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2HRS2GO: E-commerce has a long way to go

    Talk about a Halloween nightmare: E-business melting in your warehouse, not on the shelf.

    The Wall Street Journal has an article (available here through ZDNN) with all the details about problems Hershey Foods is seeing with its new order fulfillment system, built by Siebel Systems (Nasdaq: SEBL), SAP (NYSE: SAP), Manugistics Group (Nasdaq: MANU) and IBM (NYSE: IBM). The key point: Hershey rivals like Nestle are seeing more pre-Halloween orders than usual because some candy sellers can't get enough Kit Kats and Kisses, even though Hershey has plenty of chocolate sitting around. The company just can't get orders straight.

    This is the future of e-business?



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    Strictly speaking, it's not e-business at all, since we're talking physical retail. But the $110 million system in question is comparable to ones that would be used for Internet commerce. The company in charge of overseeing the whole thing -- IBM -- is the one that coined the term "e-business" in the first place.

    Orders between a supplier and retailers fits the description of business-to-business commerce -- exactly the sort of thing the Web's commercial growth hinges on. The names involved with Hershey's system are reputedly the best in their niches: SAP commands the largest market share in back office systems; Siebel holds the same position in customer management software; Manugistics, while not a large company, is well known for its supply-chain software; and Big "E-Business" Blue makes billions of dollars installing and integrating all this stuff.

    None of them will take the blame for Hershey's woes. At least part of the problem may stem from the fact that Hershey, in defiance of tech common sense, dropped in a big chunk of the system in one shot after missing its original April target for testing on a small scale.

    Regardless of whose fault it is -- at least some has to rest with IBM Global Services, since the whole point of hiring a systems integrator is to ensure these things go smoothly -- the chocolate company's underscores the point that electronic business isn't easy. Perhaps Hershey's and IBM's execution could have been better, but many of these products (especially SAP's) are also notoriously difficult to implement.

    Proponents tout e-commerce as business Shangri-La. Better handling of inventory leads to improved cost control. Data mining uncovers hidden sales prospects. Order tracking boosts response times and overall customer service.

    Nice theory. But it doesn't happen as often as we'd like to think, not even with veterans of electronic business.

    I recently ordered four books from Amazon.com (Nasdaq: AMZN), to be shipped together as a gift package. Amazon sent back a polite e-mail saying the books were mailed separately to the recipient, supposedly at my request. Huh?

    Another exchange of e-mail messages uncovered the truth: one book was damaged, so Amazon decided to send three together and the other one individually. Had the company bothered to ask, I would've had the entire order held until it could be shipped together. In any case, Amazon should have mentioned the problem in the first place, rather than sending out a stock "per your request" response.

    And Amazon is supposed to be an e-commerce exemplar.

    I've dealt with Amazon before and had a good experience, as most people do. I understand and accept that errors happen occasionally. And on the positive side, Amazon tried to make up for the snafu by waiving the gift-wrapping charge.

    Nevertheless, technology is supposed to make commerce smoother. In this case, it made things more complex and magnified the original mistake.

    Amazon and Hershey stand at opposite end of the spectrum, but both illustrate the difficulty of shifting to electronic business. Until it becomes easier to install and provides reliable service -- we're still far from either -- the billions bet on the Internet by investors won't yield the expected returns.

    Other issues:

  • Siebel Systems
  • (Nasdaq: SEBL) Then again, maybe no one cares about e-commerce snags. Hershey's problems aren't stopping two of its suppliers from gaining ground, with Siebel and IBM rising today after the two companies announced an alliance. First Union Securities, which has a "strong buy" rating on Siebel, raised its price target for the stock to $150 from $100 on optimism about the deal.

  • Digital Island
  • (Nasdaq: ISLD) IPO hype over Akamai spilled over to Digital Island, whose stock was already going up this week after buying an Akamai rival, Sandpiper. If you want to get into this sector now, wait for a few weeks until things die down. 22GO>