For the past two years, selling products online has dominated the Internet discussion in our industry. The dot-coms that streaked like meteors across the electrical sky framed those discussions. With the announcements of changed business models and outright closures, some have concluded that the Internet is not going to have much impact on the electrical industry.
The truth is, Internet initiatives delivering value are launched everyday. The noise level has subsided because the leadership has shifted from publicity-hungry start-ups to established industry players. Much has been written, and much more will be written, about distributor initiatives directed at the end-user. This article focuses on the ways manufacturers are using the Internet to help strengthen their relationships with trading partners, distributors in particular.
The “I” in Internet is for Information
Although Web purchasing is demonstrating slow growth within the industry, the Internet is quickly becoming the primary source of information. Manufacturers have certainly realized this trend and are rapidly expanding the information available to trading partners on their Web sites.
In putting this article together, we spoke with representatives of a number of leading manufacturers. Their public site activities and plans are summarized in Figure 1.
Product information, including cross-reference and technical specifications, is the heart of most manufacturers' public sites. The quality and usability of the information, however, varies widely. Whether or not the catalog is database driven, versus PDF “photocopies” of the paper catalog, is a good proxy for whether or not the manufacturer has put significant effort into making the product information complete, accurate and usable.
Although the catalog is the centerpiece of the public site, the real action is behind closed doors, in the password protected areas. Most manufacturers are calling these areas “extranets.” Through these private sites, the manufacturer can offer many functions that directly support the relationship by providing distributor specific information. Bob Cziurzek, vice president of e-business, Square D Co., Palatine, Ill., says of his company's site, “Our primary objective is to improve the effectiveness and efficiency of every interaction we have with our core business audience, our authorized distributors.” Manufacturer's activities and plans for their private sites are summarized in Figure 2.
One of the main objectives behind these private sites is to offer a better customer service function. If you compare the manufacturer's private site activity with the reasons distributors call manufacturers, you find a strong correlation of functionality.
Figure 3 (page 40) shows the break out of calls by reason among the manufacturers we spoke with. The top three reasons for phone calls are also functions that have nearly universal manufacturer support.
Obviously, not every manufacturer approaches every function the same way.
Order entry. Because fax and EDI make up more than 75 percent of a manufacturer's order entry volume, this might seem like a low value function. According to our respondents, Web order entry ranks low with regard to everyday stock replenishment or job-site orders. However, for urgently needed material, this feature gets high marks. The affirmative acknowledgment of the order and, with some manufacturers, automatic shipment notification, reduces errors and anxiety. All the manufacturers we talked to see this feature as strictly for distributors, with no plans to use their site to sell direct to end users.
Availability. In most instances, a manufacturer's extranet will respond to an availability query based on inventory in the warehouse that services that particular customer. In some cases, the site will respond with both local and overall availability. In either case, a phone call will likely be required if the locally available inventory is not sufficient.
Future availability. This is really a subset of availability, answering when an out-of-stock item will be back in stock. The manufacturers we talked to were generally not satisfied with the accuracy of this information.
Carrier links. FedEx and UPS have done a splendid job of making it easy for shippers to link to their tracking sites. Manufacturers have done a good job of taking advantage of that. In the (less-than-load) LTL ranks, a wider spectrum of carrier capability exists. Many manufacturers link to LTL carrier sites if the carrier supports it. A handful of manufacturers have actually stopped doing business with any carrier that cannot support this type of link.
You Ain't Seen Nothing Yet
The real measure of value for these extranets is whether or not they are being used. For those up and running, usage ranges from less than 100 users to more than 1,000 users per business day. To put that level of usage into perspective, a typical manufacturer with $500 million in annual sales receives more than 3,000 distributor calls each day. For the entire industry, there are over 300,000 calls per day, each placed by someone and fielded by someone. In aggregate, electrical distributors and electrical manufacturers spend almost $300 million a year talking to each other on the phone.
Eighty percent of these calls are simple enough to be handled by the common site functions. Over the next three years, the Internet will grow from answering less than 3 percent of distributor's inquiries to answering over 20 percent. This sevenfold growth will come from three things:
Functionality. By the end of this year, 95 percent of the largest manufacturers will have the four basic components available via an extranet: price/availability, order status, shipment status and product information.
Speed. Using the Internet is faster than using the telephone. Answering a price or availability question via a manufacturer's Web site takes less than 60 seconds. Some manufacturers have longer hold times than that, and the average call to a manufacturer lasts more than two minutes.
Hours. The Internet is always open for business, even when the customer service lines are closed.
This level of adoption will reduce the industry's cost by more than $45 million.
Why not Universal Adoption?
An industry cynic said, “We often set out to go swimming and wind up dangling our feet in the water.” We don't often see win/win solutions with reasonable adoption costs and quick paybacks.
Why won't extranet solutions capture the full 80 percent of the call volume they are capable of supporting? The first and easiest answer is “nothing is universal.” Many very small manufacturers will not develop the capability. Not every distributor will make what seems like an obvious decision to use the capability.
Inertia. To take advantage of a manufacturer's extranet, a distributor must obtain a user I.D. and password for each of its branches, disseminate that information to the appropriate people and train its personnel on how to use the manufacturer's site. This initial start-up cost is paid back in small increments day by day. Without champions promoting the use of these new tools, the balance of up-front hassle versus instant gratification will limit adoption to two or three manufacturers for a typical branch.
Natural limits. While the core functions from site to site are similar, each site has its own idiosyncrasies. Some sites are intuitive; others are not. The limit will vary from person-to-person, and there is a limit to how many different interfaces a single user can become comfortable with.
Passwords. Extranets require a user I.D. and password. Simply keeping up with a large number of these can be difficult.
Security. With more than 300,000 people in the electrical wholesaling business, no manufacturer site needs to support all of them — there are simply too many users for any manufacturer to maintain individual I.D.s. As a result, user I.D.s and passwords are usually managed at the branch level. With a group password, if a member of the group leaves the company, the security of your information leaves with him. As a result, many distributors strictly limit which of their employees may use these sites.
Over time, solutions will emerge for the user interface, password complexity, and security issues. As these solutions evolve, technology champions will emerge.
The ideal world has been described many times from slightly different perspectives. The central theme to this ideal world is all of our computers talk to each other via a business-to-business marketplace, also known as a digital marketplace, trading exchange, world wide trading Web, or Internet trading network. Chris Dovela, vice president, e-business, Leviton Manufacturing Co. Inc., Little Neck, N.Y., believes, “Price, availability, and order status are a good start. The real impact will come when we can address the whole cash-to-cash cycle. I believe we will use Internet-enabled processes for price file synchronization, shipment reconciliation, and claims resolution. We may need a third party to step up and facilitate the technology, but the impact on the business is too compelling to languish forever.”
Where Does This Leave Us?
The time is now. The Internet is the best tool ever invented for sharing information. Don't wait for the business-to-business marketplaces to become commonplace. The extranets currently deployed are a logical step in the industry's evolution and are available today to help you improve service while driving cost from your business. In the near future, the industry will save $150 million per year by streamlining manufacturer to distributor communication. Don't wait on the arrival of Nirvana. Task your organization with claiming your portion of the savings now.
The authors are independent consultants in the field of e-business.