Distributors & E-Business: Yesterday, Today & Tomorrow

by Akarin Weatherford

Get Started on the Same Page
As the saying goes, "I don't know where I'm going, but I sure know where I've been." Well, that saying holds very true today for e-commerce and e-business. In this article I will be making references to e-commerce and e-business and it is important to first understand the distinction between the two.

E-Commerce (Electronic Commerce) is the buying and selling of goods and services over the Internet plus the technology infrastructure and applications used to support those transactions. Examples include indirect purchases from online supply catalogs (also called e-procurement or electronic procurement), Electronic Document Interchange (EDI) orders from a distributor to a manufacturer, and even selling that ugly lamp from the attic at an online auction on Ebay to a collector over in Fiji. E-commerce is simply one of the many channels available to you for buying and selling goods or services electronically.

E-Business (Electronic Business) is the use of the technology infrastructure and applications to synthesize and optimize existing business processes. A slightly easier analogy to comprehend is that e-business is creating a digital simulation of an analog process. Here's an example of an analog process being simulated digitally: Your inside sales force records customer conversations on a notepad kept on their desks. Susie Sales is out of town and a purchasing agent is calling about the status of a specialized duct control ordered from a manufacturer by Susie. So what do you do? Well, you go to Susie's desk, thumb through her notes, try your best to get a bearing on the situation and try to help. However, if the customer's information and Susie's conversations with the manufacturer were kept online in a database, you could easily search for the customer name, or a keyword in the discussion, and immediately understand the situation to become more helpful. Notice that nothing was bought or sold, but the electronic system helped us do an analog task more effectively. This example refers to Customer Relationship Management (CRM). In E-Business, there are many other components such as Enterprise Resource Planning (ERP), Advanced Planning and Scheduling (APS), Order Management Systems (OMS), and any other electronic way of servicing customers and collaborating with business partners. And yes, e-commerce is a part of e- business.

So Where Have We Been?
Looking back on e-commerce, we can go all the way back about 20 years ago to the first implementations of EDI. For the history enthusiast, the predecessor to EDI was used in the Berlin Airlift of 1948 where telex machines were used by the U.S. Army to automatically order supplies. Although the focus on e- commerce and e-business is more recent than the 20-year-old introduction of EDI, this is an important fact that we will use later to show where we presently are in terms of EDI transactions.

Within the past five years we have seen a boom in technologies and applications that support e- commerce. Unfortunately we have also seen a bust in the "dot-bomb" revolution. Now understand, the Internet which supports e-commerce has been around since the late 60's. All the pretty colors, sounds, and images didn't surface until Tim Berners-Lee developed the World Wide Web (WWW) in 1991.

It took 40 years for business to adopt the facsimile machine. It took 20 years for businesses to adopt the cellular phone. But, as technology-marketing groups would want you to believe, all businesses were performing e- commerce and e-business towards the end of the 90's in just under a 10-year span.

Fueled by incredible research group projections, low-barriers of entry, high visibility, and lots of capital, the inevitable occurred: your basic shakeout. Shakeouts occurred in the railroad, automobile, and the PC industry. The E-commerce world was no different except that its own technologies accelerated the process.

Players from all over the place were entering the game. Trading exchanges, e-commerce hubs, e- marketplaces, or whatever you want to call them, formed in every industry imaginable. Technology companies that had little or no experience in respective industries often formed these entities. Their revenue model was largely based on charging you for mapping your data to their site, charging you a transaction fee, and then reselling your data to your competitors. Needless to say, this model failed miserably. The main reason is that they thought that somehow they had a "first mover advantage" by being the first e-whatever in an industry. What they actually overlooked is that there are 185,000 manufacturers and 680,000 distributors out there and they are actually the 865,001st "mover." Their goal was actually to disrupt existing channels and relationships. Look at the HVACR and plumbing industry. Just as recently as 2000 you saw press releases from sites such as eCaribou.Com, HVACContractorsWeb.Com, PlumbersWeb.Com, and SupplySpot.Com who all wanted a piece of the HVAC and plumbing industry. Try and visit these sites now and tell me what you find.

Where Are We Now?
If you want a profound statement about where we are today, take it from the man who has more knowledge about the stock market than any of us reading will ever have in our lifetime:

"We have embraced the 21st Century by entering such cutting edge industries as brick, carpet, insulation, and paint."
- Warren Buffett

Think about it. When it's all said and done, what has been accomplished? We bought or sold goods or services. Technology is just an enabler. Business has been around for centuries and will still be around for centuries to come. What happened when the phone was invented and adopted for business use? What happened when the fax was invented and adopted for business use? We adopted the tools to aid our business and not the other way around. The same is true for e-commerce and e-business.

Most distributors in the HVACR and plumbing industry have not really been able to take advantage of e- commerce capabilities. Either their systems do not support e-commerce transactions or there just isn't a need on the buy-side or sell-side for such a feature. This can primarily be attributed to the heavy fragmentation of the industry. With the smaller sized players, technology investments can approach or surpass gross profits. Not only do you have to buy the technology, you must also have the qualified IT staff to integrate and support it. So technology solutions tend to be the minimal needed to get the job done. For example, according to a recent American Supply Association (ASA) study, less than 50% of small to medium sized plumbing manufacturers use EDI. Of those using EDI, less than 13% of EDI transactions make up their order volume. Remember in the previous section, EDI has been around for over 20 years, and the industry is now just barely using it. However, some aspects of e-business are really taking off such as the use of basic, out of the box CRM packages (Act!, GoldMine, Outlook/Exchange, etc.) for managing customer contact information, intranets for sharing information between employees, and web sites for sharing product drawings and specifications to contractors for proposals.

Where Are We Going?
Predicting the future is like playing craps. You roll the dice and you can either win big, lose big, or even land somewhere in between, but you'll never have a definite answer until you roll the dice.

One of the best ways to gage the future is to plan a set of scenarios and see how those scenarios play out as the future approaches. The National Association of Wholesalers (NAW) has recently done just that. In NAW's latest distributor research project, Facing the Forces of Change: Future Scenarios for Wholesale Distribution, there are four possible scenarios outlined that will lead the distribution industry. In the first scenario, the prediction is that the traditional supply chain, as we know it, still exists and we will rely heavily on e-commerce and e-business to improve our sales and service. The second scenario says that manufacturers will become a stronger force in providing information to customers while distributors carry inventory and provide fulfillment functions. The third scenario states that distributors will physically separate and outsource logistics and fulfillment functions and concentrate on just sales and marketing. Finally, the fourth scenario states that customers will form neutral, non-profit exchanges which help supply chain partners interact over a common platform and distributors will adapt to service this model.

Whether you buy into these scenarios or not, one thing is for certain: e-commerce and e-business will play a key role in any future. If this generation cannot grab the concept and excel, the next generation will do it. Pre-schoolers today are learning how to type their names on computers and will never remember a time without them. This is just like we cannot remember a time without electricity or the telephone. Even Microsoft is so sure of this, they're betting their future on it with what they call their .Net technology. They are hoping that .Net will enable legacy business systems to have Internet data exchange capabilities via Extensible Markup Language (XML) and become something they call a Web Service.

Preparing for the future
Well, we know that the future is uncertain, but given a few constants we can take a pretty good guess as to where it may take us. Here are a couple of low risk steps that you can take.

• Remember Open Standards. If you are going to buy technology, participate in an exchange, or even simply sign up for email, be sure that Open Standards are part of the technology. Basically, you want to avoid being locked into a major dollar investment in proprietary technology that hinders you from exporting your data when you need to upgrade, or playing with another technology system of someone else.
  
• Invest in Infrastructure. Bandwidth is a terrible issue that currently plagues companies, and tomorrow's applications will do nothing but eat up more of it. Applications may come and go, but they will all need your computer network to run. Faster computers and higher speed data connections are a safe bet when spending IT dollars.
  
• The Internet is One to One. This, above all else, is the most important concept to remember. All this technology boils down to people doing business with other people. The "dot-bombs" out there all forgot this and adopted a one to many model of "build it once and sell to everybody." They were looking at technology as a way to sell something and not improve relationships through collaboration. In all those billion dollar business plans, they assigned the value of relationship equity $0. Yes, they built plenty of cool business transaction models and tools, but they forgot what really matters: how you as the distributor and I as the customer get along together. So keep in mind that whatever technology choices you are presented with, ask yourself whether or not it enables you to spend more face time with your customers to build that all-important relationship equity.

Facing the Forces of Change, referenced in this article, is available at: http://www.nawpubs.org.