Practical Realities of E-commerce
on Your Business

by Akarin Weatherford

It is early 2001 and the Internet-based revolution in commerce has provided great theater for most of us. As investors we have witnessed incredible run-ups in valuations of “E” businesses, and we have seen the fiery collapse of so many of the same companies. We were barraged over the past two years with near daily announcements of ever-larger and more complex exchanges, auctions, strategic alliances, partnerships…all with a mission of redefining how business was going to get done in their unique slice of the “New Economy.” Many of these projects produced more promise than profit. But behind all the pomp, theater, noise, and PR of the Internet world is the unquestioned acceptance of the “Net” and all of its related technologies by those entities which do the “heavy lifting” in our economy, the “brick-and-mortar” companies.

Put It In Perspective
Many of us blithely accept the growth of the Internet and related-technologies without realizing the historical context of other significant inventions. PC and Net use have reached levels of access and usage which electricity, the telephone, and automobile took 40-70 more years to achieve! Along with this rapid propagation, we have the development of an extraordinary number of uses of this powerful tool. 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 now gone through an intense 20+ years of process redesign and corporate reengineering. Catalog the initiatives: TQM, Constraint Management, Toyota Production System, Kaizen/Continuous Improvement; and their elements including pull-systems, one-piece flow and just-in- time. Your suppliers have spent years looking inward and to their upstream supply-chain in attacking costs and the processes that generate them, and they have embraced technology to achieve their objectives. This unrelenting effort and ingrained culture to gain savings has now, with the Internet, been expanding to the downstream value-chain, and that means you.

With the access and connectivity the Internet provides, most of your suppliers have accepted the inevitability of channel conflict and have themselves considered going direct, or have 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. More than one distributor has wondered if he/she will be relegated to being simply an agent or rep, resulting in disintermediation in part or in full from his/her prior role.

Disintermediation is not an immediate threat. Consider these factors:

• (Re)creating an end-user sales force while controlling costs and focusing on optimized processes is difficult to justify in $ spent 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, and in fact most markets, a tiered distribution infrastructure of 1-3 layers is a necessity for many customer segments. There are clearly channels which have grown intolerant of the costs of distribution, and those have or will switch to alternative suppliers. But few of the exchanges, the portals, dot.coms, and even the manufacturers, have the relationships and industry/market knowledge of the successful distributor, which allow you to create a defendable niche focused on service, based on data capture/analysis and real-time communication with both supplier and customer. What are we talking about?

If the Buy-Hold- Sell paradigm for distribution is being transformed by the Internet and e-commerce to Sell-Source-Service, a distributor becomes a knowledge-broker, and creates value by:

• “sourcing” demand for his supplier (i.e., prospecting the market)
  
• aggressively introducing new product for his supplier
  
• delivering application knowledge to the customer
  
• continually generating market data for supplier demand planning
  
• identifying where in the fulfillment process, from supplier order intake to end-user delivery, bottlenecks can be reduced or eliminated
  
• converting transactions to an e-format
  
• being accessible on a 24x7 basis (i.e., the e-commerce “ghost shift”) continually capturing information about your customers/prospects and letting all relevant employees have access.

For some, the agenda may seem daunting but it is now necessary in order to compete in an environment where, in a figurative sense, many of your vendors and customers do not sleep. That being said, how do you physically transform into an Internet-capable distributor?

How to Get There
The first item to look at is your IT investment. Many distributors viewed IT as a secondary support function of their company and therefore neglected the development of their existing infrastructure. They may have been frugal on hardware and software purchases by acquiring generic components and applying just enough effort to keep getting email and the Internet to their desktops. Now that it is time to step up to the plate, distributors are finding that IT has become a primary support function and their existing infrastructure is too weak to support the latest technologies that provide the necessary leverage in their market. According to a recent Tech Republic survey, 34% of responding companies spend more than 10% of their annual budget on IT. Another 20% of responding companies spend between 5-10% of their annual budget. If you are not currently spending at least this level of money on your IT infrastructure, then you are not ready to play the game.

So if you do allocate this kind of money, what should you be spending it on? Well, this is tough question to provide a general answer that applies to all cases. It really starts at a basic level that everyone overlooks. The “walk before you run” principle applies to IT. The best way to look at this is to break it down into two components: Internal and External IT Investments.

Internal IT Investments
The first thing to look at is your staffing. Do you have a competent person in charge of your IT staff? This doesn’t mean a cousin that designs web pages, part- time college student, or a colleague that just got “stuck” in that position. It means a degreed IT person who has experience with running a corporate enterprise. This person will create and control all policies and procedures relating to your IT infrastructure and ensure that it runs like a well-oiled machine.

This leads us to the second item, which is standardized toolsets. It is of great importance for your IT leader to establish a solid, baseline architecture by standardizing software applications and hardware components throughout your enterprise. This means everything that is sitting on your desktop to your servers. Everyone must use the same versions of productivity tools such as word processors, spreadsheets, and email applications. Everyone must use the same computer systems. It makes no sense to support a network full of PCs while you have a few Macs scattered about your network. Without standardization, you will be experiencing daily interoperability problems and extended down times due to the diversity of components within your infrastructure. Think of this as building the foundation for a house. Without a solid foundation, anything built upon this foundation, such as top of the line e-commerce packages, ERP, or CRM packages, will collapse under the stress of normal, day-to-day use. You will spend more time fixing infrastructure problems than doing business.

The third item is a psychological investment in a culture shift. You cannot maximize your IT investment if you do not have buy-in from your employees. To make this shift occur, it must start at the top with executive leadership and filter down from there. Everyone must incorporate the use of technology in his or her daily activities to produce a PC literate workforce. One example is emailing documents back and forth for review and editing until the final document is produced. Sounds like a simple process, but is wholly significant in the fact that everyone can understand and use the applications supported by the IT infrastructure.

The last item of internal IT investment is the work necessary for e-business transformation. Yes, this is the Holy Grail, and yes, it is a recurring investment. Remember the definition of e- business: the use of the technology infrastructure and applications to synthesize and optimize existing business processes. So far you have everything you need to Transform an existing business process to an online representation, Build the applications necessary to support this process, Run the applications on your robust infrastructure, and Leverage any lessons learned to continually improve your process. You will now have a more efficient company.

External IT Investments
External IT investments include any application or hardware that will interface to another application or hardware outside of your enterprise. There is only one thing to remember about your external IT investments. Whatever you do, stick with products that provide industry standard interfaces rather than proprietary interfaces. This will allow you the greatest flexibility in selecting whom you do business with electronically. Unfortunately, if a major player in a market has already defined a particular interface, this may limit your choices of interoperable packages. For instance, if a major trading exchange declares XML as its business interface and your e-commerce package only supports EDI transactions with no plans for an XML update…well, it’s time to lose the inflexible system if you want to do business.

Deployment Timetable
The deployment timetable really depends on multiple factors. Can you build upon your current infrastructure? What segments of your infrastructure need to be rebuilt or redeployed? How capable is your workforce to accept the use of new software tools to help automate workflow? What is the readiness level of your partners on the buy-side and sell-side to leverage the applications you are planning to deploy? Deployment can take as little as one month if you are deploying an e-commerce application out of the box or six to twelve months for a full infrastructure overhaul. Of course, company size is a factor, but it is up to you to obtain a thorough evaluation of your existing situation and define the requirements necessary to get to your goals. Only this will determine an accurate deployment schedule.

Outsourcing
Of course, outsourcing services is one avenue that will accelerate your deployment schedule. The benefits include faster times to market, domain expertise, and lower operating costs. Some of the drawbacks include less agility, long-term contracts, and culture differentials. The outsourcing rule is “do what you do best, and outsource the rest.” However, you don’t want to put on blinders. You want to maintain a position where your business has insight and control into any outsourced component.

What has been laid out in front of you is meant to provide a heads up as to what is going on in the industry and some tactical advice on how to begin to get yourself on the right track to success. There are so many things going on in our e-this and e-that world. Don’t get lost in the acronyms. Remember, this is about your business and nobody knows your business better than you. There are no off-the-shelf applications you can buy as a “magic bullet” to make you an “e”-nabled company that will rule the world. It starts in your own backyard with your day-to- day business processes. The technology is there to streamline your business practices, not to take it from you.