Learning to Cope With E-Commerce

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by Bianca Wright

All websites are not created equal. Hence, all websites do not produce equal or even similar results. Creating and operating a successful Website is not something to be tackled by amateurs. Yet finding good website designers and hosts is one more technology challenge that manufacturers must face. It's the proverbial "jungle" out there, a jungle that can drain company resources while producing little revenue and failing to improve company customer relationships.

For example, MonitorsDirect is the online presence of Cornerstone Peripherals Technology, www.bigmonitors.com, Fremont, Calif. The Website is a manufacturer e-commerce success story that demonstrates how companies can leverage the Internet to the best advantage. What's really impressive is that this Website is profitable!

Cornerstone did not create this success alone. The company went to Aqueduct, www.aqueduct.com, Aliso Viejo, Calif., a provider of outsourced sell-side e-commerce services to manufacturers, for help.

"We wanted to build a first-rate Website in MonitorsDirect.com and we knew that we were good at monitors and we understood our customers," says Greg Harris, Cornerstone vice president of marketing. "By outsourcing we've built a best of class organization from top to bottom."

Harris believes that one of the greatest challenges facing manufacturers online is the cost and infrastructure needed to build, maintain, and even update an e-commerce engine. "When we looked at building our own, even the most modest of systems would have cost us at least $200,000 plus a team of three people," he says. "That's a scary investment when you haven't yet taken your first order over the Web."

Cornerstone believes in its vision. They took a more drastic route, opting to entirely outsource its e-commerce offering rather than dilute its own resources to involve themselves in the Website building and operation. And Cornerstone went a step further by also outsourcing its warehousing, repair facilities, and marketing communications.

Aqueduct built a solution with the manufacturer's online selling needs in mind. "Our business model is referred to as 'M2A' (manufacturers to anyone), which means that Aqueduct enables manufacturers to successfully sell their products to all of their buyer types, including consumers, small businesses, corporations and channel partners," explains Aqueduct's CEO Corey Hutchison.

Total outsourcing may be the way for manufacturers to concentrate on their own core competencies and let Website experts concentrate on theirs. The one caveat to manufacturers is to make certain that they outsource to a company that has an understanding of a manufacturer's relationships with its customers. Hutchison says that by outsourcing e-commerce initiatives, manufacturers can also maximize channel efficiency without making a substantial investment in internal infrastructure, development, time, or expertise.

Many manufacturers have been scared away from attempting an e-commerce initiative because of the reports of dot.com failures. Such news should serve to encourage the manufacturer to do plenty of research before deciding whether to attempt e-commerce on its own.

Should manufacturers decide to partner or outsource, more extensive research is called for to ensure that the prospective partners have a solid track record. To counter the gloom and doom about dot.coms and the "new economy," manufacturers should also be aware that many news people and analysts have reported that the most successful e-commerce participants are additions to brick and mortar operations. In these situations the dot.com mortality rate is quite low. Forrester Research, www.forrester.com, Cambridge, Mass., estimates that 68% of manufacturers will have an online presence by 2003.

Even with the more encouraging news of better chances for survival for brick and mortar moves to Websites, there are still many pitfalls companies can experience along the way. Tom Petersen, president of ThreeCore, www.threecore.com, Beverly, Mass., a third-party procurement services company, lists the greatest challenges as:

  • Lack of clearly defined goals for online initiatives. Many are either too grandiose, or too limited.
  • The need to integrate various online business processes with existing back-office business systems such as ERP (enterprise resource planning), MES (manufacturing execution systems), and MRP II (material requirements planning).
  • Reluctance to change standard company operating procedures for procurement, specifically ordering of custom direct materials.
  • The fact that a large percentage of vendors selling solutions and services that promise to "integrate" ERP, MRP, etc. are simply priced out-of-reach for many suppliers and manufacturers.

Scott Montrey a spokesperson for the National Assn. of Manufacturers, www.nam.org, Washington, D.C., comments that figuring out what Website business model will really work and setting up the infrastructure for e-commerce are the biggest challenges for manufacturers. Choosing a cost-effective, efficient e-solution is not easy. But it can be done as many manufacturers have proven and continue to prove.

"Creating new or reallocating current resources to focus on e-commerce presents a challenge to manufacturers who are used to the traditional methods of sales and marketing," says Kevin McCallum, CTO and co-founder of High Branch Software, www.infomech.com, Annandale, Virginia.

This fear often extends to distribution as well. Manufacturers are afraid that adopting online solutions will disrupt their current distribution methods. Changing long engrained business habits does not come easy, especially to companies that are apparently doing fine and don't want to "rock the boat."

NAM's Montrey points out that e-commerce is still new in many ways and (seemingly) limitless in its possibilities, and that it's going to take a while for traditional manufacturers to get a handle on it. Fortunately, every day there are more success stories like MonitorsDirect to illustrate ways in which using the Internet can help manufacturers.

For example, Atomic Ski, www.atomic.at, Denver, Colo., the second-largest ski manufacturer in the United States, is using Internet technology in a unique way within its sales team. The company developed a system, which it calls ePAD, consisting of a bright-red branded handheld computer that allows the sales team to access order taking, order status, and forecasting and then transmit the information to the SQL system at Atomic Ski's headquarters.

Through its relationship with Dharma Systems, www.dharma.com, Nashua, N.H., a supplier of e-business application integration technology, Atomic was able to integrate this technology into its business.

Prior to working with Dharma, orders had to be manually keyed into an AS/400 system and checked for credit-worthiness, before an order confirmation could be generated. Atomic started out to create its ePAD solution on its own. Fortunately, at some point, Atomic realized they were spending 30% of its time building ePAD and 70% of its time trying to figure out how it would be integrated, neither activity generating revenue for the company.

"Any new e-commerce initiative should be linked to corporate goals and objectives," says Paul Mergener, Dharma's director of business development. "A big mistake is to start evaluating technology without first determining the focus of the initiative and how it relates to your goals and objectives. There needs to be a sound cultural foundation laid for the initiative by getting input from the various functional teams that will need to buy in to it."

Integrating e-business into a traditional business model can be difficult. Not only is there resistance for fiscal reasons, there is likely to be resistance from employees comfortable with the ways things are and afraid of what the new technology might bring. The business model has to be designed to meld into the manufacturing operation in such a way that it works for the manufacturer and the customer alike—too often very diverse groups.

"A manufacturer knows that customers will not accept an Amazon.com-like message that says, 'Your railroad tank-car of Benzene will probably ship in 2-3 weeks,'" says Tom Thomas, CEO and president of HAHT Commerce, www.haht.com, Raleigh, N.C. "Its customers need very specific information while they are placing the order, so the system should be equipped to display real inventory, real delivery dates, and the contract price that the customer agreed to beforehand."

And key in doing this is finding the right technology partner. Cornerstone is a prime example of a manufacturer that had specific needs. "When we were looking for an e-commerce provider we had a requirement that we must be able to accept and release purchase orders," says Harris. "Afterall, that's how most business is transacted."

But, Harris found that at the time, virtually none of the e-commerce ASPs (application service providers) he spoke to could accommodate that request. "We were stunned that such a basic request proved so difficult in the world of e-commerce," he says. Fortunately for Cornerstone, Aqueduct could meet its needs exactly.

Manufacturers should not be afraid of learning not only from their own experiences but from those of others as well. Find the pain points and address each as it becomes apparent. Pain is often the best motivator for making change and moving ahead. If there is no pain, complacency takes over and ennui is likely to set in, making it necessary for the pain, once it is perceived, to be even stronger to overcome the internal environment.

Today we hear so much about collaborative business practices. Collaboration may be the best approach to e-commerce for some manufacturers—partnering has always been a viable answer to many technical problems. Collaboration takes partnering to a different level.

Tonbu, www.tonbu.com, San Jose, Calif., a provider of hosted solutions for collaborative business process execution on the Web, has deployed its collaborative solutions to computer manufacturer Acer, www.acer.com, Taipei, Taiwan, which wanted to improve time-to-market and product quality.

"By employing the Tonbu solution, Acer has gained improved product realization capabilities, which are now more easily focused on markets to better serve customers," says Robert Hwang, Acer's vice president and general manager of Mobile Systems.

"We now have a much more sophisticated product development process with improved visibility and quality control. Tonbu provides an effective way to control projects more effectively and efficiently," he says.

Austin Jieh, Tonbu president and COO, believes that collaborative systems minimize or eliminate the informal mechanisms for getting around non-collaborative system processes. "These exceptions to operating procedure invariably arise to accommodate speed-to-market concerns," he says.

Lastly, and perhaps most importantly, manufacturers must learn that they must involve their own customers in the process of implementing an e-commerce site, in order for it be successful.

"Without this, you are simply making semi-informed guesses about customer needs," says HAHT's Thomas. "Some of our customers that felt they were doing a fantastic job of providing for their customers, were shocked to learn when they sat down with those customers that they were one of the hardest companies to do business with."

Whichever path manufacturers choose, there are challenges that need to be met. Learning from others who have successfully integrated online tools and e-commerce into their business models is one way to ensure that your company can remain ahead of the pack and avoid some of the hard lessons other manufacturers had to learn the hard way.

Lessons of E-commerce

  1. Know what you need to change and why you want to change and then look at how online tools can help you do it.
  2. Clearly determine how the site fits into the company's overall marketing and operational plans.
  3. Forget about a grand plan. Start slow and solve a specific pain. Take evolutionary steps, not revolutionary moves. Manufacturers should consider the Internet as another business tool, like the PC or the telephone, or the photocopier.
  4. Use proven solutions, outsourcing, collaboration, partnering.
  5. Remember that e-commerce is constantly evolving.
  6. Don't underestimate the complexity of developing site content and build adequate time into the implementation process to organize and create the content.
  7. Involve your customers in your implementation of an e-commerce site so you can judge your customers' needs.
  8. Build a complementary relationship between the existing sales force and the Website, so that you can make your online customer relationships more personal.
  9. Plan in advance for which processes and information contained in your back-office systems need to be leveraged into the new online applications.
  10. Include resellers and distributors in your online initiatives.