re-ordering process for Mathiesons restaurants by receiving daily sales information electronically from remote EPOS units. Mathiesons office staff benefit from internal and external e-mail as well as controlled and centralised Internet access. Remote access to the system is also configured to allow members of the management team to connect to the system from their homes. Source: Index Computer Systems Ltd case study, www.indexsystems.co.uk (March 2006); Mathiesons website, www.mathiesons.co.uk (March 2006)
The development of sector-specific functionalities, addressing specialised business requirements is a major factor in the automation and integration of internal processes in the F&B industry. Sector specific challenges include, for instance, the capability to respond quickly and easily to scale formulas and recipes based on inventory levels and changes in materials and facility availability. To a significant extent, this is still a "push" industry: when raw materials are ready, then the production and supply lines must be
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ready as well. Moreover, working with perishable products the information must be accurate, timely, and complete. These particular functionalities may need to be developed, synchronised or otherwise customised in concert with suppliers and customers. The following business example describes a bakery system that allows full traceability, improves quality control and manages sales and orders data. The system also includes a centralised recipe management facility.
47
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Business example on RFID for Supplier Added Value at Beaver Street Fisheries page 28. Available at www.ebusiness-watch.org (resources) See Metro Business Example in Section 4.2 of this report See Section 3.8.2 of this report. 80
48 49
50 51 52 53 54 55 56
The 2006 Survey shows that the efforts from the supply side, combined with the increasing needs of the industry users have pushed the adoption of e-business for internal process automation in the sector, as demonstrated by the diffusion of ERP (see Section 3.4).
4.1.3
Business example
PLM at Heinz H. J. Heinz Co., the US food giant offers a good example of PLM (Product Lifecycle Management) introduction in the F&B industry. Heinz is a leader in ketchup, condiments and sauces, selling nearly US$ 3.3 billion worldwide in 140 counties Heinz faced the challenge in tracking product specifications, formulas and suppliers across a diverse, global business. The company standardized how they developed and tracked product specifications. They reduced the number of ingredients purchased, increased global communication about product and supplier information, and improved the processes they use to develop and introduce new products to the market. In 2003, Heinz launched VIPER (Vendor Improvement and Product Enhancement and Research), a global computerised platform designed to enable the company to dramatically simplify its myriad product specifications and operations by enhancing communication, coordination, and visibility. The software and business services partner was the US company Prodika.
57
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Section 2.4. Available at www.ebusiness-watch.org (resources) 82
The initiative has resulted in a single source of product information that can be accessed across Heinz. This asset, called a PLM Platform or PLM Infrastructure, has proven to be very valuable. By placing all product-related information in VIPER, Heinz has developed a strategic capability to leverage product information internally and in their supply chain. The value became apparent when Heinz addressed the demands from their retail customers to synchronise product catalogue data. Heinz can now identify in seconds the connection between a product, its ingredients and the suppliers across the business chain. This information is being used to bring products to market faster, because affiliates can now access product information from other parts of Heinz For example, an affiliate that wants to bring a new product to market may be able to find a similar product in development or already on the market, which can be used as a starting point. At a minimum, the affiliate can probably reuse existing raw material specifications and identify suppliers that are already in use by Heinz. A further example of improved time to market concerns product labels. Traditionally, labelling requirements were not addressed until the product specifications were completed, because there was no visibility to the precise ingredients and nutritional information until that time. By sharing product specifications with Regulatory Affairs earlier in the process, Heinz has reduced the total product label production process from 45 days down to only 7. Heinz has also leveraged their VIPER platform to gain efficiency advantages and reduce costs, both in the form of increased productivity and decreased product cost. Their platform includes: Global Specifications Management (GSM), capturing the entire product provenance from trade items to ingredient and packaging in all supported languages, cultures and currencies; and Supply Chain Relationship Management (SCRM), with vendor master, approved vendor list and vendor score carding. Source: Prodika website, www.prodika.com (March 2006); H. J. Heinz Co. website, www.heinz.com (March 2006)
4.1.4
83
respond quickly to the availability and changes in materials and facility to easily scale formulas and recipes based on inventory levels. However, the economic and cultural effort required by the implementation of such technologies may be beyond the possibilities of SMEs. The results of the 2006 survey show that F&B firms have increasingly adopted solutions supporting the automation of internal processes but cost and complexity of technology are still major hurdles.
Compliance to food safety regulation, competition and cost-efficiency are the main drivers to the adoption of ERP solutions that integrate production, administration, sales and logistic processes. The introduction of systems for internal process automation is also fostered by the necessity to meet sector specific requirements or better exploit internal assets, which, in the case of F&B industry, are often represented by recipes, as in the Mathiesons business example. From the qualitative analysis, there is evidence that enterprise size is paramount for the adoption of leading-edge technologies, such as Product Lifecycle Management, used only by large companies. Other more common solutions, such as ERP, although may require high degree of customisation to integrate with legacy systems are nevertheless diffusing in this industry.
4.2
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4.2.1
Use of SCM
SCM at work
Available SCM solutions cover demand planning, inventory planning and control, warehousing management and procurement. They may also include field sales forecasting and, occasionally, Customer Relationship Management (CRM). Supply Chain Planning applications enable companies to develop accurate forecasts by creating a collaborative environment for multiple individuals, groups and partners. These systems help enterprises by developing schedules that maximize the utilization of plants, equipment and inventory, to reduce cycle times and improve profits. Supply Chain Planning applications also support make-to-order (MTO), make-to-stock (MTS) or just-intime (JIT) inventory needs with extensive analysis and simulation capabilities, giving to the company the visibility needed to support collaborative programs such as vendor managed inventory (VMI) and continuous replenishment programs (CRP). Inventory control and warehouse management applications provide the capabilities needed to manage and view materials and products across multi-company, multi-division, and multi-site environments. All inventory-related transactions, including lot details and movement history, are recorded in order to track, analyze, and optimize operations. Inventory Control also allows the management of materials, intermediate goods and finished goods on the basis of defined characteristics (such as shelf-life, best-before dates, moisture content). Warehouse management solutions respond to warehouse distribution challenges and help process manufacturers to move beyond their standard enterprise inventory control functions e.g. more easily satisfy customer requirements for specific compliance initiatives, increased inventory and order volumes, and multiple distribution channels.
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Further on along the fulfilling process, logistics management applications help in the planning and costing of freight for inbound deliveries from suppliers, outbound shipments to customers and transfer orders to other warehouses or distribution centres, including routing & rating, load planning, costing and invoicing. Procurement cost can be reduced through several functionalities included in SCM: procurement activities are streamlined to increase efficiency and resources utilization. Contract and order management modules may also be used to create, maintain and evaluate contracts and orders. Flexible pricing conditions, in conjunction with contract & order management, are used to handle the price variation of raw material effectively. Prices and purchasing activities can be monitored and traced efficiently throughout the fluctuating market conditions.
Challenges
The successful implementation of SCM and the full exploitation of potential benefits, however, raise organisational as well as technological challenges. Providing an uninterrupted flow of goods requires accurate demand forecasting, visibility across the supply chain and integrated transportation networks. The flow of information requires coordination of working practices, interoperability (i.e. the "ability of two or more systems to exchange data, and to mutually use the information that has been exchanged"58) and mutual trust among the various players. This is compounded by the fact that the food industry today is still highly fragmented, broker intensive, has seasonal patterns of production and many goods are highly perishable. Most organisations have a disparate network of trading partners (i.e. service providers, suppliers, contract manufacturers, distributors, and retailers). As described above, SCM software is intended to manage numerous and different activities and tasks, many of which have their own specific software. Some vendors have assembled these different chunks of software together under a single solution, but the development of a complete package that is right for every company is a big challenge. While products from large vendors like SAPs Advanced Planner and Optimizer (APO) can perform most if not all of these tasks, many companies may decide to adopt best of breed products instead, even if some lack of integration is an inevitable consequence. A major technological dependency is that SCM applications rely upon the diverse information that is represented and stored in ERP software or in other applications used for internal processes. Theoretically, SCM applications could be fed with data from legacy systems which for many small companies may mean accessing Excel spreadsheets spread across the company. However, such piecemeal approaches would inevitably impact negatively on the quality of the outputs. SCM applications benefit from having a single major source for information, ideally ERP. It can be concluded, therefore, that the successful implementation of supply chain integration is unlikely to be achieved unless internal process integration has been previously and effectively achieved. Eventually, it is
58
Definition by IEEE and ISO, cf. e-Business W@tch Special Study on e-Business Interoperability and Standards, September 2005, p. 14. Available at www.ebusiness-watch.org ('resources'). 86
also of utmost importance that companies achieve a sufficient level of consensus about what standards to use for interoperability. Data on SCM usage in the F&B sector in Europe are analysed in Section 3.5 of this report. The most remarkable results of the 2006 Survey as for the F&B industry is the growth of SCM across all size bands. From a market trend and timely perspective, the evolution of SCM had followed that of ERP and heavily relies upon it. Throughout the global F&B industry, SCM is likely to remain a key point of focus for the leading players in the future. The two areas, intra-enterprise integration (mainly represented by ERP) and interenterprise integration (mainly represented by SCM) are strongly intertwined and have very similar features. In a way, they are complementary approaches for addressing the same strategic challenges. It is worth noticing that most suppliers address these two areas with interlinked modules. SCM however provides the opportunity to expand the advantages of optimization and integration to the entire supply chain through the creation of a collaborative, networked environment. The following case study about Bldina illustrates the implementation of an SCM system integrated with the companys existing ERP and legacy systems.
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AT
B LDINA , F RANCE
Bldina, one of the leading French producers of baby foods, saw its customer service levels decline after a reorganisation of the distribution network of its owner company, Danone. After a thorough business process reengineering project, Bldina enhanced and redesigned its processes within the supply chain, introducing a supply chain management (SCM) software system based on an SAP R/3 ERP system59. Through the implementation of the business process reengineering project and SCM, Bldina is making considerable headway towards achieving its strategic goal of maintaining a 99% customer service level.
Case study fact sheet Full name of the company: Bldina (Group Danone) HQ: Villefranche sur Sane (F) Location (HQ / main branches): Plants in Steenvoorde (F), Brive (F), Villefranche sur Sane (F) Distribution centers in Brive (F), Bondoufle (F) Number of employees: Sector (main business activity): Year of foundation: Turnover in last financial year: Primary customers: Most significant market area: Focus of case study: Key words: 1,459 Baby foods (milk and powdered milk, cereals, ready meals, fresh food) 1906 549 million (2004) Hypermarkets, supermarkets, pharmacies, hospitals France and 60 other countries SCM SCM, ERP, integration
59
R/3 is an integrated software solution for client/server and distributed open systems 88
account inputs from the sales and marketing organisation, including customer and market behaviour by season; a supply planning process that provides long- and medium-term visibility into raw material requirements; and production planning processes that provide enough flexibility to react to sudden changes in customer demands. The giant grocery chains and distribution groups (which may include food and non-food retailing stores, as well as restaurants) dominate the French channels of distribution, controlling 60% of the market. Given the low profit margins in food retailing, many of them have centralised and integrated functions such as buying, physical distribution, and payment. Some groups have further leveraged their power by creating joint purchasing arrangements with each other. At the other end of the spectrum, hypermarkets and supermarkets within a group have been given the option to buy from suppliers not on central purchasing list. With ever-greater concentrations of buying power, food retailers are asking for more and more when it comes to quality, price, traceability, logistics and services. The company had to select supply chain management software that not only met its process requirements, but also could be integrated with the disparate best-of-breed solutions that were in place for sales, finance, and production management. Moreover, Danone had instituted a master plan to adopt common business systems globally, using its ERP system (SAP R/3) as the foundation.
e-Business activities
In 1998, Bldina created two multi-product distribution centres at Brive-la-Gaillarde and Bondouffle, supplied by its three plants. Deliveries to supermarkets and hypermarkets, which account for some 80% of Bldinas client base, were made from the closest distribution centre to the clients warehouse. They were also responsible for managing logistics for direct shipments from plants to customer distribution centres. But the right processes and systems were not in place to produce a high service level at the beginning. By early 1999, the service level slid to 92%, meaning 8% of the deliveries would be late or wrong. This was creating a problem for retailers, where profit margins are slim and stockouts mean loss of revenue. Moreover, when supplier service levels fall below 98%, retailers levy severe penalties, ranging from 16% to 32% of the value of the product, depending on how late the delivery is. In the spring of 1999, Bldina senior executives quickly launched an all-encompassing business process reengineering project to establish and maintain the client service level at 99% or better, while controlling supply chain costs by leveraging supply chain processes. The management steering committee, led by the supply chain director, created a task force of 26 people from throughout the company and gave it 15 days in which to analyze the existing supply chain processes and propose a new and more effective configuration. At this point, Bldina was using different best-of-breed software solutions for finance, sales, and production. These company applications had been integrated, but there were gaps in the processes, often sub-optimally filled by manual procedures. In addition, these problems impacted several other operational areas (which ultimately also contributed to the distribution problems), such as:
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Procurement: because Bldina was not able to accurately plan purchasing of milk and other foods on the basis of seasonal price variations, it was not able to ensure the lowest price. Production: lacking real-time data on changing needs, Bldina could not schedule staff optimally. Marketing and sales: lacking swift, accurate information on results of promotions and new product launches, the company could not produce timely forecasts, nor could they plan future promotions with certainty. After careful analysis of the supply chain processes and the reorganisation required, the team focused on: Answer customer requests satisfactorily Decrease out-of-stock occurrences and the resulting impact on profits Provide purchasers with medium and long-term visibility into raw material requirements Streamline industrial activities by considering capacity constraints on bottleneck production recourses and lower inventories. The supply chain effort, which began in 1999, culminated in a full rollout of the system between July 2001 and mid-2002. The system has been operational since then. In February 2000, the team began its search for a suitable SCM system. Among their major requirements was the systems capability to integrate with the companys existing ERP and legacy systems and to cover all planning aspects of Bldinas supply chain, end to end. In May, Bldina selected SAP APO, a component of mySAP SCM. In our search for a supply chain management tool to deploy our new logistics processes, we looked both at the market as a whole and at the other solutions already used within the Groupe Danone, said Patrick Mornieux, manager of information systems at Bldina. Since Danone had just selected mySAP Business Suite for its entire management system, with the intention of extending the system to its subsidiaries, the parent company suggested we take a closer look at this system to see if it would meet our needs. Since the newest release at that time corresponded well with our requirements, we decided to opt for SAP". The new systems implementation began at Bldichef in July 2000. Bldichef is the division responsible for producing ready-made meals for babies and was selected as pilot project referred to internally as Bldichain for the SCM implementation. The first phase of the implementation involved the deployment of capabilities that would enable the company to plan sales demand, plan and validate the release of finished products and their deployment to distribution warehouses, and plan and schedule short- and mediumterm production at a detailed site-by-site level. The next 10 months, were divided into 2 months of general design work, 6 months of detailed design, and 2 months of testing. After the system was deployed in June 2001, Bldichef realized more major improvements. Finished goods and work-in-progress inventory for this product family were practically halved, while delivery service levels between 98% and 99.5% were maintained. This was achieved due to improved forecast accuracy, which resulted in
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better use of production resources and better deployment of the finished goods to customer distribution centres. The success of this phase marked the beginning of the second phase the rollout of the system to other product groups. Over a period of almost a year, this system was rolled out to the various product sectors one by one. Today, the system is a fully integrated part of Bldinas IT solution landscape, enabling smooth execution of business processes.
Impact
The main outcomes and impacts of the project were: A long-term forecast of demand and supply requirements. The new SCM system has enabled Bldina to forecast demand and plan 24 months in advance. This has been a great improvement compared with the previous situation, which was essentially pen and paper-based, in the case of production planning and were much less precise and nowhere near as reliable. Bldina can now take into account specific characteristics, such as seasonal variations in sales of soups and fruit juices. Demand planning can also be used to create weekly projections for specific retail outlets and client categories such as supermarkets, healthcare establishments, exports, and subcontractors. Feasible production & resource planning and monitoring resource loads and utilisation. On the supply planning side, Bldina uses the supply network planning capabilities of the new system to calculate of the net requirement of finished goods. This calculation is based on defined target days of supply per product family or per product with a possible variation in time. Bldina is now able to create multiple versions of the finished goods distribution plan and analyze them using the components simulation capabilities to select the optimal solution. Before implementing supply network planning capabilities, Bldina had a general inventory policy of having the same average inventory level at all of its sites. Now it is able to designate minimum inventory levels tailored to each of its distribution bases. Deployment of finished products to distribution centres. On the logistics front, Bldina uses the deployment capability of the new system to monitor the target stock level (in pallets, tons) versus available stocks at distribution centres. This ensures that safety stock levels are maintained accordingly, thus minimizing the risk of shortages and delivering correct quantities of stock to the distribution centres. The deployment of supply network planning capabilities also allows to monitor the distribution centres' fill rates against their target performance. Real-time tracking of sales at retail outlets and adjustment of production and inventory accordingly. We use this tool to track individual activities within the supply chain, enabling us to react quickly when there is a situation that needs attention, said Mr. Mornieux. We are able to create alternative plans for meeting our target days of supply and these plans are then reported to executives for consultations and decision making. Moreover, at any time, Bldina management is able to view the global load on the plants to assess their performance as well as usage.
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Through the implementation of the business process reengineering project, Bldina is making considerable headway towards achieving its strategic goal of maintaining a 99% customer service level. The most important key performance indicator of success is undoubtedly customer satisfaction. Mornieux emphasized that "The strong performance of our new processes and our reliance on the system have meant that we have totally regained their confidence, to the extent that some of our clients, including Carrefour and Auchan, have deployed collaborative solutions with interfaces linking them to our sales management systems. As already pointed out, by December 2001, Bledichef had achieved and maintained a service performance level between 98% and 99.5%. At the same time, work-in-progress and finished goods inventories were almost halved during this period. Other internal goals that were met after the implementation of the new SCM system are: Forecast accuracy has been above its target line by an average of 5% year on year. By 2003, overall forecast accuracy had improved by 6% when compared to 2001. Production capacity utilization has improved by an average of 19% between 2001 and 2003, Impacts on business relationships with suppliers and/or customers Impacts on production processes Work-in-progress and finished goods inventory between 2001 and 2003 were reduced by 25%, while inventory days of supply were reduced by 20%. Bldina plans to extend the use of the new systems optimization capabilities to include economical parameters and functions in their supply chain planning process. SAP APO will enable our plant at Steenvoorde to plan its milk procurement on the basis of seasonal price variations to make sure it gets the lowest price. The fact that we know our long-term needs makes this all easier, said Bledina's Plant Director, Mr. Denis Prillier. Collaboration through sharing the demand and supply information with business suppliers and customers is expected to make the supply chain processes of Bldina more efficient. Last but not least, through the implementation of the new system, Bldina, like its parent Groupe Danone, will adopt standard business systems.
Lessons learned
Enhancing and reengineering business processes within the supply chain was key to the success of this project. More importantly, people had a very significant role in the assessment of the situation and in the implementation of the system: a close collaboration was established among all the people involved in the supply chain, including sales and marketing, purchasing, production planning, manufacturing, distribution, administration and finance, and information systems. The enterprise-wide project mobilized 12 of the companys employees and up to 10 specialised consultants, although ultimately 30 employees were involved. The SCM system now matches the quality of the complex traceability system of Bldina: the company not only dictates the quality and care of the livestock and the milk used in its products, but, for each milk cistern delivered, the company can identify the farmer and the
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cows that produce the milk, the date of delivery, the completion of bacteriological controls, the tank into which the cisterns milk is poured, the product and container in which it is used and sold, the distribution centre it went through, and the final reseller. Using a common tool for all logistics chain players offers complete visibility of the supply chain, from sales planning (where Bldina had no tool before) and production planning (where basic tools were previously used) all the way to inventory management. The transparency of the data and the ease of updating them enabled Bldina to react more efficiently to changing situations. The most important corrective actions were to increase the stock level and to manage out-of-stocks in terms of priority, with a cycle rule to satisfy the customers one by one. The ultimate sign of success was customer reaction: Bldina has totally regained its Clients confidence, to the extent that some of them have deployed collaborative solutions with interfaces linking them to Bldina's sales management systems.
References
This case study was conducted by Databank on behalf of the e-Business W@tch. References: Interview with M. Philippe Cherigie, SAP France, September 2006 Quotations from Mr Prillier and Mr Mornieux are extracted from Bledina case study available at http://www.sap.com Company website: www.bledina.fr (August 2006)
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Business example:
Supply chain efficiency at Metro Group Logistics (Germany) Metro Group Logistics (MGL) had changed Metros supply chain from being supplier-driven to retail-driven. The complexity of Metros supply chain in Germany is illustrated by its 50 million shipments per year: the previous context of supplier-driven logistics had created a fragmented system marked by a high number of deliveries, 80% of which carried only one pallet. MGL was established in Germany in 1995, involving five service providers to manage the flow between the various suppliers and stores. The system did not require any new investment: it was based on alignment and high flexibility between the partners. MGL negotiates costs with the service providers, but there is no change for the manufacturers. Benefits included more efficient deliveries (with 30 pallets on average instead of one), very high levels of on-time delivery (98%), and reduced transport, an important advantage in view of rising energy costs. MGL was rolled out in Germany over three years and in 2004 handled 8.3 million shipments. Metro has introduced the system to a number of other European countries since 1999. The aim is to create connections between domestic and international networks by using regional and gateway hubs. In terms of lessons learned, Frank Krber (Chief Operations Officer Europe of MGL) underlined the importance of strong commitment from all the function areas concerned, i.e. stores, buying and supply chain. Defining the process rules and responsibilities in ordering and receiving goods is also critical, but the most important issue is separating the responsibilities of logistics and buying. In terms of processes, MGL handles neither ordering nor picking: the stores place orders with the suppliers, who then prepare orders by store ready for cross docking by MGL. Concerning the reaction of Metros commercial departments, Krber noted that it took some time to convince buyers (the roll out took three years in Germany), but now the buyers understand that logistics is a different business. Regarding international expansion, it is not easy to convince suppliers in some countries, Krber added, because they use informal practices and do not calculate supply chain costs. Source: report by Frank Krber, COO Europe, Metro Group Logistics, Germany, at the CIES Supply Chain Conference Barcelona, October 2005
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The following case study is about a pilot programme aimed at reducing distribution and supply chain costs while increasing value for the participants. There are many reasons of interest in this case study. First, it is a collaborative initiative, involving all relevant stakeholders in the area (see its Background and Objectives). It is also an example of partly- publicly funding intervention. Second, it is a reference example of cooperation and cross-fertilisation between different sectors. The participants have access to a full distribution diagnostic, the opportunity to collaborate with other project partners, and professional brokered assistance to help ensure that opportunities are fully explored and consolidated. Third, it highlights the importance of information-sharing data gathering and analysis, as well as of establishing mechanisms that can assure the protection of sensitive data whenever collaboration among different business is necessary.
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DISTRIBUTION COLLABORATION
LOGISTICSXP, the Logistics Exchange Programme, is the brand name for a pilot collaborative initiative, supported by InterTradeIreland, primarily between retail suppliers within the logistics part of the food and drinks industry supply chain. Information on existing loads, warehousing and distribution flows together with ambient, time and other requirements are pooled anonymously and matched via the Translogistica PreFlex eRFC system. The result is a set of potential logistics sharing opportunities, and range of what-if scenarios. The central independent project management and facilitation of evaluating and translating these common supply chain opportunities into reality via a broad collaboration group is highlighted as an essential component of long term success. A new three year pilot scheme directed at SMEs and other industry sectors is described.
Case study fact sheet Full name of the company: Location (HQ / main branches): Sector (main business activity): Year of foundation: No. of employees: Turnover in last financial year: Primary customers: Most significant market area: Focus of case study Key words: Barbara Anderson Consulting Waringstown, Northern Ireland Supply chain consulting 2000 6 (Network of associates) Not disclosed Food & Drink retailers Island of Ireland, United Kingdom, Continental Europe. Plans for the Far East Process & system Logistics
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InterTradeIreland, the Trade and Business Development Body, is one of the six cross-border bodies established under the Belfast Agreement, 1999. InterTradeIreland's mission is to enhance the global competitiveness of the all-island economy to the mutual benefit of Ireland and Northern Ireland through measures such as the creation of knowledge-intensive all-island trade and business development networks and the implementation of all-island trade and business development programmes. See www.intertradeireland.com 97
InterTradeIreland should encourage appropriate government bodies, trade associations etc., to act as honest brokers in encouraging the development of collaborative efforts between companies in all areas of the supply chain Since the publication of the joint report, InterTradeIreland has developed a Supply Chain Strategy focussed on the promotion of supply chain awareness and development of best practice to achieve competitive advantage. The LOGISTICSXP Distribution Collaboration Pilot, one of the key initiatives, was launched in January 2005 with eight participating companies. Their participation was partly funded by InterTradeIreland. The intent was to demonstrate where opportunities exist for collaboration between participating companies in both Northern Ireland and Republic of Ireland in relation to reducing distribution and supply chain costs, while simultaneously increasing value for the respective participants.
e-Business activity
The starting point for the project participants was to explore the potential opportunities for collaboration outbound to customers and inbound from suppliers located on the Island of Ireland and in England, Scotland, and Wales. Companies that participated in the pilot study included, amongst others: Henderson Group, owners of the SPAR, VG and VIVO franchises in Northern Ireland, which distributes food and grocery related products to the convenience retail sector. Henderson Wholesale offers over 4,500 ambient lines, 1,100 fresh food lines and 500 frozen food lines to the retailer Irwins, Northern Irelands largest independent bakery, with an extensive distribution resource which supplies a wide range of fresh traditional Irish breads daily to supermarkets throughout the UK and Ireland Moy Park Ltd, Northern Irelands largest food processing company and one of Europes leading poultry companies which supplies chicken products to retailers throughout UK, Ireland and Europe. It is part of the OSI Group. H. J. Heinz, the global food company Royal Numico, a specialised nutrition company, whose brand names include Nutricia, Cow & Gate, Milupa, Mellin, Dumex, SGM, Nutrison, Neocate and Forticare Argos, owned by GUS plc, and part of the Argos retail group. It is the UKs leading general merchandise retailer.
Methodology
The project led by Barbara Anderson Consulting, supported by ELUPEG62 (European Logistics Users, Provider and Enablers Group) and Translogistica commenced with a Phase I high level Business Profiling to determine the networks and infrastructure of the participants to ensure that the project had sufficient reach to achieve the anticipated benefits from collaboration. Evaluation continued in Phase II Detailed Data Gathering with the comprehensive collection of organisational data including: outbound & inbound
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See www.elupeg.com 98
customer demographics, transport temperature regimes and supplier demographics. Phase III Data Matching collated and compared information about individual outbound and inbound raw materials and finished goods movements for each participant. What if scenarios were also calculated. In Phase IV the potential for collaborative deliveries to customers within similar / same geographic regions was identified, including potential backhaul opportunities and consolidation of warehousing among partners.
Supporting Technology
The Data Matching engine that sits behind this process of seeking out collaborative partners and opportunities, is PreFlex eRFC (Request For Collaboration) provided by Translogistica (http://www.translogistica.com/). This collaboration tool enables companies to safely, anonymously and easily understand the scale of the opportunity, and perform what-if analysis of the impact of moving distribution centres. The individual inbound and outbound raw material and finished goods movements for each participant were collated and entered into the system along with most of the detail necessary for potential collaborative matching (e.g. temperature regime, volumes, number of trucks, frequency). PreFlex eRFC then produced a series of reports indicating full and less than full truckload (FTL/LTL) outbound load-sharing and backhaul potential matches based on permutations of origin and destination (portions of post code and city).
Exhibit 4-2:Translogistica Preflex eRFC
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Impact
Based on the results of the analysis some companies have collaborated independently without need for any further involvement by the LOGISTICSXP programme. However, in general, it was necessary to have an independent trusted broker conduct an arms length process to facilitate follow up action. Even then, specific clear opportunities have not been acted on for various reasons. These include simple lack of resources and an inability to commit to collaboration due to other ongoing work and commitments in the supply chain, as well as perceived strategic differences.
In general terms the potential benefits arising from the proposed collaborations, if and when implemented, would result in: Fewer deliveries / increased vehicle utilisation Enhanced customer service Reduced distribution costs (inbound and outbound) Better utilisation of warehousing resources
Lessons learned
This type of collaboration has a huge potential to reduce costs for participants and position Logistics Service Providers (LSPs) as strategic partners for all. An important practical consideration highlighted by Barbara Anderson is that participants must not seek to maximise their individual potential gains; this is a network which will only grow and be successful when the benefits are shared equitably. In effect, the pilot must encourage the sharing of supply chain management information and development of partnerships between organisations for their mutual benefit. To this end, data provided by the participants remain anonymous (or confidential) at all times until and after respective participants agree to share this information. Notwithstanding this anonymity requirement, all participants must have direct access to their own data (via the broker). Participants would also have access to the available information on the collaboration opportunities identified and be able to seek further opportunities as more companies join the group.
Conclusions
Barbara Anderson highlighted the value derived from the successful pilot programme and its wider potential: Cross-fertilization between participants and other industries is an essential part of this process. All companies, regardless of size and industry sector, can increase their customer value by participating in the LOGISTICSXP Programme and by acting on the opportunities identified. Company participants have access to a full distribution diagnostic, the opportunity to collaborate with other project partners, and professional brokered assistance to help ensure that opportunities are fully explored and consolidated. She welcomed the continued role and contribution of InterTradeIreland, Enterprise Ireland and FSIP/Northern Ireland to continue the pilot in favour of assisting SMEs (up to 250 employees).
References
Research for this case study was conducted by Henry J. F. Ryan, Lios Geal Consultants, on behalf of the e-Business W@tch. Sources and references: Interviews with Ms. Barbara Anderson in May and July 2006. Desk based literature research, and information available from the InterTradeIreland website www.intertradeireland.com; including the report Supply chain logistics and transportation on the island of Ireland: an integrated study (22 January, 2002) and the LogisticsXP Brochure (28 March 2006). Translogistica website, http://www.translogistica.com/
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4.2.2
Use of CRM
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Typically, CRM systems will also include modules or functions for handling returns and complaints, supporting companies in managing reclamation processing. In the beverages industry, CRM can include functions for empties processing. The system provides information on the number, location and status of empty bottles and crates, which can be important when processing customer orders. This functionality demonstrates that there can be close links between CRM and other ICT based information systems in the company, such as ERP and / or inventory management. CRM systems can also support extended rebate processing, either in direct sales or in indirect sales (e.g. via a distributor) with a customer.
Business example
CRM use by Ebro Puleva The Spanish food company Ebro Puleva, a leading company in the Spanish food market, uses CRM in two areas. The first one is for analytical CRM: to collect centrally and analyse data which are first collected at the selling points for the dairy products. Data are obtained locally by use of PDAs (Personal Digital Assistants) that have a bar code reader for products of Ebro Puleva and competitors. The company used 40 PDAs in 2005. The second area of CRM use is for customer service in the sugar business line. This includes assistance by phone, fax and e-mail. This is a typical example of operational CRM. Source: Case study on Ebro Puleva, e-Business W@tch sector study on food and beverages, July 2005. See www.ebusiness-watch.org
The following case study is about the implementation of a CRM strategy by Godiva Chocolatier Europe. According to this strategy, the physical channels (shop counter, phone/fax) are complemented by ICT applications, dedicated website and the back-and front-office applications integrated with intranet and extranet.
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IN SUPPORT OF CRM AT
G ODIVA C HOCOLATIER
Godiva Chocolatier is specialised in the production of premium chocolate. The company is based n Brussels, Belgium. It has manufacturing facilities in Belgium and the USA and nearly four thousand points of sale world-wide. Customer relationship management at Godiva is a core part of the business strategy. Focusing on creating and maintaining lasting relationships with its customers, the company has developed a CRM solution. The physical channels (shop counter, phone/fax) are complemented by ICT applications like dedicated website and the backand front-office applications integrated with intranet and extranet.
Case study fact sheet Full name of the company: Location (HQ / main branches): Sector (main business activity): Year of foundation: Number of employees: Turnover in last financial year: Primary customers: Most significant market area: Focus of the case study: Key words Godiva Chocolatier New York US, Brussels - Belgium Production of chocolate, confectionery and drinks 1926 600 in Europe n.a Retail and distribution outlets , franchising outlets, private and corporate customers Europe, US, Japan, Hong-Kong LINK-Extranet system , part of CMR CRM
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Godiva faces increasing competition from other chocolate producers, such as the Belgian company Leonidas, Irish Butlers and Thorntons in the UK. Across Europe, there is also a growing number of small new companies selling their products via internet. Competing in this environment is becoming more and more challenging for Godiva. The main challenges are product positioning and branding, as well as the flexibility to meet customers changing tastes. Godiva has started using ICT to support the image as a luxury brand and to better develop marketing tools. For instance, Godiva internet website, www.godiva.com, has been one of the important means to promote brand awareness. In 1994, long before e-commerce took off, Godiva launched its own website with an online ordering facility, becoming one of the very first retailers to do so. Since then, the web site has been a tool for strengthening Godivas reputation and commitment to customers. Customer relationship management (CRM) at Godiva is a tool for creating and maintaining lasting relationships with customers and lays the basis for targeted marketing and product development. As company spokeswoman Viviane Burgess says, the Company needs to keep track of evolving consumer behaviours in order to offer those products which best respond to their needs. The world-wide presence is a challenge, which requires that different solutions are implemented to address the various customers preferences. For instance, the company has different websites contents (though based on identical templates) and separate CRM solutions for each Godiva division (North America, Japan, Hong-Kong and Europe).This strategy allows better product positioning and development, closer relationship with the individual clients from different markets, and development of targeted marketing.
e-Business activities
CRM at Godiva evolved into a company-wide business strategy designed to reduce costs and increase profitability by building and supporting customer loyalty. CRM brings together information from all data sources within an organisation (and where appropriate, from outside the organisation) to give one, holistic view of each customer in real time. This allows customer-facing employees in such areas as sales, customer support and marketing, to make quick yet informed decisions on everything from crossselling and up-selling opportunities to target marketing strategies to competitive positioning tactics. Godiva has developed a CRM strategy in which the physical channels (shop counter, phone/fax) are complemented by ICT applications like dedicated website and the back-and front-office applications integrated with intranet and extranet. To support the strategy, Godiva has introduced suitable software applications and systems over time. Some years ago, Godiva introduced an ERP system to run most of the business processes and, more recently a CRM. Before the introduction of CRM, customers data were stored in different locations and in many cases were entered manually, which resulted in omissions and errors. In 2005, the firm decided to develop its own in-house CRM solution based on flexible applications to save cost and time during the development phase and afterward. The developments are taken in stages and are still ongoing, so it is too early to assess impact and benefits of the whole system. However, there are many technological components to CRM, and at the beginning of its implementation Godiva needed a closer links with its clients and automated processes of
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order taking and communication. In 2002-2003 Godiva European Division, developed the LINK Extranet system, which links business partners64 via dedicated website (www.link.godiva.be) with Godivas office in Brussels, as an integral part of an end-to-end CRM process. In 2002 -2003 the Link project was developed by the company with the help of external consultants. It cost about 120,000 Euros and it took about one year for it to be fully operational, including training of the customers and in house staff. It was relatively easy to convince the customers of the benefits of electronic order placements and communication. This turned into 100% customers using the system after nine months from the start date. The LINK system plays an important role in the companys CRM. For example serving as a front office system, directly taking customers details and orders and then processing this data into a back-office that fulfils and supports customer orders. This way, information about customers, purchasing patterns and models come directly via LINK into companys CMR/ERP database. Taking into account that nearly 70% of orders in Europe comes from Godivas own and franchised retailed outlets, the need and impact of linking them with an automated and streamline process brought significant improvements of customer service and management. The real-time link with customers also increased the possibility to develop and deliver the right products at the right time and season (for example Christmas time, Valentines Day) with production being able to respond accurately. Before introduction of the LINK system, each customer (a retail outlet) had to send an individual order by fax or post, sometimes using outdated order forms. This implied that the order could arrive in bad quality and / or with bad handwriting with missing data. The details of the order had to be then manually entered in Godivas ERP system for processing. Besides being time-consuming, the process resulted in a certain amount of human error and delays in deliveries. Today, the company receives the orders via www.link.godiva.be websites where registered partners can log in to place and manage their orders 24/7. The LINK application enables automated order placement and processing of real-time data collection on customers behaviour. Moreover the LINK application has established an easier and faster communication channel between the company and its partners. The application plays an important part in the collaborative function of the CRM ensuring close contact with customers. Clients and partners have an access to daily updated information on products, details on training65, events and other developments. By using banners and pop-ups the reading of important information is promoted. Profile-based information is sent to different customers, allowing for promoting different products in the regions, for example; chocolate without alcohol, but making possible exceptions on customer level. Then the marketing, sales and customer service strategies are based on the data and feedback collected via LINK, supporting the analytical function of CRM. The company saves cost and time on sending marketing materials and ensures that the massages reach the targeted audience fast.
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own and franchised shops Training on new IT applications, new products, shelf display 107
The LINK facilitates interactions with customers and supports co-ordination of employee teams and channels. The system ensures immediate and personalised response to customers queries received via extranet making the client feel. For the company, the web collaboration reduces customer service costs, it also improves quality by eliminating errors and delays.
Exhibit 4-4: Application of LINK Architecture at Godiva Europe
Application Architecture
E-mail Alerts Administration Pages
LINK Extranet
DTS Website Web Services SQL Server Database AS/400 ERP System
Impact
Nearly 100% of Godiva Europe customers are business partners (retailers). Godiva manages the commercial relations with such partners through a tailored solution, by linking them with the company via LINK extranet. LINK has been the step-stone towards CRM. The automatic processing of orders and other communication automatically feeds the database, which comprises individual accounts that store information about single customers activities. That creates the base for further development of CRM. The LINK project has brought the following improvements of business processes at Godiva: Complete and up-to date customers orders and queries in digital form, directly linked with the ERP, imply no more need for manual re-entry, therefore reduced number of errors, speedier and more accurate deliveries. Inventory management and logistics improved, with better central management of all orders. Automated order-flow, resulting in employees liberated time for providing more and better customer service. Accurate and up-to date data warehouse with increase market knowledge. Delivering real time customer feedback that helps product development.
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Valued source of gathering market intelligence. Improvement of the company image through personalised services, efficient deliveries and better relationships with its partners. Communication with partners streamlined. Enhanced customer visibility by providing a full view of activities on each customer account. LINK and the computerisation of orders processing was designed not only to improve and speed up the processes within the company but also to add value to customers by providing: Easier and faster communication channel between the company and its partners; Easier order placement, with 24/7 access to manage orders in an intelligent format management and tracking with a possibility to change the order anytime and access the invoice information; Order status and dispatch information tracking; Up-to-date detailed information on products, manuals-on line; Direct communication platform to Godiva.
Lessons learned
There are many technological components to CRM, but thinking about CRM in primarily technological terms may be a mistake. Godivas case confirms that CRM is as a process that helps bringing together lots of pieces of information about customers, sales, marketing effectiveness, responsiveness and market trends. CRM should be regarded as a strategy to learn more about customers' needs and behaviours in order to develop stronger relationships with them. Good customer relationships are widely acknowledged to be an essential ingredient of business success. CRM provides the resources to track most details of business relationships. This detail improves business process by allowing organisations to make more educated and strategic decisions. In turn, accurate and current information helps improve implementation results. Further on, gathering all the information on individual customers and make it available in one place, CRM allows to sort and process information necessary to improve customers experience. It serves as a central communications tracking tool of elements collected at the different points where interaction with customers takes place. The information collected about a customer -said Mr. Peter Stevens- is more effective when used to create a customer file, which is then available for sharing with the enterprise as a whole. On the marketing side, we needed a way to make more informed decisions about our marketing content and cost, says company representative. We need to collect and keep the data about our customers and their behaviour also to support future product enhancements or customisation.
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The company chose to develop its own solution based on the specific customers needs, to work on enhancing existing business processing, and to replace only those that are no longer valid or sufficient for serving customer. The CRM in place at Godiva Europe has also proofed to be very useful in simplify interactions and communications with the customers. The customers benefit having access to information on demand, improving accuracy, enhanced product knowledge, and marketing message that they want. As the understanding about the customer increases, Godiva finds that it can serve them better.
References
This case study was conducted by Aneta Herrenschmidt-Moller on behalf of the eBusiness W@tch in September and October 2006. Sources and references used: Interview and information delivered by company representatives Mr. Peter Stevens and Ms Viviane Burgess Microsoft @ Convention 2004, presentation papers. Company websites: - www.godiva.be (Sept.2006) - http://shareholder.com/campbell/reports.cfm (August 2006)
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4.2.3
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4.3
4.3.1
Mobile Applications
Introduction
Mobile applications and Wi-Fi systems66, together with RFID67 applications, are intimately connected with supply chain management and quality assurance issues, and hence mostly adopted by large enterprises though some applications, such as sales force decentralisation and mobile/home offices, are relevant also for SMEs. The widespread diffusion of PDAs,68 mobile phones, laptops and other portable devices, associated with Wi-Fi technology, can help even SMEs to gather, store, analyse and share data, with a timely access to accurate accounting, inventory, sales and CRM information. Wireless devices such as printers and scanners / receivers are frequently adopted along the production and distribution of F&B.69
4.3.2
66
"Wi-Fi" is short for wireless fidelity, a popular term for a high-frequency wireless local area network (W-LAN). Wi-Fi technology is rapidly gaining acceptance as an alternative or complementary infrastructure to a wired LAN. "RFID" is short for Radio Frequency Identification. RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders. "Personal Digital Assistants", i.e. small and easy-to-carry computing devices. The e-business implications of developments in mobile communication are also discussed in other e-Business W@tch sector reports of 2005 and 2006, for example in the sector studies on the telecommunications industry (2006), consumer electronics (2006) and the pharmaceutical industry (July 2005). All study reports are available at www.ebusiness-watch.org ('resources'). 112
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Bluetooth and infrared technologies can be used instead where short-range mobility is required: Bluetooth is a short-range Radio Frequency technology and does not depend on line of sight, while infrared technology does. Infrared, on the other hand, may be a less appealing option, depending on the application, but offers a good price compromise for connecting wirelessly. Since the coming into force of EU Directive 178/2002 in January 2005, a substantial increase in the number of check points in the food supply chain has occurred. Wireless devices look set to become a valuable tool in enabling the production and reading of bar code labels virtually anywhere in the chain. However, they must today compete with the growth of RFID-based solutions, which have significant impact in areas such as inventory visibility, load verification and order pick operations, traceability and quality assurance. The next big push is likely to be the convergence of a number of technologies such as wireless, low cost auto-id (transponders) or RFID tags and readers, combined with software that will provide visibility and management control of individual items without human interaction. This trend will enable enterprises to change the way items are produced, stocked and distributed. The ability to track the flow of goods at the edge of the supply chain, enabling real-time decisions, can bring immediate value in areas such as inventory management, replenishment and shrinkage. Challenges related to the selection, adoption, integration, and simultaneous use of possibly diverse standards in B2B transactions and data synchronization (such as RosettaNet70, UCCnet71 , Web Services standards and ebXML72), need to be consistently resolved in order to obtain the best synergies and manage massive data flows. The diffusion of standards and the problems related to a lack of interoperability of ICT systems have been analysed in Section 3.3 of this report. The e-Business Survey 2006 data highlight that the F&B industry is quite advanced in the adoption of EDI and especially internet-based EDI but there are still interoperability challenges to address in the areas of e-invoicing, payments and regulatory aspects.
Business example
Streamlining deliveries Krispy Kreme Doughnuts is a growing chain of doughnut shops, with stores in North America, Canada, UK, Korea, Mexico and Australia. The rapid expansion of the company created challenges to making sure products are always fresh and available.
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RosettaNet is an organisation set up by leading information technology companies to define and implement a common set of standards for e-business. RosettaNet is defining a common parts dictionary so that different companies can define the same product the same way. UCCnet is a standards organisation that provides an Internet-based supply chain management (SCM) data registry service for e-commerce companies and companies that have an ecommerce component. A non-profit subsidiary of the Uniform Code Council (developers of the UPC code), UCCnet provides a global repository where enterprises can register item data and share standardised, synchronised supply chain information. ebXML (Electronic Business XML) is a project to use the Extensible Markup Language (XML) to standardise the secure exchange of business data 113
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Krispy-Kreme now relies on a route automation system to streamline deliveries to customers, developed together with Intermec Technologies Corp. and Velocitor Solutions. Krispy Kreme operates over 140 company stores that are independent of its franchise locations. In addition to serving walk-in customers, the company stores prepare and deliver doughnuts sold at other retail outlets. Route drivers operating from the company stores make daily doughnut deliveries to supermarkets, convenience stores, service stations and other retail locations. Mobile computers, printers and route management software are being rolled out to all the company stores primarily to streamline end-ofday processing and back office operations. The system also saves time for route drivers and improves convenience at customer sites. Krispy Kremes self-written demand planning and forecasting system at its Winston-Salem headquarters calculates a suggested order for every retail customer, every night. The orders are transferred to an IBM AS/400 computer at the company store that supports each customer. Orders for each route, the sixweek sales history for each customer, plus notes or special instructions for the driver are downloaded to a mobile computer before route drivers arrive in the morning. Drivers pick up their computers and then begin their daily deliveries. Route drivers arrive at retail locations and review orders with customers. Customers use the mobile computer to preview invoices before approving them. To accept, the customer signs on the mobile computer screen using a pen stylus. The route driver then prints a signed invoice for the customer and begins unloading the order. Drivers use the integrated bar code reader in the mobile computer to scan each item as it is unloaded, which updates Krispy Kremes inventory record. Drivers also pick up unsold items from the previous day and record them by scanning the bar code. All transactions are stored in a secure memory card in addition to the computer memory to provide backup. The major time savings occur when drivers return to the store after completing delivery. Each store supports between three and 25 routes, which are reviewed and reconciled daily. When deliveries are complete, drivers print their own reports on the mobile printer and submit them to the clerk. The computer is then placed in a docking cradle that interfaces directly with the AS/400 system through an Ethernet connection to upload activity data. Settlement sheets are calculated and printed in about 20 seconds. The entire check-out process can be completed in about two minutes, a stunning improvement over the previous 15- to 30-minute cycle. Stores that have converted to the route automation system have experienced enough time and labour savings to reassign support staff to other duties and have not had to add administrative staff even as sales and retail customers have surged. Customer service report requirements also have been reduced. Using a self-service Web site, customers can view invoices online and print them on demand, complete with the digital signature. Source: Intermec Technologies Corp. case study on www.intermec.com (March 2006)
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"Wireless people"
Examples of wireless sales force automation implementations have been presented in previous e-Business W@tch studies on the F&B sector, for instance in the case study about Granarolo73. Companies are providing their mobile workforce (sales and transport/distribution) with ICT tools which enable workers in the field to access corporate databases and applications such as customer relationship management software, as well as the ability to update customer records wherever the work occurs. In the case of Granarolo, for instance, the company equipped the account managers with palm pilots through which they send the orders to a distribution platform. Alongside mobile phones, distributed network computing has been a significant technology trend that has put more computing power directly in the hands of "networked individuals". This has enabled collaborative distributed work in networked organisations and (cyber)communities, including small businesses. Although developing along separate paths, mobile communications and the internet have started to converge. The products of this convergence are sophisticated wireless data services, focussing on mobile data access and electronic messaging on mobile devices.74 Mobile business i.e. the use of the wireless internet and other mobile information technologies for organisational communication and coordination, and the management of the firm is likely to have a strong impact on organisations, as wireless technologies and applications begin to challenge the existing processes, strategies, structures, roles of individuals, and even cultures of organisations. A key factor for the success of projects implying new working procedures is the involvement and motivation of the part of the work force concerned. Acceptance of new technologies and systems depends upon the involvement of the workforce and their perception of the possible benefits. This aspect emerges from the case studies presented below. The following case studies and business examples illustrate applications of mobile business in different food sectors: point of sales control and management through PDAequipped company promoters (La Bella Easo, Spain); Wi-Fi technologies applied to warehouse management and product tracking (Pastificio Riscossa, Italy); Podcasting and mobile marketing at Purina (USA). These case studies and business examples highlight some of the advantages previously described, such as availability of company information to mobile sales force, product traceability and personalisation of customer relationship.
73
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Case study on Granarolo, page 20. Available at www.ebusiness-watch.org (resources) An introduction to digital convergence (drivers and types of convergence, implications) is contained in the sector studies of 2006 on ICT manufacturing, consumer electronics and telecommunications as a special section: "Overview: Convergence as a cross-sectoral issue". The study reports with this section are available at www.ebusiness-watch.org ('resources'). 115
74
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Promoters who are charged with ensuring that the shelf conditions at each pointof-sales are consistent with the agreements reached with customers (price, line position, offers). They also negotiate the terms under which the product is displayed and sold at the end point-of-sales. The proposed information management system catered for the following functional areas: Generation and management of the master data that are considered necessary by the company. Information gathering by the sales force. This is the projects main area of innovation as far as the Spanish market is concerned. The company chose to equip each promoter with a PDA75 with the idea being to improve point-of-sales data acquisition. This is vital information for the company and prior to this it was collated on an informal basis, without exploiting all the possibilities this information provides. Information analysis. Once the problem of having good, systemised information has been resolved, the company has proceeded to analyse it. On the basis of this information, the company has adapted production, distribution and logistics processes to the new data available. From a technological standpoint, the project is noteworthy for its simplicity. It has the following infrastructure: PDAs for company promoters. Each one of the promoters operating throughout Spain is given a PDA with GPRS76 relay facilities. The PDAs have a series of variables that are considered important to the company and whose information underpins the companys business planning, both in terms of commercial activity and as regards production, logistics and distribution. The promoters use GPRS to link up with the companys intranet and relay the data collated, as well as to access the reports generated by the company. This was the first project of its kind to be undertaken in Spain. Reinforcement of the companys technology infrastructure. The system is based on an Oracle database, which stores and manages the information received from the company head office, the commercial offices and the PDAs. In addition, an application server called GPV and a multidimensional database called Board were used for reporting (generation of reports) and for data mining. The company Vincle was responsible for the design and implementation. The companys ERP system was subsequently upgraded, migrating to SAP Enterprise, which used several interfaces to link up with the application described in this document.
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Personal Digital Assistants, i.e. a hand-held portable device, often connected to the mobile phone network, allowing a wide range of applications. General Packet Radio Service (GPRS) is a mobile data service available to users of GSM mobile phones. 117
76
Personnel involved
The main stakeholders involved in the project were the companys sales centre in Barcelona, its regional sales managers in Spain, and the technology department.
Project phases
The project was implemented in three stages:
Stage 1: Analysis and definition of the projects scope and functional procedures
In cooperation with the IT department, the commercial management defined the variables and criteria deemed necessary for decision-making and for fine-tuning of commercial processes, bearing in mind their major impact on production, logistics and distribution processes. An analysis was subsequently performed to decide upon the most suitable information management solution. Various solutions from different manufacturers were assessed and Vincle was the one ultimately selected. Following the choice of the basic platform to be used, three weeks were devoted to the analysis and design of the specific functional procedures to be applied, in keeping with the commercial management model previously adopted. This task was overseen by a cross-departmental team, including representatives of the IT department, a regional sales manager and a promoter.
Stage 3: Launch
Finally, the application was extended to the entire sales force, which involved two key activities: User training. A training course was arranged on how to use the PDA, its functions and the importance of gathering the information, as well as on the projects aims. This training lasted for two days and was undertaken by regional areas. On-the-job training. The promoters were accompanied by ICT experts on their first visits to the point-of-sales, in order to ensure that they were indeed capable of correctly inputting the data into the PDAs. Furthermore, the aim was to show that the system was so simple that all the information considered necessary could be entered in a very short time. The end result was that the process of entering data took an average of 7 minutes, of the 45 minutes that a typical visit lasts. The projects definitive launch took place in September 2002. One of the projects more surprising features was the speed with which it was launched. Its implementation thus took place between June and September 2002.
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Impact
The main impact can be seen in a substantial enhancement of the point-of-sales (PoS) management, which is vitally important for the company. The project demonstrated that the availability of timely information on the various PoS can be greatly improved, which facilitates strategic and operational planning and decision making with regard to distribution and product management. In addition, the project has had other positive impacts on: Professionalism of promoters work Improved production planning Improved logistics planning Greater satisfaction amongst distributors and customers
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Lessons learned
The project demonstrated that the selected system empowers its users (e.g. in decision making) and is relatively easy to operate. To achieve this effect, however, it is very important that the selected technology matches the work processes which it is meant to support, and not the other way round. In this context, the following factors were critical for the success of the project: Involvement of all relevant stakeholders: Head Office, Regional Sales Managers and Promoters (the PDA users). They all contributed their view and experience and made important suggestions for further improvement during the project. Ease of use: the proposed tool must be easy to use in day-to-day operations. Change Management: users have to accept and feel comfortable with the new tool and not perceive it as a control mechanism. Evaluation and adaptability: the project outcome is undergoing an annual review, in order to assess results and the user opinions.
References
Research for this case study was conducted by DBK, S.A. Calle Juan Bravo, 3. Edificio C. E-28034 Madrid (Spain) on behalf of the e-Business W@tch. Sources and references Interview with Antonio Novo Guerrero, IT Officer at La Bella Easo, March 2006 La Bella Easo website: www.labellaeaso.es (March 2006)
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C ASE S TUDY : W I -F I
Abstract
IMPLEMENTATION AT
P ASTIFICIO R ISCOSSA
The Pastificio Riscossa is located in southern Italy. Its historical roots date back to the beginning of the 20th century. The factory produces a wide range of pasta recipes and formats, both for the Italian and international market, and commercialize other products such as rice and tomato sauce. Product traceability and the picking77process were recently improved by the adoption of a Wi-Fi order management system, which was integrated with the product labelling and tracking processes. The system led to a substantial reduction of picking times, and enables a quicker traceability of product batches (as required by EU legislation).
Case study fact sheet Full name of the company: Location (HQ / main branches): Sector (main business activity): Year of foundation: Number of employees: Turnover in last financial year: Primary customers: Most significant market area: Main e-business applications studied: Key words: Pastificio Riscossa, Fratelli MastroMauro Spa Corato (BA) Italy Production of various pasta types (Durum wheat flour dry pasta, semolina and egg pasta, organic pasta, biscuits, flours, rice, sauces) 1902 100 18 million euros Retail chains, organised distribution, grocery shops Central and Southern Italy, Europe, US Adoption of Wi-Fi terminals in the traceability/picking process Wi-FI, order management, logistics
77
Italy produces around 40% of world pasta production (7 million tonnes per year). Pasta is produced by almost 200 industrial pasta factories and no less than 5000 small pasta producers, for an overall turnover of over 3 billion euros. These include companies of all sizes, from multinationals present in dozens of countries to small workshops, often specialising in the production of filled pasta (ravioli and tortellini), found throughout Italy. The development of competition is generally tied to acquisitions and the pasta market shows a slow but steady concentration process, through acquisitions made by large companies. New entrants, if any, are concentrated in the small workshop sector, catering only to local market (fresh pasta shops). With a daily production of 250 tons of dry pasta, Pastificio Riscossa is in the "middle" section of the market. In this segment many medium-sized enterprises strive to keep their position, battling a strong price war driven by the retail chains. Part of the production is stock, while part is on order, just-in-time Before the Wi-Fi system introduction, each employee who had to prepare an order for shipping received a paper document with the shipping list. The product picking from the warehouse and the setup of the shipping pallet were executed manually, and each product was manually checked out from the paper list. As many small orders were processed every day for the domestic market, it was impossible to keep track of the single batch numbers of the products belonging to each order. The checked paper list was then forwarded to another employee, who manually input all data again into the company's ERP system, specifying product batches for each order. Besides being time-consuming, this procedure caused a rather high percentage of errors, both in the batch reading and in batch number transcription. Moreover, the transport documents could be printed only after all data had been reinserted in the system. The new European legislation on food and ingredients traceability (CE regulation 178/2002, enforced in January 2005) had a strong impact on the Italian pasta producers, as most of the wheat used is imported. According to this regulation, production batches must be indicated on all transport documentation. Moreover, the wide variety of shapes (120 different shapes) and recipes complicates the picking and shipping process, as often many different types of pasta have to be shipped in small qualities to the same retailer. An optimisation of the picking process was also necessary to reduce associated costs and errors due to the manual processing of documentation.
e-Business activities
To comply with EU regulations, Pastificio Riscossa after the integration of its production software in the Unix-based internal company management system decided to optimize the order preparation, picking and shipping process with the implementation of a wireless system of terminals. The computerisation of picking processes was forced by the obligation to track each and every delivered product batch, enforced by the legislation: a task virtually impossible with manual procedures. The project started at the end of 2004, and the system was up and running by the introduction of EU food traceability regulation, in January 2005.
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The cost of the project was approximately 100,000 euro, including the contribution of the internal IT staff . The company was equipped with a legacy, Sco-Unix-based, ERP system. The Wi-Fi terminals used (provided by PSC (the ICT supplier) were compatible with the legacy system. The relevant software was developed internally, with the help of a local software house (Tecnocomputer) and a provider of automated data identification solutions (MPH). The system had to be open, to be integrated in the legacy internal management system. The positioning of the Wi-Fi antennas in the warehouse required a careful planning, in order to avoid interferences caused by the metallic scaffolding and from the tomato cans: huge metallic structures could cause "shadow zones" where the radio signal could be weak or dead. The warehouse has 30 aisles, each about 50 meters long that are now perfectly covered by the radio signal. The project saw the involvement of various company departments: production (concerned with ingredients and batch numbers tracking and labelling), sales and delivery, as well as HR for employee training. The IT department coordinated the process and actively contributed to the programming and implementation phase. The team responsible for picking was equipped with three portable Wi-Fi terminals (working on two shifts), connected to the ERP system (see following exhibit).
Exhibit: Order management at Pastificio Riscossa
DATA RECEPTION Wi-Fi terminal syncs operator code and terminal code
WI-FI TERMINAL FUNCTIONS Wi-Fi terminal shows order and order composition Options:
Daily order list Priorities definition Transferring order to another terminal (operator)
barcode correct?
yes
no
ALERT
Impact
The implementation of the new tracking and picking procedure was perceived as a competitive advantage, and had many positive impacts on the company: Complete and detailed tracking of product batches and ingredients a feature that was not available before - and therefore compliance with European regulations. Inventory management and logistics were improved, with better management of small and complex orders. Acceleration of the picking process, with better organisation and rise in productivity. Improvement of the company image through stronger perceived food safety and more efficient product recall procedures; better relationships with retail (more information supplied). Employees training related to this activity was well perceived by the workforce and sets a base for future projects.
Lessons learned
After a few months of activity, the system was put to a test due to a food safety emergency: a whole shipload of wheat imported from Canada was found contaminated with ocratoxin, a carcinogenic substance produced by several fungi. About 58,000 tonnes of durum wheat were confiscated at the port of Bari. The new tracking system allowed Pastificio Riscossa to quickly identify the product batches that could contain contaminated wheat, and a successful targeted product recall operation was then launched. "All the tracking and recall process took about 2 hours with the new system", said Mr Francesco Cassar, IT director of Pastificio Riscossa, and continued: "With manual systems we actually don't know how long the process would have lasted. Furthermore, there could have been suspicions and imprecision. The operation was a success and greatly improved our image as a modern and reliable company". The company is now planning a further improvement of the delivery procedures, including warehouse automation and further supply chain management processes (expected in 2006-2007). An extension of wireless systems to the production process is also planned.
References
This case study was conducted by Databank on behalf of the e-Business W@tch. Interview with Mr Francesco Cassar, IT director of Pastificio Riscossa, April 2006 Articles on "Logistica Management" (April 2005, pages 115-117) and "Mark Up" (July-August 2005, pages 15-16) Company website: www.riscossa.it (April 2006) Case study from the technology supplier PSC Spa (available at www.psc.com/html/casestudies.htm) www.italtrade.com (April 2006)
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Business example:
Podcasting and mobile marketing at Purina (USA) In June 2005 Nestl Purina PetCare, a global player in the pet food industry, launched its first podcasting and mobile marketing campaign, helping to further establish the one-to-one marketing trend in the USA. Podcasting allows listeners to download digital audio files, or MP3s, to their computers or portable media players to enjoy whenever and wherever they want. The campaign includes podcasts of Purina's "Animal Advice" radio programs, where veterinarians and pet lovers discuss topics such as pet nutrition, animal training, pet surgery, behavioural theories and pet insurance. New shows are published every other week. Purina customers can also subscribe to a mobile news feed, that delivers pet care information directly to their mobile phones through weekly tips. This helps them to take better care of their pets, and download personalized ring-tones. Purina's wireless communications are available to consumers with AT&T, Cingular, Sprint and T-Mobile carriers, as long as their phones have text messaging (SMS) capabilities in the USA. The company is evaluating lessons learned from this campaign to determine new ways to include mobile solutions in the marketing mix in the future. Michael Moore, director of interactive marketing at Purina, said: "We are taking these steps to communicate in a unique way with our consumers and share valuable information with them. Given that 68% of young adults and 37% of adults use text messaging (SMS), we think a significant number of pet lovers are ready to receive text messages and wireless downloads from a brand they trust." Source: http://www.purina.com/company/press/2005/ForefrontDownload.asp
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Podcasting is the distribution of audio or video files over the Internet for listening on mobile devices (cell phones and/or MP3 readers) and personal computers, and has a strong potential for building closer relationships with consumers. 125
4.3.3
Sales force automation appears to be the most widespread mobile application in F&B. The sale force is usually numerous and widely distributed over the territory and takes advantage from the flexibility and mobility offered by this kind of applications (see case study about La Bella Easo). Wireless technologies such as bar code scanners and printers allow the reduction of errors in picking and warehousing processes to the shipping and distribution phases on the road. Another advantage is the reduction of data entry time and errors (see case study on Pastificio Riscossa). Involvement and motivation of the work force proves to be a key factor for the success of project implying new working procedures. The case study about La Bella Easo illustrated that the involvement of all relevant stakeholders within the organisation highly contributed to the successful implementation of the project. However, specific technological skills should be provided to empower agents and employees, as well as to enable the use of new technologies
4.4
4.4.1
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Section 2.2. Available at www.ebusiness-watch.org ('resources') 126
In recent years, F&B firms have been increasingly interested in RFID as the most promising technology that can support traceability and quality assurance. In 2006, eBusiness W@tch analysed the usage of RFID in this and two other sector studies, namely the ones on ICT use by companies in the footwear and the pulp & paper industries80. The results form the e-Business Survey 2006 indicate that the diffusion of RFID is still very limited at a general level and among F&B companies. Only 1% of all firms (accounting for 3% of employment) have adopted RFID; among large firms, 5% say they use RFID. These figures are lower than one could expect, taking into account the high emphasis that sector media and ICT suppliers are setting on RFID usage and potential benefits.
Base (100%): Companies using computers. N (for sector, EU-10) = 775. Weighting: in % of firms. Questionnaire reference: A4a Source: e-Business W@tch (Survey 2006)
4.4.2
80
The two e-Business W@tch Sector Studies on the Footwear and the Pulp & Paper Industries (2006) are available at www.ebusiness-watch.org/resources 127
of tags, it will be possible to monitor the state of conservation of a substance, and receive warnings when temperatures go outside accepted ranges. Progress in RFID development may eventually lead to the substitution of Universal Product Code (UPC) with an Electronic Product Code (EPC), allowing for the full scale integration of RFID technology. While UPC barcodes need line of site readers, EPC tags generate the radio signals necessary to track the item, and can be read at a distance. Identifying each container and warehouse shelf with tags reduces errors in collection and improves identification performances. The use of RFID is also an advantage in the sales outlets, in transportation, for workflows and in maintenance systems.
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See e-Business W@tch Sector Study on F&B Industry, Sep. 2005, Case Study on Beaver Street Fisheries/Wal-Mart page 28. Available at www.ebusiness-watch.org (resources) ibidem Das, Raghu / Harrop, Peter (2006): RFID Forecasts, Players & Opportunities 2006 2016. Your complete guide to the RFID markets and opportunities. Study by IDTechEx, featured at www.idtechex.com/products/en/view.asp?productcategoryid=93 (April 2006) See e-Business W@tch Sector Study on F&B Industry, Sep. 2005, Case Study on Beaver Street Fisheries/Wal-Mart page 28, available at www.ebusiness-watch.org (resources) Information about the implementation of RFID programme at Metro is available at http://www.metrogroup.de/servlet/PB/menu/1014671_l1/index.html 128
82 83
84
85
Last but not least, the usage at item level has other implications related to the tracking of consumers behaviour. Supermarkets are already tracking buying behaviour with loyalty cards. Through the application of RFID tags they may be able to go further in that direction with possibly unwarranted and serious privacy implications.
86 87
see respective case study in this Section. US manufacturer RSI announced that the price per tag would drop to 9.9 cents by December 2006 for customers that committed themselves to ordering about four million units per year or a two-year volume contract. See: "RSI Pushes Performance Amid RFID Price Wars", by Rhonda Ascierto, 3 November 2005, published at www.computerwire.com (April 2006) See European Commission, Directive 92/1/EC, dealing with the temperature monitoring of quick-frozen foods, http://europa.eu.int/eur-2.lex/lex/ 129
88
throughout all distribution phases (transport, warehousing and stacking in sales outlet), until the moment of consumption, to guarantee their integrity and quality. Through the use of tags, it will be possible to monitor the preservation status of a substance, and receive warnings when temperatures go outside the accepted thresholds. From a business point of view, it is likely that an increasing number of F&B firms will have to adopt an RFID strategy to cope with large retailers mandate. The following case study is about the application of RFID tagging at wheel level by an Italian consortium which produces the well-known Parmigiano-Reggiano cheese. It is a pioneering experience, the results of which are not yet fully deployed. Nevertheless, the interest of this case study relies in the fact that the application of RFID is related not only to food safety and traceability but also aims at achieving advantages in the areas of warehousing, inventory and distribution.
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many improvements may take place in this market relationship to the benefit of the cheese dairies, the stability of sales to a few purchasers guarantees a high reliability and this in turn reduces transaction costs. Latterie Virgilio is an Italian consortium that groups 108 dairy cooperatives, employing more than 2500 farmers. The consortium began its activity in 1966 with only 27 dairies: today its cooperatives transform each year more than one million tons of milk originating exclusively from cows nurtured in Northern Italy (Pianura Padana) and fed only local forage (with a ban on fermented forage, such as maize silages). The role of the consortium is to collect, to age (at least 12 months) and to pack the cheese products from its dairies, selecting only the ones which grant the safe origin of milk and the quality of making procedures. From their headquarter in the medieval town of Mantua in Northern Italy, Latterie Virgilio supplies to the Italian (80%) and foreign (20%) markets wheels of Parmigiano-Reggiano and Grana Padano and other products like milk, butter, mascarpone, yoghurt and milk cream. Other activities concern pork slaughtering and the production of prosciutto. All products have safe origin, freshness and quality granted by their traceability and food certification. Since 2001 the consortium obtained the certification CSQA89 which guarantees that milk and cream are produced exclusively from Italian cows. In particular the rigid and standardized manufacturing, aging and preservation method of the Parmigiano-Reggiano provides for excellent hygiene and safety characteristics that render it safe to consumers. In 2004 the consortium had a turnover of 300 million euros (+11,5% with respect to 2003). The export quota represents about 20%. The company employs about 300 people. Latterie Virgilio is the main Italian producer of butter, with a market share of 17%. As reseller of Parmigiano-Reggiano and Grana Padano, the consortium detains the seventh place in Italy for market share and the fifth place for export.
e-Business activities
One of the main activities of Latterie Virgilio is to collect the wheels of ParmigianoReggiano from the selected dairies, and to age the cheese into its warehouses according to the procedures established by the Consorzio del Formaggio Parmigiano-Reggiano This Consortium is a non-profit organisation and its main task is to defend and protect the Designation of Origin of the cheese and facilitate its trade and consumption, by promoting every initiative aimed at safeguarding the unique features of the product. One of the most important measures adopted by the Consortium with the aim of protecting the product sales is the introduction, since 1964, of the mark of origin, with the dotted inscription "Parmigiano-Reggiano" encircling the wheels.
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The control of traceability of the wheels of Parmigiano-Reggiano from the producer to Latterie Virgilio is done through a casein plate attached on the crust. The casein plate shows the production year, the acronym "C.F.P.R." and an alphanumeric code identifying each single wheel. The selected dairy receives from Latterie Virgilio these casein plates, bearing a unique code which represents the origin of the wheel (the dairy, the production zone, the lot). In the warehouse the wheels are aged, brushed (many times) to avoid mould formation on the crust, and finally sliced for retail distribution In this case the code-number is automatically printed also on the single package label. With this system any distributor or consumer can trace the origin of his wheel or slice of Parmigano-Reggiano. The risks of this procedure could be the following: the numbers marked over the casein plate could be illegible after the repeated brushing of the wheels; human errors of transcription from the casein plate to the register that books the wheels. Until now the control of the traceability has been done manually, but since 2003 the company started a project to automate this control. This project consists in the introduction of a RFID tag under the casein plate that allows to automatically identify the number and the codes of the wheels and transfer this data to a central database. The main advantage of this system is the enhanced possibility to keep track of all sorts of information. This includes not just production lots and codes (as required by EU regulation on traceability), but also, for instance, information about the quality of the wheel (based on the results of the quality checks made when the cheese wheel arrives at the warehouse or is shipped from it). This kind of information may include an assessment of the colour of the crust, the sound that the cheese makes when it is stroked by a rubber hammer, and other food-specific parameters. The investment requested for the pilot program was not very expensive, because Latterie Virgilio automatised its pre-existent traceability system. The cost has been around 20,000/30,000 euros (software, RFID readers and writers, sensors, antennas) plus the cost of about 200 tags at 0,50 cent each.
Technical issues
In 2003, Latterie Virgilio started the first testing, which involved few dairies. The aim was to verify technological and organisational problems. The main risk was to verify whether the "hostile" aging environment (with controlled levels of humidity and temperature) could cause a proliferation of bacteria and mildews under the casein plate, or whether the brushing procedures could cause damage to the tag or remove the control system. Many tests were conducted, and they didnt show problems. In 2004 the second testing started. The main goal was to establish an internal standard to divide the memory space of the chip, in order to insert different sort of codes (dairy of production code, wheel code, lot code, dates and other characteristics of the wheel).
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In 2005 the last successful testing (involving more dairies) was achieved, showing the possibility to adopt by 2007 this system for all cooperatives of the Consorzio del Formaggio Parmigiano-Reggiano. The tested technology used different types of RFID tags, working at 13,56 MHz frequency. The first version tag had a copper antenna and a diameter of 2 cm. The second version of tag has an aluminium antenna, and a diameter of just 1 cm. The smaller dimension reduces the possibility of bacteria and mildews proliferation under the casein plate. The third version used features an even smaller tag, inserted directly into the casein plate. All these RFID devices are readable and writable. The objective is to allow people that work with the cheese to update directly into the tag the information about the cheese wheel, whenever necessary along the supply chain. The RFID system has been tested only at wheel level but not at unit (cheese slice) level. The single cuts of Parmigiano-Reggiano have the relevant traceability code stamped on their package. Latterie Virgilio is now planning to extend this system to its production of Prosciutto: in this case the RFID tag will be sewed on a side of the ham.
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References
Research for this case study was conducted by Databank on behalf of e-Business W@tch. Sources and references: Interview with Carlo Buttasi, Technical Manager at Latterie Virgilio, April 2006, Mantova (IT) The Wall Street Journal (July 2005) Company Brochure (October 2005) Websites: - Latterie Virgilio: www.e-virgilio.com (April 2006) - Consorzio Parmigiano Reggiano: www.parmigiano-reggiano.it (April 2006)
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4.4.3
90
See e-Business W@tch Sector Studies on the F&B Industry, July 2005 and Sep. 2005, available at www.ebusiness-watch.org (resources) 136
5
5.1
5.1.1
Conclusions
Business impact
Implications for enterprises
In the F&B industry, ICT and e-business have their main impacts in the areas of production and logistics. In the marketing and sales areas, the potential of e-business is not yet fully exploited for the benefit of manufactures. Large retailers exert their power and tend to maximise the advantage of their direct control over customers. In general, the powerful ICT systems and e-business solutions of large enterprises enable (and help drive) more advanced practices which yield corresponding greater achievements in terms of savings and efficiency. The concrete e-business activity and the perceived importance of ICT currently differ widely between large companies and the smaller ones.
23
Base (100%): Companies using computers (excl. "don't know"). N (for sector, EU-10) = 766 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H1 Source: e-Business W@tch (Survey 2006)
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Data on perceived importance identifies two different sets of experiences which can be neatly described as characteristic of two groups: large enterprises seem to have incorporated e-business in their every day practice as it demonstrated by the diffusion of applications, such as ERP. Figures for micro-to-medium firms still indicate a low adoption rate of e-business.
-10 Revenue grow th Business processes efficiency Internal w ork organisation Procurement costs Product/service quality Customer service Productivity -2 0
10 19
20
30
40
50
23 33 21 20 31 24 Negative Positive
-1 -3 -1 -1 -3
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: in % of firms. Questionnaire reference: H4 Source: e-Business W@tch (Survey 2006)
As Exhibit 5-3 shows, positive influence increases proportionally to the firms size. The relatively higher influence is registered for internal work process, productivity, business process efficiency and customer service. This fully reflects the situation of the F&B industry, which has focused investments on internal process automation and supply chain efficiency.
138
... internal work processes 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 61 26 48 65 85 20 56 40 60 80
... procurement costs 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 20 35 18 27 42 41 38 40 60 80
... product/service quality 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 20 29 17 25 38 28 38 40 60 80
... customer service 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 28 38 57 63 52 20 51 40 60 80
... productivity 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 18 39 47 69 55 20 44 40 60 80
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H4
The impact on revenue growth and savings on procurement costs appear to be evidently lower, according to companies. This observation also applies to the average of all sectors. It should be noted however, that the reported positive influence by companies from the F&B industry is slightly lower for all specified issues. Both e-sales and eprocurement are not yet widely diffused in this sector (See Exhibit 3-18), therefore direct impacts are perceived only in a minority of cases.
Impact on organisation
Companies were also asked to indicate the perceived influence of ICT on organisation structure. Here the perception of F&B companies is similar to the average of all sectors: the influence is perceived to be important by all enterprise size bands and increases with company size. More than one third of companies observe an important impact in areas related to organisation; as can be expected, the share is higher among medium-sized and particularly large firms, where organisational issues are generally a more prevalent issue than among small companies. This holds true in particular for employee training, which appears to be the most influenced organisational aspect by ICT both in the F&B sector and across all sectors studied by e-Business W@tch this year.
Exhibit 5-4: Perceived influence of ICT on organisational issues: companies observing an important influence on
... organisational structure 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 20 40 22 34 41 46 39 40 60 80 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) ... task and job descriptions 0 20 33 14 29 37 46 38 40 60 80
... employee training 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 41 14 28 45 81 20 40 40 60 80
... outsourcing decisions 0 Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) 20 27 13 15 28 46 27 40 60 80
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising % of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H7 Source: e-Business W@tch (Survey 2006)
140
Base (100%): Companies using computers. N (for sector, EU-10) = 775. In % of firms. Questionnaire reference: H8 Source: e-Business W@tch (Survey 2006)
91
See also the e-Business W@tch Special Study on the "Impact of ICT on corporate performance, productivity and employment dynamics" (2006), available at www.ebusiness-watch.org ('resources') 141
Concluding assessment
Exhibit 5-6 summarises the impact of ICT in various areas of business activity. The scores should not be understood as 'exact' results of a quantitative computation, based on some model; they are tentative and merely indicative, reflecting the impression the study team gained from interviews, case studies and the literature review. They are presented and should be regarded mainly as an instrument to stimulate debate. The qualitative analysis also confirms that ICT and e-business in the F&B industry have their main impact in the areas of production and logistics (including traceability). As regards the marketing and sales area, the potential of e-business is not fully exploited for the benefit of manufactures. Large retailers exert their power in this area and tend to maximise the advantage of their direct control over customers. In general, powerful ICT systems and e-business solutions of large companies allow more advanced practices which turn into greater achievements in term of savings and efficiency, as mirrored by the following table. Nevertheless there are areas traceability is the most important where SMEs are adopting ICT and e-business on a relatively large scale and therefore significant impacts are observed.
Exhibit 5-6: Impact of ICT and e-business on competition in the F&B industry Business areas where ICT and e-business can have an impact 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Organisational structure Work-flows / operational organisation Sourcing and procurement Production / service provision Logistics Marketing / sales Customer support Research & development Product & service innovation Process innovation Skills requirements Outsourcing Employment Traceability and food safety or ) Source: e-Business W@tch (2006) Observed impact in large firms low < > high Observed impact in SMEs low < > high
Maximum: 3 points (
Skills requirements arise as an important issue whenever e-business is implemented, especially among SMEs. Smaller companies are obviously less equipped in terms of ICT skills and tend to be less receptive towards sophisticated solutions. Case studies conducted this year confirm evidence presented in last years e-Business W@tch report
142
on the F&B Industries.92 Indeed, it appears that the choice of user-friendly solutions and of mature and widely-spread supporting technologies, together with involvement and motivation of the work force are all essential for the successful implementation of ebusiness among SMES.
5.1.2
Background information:
Michael E. Porters Five-Forces Model The Five Competitive Forces model was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analysing Industries and Competitors in 1980. Since that time it has become an important tool for analysing industrial structure, competition and strategic options of players. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organisations external environment. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and, hence, the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organisation. Porters model helps to identify the main driving forces in an industry. Based on the information derived from the Five Forces Analysis, companies can decide how to influence or to exploit particular characteristics of their industry. The instrument has been applied by e-Business W@tch since 2004/05 to assess the influence of ICT and e-business on competition in a sector. Michael E. Porter is the Bishop William Lawrence University Professor at Harvard Business School.
92
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Case Studies about Sadpol and e-PIIM . Available at www.ebusiness-watch.org (resources'); and Case Study on La Bella Easo in Section 3.3 of the present report 143
Exhibit 5-7: Impact of ICT and e-business on competition in the F&B industry Competitive forces General importance in the sector (currently) low < > high 1 2 3 4 5 Threat of new entrants * Substitution of products / services Bargaining power of suppliers Bargaining power of customers Rivalry in the market Impacts of ICT and e-business Low < > high
* Note: "New entrants" in the sense of new companies being founded. New entrants in the sense of companies from a different geographic area entering the European market is considered under "rivalry in the market". Maximum: 3 points ( or )
144
To complete the picture about ICT impacts on industry structure, the survey addressed the perceived impacts of ICT on competition within the industry. The perception of players in the F&B industry about the impacts of ICT on competition in their sector is practically in line with the average of all 10 sectors studied in 2006 by the e-Business W@tch. Exhibit 5-8 also shows a high similarity of views between medium-sized and large enterprises, about half of which consider that ICT has led to at least some more competition in the industry. Since these companies generally deal directly with large distribution chains which impose their rules and standards on their suppliers, this may explain why F&B firms feel that ICT has an effective impact on competition. Overall, ICT is perceived as an important enabling factor for competitive strategies but not as a competition factor per se.
Exhibit 5-8: Perceived impact of ICT on competition in the industry
80 60 40 20 0 -20
To tal Fo o d (EU-1 0) M icro (1 -9 empl.) Small (1 0-49 M edium (50empl.) 249 empl.) Large (250+ empl.) A ll 1 0 secto rs (EU1 0)
9 8 33 -3 3 18 -5 25 -4
10 40 -1
9 42 -2 0
17 35 -1
"Significantly increased due to ICT" "Somew hat increased due to ICT" "Rather decreased due to ICT"
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Questionnaire reference: H6 Source: e-Business W@tch (Survey 2006)
5.2
Policy implications
This section highlights policy implications arising from the e-Business Survey 2006, the qualitative analysis and the case studies. E-business developments can have implications for several policy areas. Relevant considerations made in this context can be grouped around two overall objectives, which are paradoxically, to some extent, antagonistic: Promote ICT adoption: Policy may have an interest in accelerating the adoption of ICT and e-business activity among companies, particularly among SMEs. This is based on the assumption that ICT are a driver of productivity and competitiveness.
146
Counteract ICT induced market failure: At the same time, policy will have to consider intervention if e-business activity causes undesirable effects on the aggregate level, i.e. market failure. At a general level, policies that can promote ICT adoption include those aiming at improving the development of infrastructure and the legal and regulatory environment, as well as to create a favourable business environment. The following table summarises the main policy issues that arise from the analysis of the present report and are specific to the F&B industry.
Exhibit 5-9: Policy implications arising from e-business activity in the F&B industry Policy issues Possible initiators European Commission National Governments Industry associations European Commission National Governments Regional Governments Intermediaries and industry associations European Commission National Governments Industry federations Business support networks European Commission National Governments Standardisation bodies Industry Associations Policy leverage low < > high 1 Facilitate F&B compliance to quality and safety issues
Standardisation
Maximum: 3 points (
or
93
addition to technology, a considerable degree of B2B integration with business partners is also necessary. However, traceability and its integration in the information systems imply additional costs, which tend to be relatively higher for small and medium-sized enterprises. Apart from a considerable investment into the adoption of the required technologies, there are also changes required in business processes and practices. The importance of regulatory aspects in the F&B industry is confirmed by data from the eBusiness Survey 2006, which underline the relevance of interoperability issues in order to obtain a better connection along the value chain (see Section 3.3). F&B firms, especially SMEs, should be supported by measures including the provision of relevant information and education support in this field. Policy may have a role in supporting the diffusion of information through public programmes and with the help of industry associations. In this context, it would be important to provide information and advice about technological solutions able to support tracking and traceability, such as ERP. Results of our analysis, presented in Section 3.4, indicate that these solutions are increasingly adopted, even among smaller firms and bring relevant competitive advantages.
94
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, page 27. Available at www.ebusiness-watch.org (resources). See case study in Section 3.3 of this Report. 148
95
Promoting entrepreneurial and managerial understanding of e-business applications and related potential benefits. Survey data demonstrate that economic benefits such as revenue growth and/or procurement savings are achieved only by a minority of companies. F&B firms, especially SMEs, should be made aware that e-business potential benefits may vary considerably and need to be assessed in relation to the different situations of each single firm. Providing information about e-business and support to decision-making through the sharing of practices. F&B industry associations may support the sharing of successful e-business practices at sector level, between companies of similar size. Encouraging the improvement of skills related to the reorganisation of working processes and procedures and the implementation of innovative technologies. For instance, the introduction of mobile applications for the sales force requires ad hoc training on the usage of tools and applications.
See e-Business W@tch Special Study on the "Impact of ICT on corporate performance, productivity and employment dynamics" (2006), available at www.ebusiness-watch.org ('resources') CIIA, European Technology Platform on Food for Life. The vision for 2020 and beyond http://etp.ciaa.be/asp/about_etp/welcome.asp 149
97
Promoting value chain co-operation and sharing of good practices among F&B firms. Stimulating participation of SMEs in business networks.
Standardisation
There is evidence98 that standards play a critical role when innovation is introduced -be it product, process or service innovation- and to support integration within and among companies. For the F&B industry, in particular, this report has highlighted the importance of eintegration of business partners along the value chain. Results form the e-Business Survey 2006 indicate that interoperability in the F&B industry appears to be an important issue for optimisation of critical areas such as e-invoicing and payments, as well as for regulatory aspects, linked to food safety and traceability (see Exhibit 3-12). Without standards and interoperability of information systems, advanced forms of digital integration in B2B exchanges is hardly possible. Presently, the ICT system of 10% of small firms is integrated with that of business customers and this percentage is likely to increase. The governance of this process of integration is crucial for the competitiveness of small F&B firms The F&B industry appears quite advanced in the adoption of EDI and especially internetbased EDI. There are also indications that F&B firms are relatively more dynamic in migrating form EDI towards XML based standard (see Exhibits 3-8 and 3-10 in Section 3.3.1). This attitude should, therefore, be further supported by policy measures which should aim at fostering faster and wider uptake of standards: At sector level, measures should include awareness raising and support mechanisms for standardisation initiatives, with the aim to stimulate participation of SMEs. Relevant stakeholders, such as industry federations and standardisation bodies, should be encouraged in making information about and benefits arising from standards and practices in this field available to F&B firms, especially SMEs. At cross-sector level, F&B SMEs should be assisted in initiatives aiming at the establishment of standards for electronic integration with distribution. According to statistical findings, presented in Section 3.6.2 of this report, the ICT system of 10% of the sectors small firms seems to be integrated with that of their business customers - and this percentage is likely to increase. The governance of this process of integration is crucial for the competitiveness of small F&B firms. The case study about LogisticXP provides an interesting example of such a collaborative initiative.
98
See e-Business W@tch Sector Study on the F&B Industry, September 2005, Section 2.5; eBusiness W@tch Report on e-Business Interoperability and Standards, September 2005. Both study reports are available at www.ebusiness-watch.org 150
References
Publications
Carr, Nicholas (2003). "IT Doesn't Matter". In: Harvard Business Review, May 2003. CIES Supply Chain Conference Barcelona, October 2005, Report CIIA, Data and Trend of the food and Drink Industry, 2005 CIIA, European Technology Platform on Food for Life. The vision for 2002 and beyond Das, Raghu / Harrop, Peter (2006): RFID Forecasts, Players & Opportunities 2006 2016. Your complete guide to the RFID markets and opportunities. Study by IDTechEx, featured at www.idtechex.com/products/en/view.asp?productcategoryid=93 (July 2006) Deloitte, Whats Cooking in the Food Industry, 2005 EFITA/WCCA Joint Congress on IT in Agriculture A conceptual Framework for E-Business Adoption and Development for Enterprises in the Agri-Food Industry, Matopoulos, A.; Vlachopoulou, M,; Manthou, V.; Manos, B. July 2005 European Commission, DG ENTR, Salmi, H., Measurement of Competitiveness as the basis for policy development "Logistica Management" (April 2005, pages 115-117) "Mark Up" (July-August 2005, pages 15-16) Official Journal of the European Communities, 21/7/1998. Porter, Michael E. (1985). Competitive Advantage. New York: Free Press. Page references in quotations refer to the Free Press Export Edition 2004. Porter, Michael E. (1980). Competitive Strategy. New York: Free Press. Page references in quotations refer to the Free Press Export Edition 2004. The Wall Street Journal (July 2005) e-Business W@tch Reports on the F&B industry, 2005 e-Business W@tch Reports on e-Business Interoperability and Standards, September 2005
Websites
The European Federation of European Food and Drink Industries: www.ciaa.be/ (April 2006) European Commission, DG Enterprise: www.europa.eu.int/comm/enterprise/food/index.htm (April 2006) www.accenture.com (August 2006) www.atosorigin.com (August 2006) www.ciber.com/news/article (July 2006) www.computerwire.comwww.fmi.org/technology (March 2006) http://etp.ciaa.be/asp/about_etp/welcome.asp (October 2006) www.fda.gov/oc/bioterrorism/bioact.html (March 2006) www.easynet.com (August 2006) www.ebusiness-watch.org/resources/food/SR01a_Food_2005_web.pdf www.elupeg.com (September 2006) www.e-virgilio.com (April 2006) http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/l_031/l_03120020201en00010024.pdf (April 2006) http://europa.eu.int/eur-2.lex/lex (October 2006)
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www.godiva.be (September 2006) www.heinz.com (March 20069 www.ibm.com (July 2006) www.idtechex.com (July 2006) www.indexsystems.co.uk (March 2006)
www.intertradeireland.com (September 20069
www.italtrade.com (April 2006) www.labellaeaso.es (March 2006) www.mathiesons.co.uk (March 2006) www.metrogroup.de/servlet/PB/menu/1014671_l1/index.html www.mph.it (August 2006) http://www.nel.co.uk/evolve/ (September 2006) www.oracle.com (August 2006) www.parmigiano-reggiano.it (April 2006) www.prodika.com (March 2006); www.psc.com/html/casestudies.htm (March 2006) www.riscossa.it (April 2006) www.rossinc.com/ (March 2006) www.sap.com (August 2006) http://shareholder.com/campbell/reports.cfm www.tecnocomputer.it (August 2006) www.translogistica.com (August 2006) www.uk.foedevarestyrelsen.dk/Forside.htm
152
Questionnaire
The questionnaire is similar to those used in the previous surveys from 2002 to 2005 in order to ensure a basic continuity of the research approach. The module on ICT impact was substantially extended compared to 2005, in response to current policy interest, in exchange for some questions from other modules. Some questions which were also used in previous surveys were slightly modified. The most important change in this context concerns questions on e-commerce: up to 2005, companies were asked whether they "purchase / sell online"; in 2006, companies were asked whether they "place / accept orders online". This is a more precise question, since the terms "purchasing" and "selling" leave it open whether ordered goods also have to be paid online in order to qualify for "online purchasing / selling". Some specific topics were added or expanded in the questionnaire in order to reflect the latest e-business developments; examples are the new questions on the use of RFID and Voice-over-IP. The questionnaires of all four surveys (2002, 2003, 2005, 2006) can be downloaded from the e-Business W@tch website (www.ebusiness-watch.org/about/methodology.htm).
Population
As in 2005, the survey considered only companies that used computers. Thus, the highest level of the population was the set of all computer-using enterprises which were active within the national territory of one of the 29 countries covered, and which had their primary business activity in one of the 10 sectors specified on the basis of NACE Rev. 1.1. Evidence from previous surveys shows that computer use can be expected to be 99% or more in all sectors among medium-sized and large firms. Differences are more relevant, however, for micro and small enterprises, in particular in the food and beverages industry, the textile and footwear industries, construction and tourism. In these four sectors, 1030% of micro enterprises and 4-15% of small firms (depending on the country and sector) do not use a computer.100 This should be considered when comparing figures over the
99
The EEA (European Economic Area) includes, in addition to EU Member States, Iceland, Liechtenstein and Norway. Acceding Countries with whom an Accession Treaty has been signed are Bulgaria and Romania; Candidate Countries, which are candidates for accession into the EU, are (as of September 2006) Croatia, the former Yugoslav Republic of Macedonia, and Turkey. In most of these countries, interviews and/or case studies were conducted. Non-computer users include typically small craft firms (textile, construction), bars, restaurants or pensions (in tourism), and small food producing companies. 153
100
years, as figures either represent a percentage of "all companies" (as in 2002 and 2003) or a percentage of "companies using computers" (as in 2005 and 2006). Differences are minimal, though, when figures have been weighted by employment. The 10 sectors which were selected for the 2006 survey are extremely heterogeneous in terms of their size. Construction and tourism are by far the largest with about 1.5 million enterprises in each of the EU-25.101 At the other end of the range is the consumer electronics industry with about 5,400 enterprises; this is a factor of about 280 between the largest and smallest sector. This imbalance has inevitably a substantial impact on weighting and thus on aggregate results, which are dominated by figures from construction and tourism.
Table 1: Population coverage of the e-Business Survey 2006 No. NACE Rev. 1.1 Sectors covered No. of enterprises in EU-25 * 282,000 13,700 18,400 31,800 5,400 7,200 1,546,000 1,500,000 12,900 (e) 13,000 No. of interviews conducted 1,709 980 1,158 1,687 665 150 2,655 2,663 1,580 834
1 2 3 4 5 6 7 8 9 10
DA 15 (most groups) DC 19.3 DE 21 DL 30, 32.1+2 DL 32.3 DM 35.11 F 45.2+3 (selected classes) H 55.1/3, I 63.3, O 92.33/52 I 64.2 N 85.11
Food and beverages Footwear Pulp, paper and paper products ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities
* mostly based on Eurostat SBS, latest available figures (e) = estimated on the basis of figures for the former EU-15 (no figures available for EU-25)
101
Construction (NACE Rev. 1.1 F 45) in total has about 2.3 million enterprises. The sub-sectors covered in 2006 (see Table 1) account for about 1.5 million out of these. 154
Fieldwork
Fieldwork was coordinated by the German branch of Ipsos GmbH (www.ipsos.de) and conducted in cooperation with its local partner organisations (see Table 2) on behalf of eBusiness W@tch.102 The survey had a scope of 14,081 interviews, spread across the 29 countries and 10 industries covered. In 10 countries ("EU-10"), all 10 sectors were covered; in the other countries, selected industries were surveyed. In most countries, between 400 and 750 interviews were conducted. Pilot interviews prior to the regular fieldwork were conducted with 23 companies in Germany in February 2006, in order to test the questionnaire (structure, comprehensibility of questions).
Table 2: Institutes that conducted the fieldwork of the e-Business Survey 2006 and no. of interviews per country (#) Institute BE CZ DK DE EE Ipsos Belgium, 1050 Brussels Ipsos Czech Republic, Skolska 32/694, 110 00 Praha 1 Vilstrup Research AS, 1360 Copenhagen Ipsos GmbH, 23879 Mlln Marketing and Public Opinion Research Centre SKDS, Riga LV-1010 Synovate Hellas, 15451 Athens Ipsos Eco Consulting, 28036 Madrid Ipsos France, 75739 Paris Landsdowne Market Research, Dublin 1 Demoskopea S.p.A., 00199 Roma Synovate Cyprus, 2107 Nicosia Marketing and Public Opinion Research Centre SKDS, Riga LV-1010 Ipsos GmbH, 23879 Mlln/20097 Hamburg Szonda Ipsos, 1096 Budapest # Int. 400 750 403 800 314 MT NL AT PL PT Institute Misco International Ltd., Valetta VLT 04 Ipsos Belgium, 1050 Brussels Spectra Marktforschungsgesellschaft m.b.H., 4020 Linz Ipsos Poland, 02-508 Warszawa Ipsos Portugal, 1070-15 Lisbon GfK Gral-Iteo trazne raziskave d.o.o., 1000 Ljubljana GfK Slovakia Ltd., 813 41 Bratislava 1 Taloustutkimus Oy, 00510 Helsinki GfK Sverige AB, 22100 Lund Continental Research, London EC1V 7DY EEA and Acceding/Candidate countries NO BG RO TR Norstat Norway, 0159 Oslo TNS BBSS Gallup Interbational, 1164 Sofia Field Insights, Bucharest 2 Bilesim International Research & Consultancy Inc. Turkey, 34676 Istanbul 401 400 440 400 # Int. 101 400 400 752 400
EL ES FR IE IT CY LV LT LU HU
407 754 751 400 756 209 432 404 117 772
SI SK FI SE UK
102
The survey was carried out under two different contracts. The survey in the six largest EU countries (DE, ES, FR, IT, PL, UK) was carried out as part of the e-Business W@tch contract between the European Commission and empirica GmbH; the survey in the other countries was carried out in parallel, but under a different contract (following an open call for tender for the "extended e-Business W@tch survey", issued in 2005). 155
Non response: In a voluntary telephone survey, in order to achieve the targeted interview totals, it is always necessary to contact more companies than just the number equal to the target. In addition to refusals, or eligible respondents being unavailable, any sample contains a proportion of "wrong" businesses (e.g., from another sector), and wrong and/or unobtainable telephone numbers. Table 3 shows the completion rate by country (completed interviews as percentage of contacts made) and reasons for noncompletion of interviews. Higher refusal rates in some countries, sectors or size bands (especially among large businesses) inevitably raises questions about a possible refusal bias. That is, the possibility that respondents differ in their characteristics from those that refuse to participate. However, this effect cannot be avoided in any voluntary survey (be it telephone- or paper-based).
Table 3: Interview contact protocols: completion rates and non-response reasons (2006, examples)
CZ 1 Sample (gross) 1.1 Telephone number does not exist 1.2 Not a company (e.g. private household) 1.3 Fax machine / modem 1.4 Quota completed -> address not used 1.5 No target person in company 1.6 Language problems 1.7 No answer on no. of employees 1.8 Company does not use computers 1.9 Company does not qualify Sum 1.1 1.9 2 Sample (net) 2.1 Nobody picks up phone 2.2 Line busy, engaged 2.3 Answering machine 2.4 Contact person refuses 2.5 Target person refuses 2.6 No appointment during fieldwork period 2.7 Open appointment 2.8 Target person is ill / unavailable 2.9 Interview abandoned 2.10 Interview error, cannot be used Sum 2.1 2.10 3 Successful interviews Completion rate (= [3] / [2]) Average interview time (min:sec) 5595 283 79 56 43 17 9 2 48 134 671 4924 1071 83 143 2080 450 3 295 2 43 4 4174 750 15% 19:19 DE 7763 1055 80 48 124 359 18 1 47 330 2062 5701 582 122 145 1125 1865 11 953 31 67 0 4901 800 14% 18:46 ES 7730 0 356 0 660 730 0 10 158 103 2017 5713 1645 57 121 2553 202 70 35 0 271 5 4959 754 13% 17:29 FR 8686 186 66 79 1939 142 25 13 250 156 2856 5830 6 46 1315 131 1475 182 1896 0 29 5 5085 751 13% 19:39 HU 21540 5545 2076 1120 1665 9 0 6 279 0 10700 10840 1023 89 1200 2011 2776 2571 258 0 108 32 10068 772 7,12% 17:14 IT 8533 717 89 61 2154 178 1 8 314 113 3635 4898 647 0 0 729 642 384 1041 13 686 0 4142 756 NL 4576 349 219 28 1002 232 36 1 235 47 2149 2427 82 3 9 1653 113 112 21 0 34 0 2027 400 PL 11054 2282 681 53 877 959 0 19 460 813 6144 4910 513 73 127 2009 280 150 763 29 176 38 4158 752 15% 23:44 FI 3016 139 34 4 66 319 41 1 28 49 681 2335 22 1 1 578 405 50 459 2 15 50 1583 752 32% 20:19 UK 11821 2663 324 130 158 736 20 0 51 215 4297 7524 1898 1 145 2523 1618 376 51 32 130 0 6774 750 10% 20:16
156
Bulgaria
Czech Republic
Denmark Finland
Germany
Greece
Spain
France
Hungary
Ireland
157
Food and beverages Italy Many refusals among the smallest and/or family owned business, where only one PC is available and used more for personal reasons than for business. Respondents often lost their patience because considering the low use of the PC in their business, they had to spend time on the phone always giving the same answers ("no, do not use "). The main problem was the length of the questionnaire. Although the average interview length was 16 minutes and thus the shortest of all participating countries, surveys among companies with interviews lasting more than 15 minutes are generally not recommended in Latvia. It was rather hard for IT managers to answer about budget, market shares and so on. The questionnaire was very clear, so positive. Business-to-business surveys are often difficult when the questionnaire length is longer than 15 minutes. Secretaries/receptionists in the Netherlands are very well trained in refusing the transferring of a call. Interviewers experienced that many respondents / businesses did not wish to participate due to the topic of the survey. Main reason was that they did not feel competent, although they qualified from the results of the screening. There were some difficulties in getting an interview with computer/IT specialists. In many big companies they refuse to take time for an interview. Many small companies did not understand some of the more technical terms. The questionnaire was understood by most of the respondents. Although some of the questions do appear to be quite technical, this did not prove a particular problem for respondents. There was a very low universe of companies in certain quota cells. Given the limited sample available in some sectors, and the need to target a high proportion of large companies, a longer field period would probably have helped to maximize the number of complete interviews. It is becoming increasingly difficult to secure interviews with IT/DP professionals, and we suspect that this situation will only worsen in the future.
Latvia
The Netherlands
Norway
Poland
Sweden UK
Weighting schemes
Due to stratified sampling, the sample size in each size-band is not proportional to the population numbers. If proportional allocation had been used, the sample sizes in the 250+ size-band would have been extremely small, not allowing any reasonable presentation of results. Thus, weighting is required so that results adequately reflect the structure and distribution of enterprises in the population of the respective sector or geographic area. e-Business W@tch applies two different weighting schemes: weighting by employment and by the number of enterprises.103 Weighting by employment: Values that are reported as employment-weighted figures should be read as "enterprises comprising x% of employees" (in the respective sector or country). The reason for using employment weighting is that there are many more micro-enterprises than any other firms. If the weights did not take into account the economic importance of businesses of different sizes in some way, the results would be dominated by the percentages observed in the micro size-band. Weighting by the number of enterprises: Values that are reported as "x% of enterprises" show the share of firms irrespective of their size, i.e. a micro-company with a few employees and a large company with thousands of employees both count equally.
103
In the tables of this report, data are normally presented in both ways, except for data by sizebands. These are shown in % of firms within a size-band, where employment-weighting is implicit. 158
104
The EU-10 are composed of those countries in which all 10 sectors were covered by the survey. To ensure data comparability, only interviews from these countries are included in the aggregated "total" values. The EU-10 are: CZ, DE, ES, FR, IT, HU, NL, PL, FI, UK. These 10 countries represent more than 80% of the population and GDP of the EU. 159
All sectors (aggregate), EU-10 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-10 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-10 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-7 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-7 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities
160
4 Sub-Indices (by business function) A. Access to ICT networks B. e-Process integration C. Supply-side activity D. Marketing and sales
E-Business Index
E-Business Index
The e-Business Scoreboard takes into account the percentages (diffusion rates) from all sectors (size-bands, ) and show how a specific sector (size-band, ) differs from the all-sector-average. An index value is based on mean values and standard deviations. Thus, index values express the multiple of the standard deviation (1 or (-1)) for a specific sector and the selected indicator. 0 equals the mean value for all sectors (size-bands, ). Indexes simplify multi-dimensional concepts. To correctly assess the validity and shortcomings of the Scoreboard and its overall index, the following notes should be taken into account: Weighting: Results are influenced by the selection of the underlying weighting scheme for component indicators. If employment-weighted figures are used, ebusiness activity in large firms is emphasized. If indicators are weighted by the number of enterprises (irrespective of their size), the situation in smaller firms is emphasized. Component indicators: The selection of component indicators may have a bias towards manufacturing activities, as some indicators can be more relevant for manufacturing than for service sectors (e.g. ERP use). Relative comparison: The Scoreboard results do not represent absolute measures of e-business activity, but depend on the respective set of sectors (or countries, ...) that are compared to each other, because figures express standard deviations from the average of the respective set.
161
Use of LAN Use of a Wireless LAN Remote access to the company's computer network
= = =
B. Internal business process automation B.1 B.2 B.3 Use of an intranet Use of an ERP system Use of online technology to track working hours and/or production time Companies sending or receiving e-invoices Companies placing >5% of their orders to suppliers online
= = =
B.4
C.2
Use of specific ICT solutions for e-procurement Companies linking their ICT system with suppliers Companies managing capacity and inventory online Use of CRM software systems
C.3 C.4
= =
D.2
D.3
Use of specific ICT solutions to support marketing and sales processes Companies linking their ICT system with customers
D.4
162
163
Exhibit A2-1: Internet access and remote access to company network Companies with internet access
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Belgium Czech Republic Denmark Germany Greece Spain * France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
95
88 85 91 100 100
72
64 61 62 78 83
n.a.
25 32 18 23 47
35
14 11 20 37 69
97 86 93 84 76 100 77 96 89 54 84 88 91 90 69 98 97 91 68 93 89 98 99 99
86 69 85 65 54 88 81 95 69 50 73 73 68 62 77 81 65 79 47 76
86 59 81 49 18 80 72 66 59 13 59 72 49 49 55 79 65 69 35 69 62 75 83 84
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 40
38 46 39 27 26 27 18 31 22 33 47 41 25 58 21 44 53 40 29 43 51 29 33 44
57 44 68 26 52 50 31 66 20 37 31 40 49 28 19 28 51 19 22 35
17 25 23 19 19 45 6 29 6 13 20 14 18 18 4 22 42 11 15 16 12 22 43 60
firms using firms using Base (100%) computers computers N (for sector, EU-10) 775 775 Questionnaire reference A1 A3 * Data only indicative due to low number of observations (N < 50).
105
The average share of employees with internet access in the F&B industry is 25% 164
Exhibit A2-2: Demand for ICT skills and skills development Companies with hard-to-fill vacancies for ICT jobs in 2005
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Belgium Czech Republic Denmark Germany Greece Spain * France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%)
26
11 5 11 24 70
26
14 10 16 22 50
0 0 1 1 1
16
9 7 10 21 35
46 11 50 21 59 31 19 42 32 19 34 28 29 42 25 16 14 31 4 27
6 6 26 6 32 25 1 19 8 10 8 3 5 8 6 11 14 13 4 14 12 15 29 59
26 41 28 12 49 31 21 19 21 25 17 29 30 50 19 12 25 21 32 22
4 11 5 4 24 35 11 11 7 22 5 6 8 13 6 6 16 13 15 13 9 16 28 41
5 1 8 0 8 1 0 0 4 11 0 0 0 1 0 0 7 10 3 2
1 1 1 0 7 0 0 0 0 1 1 0 0 1 0 0 3 8 6 1 2 0 2 6
21 27 19 16 19 12 7 26 7 8 9 25 16 20 9 12 27 26 35 21
8 5 3 7 11 20 10 24 6 4 7 9 10 15 5 10 19 22 30 11 12 11 19 35
firms using firms using computers computers N (for sector, EU-10) 775 775 Questionnaire reference B1 B4 * Data only indicative due to low number of observations (N < 50).
165
Exhibit A2-3: Companies ordering supply goods online Place orders online
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Belgium Czech Republic Denmark Germany Greece Spain * France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%)
54
39 32 54 58 70
86
91 94 90 77 95
14
9 6 10 23 5
14
5 2 7 16 41
57 59 83 59 54 33 52 52 43 33 43 53 61 57 30 65 68 38 44 57
51 34 78 55 37 30 38 51 30 27 37 41 52 41 21 61 72 33 39 48 44 54 60 68
93* 62* 47* 85* 69* 95* 99* 74* 85* 83* 91* 74* 90* 79* 89* 83* 82* 68* 67* 74
85* 67* 27* 88* 83* 99* 100* 89* 98* 62* 74* 93* 88* 74* 85* 85* 84* 67* 71* 75 73 80 76 75*
7* 38* 53* 15* 31* 5* 1* 26* 15* 17* 9* 26* 10* 21* 11* 17* 18* 32* 33* 26
15* 33* 73* 12* 17* 1* 0* 11* 2* 38* 26* 7* 12* 26* 15* 15* 16* 33* 29* 25 27 20 24 25*
13 6 13 14 16 19 17 25 11 5 10 7 18 12 11 13 9 7 20 16
3 3 8 5 9 15 1 15 6 9 3 1 9 1 3 9 4 9 13 9 7 10 16 29
firms using firms placing computers orders online N (for sector, EU-10) 775 385 Questionnaire reference E1 E3 * Data only indicative due to low number of observations (N < 50).
166
Exhibit A2-4: Companies receiving orders from customers online Accept orders from customers online
% of empl. % of firms
Food & bev. (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Belgium Czech Republic Denmark Germany Greece Spain France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%)
31
19 13 26 40 41
82
87 95 89 90 83
18
13 5 11 10 17
14
4 1 9 14 51
22 31 31 38 23 17 25 32 20 3 18 25 28 25 12 42 48 23 26 35
20 18 29 20 18 25 9 31 13 2 22 20 22 32 8 37 38 13 24 25 23 26 29 26
** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 73
** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 75 79 76 75 74
** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 27
** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** 25 21 24 25 26
10 8 23 12 12 14 10 30 12 12 14 5 23 24 5 11 18 13 24 18
1 7 10 4 5 10 1 11 1 9 5 2 5 3 5 9 17 8 12 9 6 12 16 27
firms using firms accepting firms accepting firms using computers orders online orders online computers N (for sector, EU-10) 775 212 212 775 Questionnaire reference F4 F6 F6 F10 * Data only indicative due to low number of observations (N ~ 25-50). ** Data are not displayed, since number of observations (N) for this follow-up question is very small (< 25 in most countries).
167
B2C Bandwidth
DRM
DSL
e-Business
ebXML
e-Commerce
106
Some of the definitions in this glossary are derived from or based on definitions suggested by Whatis?com, a leading online ICT encyclopaedia and learning centre. See http://whatis.techtarget.com. 168
EDI
Electronic Data Interchange. A way for unaffiliated companies to use networks to link their businesses by using a common technical standard for exchanging business data. While electronic mail between companies is common, electronic data interchange passes bigger bundles that replace large paper documents such as bills and contracts. Electronic Document Management. The management of different kinds of documents in an enterprise using computer programmes and storage devices. An EDM system allows an enterprise and its users to create a document or capture a hard copy in electronic form, store, edit, print, process, and otherwise manage documents. Electronic invoicing. A business-to-business transaction in which invoices are generated, delivered (and normally paid) electronically, replacing the equivalent traditional paperbased invoicing processes. e-Learning means supporting training with learning material in electronic format, for example material that is available on the intranet or the internet. e-Learning applications can be used for ICT-related training, but also for sector-specific or even companyspecific training content. Enterprise Resource Planning. A software system that helps to integrate and cover all major business activities within a company, including product planning, parts purchasing, inventory management, order tracking, human resources and finance. A network using internet protocols that allows external organisations (for example customers or suppliers) access to selected internal data. Essentially it is an Intranet which gives external users restricted access (often password protected) to information through the firewall. A firewall is a set of related programmes that protects the resources of a private network from users from other networks. The term also refers to the security policy that is used with the programmes. Information and communication technology. ICT includes networks, computers, other data processing and transmitting equipment, and software. The application of ICT in business processes leads to e-business. Measures taken to protect information systems against unauthorised use and attacks The world's largest computer communication system, with an estimated 700 million 107 The internet is a loose confederation of principally academic and users worldwide. research computer networks. It is not a network but rather the interconnection of thousands of separate networks using a common language. The technical features of a group of interconnected systems (includes equipment owned and operated by the customer which is attached to the public telecommunication network) which ensure end-to-end provision of a given service in a consistent and predictable way. An internal internet, that is an internal network running using TCP/IP, which makes information available within the company. Most Intranets are connected to the internet, and use firewalls to prevent unauthorised access. Integrated Services Digital Network. An international telecommunications standard for transmission of voice and data over dial-up lines running at 64 Kbit/s (kilobits per second). It allows sharing of multiple devices on a single line (for example, phone, computer, fax). Information technology. IT includes hardware (computers, other data processing and transmitting equipment) and software. Knowledge Management. ICT solutions that support enterprises in systematically gathering, organising, sharing, and analysing their knowledge in terms of resources, documents, and people skills. Knowledge management software typically involves data mining and some method of operation to push information to users.
EDM
e-Invoicing
e-Learning
ERP
Extranet
Firewall
ICT
Interoperability
Intranet
ISDN
IT KM
107
LAN
Local Area Network. The most common way of connecting computers in a small area (typically inside a building or organisation) for sharing databases and communication facilities. The two most common versions are Ethernet and Token Ring. Implementation is based on coaxial cables or plain wires. Speed achieved ranges from 10 Mbps to 100 Mbps. A private communication channel leased from the common carrier. It is usually a dedicated fixed-route link (e.g. point-to-point frame relay). Mobile commerce. E-commerce that takes place using mobile connection devices and through data transmission via technical standards for mobile communication. A company with fewer than 10 employees. Modulator/Demodulator. A device that modulates outgoing digital signals from a computer or other digital device to analogue signals suitable to be transmitted through a conventional telephone line (copper twisted pair telephone). The reverse procedure takes place for incoming signals. Maintenance, repair and operating goods. Supplies which companies need to maintain their operations, for example office supplies, in contrast to "direct production goods" which are components of the goods and services the company produces. Open source software refers to computer software under an open source license. An open-source license is a copyright license for software that makes the source code available and allows for modification and redistribution without having to pay the original author. Business processes are operations that transform the state of an object or a person. This can, for example, be an order placed via the internet. Ordering an object or a service creates a liability for the supplier to deliver, and initiates the transfer of property rights from one entity to another. The electronic handling of processes is likely to speed them up and to introduce new processes in the realisation of the same transaction. Product lifecycle management. The process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. PLM software helps companies effectively and efficiently innovate, for example by managing descriptions and properties of a product starting from conception and development. The ability of a company computer network's transmission points to gain access to a computer at a different location. Radio Frequency Identification. A wireless technology which is used to uniquely identify an object, animal, or person. RFID is coming into increasing use in industry as an alternative to the bar code. The advantage of RFID is that it does not require direct contact or line-of-sight scanning. Supply Chain Management. Software that helps businesses to match supply and demand through integrated and collaborative planning tools. Sectors of the economy with comparable business activities. These constitute the main research unit of the e-Business W@tch. Aggregated information at the industry level is used to document the diffusion of activities within the industries as well as the overall importance of the observed phenomena for changes in the economy as a whole. The definition of sectors follows NACE Rev.1.1 classifications. Secure server technology means that data exchange between computers is based on certain technical standards or protocols, for example "Secure Sockets Layer" (SSL). Small and medium-sized enterprises with 0-249 employees. To be classified as an SME, an enterprise has to satisfy the criteria for the number of employees and one of the two financial criteria, i.e. either the turnover total or the balance sheet total. In addition, it must be independent, which means less than 25% owned by one enterprise (or jointly by several enterprises) falling outside the definition of an SME or a micro-enterprise, whichever may apply. The thresholds for the turnover and the balance sheet total will be adjusted regularly, to take account of changing economic circumstances in Europe. Secure Sockets Layer. A commonly-used protocol for managing the security of a message transmission on the internet. SSL has recently been succeeded by Transport Layer Security (TLS), which is based on SSL.
MRO goods
OOS
Processes
PLM
SCM Sector
SSL
170
Food and beverages A standard is a technical specification approved by a recognised standardisation body for repeated or continuous application, with which compliance is not compulsory. Electronic transactions can be subdivided into several steps, each of which initiates a process. There are pre-sale (or pre-purchase) phases, sale and after-sale phases. Typically a transaction starts with information gathering, price and quality comparisons and possibly pre-sale negotiations. During the sale phase contracting and delivery are the core processes, and payment is the final stage of this phase. After-purchase transaction stages comprise customer service, the administration of credit payments and the handling of returns as well as marketing activities preparing for the next purchase. Universal Mobile Telecommunications Service. A third-generation (3G) digital standard for mobile communication, enabling packet-based transmission of voice, text and video at data rates up to 2 megabits per second (Mbps). Gross output minus intermediate inputs. It is valued at producers prices and includes all indirect taxes, but excludes VAT and subsidies. Voice over Internet Protocol (IP). The use of telephony services over internet networks, by means of digitised voice transfer technology. Virtual Private Network. A way to use a public telecommunication infrastructure, such as the internet, to provide remote offices or individual users with secure access to their organisation's network. Wide Area Network. A network allowing the interconnection and intercommunication of a group of computers over a long distance. Wireless Application Protocol. A communication protocol for delivering data over mobile telephone systems, allowing cellular phone sets and other mobile hand-set systems to access WWW pages and other wireless services. A related collection of World Wide Web files that includes a beginning file called a home page. Wireless fidelity. A popular term for a high-frequency wireless local area network (WLAN). Wi-Fi technology is rapidly gaining acceptance as an alternative or complementary infrastructure to a wired LAN. Wireless Local Area Network. An implementation of a LAN with no physical wires, using wireless transmitters and receivers. It allows a mobile user to connect to a LAN or WAN through a wireless (radio) connection. A standard, IEEE 802.11, specifies the technologies for wireless LANs. World Wide Web. The collection of pages in HTML format which reside on web-servers. Although WWW and the internet are different, the terms are increasingly becoming interchangeably used. Extensible Mark-up Language. A standard to describe the contents of a page or file. XML is a way to create common information formats and share both the format and the data on the World Wide Web, intranets, and elsewhere.
Standard Transaction
UMTS
WAN WAP
Website Wi-Fi
W-LAN
WWW
XML
171
Contact information:
European Commission
Enterprise and Industry Directorate-General Unit D4 Technology for Innovation / ICT industries and e-Business 1040 Brussels, Belgium Fax: (32-2) 2967019 e-Mail: entr-innov-ict-ebiz@ec.europa.eu Web: http://ec.europa.eu/enterprise/index_en.htm
e-Business W@tch c/o empirica GmbH Oxfordstr. 2 53111 Bonn, Germany e-Mail: info@ebusiness-watch.org Web: www.ebusiness-watch.org