Progressive Distributor - Plotting an e-strategy

Plotting an e-strategy

Beware of goatee-wearing cyberniks who promise to change your "old economy" distribution model into a "new economy" cyber company. Orr Corporation has resisted the hype and methodically developed an e-commerce strategy based on sound business principles and market research.

by Richard Vurva

Like most U.S. distributors, Orr Corporation has been inundated by dot-coms and other technology companies offering to lead them to the Promised Land. But this safety distributor from Louisville, Ky., steadfastly refuses to succumb to hype and empty promises.

It has opted instead to develop a comprehensive e-commerce strategy based on sound business principles and market research. A recently announced e-commerce business unit dubbed Orr E-Com Logistics (Orr ECL) is the result of a planning process more than three years in the making.

Orr ECL provides a full range of Web-based technical distribution, order management, logistics, content management, customer relationship management and consultative services in the business-to-business electronic commerce arena.

The core mission of Orr ECL is to deliver superior service and value to manufacturers, Web communities, portals, integrated suppliers, safety distributors, other industrial distributors and end-user customers through an integration of robust, scalable Web-based solutions. Put simply, Orr ECL puts buyers and sellers together in an electronic space to create the greatest value possible.

Customer-specific solutions
Rather than build a massive safety product catalog open to the public on the Internet, Orr Corporation has chosen to focus first on customer-specific intranet or extranet sites.

For example, it developed one site for a major transportation and logistics company that includes only those products the company buys from Orr. Product definitions and category descriptions match those used by the customer, and the site displays negotiated prices for that customer, not a manufacturer’s standard list price.

Other custom sites include appropriate pages from the customer’s safety manuals. When a user visits the site to order a fall restraint system, for example, he or she can link to that company’s safety manual to make sure the product meets the company’s defined safety procedures and guidelines.

“In many cases, we actually helped those companies develop their safety policies,” says Rob Gassman, director of marketing and planning.

Incorporating the safety manual in the custom-built intranet or extranet e-commerce platform helps a user select products on which his or her company has standardized, rather than waste time searching through a public catalog of products the user might not be authorized to buy.

“Our obligation is not just to focus on the Internet, but to focus on a wide array of technologies,” says Orr president Jerry Nichter. “Some technologies may be very simple because that’s where customers are today.”

Orr currently utilizes six to 10 technology-based delivery systems to take orders, including the Internet, EDI, automated interactive voice response (IVR) systems, file transfer via modem, plus combinations of computer and telephony, e-mail and automated fax systems.

“Electronic commerce is so much more than just putting a catalog on the Internet,” says chief executive officer Bud Orr. “We believe we’re building a technology foundation to provide the needs for our customers.”

Orr ECL was born out of recognition that traditional distribution business models are being challenged. Hyper-competition, industry consolidation, integrated supply, vendor reduction and single-source supply are redefining traditional channels of distribution.

“The traditional channels we are in today were defined by manufacturers,” says Nichter. “Channels that will evolve in the future will be created primarily by the customer.”

Today, with multiple channels to market, one of the challenges distributors face is to envision where distribution is headed and plan accordingly. New channels require new methods for going to market. For example, Orr currently serves as a tiered supplier of safety products and services to several integrated suppliers. In the future, it may offer additional consulting and logistics support to integrators, serve as a master distributor for manufacturers, and even provide logistics and order management services to other distributors.

It is becoming essential for distributors to identify channels that may emerge over the next three to five years, then select the appropriate channels to place resources that create value for manufacturers and customers.

“You have to understand what’s going to motivate manufacturers and customers to do business in different ways,” says Nichter. “Our extensive intellectual properties and experience, coupled with our worldwide shipping and delivery capabilities, enable Orr ECL to systematically and cost-effectively link all parts of the industrial supply chain. Simply stated, our technically enhanced response capabilities mean greater efficiencies and value for our customers and business partners.”

With annual sales of more than $70 million, the company has experienced double-digit sales growth in the past few years. To prepare for future growth, Orr recently began construction on a new headquarters and warehouse that will triple existing square footage in Louisville. Scheduled for completion in December, the new facility is another example of how Orr is building an infrastructure today to handle business needs of tomorrow.

More than a storefront
Many businesses are becoming enamored by front-end solutions that follow a “build it and they will come” mentality. As an example, Nichter sites the flood of portals and other Web-based communities whose goal is to build massive Internet catalogs.

“We have met with people who say they’ll have 3 million SKUs on
their site by September,” he says. “That’s pretty impressive, but how are you going to deliver those 3 million products? What kind of support infrastructure do you have in place to close the loop?”

Orr’s strategy is to offer a handful of portals and Web communities a fixed number of tightly defined SKUs that will satisfy 98 percent of the health and safety needs of the customer. The number of SKUs resulted from Orr’s study of customer buying habits.

“By profiling our database over the last several years, we can anticipate what buyers are going to buy,” Nichter says. “We can anticipate where the bulk of the buying will take place and put an offering out there that’s responsible to the marketplace. When a customer comes in, we can fill that order with a very high degree of confidence.”

Entering new frontiers
Sometimes, technology opens doors to surprising new opportunities. For example, using Web-based and IVR technologies, Orr recently began targeting a segment of the over-the-road trucking industry. The company developed a mini-catalog featuring safety products such as eyewear, gloves, spill kits, conspicuity tape, flashlights and batteries, and other items a trucker might need on the job.

“We can set the price far below what a trucker would pay in a truck stop or at a department store,” says Gassman. “To order, they can use our automated telephone system or order from our Web page, www.truckersafety.com.”

A test phase was rolled out in late spring and, depending on how truckers respond to the offering, the program may be expanded.

Orr wants to do more than simply avoid disappointing a customer. If a mechanic doesn’t receive a ratchet wrench he ordered via the Internet, he may be inconvenienced, but it’s no big deal. But if he doesn’t get a respirator or protective clothing, he could risk injury or illness.

“People are counting on us to protect them,” Nichter says. “We have an obligation that when somebody is promised something, we deliver on it.”

Bud Orr looks at e-commerce as a three-legged stool. “In order to succeed, electronic commerce must provide education, information and commerce. The first two are just as important as selling product over the Internet,” he says.

Business enabler
A new survey by Progressive Distributor reveals that half of the Safety Equipment Distributors Association members consider the Internet a threat to distributors. Asked if their companies have an effective e-commerce strategy, more than half of the safety distributors agreed.

In other words, safety distributors are evenly divided over whether or not their companies are positioned to take advantage of the buzz about the Internet and B2B e-commerce. Orr Corporation is among those companies with a strategy to capitalize on the blossoming e-commerce trend.

“We intend to be a technical distributor that has a core competency focused on safety,” says Nichter.

He believes the winners on the e-commerce playing field will be those companies that understand that business strategy is more important than the technologies they use.

“I have a strong bias toward functional design of a business, particularly around technology,” he says. “What is technology going to do for you? What do you intend to automate? If you can’t answer that question, if you lead with technology and you don’t have a good functional design, you will never get to a point of clarity or profitability.”

Large corporations, following the lead of highly publicized efforts by General Motors, Ford and DaimlerChrysler, have shown the most interest in developing a business-to-business e-commerce solution. In many cases, however, companies are still sorting out exactly how to best incorporate the Internet and other e-commerce offerings into their overall procurement strategies.

“There’s a tremendous amount of interest in electronic commerce,” says Ted Buck, vice president of marketing and new channel development. “The customer is becoming more sophisticated about what makes sense for them. But, they’re really feeling out the marketplace to truly understand the benefits.”

Rob Gassman, director of marketing and planning, says Orr’s role is to serve as an enabler to help companies sort through the options.

“We come in with a disciplined approach and say, ‘Let’s sit down and talk about where you’re going with your business planning. What are your goals and objectives?’” he says. “We’ll bring the right technology in at the right time, but let’s start with good, sound business planning that focuses on the pressure points of the business. We want to find the various cost components to attack so we can remove these cost-generating components from your business.”