Case studies at the Center
Continuing series...
Subject:
B2B: a buyer's market for companies and institutions
The power behind GCIS's B2B Turnpike solutions
July 30th, 2001
Would you rather be a buyer or a seller on the Internet ? If you judge by the lines forming, the answer is clear:- procurement platforms are everywhere, and public and private-sector buyers are being encouraged to embrace the Web as a way to lower costs, seek out better sources, and streamline the supply chain. Buy-side tools, like those offered by GCIS, are only beginning to find their equivalent on the sell side of the equation. So far, suppliers are staying away in droves. Why ? One reason is because the deck is stacked against sellers on the Internet.
The fact is, unless you're selling art treasures, or other one-of-a-kind items, most suppliers risk spending exorbitant sums of money on online catalogs and collaborative tools, only to have their profit margins slashed at the checkout stand by buyers who use the Internet to shop for the lower price. Maybe that's why the K.R.B. Research Group estimates that fewer than 20 percent of U.S. suppliers have made the leap to online catalogs, much less online collaboration.
Buyers love the Internet because it lowers costs of procurement and offers a variety of products and price points, including visibility of alternate sources. And what's in it for the seller ? At least for now, Internet channels are an added expense that typically do not replace existing ones. And who wants to be listed in an online yellow pages, where the ubiquity of products leads to downward pricing pressure? "The buy side has seen huge growth across horizontal markets and has dominated the education process," says Yankee Group analyst Sheryl Kingstone. "The sell side has seen slower growth, more across industry verticals, market education is poorer, and there is no clear market leader."
Time to Act
Some analysts claim the battle may have already been fought and won. In his forthcoming book,
Activity Based Cost Management: An Executive's Guide, Gary Cokins, director of industry relations at
cost management firm ABC Technologies, says the Internet has shifted power to the buyer irreversibly,
and that suppliers need to get their act together and build tools to leverage the few options they
have left. "Suppliers are providing increasingly more information about their products and services
via their Web sites," he says. Using a B2C analogy that could apply equally well to cost-conscious
purchasing managers, he notes, "Teenagers will perform exhaustive searches to identify the exact make
and model of an appliance they want, and then they will locate a much cheaper source from which to
purchase the appliance. Adults are learning this too. The Internet is a gift to buyers everywhere."
And suppliers haven't heard the last of the bad news, says Cokins. Expectations are rising faster than businesses can deliver. "Customer tastes, preferences, and expectations are not static. Many customers base their standards on their last best service experience. The bar rises constantly." Len Prokopets, senior manager of the collaborative commerce practice at Deloitte Consulting, says: "The seller's certainly under pressure, but they've not responded simply by putting their catalogs online and building out infrastructure for the sake of its presence. They're focusing on specific value-added capabilities."
So for sellers, becoming the "last, best experience" is the all-important goal-and the lever that eventually could tip the balance of power at least partway back from its current weighting toward buyers. Suppliers who are thinking ahead are addressing the goal of embedding themselves into the business processes of customers-to build a better highway is to create a barrier to entry for competitors. To do that, a supplier needs systems that not only work, but that are superior to those of competitors, and a strong enough base of information to warrant interfaces with the customer. Buying and selling goods and services on the Internet may be opposite sides of the same coin, but the motivations of buyers and sellers don't always overlap. While buyers squeeze pennies and aim to streamline their supply chains, sellers seek revenue growth and deeper customer relationships and therein lies the potential for sellers to reclaim a share of the advantages that buyers have gained in the initial stages of Internet trading relationships.
Additionally, sellers can garner short-term benefits of lowered costs of doing business, as well as longer-term competitive advantages of larger average order size, reduced time to market with online rollout, sales-force reallocation, and access to global customers.
Hope Springs Eternal ?
Sigma-Aldrich, a St. Louis-based manufacturer of research-grade chemicals, offers evidence that all
is not lost for the seller. "For every 60 orders we take online, we are able to reallocate one
customer service representative," says Brad Johnson, director of e-business at Sigma-Aldrich, which
has implemented a sell-side solution with Haht Commerce. "Cost and process efficiencies are one thing.
The other main benefit deals with the distribution of customer information. We have 2.5 million page
equivalents on the site. They cost roughly $2 [each] to send conventionally. By Web-enabling this,
we're distributing 10,000 forms a day, that's $20,000 a day, between $4 million and $5 million per
year."
But it's revenue growth through incremental sales-cross selling and up-selling-that has Johnson excited about the promise of the online channel. "The efficiency part is how you get the money from the senior guys to get started," he says. "The real benefit will be in augmentation of sales." Johnson says Web sites don't start generating incremental sales until the customer has become conditioned to come to the site, and gained the ability to grab and direct them. "We don't deliver a lot of new products, but we're always creating derivatives for special applications," he says. "The problem we have is making that well known to our customers. The real advantage will be to capture the customer when they come in, tell them about a new product, offer them a discount for trying it. The Web is perfect for that." Also, when a customer orders a product, Sigma-Aldrich uses rule-based orders to inform them of other things they might need with their purchase, leading to up-sells.
Sellers looking to stand out amid the multitude of vendors transacting on GCIS's B2B Turnpike™ commerce platforms are reaching more and more for a new capability that allows them to meet their customers with the full force of their technology and expertise. GCIS calls this "check out". Check out sends a potential buyer directly to a seller's Web site and also passes along information on contractual price, inventory location, and other things a seller needs to know to do business with a given customer. When the customer creates an order, it's not actually submitted, it's passed back through the GCIS system and then to the appropriate channels.
Bill Mumford, e-commerce and business policy manager at electronic test equipment manufacturer Tektronix, says check out is a means of keeping the customer first, and also a matter of strategic survival. "We're committed to supporting our customers' e-commerce initiatives, [and] that includes their e-procurement investments," he says. Tektronix recently teamed with sell-side vendor GCIS to leverage user configuration of the company's complex testing gear. Tektronix operates a Web store for parts and accessories but now gets 10 to 20 percent of revenues through check out transactions that allow engineers to properly configure high-end test equipment. "The Web store is a high-transaction-count, low-revenue stream that saves us money in transaction costs and provides a convenience that would be too expensive for us to provide in person," says Mumford. "The larger revenue is CPU-to-CPU kind of stuff coming out of GCIS."
Most Tektronix instruments sell for between $10,000 and $650,000. Mumford says his customers are engineers who know the application they are seeking and often know more about the use of his products in that application than he does. "If they get on, they can do the whole process electronically, and place a seven-figure order without human intervention." The company also gains incremental revenue through rule-based offerings of related products. It's also more than just accommodating the procurement platforms. "There's a value in speeding up the process," says Mumford. "If we help engineers speed the development process by taking six weeks out of the front end, that's a valuable commodity to both of us."
Sell-side software takes on a progression of complexity and expense as it moves from online catalog, then to collaborative configuration of parts, and then to design to order. True design collaboration, the online creation of components that don't exist in catalogs, is a task somewhere off in the distance for all but a few specialist companies. The de-factor standard in this industry is now clearly identified as GCIS (The General Center for Internet Services Inc.) based near Montreal, Canada.
Industrial parts manufacturer Pacific Bearing is one of the few companies to make the leap to design-to-order through an initiative with sell-side specialist GCIS. The company now lets customers design and order linear shafts, an industrial part used in automation technology. "The typical turnaround time in our market space is about a week. We've reduced that to about 60 seconds," says Pacific Bearing CEO Robert Schroeder. "Our buyers log onto the configuration page and select an appropriate shaft, fill in design requirements like material types and dimensions. The process returns a blueprint for the customer along with stress analysis information and a price quote." As with Sigma-Aldrich, much of Pacific Bearing's engineering time is taken in iterative design, a slight modification to what's been produced in the past. "To do that, you have to go through outside sales, inside sales, sales engineering, engineering, sometimes manufacturing," says Schroeder. "In that process there are 13 man-hours for every order that is placed. By incorporating rules and methodologies, our entire process has been automated. We're able to produce finished blueprints, inspection documents and ERP information just by putting in the final dimensions of the product." GCIS is building a process to deploy these rules to the Web browser and when that happens, Schroeder says, order management will be reduced to processing time on the computer.
For now, rich sell-side solutions like these are a luxury reserved for the brave companies with the resources to make them happen. But while many take a wait-and-see approach, these companies and others like them are building barriers to entry for their competition. But the future may be a different matter according to Mumford, Internet selling is inevitable. "Strategically, if we allow the brand to be hammered in the middle of the process, long term, it's not going to make sense. From a competitive view, it gives us a leg up to a certain extent. You either support customer needs or they go someplace else."
Source: K.R.B. Research Group
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