Practical realities of
e-commerce on your business

by Stephen Hauser and Akarin Weatherford

The Internet-based commerce revolution has provided great theater. We saw incredible run-ups in valuations of e-businesses and the fiery collapse of many of the same companies. We were barraged for two years with daily announcements of ever-larger and more complex exchanges, auctions, strategic alliances and partnerships, all with a mission of redefining how business was going to get done in the “New Economy.”

Many projects produced more promise than profit. Behind all the pomp of the Internet world is the unquestioned acceptance of the Net and all of its related technologies by brick-and-mortar companies that do the heavy lifting in our economy.

Put it in perspective
The enormous hype, inflated valuations, and now lost wealth of the last year comes with the realization that there is no “new economy,” but rather an old one with a new tool set. Those old economy stalwarts, including your suppliers, your customers (and hopefully you), will rapidly incorporate e-commerce tools.

Most manufacturing companies with significant scale have gone through an intense 20-plus years of process redesign and corporate reengineering. Their initiatives include Total Quality Management (TQM), Constraint Management, Toyota Production System, Kaizen/Continuous Improvement and its elements, including pull-systems, one-piece flow and just-in-time. Your suppliers have spent years looking inward and to their upstream supply chain to attack costs and the processes that generate them, and have embraced technology to achieve their objectives.  Thanks to the Internet, this effort to gain savings has expanded to the downstream value chain. That means you.

With the access and connectivity the Internet provides, most of your suppliers accept the inevitability of channel conflict and have considered going direct, or created much of the processes for doing so (if only with Web storefronts).

Manufacturers are rapidly expanding their use of e-commerce tools to manage downstream processes and close in on the final customer, providing order and shipment tracking, technical specs, catalog access, service scheduling, etc. Some distributors wonder if they will be relegated to being simply an agent or rep, resulting in disintermediation in part or in full from their prior role.

Disintermediation is not an immediate threat. Consider why:

• Re-creating an end-user sales force while controlling costs and optimizing processes is difficult to justify in dollars or time consumed.

• Customized assembly and kitting is more effectively and cheaply done by the distributor because the labor cost is lower.

• Distributors are an effective front line for reverse logistics issues of warranty, rework and returns since manufacturer costs are exceptionally high here.

• Small orders and time-sensitive shipments are best handled locally.

Within the MRO market (in fact, most markets), a tiered distribution infrastructure of one to three layers is a necessity for many customer segments. Clearly, some channels have grown intolerant of the costs of distribution, and those have switched (or will switch) to alternate suppliers. But few exchanges, portals, dot-coms or even manufacturers have the relationships and industry/market knowledge that successful distributors have. This knowledge allows you to create a defendable niche focused on service, data capture/analysis and real-time communication with both supplier and customer.

What does it mean to you?
If the buy-hold-sell paradigm for distribution is being transformed by the Internet and e-commerce to sell-source-service, the distributor becomes a knowledge broker.  Distributors create value by:

• “sourcing” demand for suppliers (prospecting the market)
• introducing new products
• delivering application knowledge to the customer
• generating market data for supplier-demand planning
• identifying where to reduce or eliminate bottlenecks in the fulfillment process, from supplier order intake, to end-user delivery
• converting transactionsto an e-format
• 24x7 accessibility
• capturing information about customers/prospects and letting relevant employees have access.

For some, the agenda seems daunting. But it is necessary to achieve in order to compete in an environment where many vendors and customers do not sleep.

That being said, how do you physically transform into an Internet-capable distributor?

How to get there
First, look at your information technology (IT) investment. Many distributors view IT as a secondary support function of their company and therefore neglect developing their existing infrastructure. They may have been frugal on hardware and software purchases, acquiring generic components and applying just enough effort to get e-mail and the Internet to their desktops.  Now, distributors discover that their existing infrastructure is too weak to support the latest technologies.

According to a recent Tech Republic survey, 34 percent of responding companies spend more than 10 percent of their annual budget on IT.  Another 20 percent spend between 5 to 10 percent of their annual budget on IT.   If you don’t currently spend at least this level of money on IT, you are not ready to play the game.

If you do allocate enough money to IT, what should you spend it on?  The best way to look at this is to break it down into internal and external IT Investments.

Internal IT investments
First, do you have a competent person in charge of your IT staff?  This doesn’t mean a cousin who designs Web pages, a part-time college student or a colleague who got “stuck” in that position. It means a degreed IT person with experience running a corporate enterprise. 

This person creates and controls all policies and procedures relating to your IT infrastructure to make sure it runs as planned.

The second item is standardized toolsets. Your IT leader must establish a solid, baseline architecture by standardizing software applications and hardware components throughout your enterprise. This means everything from the PCs and terminals sitting on your desktop to your servers. Everyone must use the same productivity tools such as word processors, spreadsheets, and e-mail applications.  Everyone must use the same computer systems.

Without standardization, you will experience daily interoperability problems and extended downtime. Think of it as building the foundation for a house. Without a solid foundation, anything built on top of the foundation, such as top-of-the-line e-commerce packages, enterprise resource planning (ERP), or customer relationship management (CRM) packages, will collapse under the stress of normal, day-to-day use. You’ll spend more time fixing problems than doing business.

The third item is a psychological investment in a culture shift. You can’t maximize your IT investment if you don’t have buy-in from your employees. To make this shift occur, it must start at the top. Everyone must incorporate technology into his or her daily activities.

An example is e-mailing documents back and forth for review and editing until the final document is produced. It sounds like a simple process, but it helps make sure everyone understands and uses the applications supported by the IT infrastructure.

External IT investments
External IT investments include any application or hardware that interfaces with another application or hardware outside of your enterprise. There is only one thing to remember about your external IT investments. Stick with products that provide industry standard interfaces rather than proprietary interfaces. This allows the greatest flexibility in selecting business partners. Unfortunately, if a major player in a market has already defined a particular interface, this may limit your choices.  For instance, if a major trading exchange declares XML as its business interface and your e-commerce package only supports EDI transactions, it’s time to lose the inflexible system if you want to do business.

The deployment timetable depends on multiple factors. Can you build on your current infrastructure? What segments of your infrastructure need to be rebuilt or redeployed? How capable is your workforce to accept new software tools to help automate work flow?  Are your partners on the buy-side and sell-side ready to leverage the applications you plan to deploy?

Deployment can take one month if you deploy an out-of-the-box e-commerce application or six to 12 months for a full infrastructure overhaul.  Company size is a factor, but it is up to you to thoroughly evaluate your existing situation and define the requirements necessary to reach your goals.

Outsourcing services is one way to accelerate your deployment schedule. The benefits include faster time to market, domain expertise and lower operating costs. Drawbacks include less agility, long-term contracts, and culture differences. The outsourcing rule is “do what you do best, and outsource the rest.”  However, you don’t want to put on blinders. Maintain a position where your business has insight and control of any outsourced component.

Many things are happening in the “e-this” and “e-that” world.  Don’t get lost in the acronyms.  No one knows your business better than you do.  There are no off-the-shelf applications that will make your company “e-nabled.”  It starts in your own backyard with your day-to-day business processes.

Stephen Hauser is vice president and Akarin Weatherford is chief technology officer for the e-business development practice at Indian River Consulting Group. Contact them at (321) 956-8617. 

This article originally appeared in the 2001 Progressive Distributor ASMMA/.I.D.A spring edition.

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