Year: 2020

Management Notes

Methods of Pricing issues, wastage, scrape spoilage and Defectives

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Material Losses:

Material losses may take the form of waste, scrap, defectives and spoilage. Problems of spoilage, waste, defective units and scrap are bound to arise in almost all manufacturing concerns, so there is usually a difference between the quantity of the output and the input.

Usually the quantity of the output is less than that of the input because of waste, scrap or spoilage. Efforts should be made to reduce the difference between the quantities of the output and the input so that cost of production may be reduced.

Methods of treatment of spoilage, waste etc. and the interpretations given to these terms vary considerably from one industrial concern to another because of different situations arising in different concerns. The terms are also loosely used; for example, waste and scrap may be taken to have the same meaning.

1. Waste:

Waste is defined as discarded substances having no values. In many industries, some waste is inevitable. Such waste may arise due to the inherent nature of materials, chemical reaction, evaporation, drying, sublimation of goods etc. Waste can also be in the form of smoke, gas, slag or dust which arises in the course of a manufacturing process.

Waste may be invisible or visible. The former type of waste (i.e., waste due to drying, evaporation etc.) is invisible whereas the latter type of waste (i.e., gas, smoke, slag etc.) is visible. Waste has practically no measureable value. Rather in some industries, the waste instead of realising any value creates a problem for its disposal incurring further costs. The waste may be normal and abnormal from the point of view of treatment in costing.

Normal Waste:

It is the loss which is unavoidable on account of inherent nature of material. Some materials such as liquid materials lose their weight due to evaporation. Similarly, there are some materials (i.e. coal) which are wasted due to loading and unloading. Materials may be wasted due to breaking the bulk into smaller parts.

Normal waste is unavoidable and as such may be reduced to some extent if there is strict control but cannot be totally eliminated. Such loss can be estimated in advance on the basis of past experience or chemical data. As waste has practically no value, its treatment in costing is relatively simple. The normal process loss is recorded only in terms of quantity.

Abnormal Waste:

Any loss caused by unexpected or abnormal conditions such as sub-standard materials, carelessness, accident etc. or loss in excess of the margin anticipated for normal process loss should be regarded as abnormal waste.

All cases of abnormal waste should be thoroughly investigated and steps taken to prevent their recurrence in future. Responsibility for abnormal wastage should be fixed on purchasing, storage, production and inspection staff to maintain standards. Abnormal waste should not be allowed to affect the cost of production as it is caused by abnormal or unexpected conditions.

Such loss representing the cost of materials, labour and overhead incurred on the wastage should he transferred to Profit and Loss Account (Costing Profit and Loss Account where no integral system of accounting is maintained) and not added to the cost of production so as to make meaningful comparison of costs of production of different periods.

2. Scrap:

Scrap is discarded material having some values. It represents fragments or remnants of material that are left from certain type of manufacture. It is a material loss but has small value without further processing. Examples of scrap are available in operations like turning, boring, punching, sawing, shavings, moulding, etc. from metals on which machine operations are carried out; saw dust and trimmings in the timber industry; dead heads and bottom ends in foundries; and cuttings, pieces and splits in leather industry.

Such scrap can be solid because it can be used by other industries by melting in furnaces. Scrap is always physically available unlike waste which may or may not be physically present in the form of a residue. Thus scrap is always visible whereas waste may or may not be visible. Further, waste may not have any value whereas scrap must necessarily have a value.

There are three types of scrap, namely:

(a) Legitimate scrap,

(b) Administrative scrap,

(c) Defective scrap.

Legitimate scrap arises due to the nature of operation like turning, boring, punching etc. as discussed above. This type of scrap can be pre-determined and efforts should be made that it should not be more than the pre-determined quantity. Administrative scrap arises due to administrative action, such as, a change in the method of production.

Defective scrap arises because of use of inferior quality of material or bad workmanship or defective machines. Such type of scrap is abnormal because it arises due to abnormal reasons.

Treatment of Scrap:

The useful methods for the treatment of scrap are as follows:

  1. If realisable value of normal scrap is insignificant (i.e., legitimate scrap and administrative scrap) it may be credited to Profit and Loss Account like other income. This method of treatment of scrap is suitable when the scrap is of very little value and when the market for it is uncertain. This method is known as treatment by neglect.

This method is not suitable for effective control over scrap because detailed records of scrap are not kept and scrap cost is not shown as an element of cost in the cost sheet. Scrap which is not sold and is in stock is valued at nil for balance sheet purposes and thus vitiates the valuation of closing stock.

Accounting of scrap by this method is also inaccurate as there is a time lag between the sales and the production. There is also a possibility that scrap may arise in one period but may be accounted (i.e., sold) in another period and thus distorts the profits of two periods.

  1. The sale value of scrap may be deducted from the cost of materials consumed or factory overhead. This method is suitable when several production orders are commenced at a time and it is not possible to find scrap for each other. This method is, however, not effective in controlling scrap arising in different processes, jobs or orders.

When overheads are absorbed on the basis of pre-determined rates, it is more appropriate to credit an estimated allowance for the scrap instead of the amount of actual scrap.

The journal entries for recording the scrap are:

(i) Dr. Scrap Account (with an estimated allowance) Cr. Factory Overhead Control Account

(ii) Dr. Cash/Debtors (Amount realised on sale) Cr. Scrap Account.

Profit or loss on sale of scrap may be transferred to the Profit and Loss Account at the end of the year. When scrap is sold on a day-to-day basis and no stock is maintained, the journal entry is: Dr. Cash/Debtors Account (with realisable value) Cr. Factory Overhead Control Account

  1. The scrap may be assigned a cost if it can be related to the job which yielded the scrap. It will help in giving reasonable credit to the jobs which yielded scraps. This method of treatment is suitable when scraps from the various jobs widely differ in nature.
  2. It is possible that scrap arising in one job may be used in another job. In such a case material transfer note for transfer of scrap from one job to another job should be prepared and credit should be given to the job where scrap arises and debit should be given to the job for the amount of scrap transferred to it.

Sometimes, scrap may be returned to stores when some further processing has to be done before that can be utilised for other jobs. Job returning the scrap is credited with the value of the scrap returned to stores.

  1. When the actual scrap is in excess of the pre-determined quantity (i.e., normal quantity), the cost of the excess scrap is transferred to Costing Profit and Loss Account after deducting there-from the sale proceeds of such excess scrap. The valuation of excess scrap is done in the same way as the valuation of abnormal waste is done.
  2. The cost of defective scraps after deduction there-from the sale a proceeds of such scrap is transferred to Costing Profit and Loss Account because it is an abnormal loss.

3. Defectives:

Defective products or units are those which do not meet with dimensional or quality standards and are reworked for rectification of defects by application of material, labour and/or processing and salvaged to the point of either standard product or sub­standard product to be sold as seconds. Therefore, defectives are that portion which can be rectified at some extra cost of re-operation.

Defectives may arise due to the following reasons:

  1. Sub-standard materials.
  2. Poor workmanship.
  3. Poor maintenance of machines.
  4. Wrong tool setting.
  5. Faulty design of products.
  6. Bad supervision.
  7. Careless inspection.
  8. Poor working conditions.
  9. Lack of control, such as humidity, furnace temperature etc.
  10. Excessive short runs.

Defectives are bad products which are not totally spoiled and can be rectified or restored to original or near-original condition at some extra cost of re-operation. The additional cost of rectifying the defectives is added to the total cost and the quantity of defectives rectified is added to the quantity of good output because defective units rectified can be sold as “seconds”. Rectification of defective units is advisable only when the cost of rectification is low and more profitable than to sell as spoil 3d units.

Treatment of Cost of Rectification of Defectives:

Following methods may be adopted for the treatment of this cost:

  1. If the defective production is identified with a specific job or department, the cost of rectification is charged to that specific job or department.
  2. If the defective production is not identified with a particular job or department, the cost of rectification is added to general factory overhead.
  3. If the defective production is due to abnormal reasons, the rectification cost is transferred to Costing Profit and Loss Account.

Every possible effort should be made to reduce the number of defectives because they increase the cost of production. Control of defectives is an operational correction, so steps should be taken to eliminate the reasons responsible for defectives. Right from the design stage to the output of the final product stage, each one should be looked into carefully for avoiding defectives.

Standardisation of products and operations, comparison of actual performance with standards laid down in regard to defectives, feedback and reporting and incentive scheme for minimising defectives will go a long way in reducing the quantity of defectives.

4. Spoilage:

Spoilage refers to production that does not meet with dimensional or quality standards in such a way that it cannot be rectified economically and is junked and sold for a disposal value. So it occurs when goods are so damaged in course of manufacturing process as to become not rectifiable with some additional cost.

Material used in spoiled units can be used again as material by the same or another process or product. Spoilage cost is the difference between the cost incurred upto the point of rejection less salvage value or cost of material used.

Spoilage arises due to sub-standard materials, poor workmanship, faulty tool setting, poor maintenance of machines, bad supervision and careless inspection.

Spoilage should not be confused with scrap. Scrap arises at the initial stages of production operations whereas spoilage takes place more towards the finishing production stages with larger loss of added value to the cost of material used.

Spoilage can be of two types:

(1) Normal spoilage and

(2) Abnormal spoilage.

According to Charles T. Horngren, “Normal spoilage is what arises under efficient operating conditions; it is an inherent result of the particular process and is thus uncontrollable in the short run.

Abnormal spoilage is spoilage that is not expected to arise under efficient operating conditions; it is not an inherent part of the selected production process”. Abnormal spoilage can be controlled because it arises as a result of inefficient operating conditions.

Normal spoilage is planned spoilage that management is willing to accept and is controllable by higher level of management which determines the nature of products and processes. On the other hand, abnormal spoilage can be controlled by first-line supervision which can exert influence over inefficiency.

Treatment of Cost of Spoilage:

The treatment of cost of spoilage depends upon the nature of spoilage. If the spoilage is normal, the cost is borne by good units of output. In case of abnormal spoilage, cost of spoilage is transferred to Costing Profit and Loss Account. When, however, the normal spoiled units are used again as raw material in the same manufacturing process, no separate treatment becomes necessary.

If they are used for another process, job or order, a proper credit should be given to the process job or order giving rise to the spoilage keeping in view the utility value of the spoilage to the process, job or order for which the same is used.

Control of Wastage, Scrap, Defectives and Spoilage:

Every effort should be made to reduce the cost of production by exercising control on wastage, scrap, defectives and spoilage.

Following steps may be taken in this direction:

  1. Reports relating to the wastage, scrap, defectives and spoilage should be prepared in time to locate the reason responsible for the wastage etc. An immediate corrective action should be taken on the basis of the reasons responsible for the loss.
  2. Wastage, scrap, defectives and spoilage should be standardised by following standard costing system. It should be seen that actual wastage, scrap, etc. should be within normal limits allowed.
  3. Good quality of materials should be used. Better the quality of materials less is the wastage, scrap and spoilage.
  4. Control of wastage, scrap, defectives and spoilage should start with the designing of the products. The type of materials that will result in the minimum wastage, scrap, defectives and spoilage are decided at the designing stage. Better quality of equipment should be used to get better return, so type and shape of equipments to be used for manufacturing process should be decided at the designing stage.
  5. Properly trained personnel should be employed to reduce the quantum of wastage, scrap, defectives and spoilage.
Management Notes

Purchase and Store routine

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The normal process of purchasing, storing, control and issue of materials consists of the following documents:

Document 1. Bill of Materials:

Bill of Materials is a comprehensive list of materials, with specifications, material codes and quantity of each material required for a particular job, process or production unit. It will also include the details of substitute materials. It is prepared by the engineering or planning department for submission of quotation and after the receipt of work order. It is a method of documenting materials required for execution of the specified job work.

Bill of Material acts as an authorization to the Stores Department in procuring the materials and the concerned department in material requisition from the stores. It is an advance intimation to the concerned departments of the job, work order to be completed.

It is circulated to:

(a) Purchase Department,

(b) Stores Department,

(c) Cost Accounts Department, and

(d) Product Department.

Advantages:

(a) It acts as a guide in planning the execution of job, process or product units by documenting all materials required for that specified work.

(b) It is a base for action to be initiated by the Stores Department in placing the purchase requisition with the purchase department.

(c) The information mentioned in the bill of materials act as a standard with which any deviation can be detected and remedial measures are taken if deviations take places.

(d) It is a good control measure on material cost.

(e) The material cost to be charged to a particular unit, job or process can easily be determined beforehand.

(f) It helps in submission of tenders and quotations.

(g) It is a planning exercise for the proposed production or work.

(h) It serves as an advance intimation to stores department about the raw material requirement.

Document 2. Purchase Requisition:

CIMA defines Purchase Requisition as “an internal instruction to a buying office to purchase goods or services. It states their quantity and description and elicits a purchase order”.

The manager in-charge of Purchase Department should obtain requisition from the Stores in- charge, departmental head or similar person requiring goods before placing orders on suppliers. If the present stock run down to the reorder level, then the stores department send a Purchase Requisition to Purchase Department, authorizing the department to order further stock.

Document 3. Purchase Order:

If the Purchase Requisition received by the Purchasing Department is in order then it will call for tenders or quotations from the suppliers of materials. It will send enquiries to prospective suppliers giving details of requirement and requesting details of available materials, prices, terms and delivery etc. Quotations will then be compared and will place order with those suppliers who will provide the necessary goods at competitive prices.

The number of copies of routing of Purchase Orders depends on the procedure followed in the organization. Normally, the copies of the purchase orders will be sent to the Supplier, Department originating Purchase Requisition, Inspection Department, and Accounting Department.

Document 4. Material Inspection Note:

When materials are delivered, a supplier’s carrier will usually provide a document called ‘delivery note’ or ‘delivery advice’ to confirm the details of materials delivered. When materials are unloaded, the warehouse staff check the material unloaded with the delivery note. Then the warehouse staff prepares a Materials Receipt Note, a copy of which is given to the supplier’s carrier as a proof of delivery.

After receiving the materials the Inspection Department thoroughly inspects whether the quality of material is in accordance with the purchase order and the quality of material received and it prepares a note called ‘material inspection note’, copies of which are sent to the supplier and stores department.

Document 5. Goods Received Note (GRN):

Once the inspection is completed, GRN is prepared by the stores department, and copies of GRN is sent to the purchasing department, costing department, accounts department and production department, which initiated purchase requisition.

After receipt of GRN from the Stores Department and invoice from the supplier, the accounts department will check with the purchase order and take necessary steps for making payment to the supplier.

Document 6. Stores Requisition Note:

It is also called ‘materials requisition note’. When Production or other departments requires material from the stores it raises a requisition, which is an order on the stores for the material required for execution of the work order. This note is signed by the department in-charge of the concerned department. It is documents which authorize the issue of a specified quantity of materials.

It will include the cost centre or job number for which the requisition is being made, a specimen stores requisition note.

Any person who requires materials from the stores must submit stores requisition note. The store keeper should only issue materials from stores against such a properly authorized requisition and this will be entered in the bin card and stores ledger. A copy of the requisition will be sent to the costing department for recording the cost or value of materials issued to the cost centre or job.

Document 7. Material Transfer Note:

If materials are transferred from one department or job to another within the organization, then material transfer note should be raised. It is a record of the transfer of materials between stores, cost centres or cost units showing all data for making necessary accounting entries.

Document 8. Material Return Note:

If materials received from the stores are not of suitable quality or if there is surplus material remaining with the department, they are returned to stores with a note called ‘material return note’ evidencing return of material from department to stores.

Document 9. Bin Card:

A ‘bin card’ indicates the level of each particular item of stock at any point of time. It is attached to the concerned bin, rack or place where the raw material is stored. It records all the receipts of a particular item of materials and its issues. It gives all the basic information relating to physical movements. It is a record of receipts, issues and balance of the quantity of an item of stock handled by a store.

Document 10. Stores Ledger:

Stores department will maintain a record called ‘stores ledger’ in which a separate folio is kept for each individual item of stock. It records not only the quantity details of stock movements but also record the rates and values of stock movements.

With the information available in the stores ledger, it is easier to ascertain the value of any stock item at any point of time. The minimum, maximum and reorder levels of stock are also mentioned for taking action to replenish the stock position.

Store Keeping

After materials purchased have been received and checked, the next step in the process of material control is the storing of materials or store keeping.

A storehouse is a building provided for preserving materials, stores and finished goods. The in-charge of store is called storekeeper or stores manager. The organisation of the stores department depends upon the size and layout of the factory, nature of the materials stored and frequency of purchases and issue of materials.

According to Alford and Beatty “storekeeping is that aspect of material control concerned with the physical storage of goods.” In other words, storekeeping relates to art of preserving raw materials, work-in-progress and finished goods in the stores.

Objectives of storekeeping:

  • To prevent overstocking and understocking of materials.
  • To ensure uninterrupted supply of materials and stores without delay to various production and service departments of the organisation.
  • To protect materials from pilferage, theft fire and other risks.
  • To ensure proper and continuous control over materials.
  • To minimise the storage costs.
  • To ensure most effective utilisation of available storage space and workers engaged in the process of storekeeping.

Functions of Store Keeping

The principal functions of store-keeping to be performed by the Stores Department in an organization, are as follows:

  • Receiving purchased stores from the Receiving Department and verifying that every lot of stores is supported by an indent, a purchase order and an inspection note.
  • Issuing purchase requisitions as and when material is required.
  • Preparing ‘Goods Received Note’ in accordance with the different stores lots received.
  • Placing and arranging stores received at proper and appropriate places and adhering to the golden principle of store keeping i.e., ‘A place for everything in its place. ‘
  • Minimizing the storage, handling and maintaining costs by preserving and handling the materials in the most economical and efficient manner.
  • Ensuring that all the Goods Received Notes are regularly posted to the Bin Card.
  • Issuing stores to various departments of the business and ensuring that all issues are properly authenticated and accounted for.
  • Ensuring the adherence to the proper issuing procedure and system followed in the organization.
  • Taking a periodical review of inventory by initiating various inventory control systems viz., perpetual inventory control system and ABC system of inventory control.
  • Disclosing fullest and up-to-date information about the availability of stores whenever required, by maintaining proper stores records with the help of Bin Cards and Stores Ledger.
  • Ensuring proper safety of materials against theft, pilferage and fire, etc.
  • Supervising and co-ordinating the duties of different types of staff working under the headship of the store-keeper.
  • Preventing entry of unauthorized persons in the stores.
  • Maintaining proper stock-levels fixed in respect of every item of stores and replenishing them as and when necessary.

Location of Stores

‘Location’ means the site for the store. The location of the stores should be carefully planned. An important factor to be considered when establishing a store set up is the question of locating it in the most appropriate place. The stores must be set up at a convenient and safe place, near to Receiving Department, easily accessible from all parts of the factory and by means of transport and free from the risk of fire, theft, etc. The general principle in determining the location of stores is to minimize the total kg. km. cost of transportation of materials.

Factors determining the location of stores

  • Nature of the Materials: The nature of the materials to be stored also affects the location of the store. Material that is not damaged by weather can be stored out of doors in a shed. But materials such as cement, plaster, etc., must not only be protected from the weather but must also be stored in a dry place.
  • Minimization of Material Handling Efforts: Minimisation of material handling efforts implies location of raw material store near the production shops and location of finished goods store and packing materials store near the assembly shop. The stores should be easily accessible by means of transport.
  • Quantity, Weight, etc., of the Materials: The quantity of each of the goods to be stored must be taken into account for determining the location. When the quantities are known, adequate provision may be made for immediate and future storage needs.
  • Free from Risk of Loss: Store must be set up at a safe place which is free from the risk of loss due to fire, theft, moisture, etc.
  • Flow of Materials: Location of store should be convenient which allows for steady and regular flow of store items without any obstruction.
  • Flexibility: The location of store must be such which provides for its future expansion.
Management Notes

Treatment of idle times, Overtime Premium, fringe Benefits

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Time keeping

  1. Preparation of Pay Rolls in case of time-paid workers.
  2. Meeting the statutory requirements.
  3. Ensuring discipline in attendance.
  4. Recording of each worker’s time ‘in’ and ‘out’ of the factory making distinction between normal time, overtime, late attendance and early leaving.
  5. for overhead distribution when overheads are absorbed on the basis of labour hours.

Time Recording for Piece Workers:

Recording of time in case of piece workers is necessary due to the following reasons:

  1. Workers should come and leave the factory in time, as there cannot be a uniform flow of production if workers come late or leave early. Time cards should be maintained for piece workers to ensure discipline otherwise workers who are paid by time are likely to be dissatisfied.
  2. Time cards are to be maintained for piece workers if they are guaranteed a minimum payment for the time spent by them irrespective of their output.
  3. Time recoding is essential if apportionment of overheads is made on the basis of labour hours.
  4. Time recording is essential because it facilitates the calculation of overtime wages, dearness allowance leave with pay and production bonus.
  5. Time recording facilitates the fixation of differential piece rates.
  6. Time recording is necessary when statistical records of time may be required for research or complying with legal requirements.

Essentials of a good Time-keeping System

  1. Good time keeping system prevents ‘proxy’ for one another among workers
  2. Time-keeping has to be done for even piece workers to maintain uniformity, regularity and continuous flow of production.
  3. Both the arrival and exit of workers is to be recorded so that total time spent by workers is available for wage calculations.
  4. Mechanised methods of time keeping are to be used to avoid disputes.
  5. Late arrival time and early departure time are to be recorded to maintain discipline.
  6. The time recording should be simple, quick and smooth.
  7. Time recording is to be supervised by a responsible officer to eliminate irregularities.

Methods of time keeping

  1. Time Recording Clocks or Clock Cards: This is mechanized method of time recording. Each worker punches the card given to him when he comes in and goes out. The time and date is automatically recorded in the card. Each week a new card is prepared and given to the worker so that weekly calculation of wages will be possible.
  2. Disc Method: This is one of the older methods of recording time. A disc, which bears the identification number of each worker, is given to each one. When the worker comes in, he picks up his disc from the tray kept near the gate of the factory and drops in the box or hooks it on a board against his number. Same procedure is followed at the time of leaving the factory. The box is removed at starting time, and the time keeper becomes aware of late arrivals by requiring the workers concerned to report him before starting. The time keeper will record in an Attendance Register any late arrivals and workers leaving early. He will also enter about the absentees in the register on daily basis.
  3. Attendance Records: This is the simplest and the oldest method of marking attendance of workers. In this method, every worker signs in an attendance register against his name. Leaves taken by workers as well as late reporting is marked on the attendance register itself.

Time booking

Time booking signifies the time spent by a worker on each job, process or operation. It is more important in case of direct workers as compared to indirect workers.

Objectives of Time-Booking:

(i) To calculate the labour cost of jobs done;

(ii) To apportion overheads against jobs;

(iii) To evaluate performance of labour and to make comparison of actual labour time with budgeted time;

(iv) To ascertain idle time for the purpose of control;

(v) To determine overhead rates for absorbing overhead expenses under labour hour and machine hour methods; and

(vi) To calculate bonus and wages provided the system of payment of wages depends on the time taken.

Methods of Time-Booking:

(i) Daily time sheets:

It gives in detail the activities of the worker and the time spent in each job. One sheet is allotted to each worker and a daily record is made therein. It is suitable for small organisation where the number of employee and job is small.

(ii) Weekly Time Sheets:

Each worker is given a time sheet wherein jobs done in a week are recorded. It is quite similar to Daily Time Sheet. It reflects a consolidation of the total hours worked during a particular week. This method is useful where there are few jobs in a work.

(iii) Job Cards or Job Tickets:

A separate job card for each job or operation is prepared. This card is allotted to each worker whenever a worker takes up a particular job. In this card the worker enters the time of commencement of a job as well as time of finishing the job. The entries in the job card may be made with the help of machines like time-recording clock.

Treatment of idle time:

Idle time means the amount of time the workers remain idle in a normal working day. The idle time is usually caused by a sudden fault in machine or equipment, power failure, lack of orders for the product, inefficient work scheduling, defective materials and shortage of raw materials etc. The cost associated with idle time is treated as indirect labor cost and should, therefore, be included in manufacturing overhead cost. For example, the normal weekly working hours of a worker are 48 and he is paid @ $8 per hour. If he remains idle for 6 hours due to power failure, then the cost of 42 hours would be treated as direct labor cost and the cost of 6 hours (idle time) would be treated as indirect labor cost and included in manufacturing overhead cost.

Direct Labor 336 $
Manufacturing overhead (6 hours* 8$) 48 $ (idle Time)
Total cost 384 $

Treatment of overtime premium:

Overtime premium is the amount that is paid, for the overtime worked,  in excess of the normal wage rate. Like idle time, overtime premium is also treated as indirect labor cost and  included in manufacturing overhead cost. For example, a worker normally works for 48 hours per week @ $8 per hour. In a particular week, if he works for 52 hours and company pays him $12 for every hour worked in excess of 48 hours, the allocation of the labor cost of the worker would be made as follows:

Direct Labor (52hrs * 8$ 416 $
Manufacturing overhead (4 hours* 4$) 16 $ (idle Time)
Total cost 432 $

The amount of $16 is overtime premium and is a part of manufacturing overhead cost.

Treatment of labor fringe benefits:

Fringe benefits are benefits that employers provide to employees in addition to normal salaries or wages. Examples of fringe benefits are hospitalization, insurance programs, retirement plans, paid holidays and stock options etc. Most of the companies treat labor fringe benefits as indirect labor and, therefore, include them in manufacturing overhead costs.

A few firms treat direct labor related fringe benefits as addition to direct labor cost which is considered a more superior practice.

The above information has been summarized below:

Management Notes

e-commerce Meaning, Characteristics, Advantage and Disadvantage, Future

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E-Commerce or Electronic Commerce means buying and selling of goods, products, or services over the internet. E-commerce is also known as electronic commerce or internet commerce. These services provided online over the internet network. Transaction of money, funds, and data are also considered as E-commerce. These business transactions can be done in four ways: Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), Customer to Business (C2B). The standard definition of E-commerce is a commercial transaction which is happened over the internet. Online stores like Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, Olx are examples of E-commerce websites. By 2020, global retail e-commerce can reach up to $27 Trillion.

E-commerce is a popular term for electronic commerce or even internet commerce. The name is self-explanatory, it is the meeting of buyers and sellers on the internet. This involves the transaction of goods and services, the transfer of funds and the exchange of data.

So when you log into your Amazon and purchase a book, this is a classic example of an e-commerce transaction. Here you interact with the seller (Amazon), exchange data in form of pictures, text, address for delivery etc. and then you make the payment.

Characteristics of E-Commerce

E-commerce is characterized by the following features:

(i) The business tools are electronic and the application is commerce, i.e. profit motive.

(ii) Business is externally focused on those with whom business is conducted.

(iii) Most of the transactions are processed automatically.

(iv) Uses a gamut of business support services, such as inter-organizational e-mail and on-line directories.

Examples of E-Commerce

  • Amazon
  • Flipkart
  • eBay
  • Fiverr
  • Upwork
  • Olx
  • Quikr

Scope of e-commerce

The scope of e-commerce is broad and continues to expand as technology advances and consumer behaviors evolve. It encompasses various dimensions, including types of transactions, market participants, technological platforms, and industries it affects.

Types of Transactions

  1. Business-to-Business (B2B):

E-commerce transactions between businesses, such as between manufacturers and wholesalers, or between wholesalers and retailers.

  1. Business-to-Consumer (B2C):

Transactions between businesses and individual consumers. This is the most recognized form of e-commerce, including online retail and services.

  1. Consumer-to-Consumer (C2C):

Transactions between consumers, usually facilitated by a third party that provides an online platform (e.g., eBay, Etsy).

  1. Consumer-to-Business (C2B):

Individuals sell products or services to businesses, which is common in freelancing platforms and stock photo websites.

  1. Business-to-Government (B2G) or Government-to-Business (G2B):

Transactions between companies and public sector organizations, often related to tenders and procurement.

  1. Government-to-Citizen (G2C):

Services provided by the government to its citizens through online platforms, which can include tax filing, registration services, and information dissemination.

Market Participants

  • Retailers:

Both traditional brick-and-mortar stores expanding online and online-only retailers.

  • Wholesalers and Distributors:

Entities involved in the bulk selling and distribution of products to retailers or other wholesalers.

  • Manufacturers:

Producers of goods selling directly to consumers, businesses, or through intermediaries.

  • Service Providers:

Companies offering services (e.g., streaming, cloud computing, online education) rather than tangible goods.

  • Consumers:

Individuals purchasing goods or services for personal use.

  • Governments:

Engaging in e-commerce for procurement, service delivery, and information dissemination.

Technological Platforms

  • Online Marketplaces:

Platforms that connect sellers and buyers, facilitating transactions (e.g., Amazon, Alibaba).

  • E-commerce Websites:

Dedicated websites owned by retailers or brands that offer goods or services directly to consumers or businesses.

  • Mobile Apps:

Applications designed for smartphones and tablets, enabling mobile commerce (m-commerce).

  • Social Commerce:

The use of social media platforms to promote and sell products and services directly within the platform.

  • Electronic Data Interchange (EDI):

The computer-to-computer exchange of business documents in a standard electronic format, primarily used in B2B transactions.

Industries Affected

Virtually every industry has been impacted by e-commerce, including:

  • Retail: Clothing, electronics, home goods, groceries, and more.
  • Services: Banking, travel, education, entertainment, real estate.
  • Manufacturing: Direct-to-consumer sales, customization, and global supply chain management.
  • Healthcare: Telemedicine, online pharmacies, and personal health records.
  • Finance: Online banking, digital wallets, and fintech services.

Future Scope

The future scope of e-commerce includes further integration of artificial intelligence for personalized shopping experiences, expansion of augmented reality to try products virtually, growth of voice commerce, and the exploration of new payment methods like cryptocurrencies. Additionally, the global nature of e-commerce will continue to emphasize cross-border trade, logistics innovations, and the digital transformation of traditional businesses.

Benefits of e-Commerce:

For Businesses:

  • Wider Market Reach:

E-commerce breaks down geographical barriers, enabling businesses to reach a global audience without the need for physical stores.

  • Lower Operational Costs:

Operating an online store can significantly reduce the need for physical space, resulting in lower rent, utilities, and staffing costs.

  • Open 24/7:

Online stores can operate around the clock, allowing businesses to generate sales even outside of traditional business hours.

  • Data Collection and Personalization:

E-commerce platforms facilitate the collection of valuable customer data, which can be used to personalize marketing efforts and improve product offerings.

  • Scalability:

E-commerce businesses can easily scale their operations up or down based on market demand without substantial investments.

  • Faster Go-to-Market Time:

Launching products online is quicker and less costly, allowing businesses to capitalize on trends and market demand efficiently.

For Consumers:

  • Convenience:

E-commerce offers the ultimate convenience of shopping from anywhere at any time, without the need to visit physical stores.

  • Broader Selection:

Online stores often provide a wider variety of products than physical stores, including items that are rare or not locally available.

  • Price Comparisons:

Consumers can easily compare prices and read reviews from other customers before making a purchase decision.

  • No Pressure Sales:

Shopping online eliminates the pressure often felt from sales staff in physical stores, allowing for more relaxed decision-making.

  • Access to International Products:

E-commerce makes it easier for consumers to purchase products from abroad that may not be available in their home country.

  • Personalized Shopping Experience:

Online stores can offer personalized recommendations based on previous purchases and browsing behavior.

For Society:

  1. Environmental Impact:

With reduced needs for physical infrastructure and the potential for more efficient logistics, e-commerce can contribute to lower carbon footprints compared to traditional retail.

  1. Job Creation:

While e-commerce changes the nature of retail jobs, it also creates new opportunities in areas such as digital marketing, data analysis, IT, and logistics.

  1. Accessibility:

E-commerce provides access to goods and services for people who are physically unable to visit stores, such as the elderly or individuals with disabilities.

Limitations of e-Commerce:

For Businesses:

  • Intense Competition:

The ease of setting up online businesses leads to increased competition, making it harder for individual businesses to stand out and retain market share.

  • Technical Issues:

Dependency on technology means that technical glitches, website downtime, or cybersecurity breaches can have significant negative impacts on sales and customer trust.

  • Customer Service Challenges:

Providing effective and timely customer service can be more challenging online, especially with high volumes of inquiries and the lack of face-to-face interaction.

  • Return and Refund Processes:

Handling returns and refunds can be more complicated and costly for online businesses, affecting profitability.

  • Fraud and Security Concerns:

E-commerce sites are attractive targets for cybercriminals, necessitating ongoing investment in security measures to protect customer data.

For Consumers:

  • Lack of Physical Examination:

Consumers cannot touch, feel, or try products before purchase, leading to uncertainty and potential dissatisfaction.

  • Privacy and Security Risks:

Online shoppers are at risk of personal data breaches, identity theft, and fraud if they use insecure or fraudulent sites.

  • Delivery Issues:

Delays, lost packages, and damage during shipping can detract from the online shopping experience.

  • Difficulty in Returning Items:

The process of returning products can be cumbersome and sometimes costly for consumers, dissuading them from making online purchases.

  • Overwhelming Choices:

While a wide selection is an advantage, it can also overwhelm consumers, leading to decision fatigue.

For Society:

  • Impact on Local Retailers:

The growth of e-commerce can negatively impact physical stores and local economies, leading to closures and job losses in traditional retail sectors.

  • Environmental Impact of Deliveries:

Although e-commerce reduces the need for physical stores, the increase in packaging waste and emissions from increased delivery traffic can have negative environmental impacts.

  • Digital Divide:

The benefits of e-commerce are not equally accessible to all, with disparities based on internet access, digital literacy, and socioeconomic status.

  • Work Conditions:

Some e-commerce fulfillment centers have faced criticism for poor working conditions, including intense work pace and inadequate labor rights.

  • Consumerism:

The ease and convenience of online shopping may encourage excessive consumerism and wasteful purchasing behaviors.

Future of E-Commerce:

  • Technological Advancements

The future of e-commerce will be driven by cutting-edge technologies like artificial intelligence, virtual reality, and blockchain. AI will personalize shopping experiences, while VR will enable virtual try-ons and immersive product demos. Blockchain will ensure secure and transparent transactions. Voice-assisted shopping and drone deliveries will further enhance convenience. As these technologies become more accessible, e-commerce platforms will evolve into intelligent, seamless, and highly efficient ecosystems, creating a competitive edge for businesses and delivering faster, smarter, and more engaging experiences for consumers globally.

  • Customer-Centric Experience

E-commerce in the future will be shaped by customer expectations for speed, personalization, and sustainability. Consumers will demand same-day deliveries, personalized recommendations, and eco-friendly packaging. Businesses will invest in AI chatbots, hyper-personalized content, and real-time support to enhance customer satisfaction. User experience will become central, with intuitive interfaces, fast checkouts, and flexible return policies. Trust, convenience, and emotional connection with brands will drive loyalty. Companies that prioritize customer-centric strategies will lead the market in building lasting relationships and increasing lifetime customer value.

  • Global and Rural Expansion

The e-commerce sector will expand beyond urban areas to rural and international markets due to increasing internet penetration and mobile access. Governments and private players will invest in digital infrastructure, digital literacy, and logistics networks, enabling broader outreach. Localization of language, payment systems, and customer service will make online shopping inclusive. Cross-border e-commerce will grow as platforms offer global shipping and multiple currency options. This rural and global integration will open new consumer bases and help small businesses tap into large, underserved markets.

Management Notes

Origin of e-commerce

indiafreenotesby indiafreenotes0

One of the most popular activities on the Web is shopping. It has much allure in it  you can shop at your leisure, anytime, and in your pajamas. Literally anyone can have their pages built to display their specific goods and services.

History of ecommerce dates back to the invention of the very old notion of “sell and buy”, electricity, cables, computers, modems, and the Internet. Ecommerce became possible in 1991 when the Internet was opened to commercial use. Since that date thousands of businesses have taken up residence at web sites.

At first, the term ecommerce meant the process of execution of commercial transactions electronically with the help of the leading technologies such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) which gave an opportunity for users to exchange business information and do electronic transactions. The ability to use these technologies appeared in the late 1970s and allowed business companies and organizations to send commercial documentation electronically.

Although the Internet began to advance in popularity among the general public in 1994, it took approximately four years to develop the security protocols (for example, HTTP) and DSL which allowed rapid access and a persistent connection to the Internet. In 2000 a great number of business companies in the United States and Western Europe represented their services in the World Wide Web. At this time the meaning of the word ecommerce was changed. People began to define the term ecommerce as the process of purchasing of available goods and services over the Internet using secure connections and electronic payment services. Although the dot-com collapse in 2000 led to unfortunate results and many of ecommerce companies disappeared, the “brick and mortar” retailers recognized the advantages of electronic commerce and began to add such capabilities to their web sites (e.g., after the online grocery store Webvan came to ruin, two supermarket chains, Albertsons and Safeway, began to use ecommerce to enable their customers to buy groceries online). By the end of 2001, the largest form of ecommerce, Business-to-Business (B2B) model, had around $700 billion in transactions.

According to all available data, ecommerce sales continued to grow in the next few years and, by the end of 2007, ecommerce sales accounted for 3.4 percent of total sales.

Ecommerce has a great deal of advantages over “brick and mortar” stores and mail order catalogs. Consumers can easily search through a large database of products and services. They can see actual prices, build an order over several days and email it as a “wish list” hoping that someone will pay for their selected goods. Customers can compare prices with a click of the mouse and buy the selected product at best prices.

Online vendors, in their turn, also get distinct advantages. The web and its search engines provide a way to be found by customers without expensive advertising campaign. Even small online shops can reach global markets. Web technology also allows to track customer preferences and to deliver individually-tailored marketing.

History of ecommerce is unthinkable without Amazon and Ebay which were among the first Internet companies to allow electronic transactions. Thanks to their founders we now have a handsome ecommerce sector and enjoy the buying and selling advantages of the Internet. Currently there are 5 largest and most famous worldwide Internet retailers: Amazon, Dell, Staples, Office Depot and Hewlett Packard. According to statistics, the most popular categories of products sold in the World Wide Web are music, books, computers, office supplies and other consumer electronics.

Amazon.com, Inc. is one of the most famous ecommerce companies and is located in Seattle, Washington (USA). It was founded in 1994 by Jeff Bezos and was one of the first American ecommerce companies to sell products over the Internet. After the dot-com collapse Amazon lost its position as a successful business model, however, in 2003 the company made its first annual profit which was the first step to the further development.

At the outset Amazon.com was considered as an online bookstore, but in time it extended a variety of goods by adding electronics, software, DVDs, video games, music CDs, MP3s, apparel, footwear, health products, etc. The original name of the company was Cadabra.com, but shortly after it become popular in the Internet Bezos decided to rename his business “Amazon” after the world’s most voluminous river. In 1999 Jeff Bezos was entitled as the Person of the Year by Time Magazine in recognition of the company’s success. Although the company’s main headquarters is located in the USA, WA, Amazon has set up separate websites in other economically developed countries such as the United Kingdom, Canada, France, Germany, Japan, and China. The company supports and operates retail web sites for many famous businesses, including Marks & Spencer, Lacoste, the NBA, Bebe Stores, Target, etc.

Amazon is one of the first ecommerce businesses to establish an affiliate marketing program, and nowadays the company gets about 40% of its sales from affiliates and third party sellers who list and sell goods on the web site. In 2008 Amazon penetrated into the cinema and is currently sponsoring the film “The Stolen Child” with 20th Century Fox.

According to the research conducted in 2008, the domain Amazon.com attracted about 615 million customers every year. The most popular feature of the web site is the review system, i.e. the ability for visitors to submit their reviews and rate any product on a rating scale from one to five stars. Amazon.com is also well-known for its clear and user-friendly advanced search facility which enables visitors to search for keywords in the full text of many books in the database.

One more company which has contributed much to the process of ecommerce development is Dell Inc., an American company located in Texas, which stands third in computer sales within the industry behind Hewlett-Packard and Acer.

Launched in 1994 as a static page, Dell.com has made rapid strides, and by the end of 1997 was the first company to record a million dollars in online sales. The company’s unique strategy of selling goods over the World Wide Web with no retail outlets and no middlemen has been admired by a lot of customers and imitated by a great number of ecommerce businesses. The key factor of Dell’s success is that Dell.com enables customers to choose and to control, i.e. visitors can browse the site and assemble PCs piece by piece choosing each single component based on their budget and requirements. According to statistics, approximately half of the company’s profit comes from the web site.

In 2007, Fortune magazine ranked Dell as the 34th-largest company in the Fortune 500 list and 8th on its annual Top 20 list of the most successful and admired companies in the USA in recognition of the company’s business model.

History of ecommerce is a history of a new, virtual world which is evolving according to the customer advantage. It is a world which we are all building together brick by brick, laying a secure foundation for the future generations.

Management Notes

Process of e-commerce

indiafreenotesby indiafreenotes0

Selling online has become easily possible nowadays. In fact, it has become one of the most popular platforms people prefer buying from.

If you plan to start a business of your own, and wondering how to go about it, then this post will help you learn the complete e-Commerce Selling Process.

Follow the steps as mentioned, and to the end, you’ll be done.

Step #1: Give your business a name – Register it

The first and foremost requirement is to give your business an identity in terms of a name. The name is something your audience will recognize your business with. Thus, choosing a good name is imperative.

Once you select a name, make sure you register it.

Why is registration important?

This is because if someday someone else comes up in the market with the same name, you will stand nowhere since you do not have proof that you own that title.

Moreover, one needs to comply with the registration as mandatory per law. Thus, it is essential to get your business registered. Each state may have its own policies; therefore, you may refer to your respective state policies for registration.

Step #2: Create a domain name and a website – Register as a seller

Once you are registered, either create your own website using a hosting platform or register as a seller. There are two different possibilities you might want to opt, i.e.

Register as a seller on popular websites like Amazon, and eBay OR start your own e-commerce business by buying space at popular sites such as Shopify, BigCommerce, etc.

The other possibility that arises when you want to set your own e-commerce store is to build a website using web hosting platforms and register your domain.

For example, buy a domain for the e-commerce platform through WordPress and install plugins that help you set up your business and sell online.

Registering as a seller on e-commerce platforms is the easiest way to start selling.

The complexity level increases when you opt for platforms to open up your own store. However, the primary benefit here is that you have your own store where you can sell unlike being just a seller on other e-commerce platforms.

You actually tend to build your own brand here. The most complicated method is to create a new website altogether to start a business.

However, if you plan to do business on a massive scale, it is the optimum choice to make.

Step #3: Upload Products

Once you’ve chosen where you want to sell and have a space to upload your stock, you may now start uploading high-quality images of your products.

Give them a name and mention their price.

If you are into selling various categories of products, make sure to categorize them. This makes the website look neater and easy to use for the customer.

Give the products a suitable description that is easy to understand and explains each and every feature of the product.

When doing business online, your interaction with customers is not direct. The customer cannot touch and feel the product physically. Thus, in order to succeed despite the demerit, it is important to explain each and everything about the product through descriptions.

Step #4: Use SEO

In order to get your website or listed products to rank on top of the Google search results, it is essential to have relevant keywords in the content.

For example, if a person is looking out for a juicer, and you have it as one of your products, then make sure your product title has the word juicer. This will help the search engines identify that you have the same thing that the buyer is looking for and will list your products on the top.

Similarly, make sure that the description along with being informative and easy to read, is also SEO optimized.

Step #5: Choose your shipping method

The next and most important thing is to choose a shipping strategy. Make sure you connect with only famous shipping companies who can make sure that they will deliver your product timely without any damage.

Final words

You are all set to start selling. You have an e-commerce store, have your shipping planned and the products are listed.

Now the buyers will simply have to click on the buy now option, make payments through the payment gateway you’ve opted for and buy your product.

In order to attract more customers, use all the digital marketing tactics and take your business to greater heights.

Management Notes

Key Drivers of E-Commerce

indiafreenotesby indiafreenotes0

Following are the key drivers of e-commerce:-

  1. Make sure your e-commerce efforts are in sync with corporate goals
  • Have a clear understanding of company’s overall growth objectives.
  • Have a clear understanding of company’s branding and marketing objectives.
  • Have a clear understanding of company’s target customers and demographics.
  • Have a clear understanding of company’s products/margins which product sales move the bottom line needle the most.
  • Have a clear understanding of company’s financial targets (revenues, margins, ROI).
  1. Omni-channel design/customer of one
  • You are not building a website in isolation from other customer channels break down divisional silos.
  • All decisions should be made with a customer-centric mindset.
  • Allow customers to shop where, how and when they choose, anytime and anyplace.
  • This means integrating all website, mobile, store, call center systems, etc.
  • This means tailoring offering and messaging down to the person-by-person basis.
  1. Driving new users to the site
  • Determine the proper marketing plan that works within your budgets.
  • Bias online marketing as most trackable and one-click away from your site.
  • Constantly test and iterate all offers and creative strategies used to maximize engagement.
  • Drive traffic to specific product landing pages, which should be unique and tested.
  • Have a clear understanding of the keywords that matter most for your business and optimize your site for SEO and PPC efforts.
  • Cross-promote e-commerce capabilities across all channels of your business.
  • Cross-promote e-commerce links across within all other channel marketing.
  • Leverage the power of social media maintain and promote your own profile pages on major social networks (e.g., Facebook, Twitter, Pinterest) and allow for social sharing from all product pages and conversational communications/viral marketing therefrom.
  1. Getting existing users more engaged
  • Continually optimize and fine-tune the product/pricing offering to match demand.
  • Maintain consistent communication with customers via monthly newsletters or other means.
  • Create loyalty programs that reward increased spending with increased rewards.
  • Allow customers to create wishlists that they can send to their friends and family.
  • Tailor product offers to specific customer profile data.
  • Optimize upselling and cross-selling techniques (e.g., promote related items and “people who bought this, also bought that” functionality).
  • Use machine learning techniques to keep a “memory” of user behaviors in session and over time to allow for behavioral targeting.
  • Use targeted pull back ads after a user leaves the site without buying
  • Employ automated repurchase reminders for things that need to be replaced over time
  • Opt customers into company newsletters during the time of e-commerce purchases.
  1. Website Design/Functionality
  • It needs a clear and simple way to navigate the site (e.g., think “one click” away).
  • Constantly test page layouts to increase user engagement, using eye pattern heat maps, user mouse tracking or otherwise.
  • Constantly test shopping cart flow to limit abandon rates.
  • Study all abandon rates to figure out why customers end up not buying—and address such concerns.
  • Leverage video where you can, as it is much more effective than static images and text in terms of driving engagement.
  • Leverage the reviews and feedback of other customers who bought same items.
  1. Fulfillment/customer service
  • Offer two-way free shipping for orders over a certain size (e.g., $50) don’t give users any reason not to buy.
  • Offer no-hassle customer satisfaction guarantees for a full refund if they are not satisfied for any reason.
  • Provide clear communication on all shipping-related issues (e.g., time to ship, expected arrival dates) with opportunities to get overnight, if needed.
  • Provide the ability to check inventory online for items available in the stores for same day pickup.
  • Simple credit card processing online and the ability to collect payment information via phone.
  • Allow returns either via mail or direct to the stores.
  • Consider kiosk or tablet-based opportunities and services within the stores.
  1. CRM/BIG DATA
  • Invest in customer CRMs as a central repository to track all client profile, preferences, sales and social media history behavior.
  • Invest in big data analytics technology to make sense of the fire hose of data available.
  • The future of marketing is moving toward person-by-person targeting of products, offers and messaging based on their past behaviors and profile preferences. It is no longer mass-marketing of the same messaging to all.
  • Study cross-channel behaviors to learn how customers prefer to engage with the company (e.g., they researched first online but bought in the store, or vice versa).
  • Test, test and retest all marketing activities and look to sharpen efforts with each iteration.
  1. Mobility
  • The PC market is actually declining, while the mobile market is exploding—you need to have native mobile apps built for each major platform (e.g., Apple, Android), or a mobile friendly touch site.
  • Take advantage of mobile locations of your customers with targeted offers and services related to their exact location (e.g., “Check out our new store near your location,” “here are local restaurant deals to go with your recent movie tickets purchase,” “here is our mobile mapping app to go with your new car”).
Management Notes

Elements of e-commerce

indiafreenotesby indiafreenotes0

Online shopping is mainstream. Everyone does it and in lieu of recent in-store credit card security issues, it’s often viewed as more secure than going to a retail store or giving your credit card to a random customer service rep on the phone.

Trust in online shopping is not an issue anymore. The issue is getting your visitors to shop on your website over a competitor’s. In order to capture your audience and make the sales, your e-commerce website needs to be current and implement several very important elements.

Here are seven things to consider when developing or restructuring your e-commerce site:

  1. User Friendly

If your store is easy to navigate, you will have a greater chance of making a sale from the start. The homepage should be inviting and encourage visitors to click on products or categories of items they are looking to purchase. Categories should be self-explanatory and should be broken down into subcategories so visitors can quickly find what they are looking for.

The search bar should be easy to find and quickly list all applicable items that are currently available for sale once the user types in their query.

  1. Shopping Cart and Checkout Process

Adding items to the shopping cart should be simple. Color choices or style preferences should be easy to view and select. Customers like to view what they have in their cart while continuing to shop, so make sure you have a design and functionality that makes it easy.

Don’t confuse users during checkout. Keep things basic and value your customer’s time. The shopper should feel confident shopping on your website.

  1. Mobile Compatibility

80% of all online adults own a smartphone. Mobile visits, in many cases now, outrank desktop use. Your e-commerce site needs to be designed and built for all devices, not just a personal computer or laptops.

  1. Calls to Action (CTA)

Make sure to lead your customers through your site with calls to action that are specific to what you want them to do. For example, if you have a sale, your CTA button could be “Click Here to Save 20%!” It may be obvious to you and even to most people, but there are still a lot of people out there that have lives, raised kids or are raising kids, own or run businesses that don’t spend much time on the web. Adding that extra help builds confidence in your business, shows that you care about your customers and helps to make things less frustrating. Always avoid making your customer feel stupid because they not. If they are going to your website they must be smart enough to buy from the best company out there.

  1. Images and Descriptions

When people are searching for a product to buy, they want to know all the details about it before making their purchase.

Shopping online can have it’s drawbacks because one cannot physically see or touch the items they are looking at. Because of this, it’s important to have professional quality images of your products and when applicable images from multiple angles, views, and even context.

It is also important to thoroughly describe the items in detail. Cover all aspects, including size, texture, uses, benefits, colors available, etc. You want your potential customer to feel confident that they know enough about your product to purchase it, instead of going elsewhere.

  1. Customer Support

Some sort of customer support needs to be available in case of any problems or questions. There are several different types of customer support, such as 800 numbers, email support, and online chat. Decide which is the best choice for your budget and type of business. Keep in mind to always be friendly and respond in a timely manner to resolve any issues to keep your customers happy.

  1. Security and Privacy

Last but not least is security. Make sure you have an SSL certificate installed to encrypt data coming and going to the browser. Today every website, e-commerce or not, should have one. Also, have a transparent privacy policy that tells your customers how their information is used on your site and by your company.

An e-commerce site needs to not only pleasing to the eye but a stress-free shopping experience as well. By developing an online store that is easy to navigate along with a seamless checkout process on any device, you will retain your customers and expand your business by acquiring new ones.

Management Notes

Key differences between Traditional Commerce and E- Commerce

indiafreenotesby indiafreenotes2

Traditional Commerce refers to the conventional method of buying and selling goods and services through physical, face-to-face transactions. In this system, businesses operate through brick-and-mortar stores, shops, or marketplaces, where customers can inspect, touch, and try products before purchasing. Transactions are typically conducted using cash, cheques, or other offline payment methods. Traditional commerce relies on local or regional markets, personal interactions, and established trade relationships. While it provides a personal shopping experience and immediate product availability, it is limited by geography, time, and scale. Despite the growth of e-commerce, traditional commerce remains important for goods requiring physical inspection.

Features of Traditional Commerce:

  • Physical Presence

Traditional commerce requires a physical location where buyers and sellers interact directly. Shops, stores, markets, or showrooms serve as venues for conducting transactions. Customers can physically examine products, assess quality, and make informed purchasing decisions. This face-to-face interaction builds trust and provides immediate feedback. The physical presence also allows businesses to display merchandise attractively, engage with customers personally, and offer on-the-spot services. However, this feature limits market reach to local or regional areas and requires higher operational costs for maintaining physical infrastructure, staffing, and utilities.

  • Face-to-Face Transactions

A defining feature of traditional commerce is direct interaction between buyers and sellers. Customers can negotiate prices, ask questions, and clarify doubts before making a purchase. Sellers can provide personalized advice and build relationships through communication, creating loyalty and trust. This immediate interaction reduces misunderstandings regarding product quality, specifications, or pricing. Face-to-face transactions also allow businesses to offer instant problem resolution, refunds, or exchanges. While this fosters a strong personal connection, it limits the speed and scalability of business compared to digital methods, as each transaction depends on physical presence and direct communication.

  • Limited Market Reach

Traditional commerce is primarily restricted by geographical boundaries. Businesses can attract customers mainly from the local community or nearby regions. Expansion requires opening additional physical outlets, which increases costs and logistical challenges. Unlike e-commerce, products and services cannot be marketed globally without physical infrastructure. This limitation affects revenue potential and scalability. Customers also have fewer options compared to online platforms, reducing competition. Despite these restrictions, traditional commerce benefits from personal trust, loyalty, and immediate product availability. Local marketing strategies, word-of-mouth promotion, and community engagement are critical to sustaining a traditional business within its limited market.

  • Dependence on Operating Hours

Traditional commerce operates within fixed business hours, restricting when customers can make purchases. Stores and markets open and close at specific times, limiting accessibility compared to 24/7 online platforms. Holidays, weekends, and local regulations further influence operational hours. Customers must plan visits, which can be inconvenient for busy individuals. Businesses also need staff to manage operations during these hours, increasing labor costs. While this allows controlled management of operations, it reduces flexibility and limits sales opportunities. In contrast, e-commerce provides round-the-clock access, catering to customers’ schedules and maximizing revenue potential without time constraints.

  • Cash-Based Transactions

Traditional commerce predominantly relies on cash or offline payment methods, including cheques, money orders, or debit/credit cards in physical stores. Transactions are immediate and tangible, which simplifies record-keeping for small businesses. This feature reduces dependence on digital infrastructure but may pose risks such as theft, counterfeit currency, or errors in manual bookkeeping. Cash transactions require physical handling and banking processes, which can be time-consuming. Unlike e-commerce, which offers multiple digital payment options, traditional commerce is limited in convenience and speed of financial transactions. Nonetheless, cash-based dealings are trusted by many customers, especially in areas with low digital penetration.

  • Personal Customer Service

Traditional commerce emphasizes direct, personal service, enhancing the shopping experience. Sellers can guide customers, recommend products, and resolve queries instantly. Personal attention builds strong relationships, loyalty, and customer satisfaction. Businesses can tailor services based on individual preferences, ensuring a customized experience. This personal touch is particularly valuable for products requiring demonstration, fitting, or explanation. However, providing consistent service requires trained staff and adequate resources. While this feature fosters trust and repeat business, it limits scalability, as businesses can only serve as many customers as physical space and staff allow.

E-Commerce

E-Commerce (Electronic Commerce) refers to the buying and selling of goods and services over the internet. It enables businesses and consumers to conduct transactions digitally without relying on physical stores. E-commerce includes various models such as B2B (business-to-business), B2C (business-to-consumer), C2C (consumer-to-consumer), and C2B (consumer-to-business). It relies on technologies like secure online payments, digital marketing, and web or mobile platforms to provide convenience, speed, and broader market access. E-commerce allows 24/7 shopping, personalized experiences, global reach, and cost efficiency, transforming traditional trade and making commerce faster, more accessible, and highly scalable.

Features of E-Commerce:

  • Ubiquity

E-commerce is accessible anytime and anywhere with an internet connection. Unlike traditional commerce, customers are not limited by store locations or hours, allowing them to shop 24/7 from home, office, or mobile devices. This continuous availability increases convenience and enhances customer satisfaction. Businesses benefit from constant exposure, expanding potential sales without requiring multiple physical outlets. Ubiquity also reduces operational costs while providing consumers with a seamless and flexible shopping experience. By making products and services constantly available, e-commerce transforms the purchasing process into a convenient, on-demand activity that adapts to modern lifestyles.

  • Global Reach

E-commerce provides global market access, connecting sellers and buyers across countries. Businesses can expand beyond local or regional boundaries, reaching international customers efficiently. Online platforms, websites, and marketplaces enable wide product distribution, while digital marketing and social media promote brand visibility worldwide. Customers benefit from diverse product options, competitive pricing, and cross-border access. Payment gateways and shipping services facilitate international transactions. This feature allows even small enterprises to compete globally, fostering innovation, cultural exchange, and market expansion. Global reach significantly increases growth potential, enabling businesses to scale rapidly while offering consumers access to a broader range of goods and services.

  • Interactivity

Interactivity in e-commerce allows two-way communication between businesses and consumers. Customers can ask questions, provide feedback, and receive personalized responses through chatbots, emails, or social media. Businesses can analyze user behavior to tailor products, services, and marketing strategies. Interactive features like live chats, reviews, ratings, and order tracking enhance engagement, trust, and customer satisfaction. This real-time interaction helps resolve issues promptly, encourages informed purchasing decisions, and strengthens relationships. Interactivity makes the shopping experience dynamic and responsive, providing consumers with a sense of involvement and businesses with valuable insights for continuous improvement and personalized marketing initiatives.

  • Personalization

E-commerce platforms use data analytics, AI, and machine learning to offer a personalized shopping experience. Customers receive tailored recommendations, offers, and content based on their browsing patterns, purchase history, and preferences. Personalization enhances engagement, conversion rates, and customer satisfaction. Businesses can segment audiences, run targeted campaigns, and optimize marketing efforts efficiently. Personalized experiences create stronger emotional connections with brands, encouraging repeat purchases and loyalty. Dynamic pricing and customized promotions are additional advantages. By addressing individual needs, e-commerce ensures a more relevant, convenient, and enjoyable shopping journey, improving both user experience and overall business performance.

  • Information Density

E-commerce provides high information density, offering detailed product descriptions, specifications, images, videos, and reviews. Customers can compare products, prices, and features easily before making a purchase decision. Businesses can display comprehensive information about inventory, promotions, and policies, enhancing transparency and trust. High information density reduces uncertainty, improves decision-making, and minimizes post-purchase dissatisfaction. It also enables analytics, dynamic pricing, and targeted marketing. By consolidating and presenting vast amounts of relevant data efficiently, e-commerce empowers consumers to make informed choices, while businesses benefit from better customer insights and streamlined marketing strategies, making online shopping efficient and reliable.

  • Convenience

E-commerce offers unmatched convenience, allowing customers to shop from anywhere at any time. Buyers can browse, compare, and purchase products without visiting a physical store. Features like home delivery, multiple payment options, easy returns, and order tracking simplify the shopping process. Businesses benefit from automated operations, reduced overhead costs, and round-the-clock sales opportunities. Convenience attracts busy consumers, improves satisfaction, and encourages repeat purchases. Unlike traditional commerce, e-commerce eliminates travel and waiting time, making transactions faster and more efficient. This feature is central to the popularity of online shopping, providing a seamless and effortless experience for both consumers and businesses.

Key differences between Traditional Commerce and E-Commerce

Aspect Traditional Commerce E-Commerce
Presence Physical Digital
Transactions Face-to-Face Online
Market Reach Local Global
Operating Hours Fixed 24/7
Payment Mode Cash/Offline Digital
Customer Interaction Personal Virtual
Convenience Limited High
Cost High Low
Delivery Immediate Scheduled
Information Access Limited Extensive
Personalization Low High
Scalability Limited High
Security Low Risk Cyber Risk
Marketing Offline Online
Speed Slow Fast
Management Notes

Benefits of e-commerce

indiafreenotesby indiafreenotes0

When you read the following list of advantages of e-commerce for businesses and customers, you will get the sense that e-commerce is the holy grail of retail.

  1. Overcome Geographical Limitations

If you have a physical store, you are limited by the geographical area that you can service. With an e-commerce website, the whole world is your playground. Additionally, the advent of m-commerce, i.e., e-commerce on mobile devices, has dissolved every remaining limitation of geography.

  1. Gain New Customers with Search Engine Visibility

Physical retail is driven by branding and relationships. In addition to these two drivers, online retail is also driven by traffic from search engines. It is not unusual for customers to follow a link in search engine results and land on an e-commerce website that they have never heard of. This additional source of traffic can be the tipping point for some e-commerce businesses.

  1. Lower Costs

One of the most tangible positives of e-commerce is the lowered cost. A part of these lowered costs could be passed on to customers in the form of discounted prices. Here are some of the ways that costs can be reduced with e-commerce:

  • Advertising and marketing: Organic search engine traffic, pay-per-click, and social media traffic are some of the advertising channels that can be cost-effective.
  • Personnel: The automation of checkout, billing, payments, inventory management, and other operational processes lowers the number of employees required to run an e-commerce setup.
  • Real estate: This one is a no-brainer. An e-commerce merchant does not need a prominent physical location.

  1. Locate the Product Quicker

It is no longer about pushing a shopping cart to the correct aisle or scouting for the desired product. On an e-commerce website, customers can click through intuitive navigation or use a search box to narrow down their product search immediately. Some websites remember customer preferences and shopping lists to facilitate repeat purchase.

  1. Eliminate Travel Time and Cost

It is not unusual for customers to travel long distances to reach their preferred physical store. E-commerce allows them to visit the same store virtually, with just a few mouse clicks.

  1. Provide Comparison Shopping

E-commerce facilitates comparison shopping. There are several online services that allow customers to browse multiple e-commerce merchants and find the best prices.

  1. Enable Deals, Bargains, Coupons, and Group Buying

Though there are physical equivalents to deals, bargains, coupons, and group buying, online shopping makes it much more convenient. For instance, if a customer has a deep discount coupon for turkey at one physical store and toilet paper at another, she may find it infeasible to avail of both discounts. But the customer could do that online with a few mouse-clicks.

  1. Provide Abundant Information

There are limitations to the amount of information that can be displayed in a physical store. It is difficult to equip employees to respond to customers who require information across product lines. E-commerce websites can make additional information easily available to customers. Most of this information is provided by vendors and does not cost anything to create or maintain.

  1. Create Targeted Communication

Using the information that a customer provides in the registration form, and by placing cookies on the customer’s computer, an e-commerce merchant can access a lot of information about its customers. It, in turn, can be used to communicate relevant messages. An example: If you are searching for a certain product on Amazon.com, you will automatically be shown listings of other similar products. Also, Amazon.com may email you about related products.

  1. Remain Open All the Time

Store timings are now 24/7/365. E-commerce websites can run all the time. From the merchant’s point of view, this increases the number of orders they receive. From the customer’s point of view, an “always open” store is more convenient.

  1. Create Markets for Niche Products

Buyers and sellers of niche products can find it difficult to locate each other in the physical world. Online, it is only a matter of the customer searching for the product in a search engine. One example could be the purchase of obsolete parts. Instead of trashing older equipment for lack of spares, today we can locate parts online with great ease.

E-Commerce advantages can be broadly classified in three major categories:

  • Advantages to Organizations
  • Advantages to Consumers
  • Advantages to Society

Advantages to Organizations

  • Using e-commerce, organizations can expand their market to national and international markets with minimum capital investment. An organization can easily locate more customers, best suppliers, and suitable business partners across the globe.
  • E-commerce helps organizations to reduce the cost to create process, distribute, retrieve and manage the paper based information by digitizing the information.
  • E-commerce improves the brand image of the company.
  • E-commerce helps organization to provide better customer services.
  • E-commerce helps to simplify the business processes and makes them faster and efficient.
  • E-commerce reduces the paper work.
  • E-commerce increases the productivity of organizations. It supports “pull” type supply management. In “pull” type supply management, a business process starts when a request comes from a customer and it uses just-in-time manufacturing way.

Advantages to Customers

  • It provides 24×7 support. Customers can enquire about a product or service and place orders anytime, anywhere from any location.
  • E-commerce application provides users with more options and quicker delivery of products.
  • E-commerce application provides users with more options to compare and select the cheaper and better options.
  • A customer can put review comments about a product and can see what others are buying, or see the review comments of other customers before making a final purchase.
  • E-commerce provides options of virtual auctions.
  • It provides readily available information. A customer can see the relevant detailed information within seconds, rather than waiting for days or weeks.
  • E-Commerce increases the competition among organizations and as a result, organizations provides substantial discounts to customers.

Advantages to Society

  • Customers need not travel to shop a product, thus less traffic on road and low air pollution.
  • E-commerce helps in reducing the cost of products, so less affluent people can also afford the products.
  • E-commerce has enabled rural areas to access services and products, which are otherwise not available to them.
  • E-commerce helps the government to deliver public services such as healthcare, education, social services at a reduced cost and in an improved manner.
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