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News January 9, 06:19 Eastern Time
Jan. 08, 1999 (InformationWeek - CMP via COMTEX) -- Business-to-business Internet commerce is moving well under the radar of overhyped online
consumer shopping, steadily making its way into an unlikely sector: old-line manufacturing.
Milacron Inc. last week launched one of heavy industry's most extensive Web commerce sites, for selling machine tools to contract manufacturers. Later
this quarter, an ambitious online steel-industry marketplace called E-Steel will debut. Also, a business-to-business site called PaperExchange is being
expanded to include all categories of commercial paper products.
These initiatives and others like them are cranking up in a sector that isn't generally sharing in the U.S. economic boom. U.S. industrial activity, as
measured by the National Association of Purchasing Management's index, fell to an eight-year low last month, hurt by overcapacity and the Asian
economic crisis. Manufacturers are increasingly turning to the Internet to open new markets and redefine old ones. "E-commerce is definitely going to
pick up," says David Peyton, director of technology policy at the National Association of Manufacturers in Washington.
NAM's latest poll of 1,025 plant managers found that 42% of transactions between manufacturers' product design departments and customers and 33% of
transactions between product design and suppliers have been automated. The upshot: Companies have tighter communication links and so are better
able to adjust to downturns than in the past, Peyton says.
"To us, the only question is when Internet commerce will start to take off-not if," says Alan Shaffer, group VP for industrial products at Milacron, in
Cincinnati. "We believe electronic commerce can help us grow market share regardless of whether the industry is up or down."
The $1.6 billion manufacturer will use its new commerce site (www.milpro.com) to sell cutting tools, grinding wheels, and metalworking fluids to more than
100,000 small machining businesses known as job shops-a market Milacron couldn't previously reach cost-effectively with direct sales reps. "These
customers would either have to drive to one of our distributors or find us in a catalog," says Shaffer.
Milpro.com is based on Open Market's Transact commerce server and LiveCommerce catalog software. Unlike most business-to-business Web
commerce initiatives, the site will process credit-card orders-reflecting its small-business customer base and the relatively low price range of its products.
The most expensive item is a 55-gallon drum of machining fluids, priced at $1,000, says Angela Snelling, Milacron's director of E-commerce. By contrast,
the lowest-priced item on the E-Steel site will be about $5,000.
A manufacturing site already taking hold is PaperExchange. Renamed and relaunched seven months ago, it's now used by several hundred paper buyers
and sellers in 25 countries, including nine of the top dozen suppliers in the United States. PaperExchange intends to make money primarily through
transaction fees, though it carries some advertising and also charges membership fees. The site (www. paperexchange.com) is hosted by Internet service
provider Trident Internet Systems and runs on Windows NT and Microsoft's SQL Server database.
Sites such as milpro.com and PaperExchange put technology to work in areas in which heavy industry usually hasn't applied it: sales and marketing.
Most manufacturing technologies, such as enterprise resource planning, shop-floor automation, and CAD/CAM applications, have focused on production
in an attempt to squeeze time and costs out of the process of making goods. But to sell those goods, many manufacturers still rely on a byzantine
network of distributors, brokers, and reps. The result, E-commerce advocates say, is market inefficiency and chronic imbalances between supply and
demand.
"The paper industry suffers huge price swings, and every time the price goes up, everyone increases capacity and creates a surplus," says
PaperExchange CEO Clay Maloney, a former director of quality and productivity at Tenneco Packaging. "The Internet is all about more efficiently
matching buyers and sellers globally."
With users worldwide, PaperExchange is starting to change the dynamics of an industry in which the typical producer sells only within a 150-mile radius
of the mill, Maloney says. "You couldn't have a direct sales force to sell trim stock [production surplus] from that mill to, say, Indonesia," he says. "On
the Web, you can do that."
But what happens when customers buy directly from manufacturers on the Web instead of through their geographic sales reps-a huge potential conflict
that has kept many manufacturers off the Internet? Milacron is addressing this issue by paying full commissions to reps for online sales made in their
territory-even if they've never met the buyer or had anything to do with the sale.
"Channel conflict is a really big issue in manufacturing," says Paul Baier, director of enterprise marketing at Open Market. "By not penalizing their reps
for online sales that essentially bypass them, Milacron helps create a single face for the customer."
Milacron is also equipping its reps with 320 Dell notebook computers to demonstrate milpro.com for customers. It will also provide 100 free hours on
America Online for customers that don't already have Internet access. Last week, the company sent the largest direct mailing of brochures in its 114-year
history to hawk its Web capability to job shops, and it will dispatch a fleet of trucks nationwide to sell Milacron products and show demos of the Web
site. "Most E-commerce is marketed passively-get your name on a search engine and hope customers find you," says Milacron VP Shaffer. "We're going
to go out and knock on doors."
Promise Vs. Reality
But not all manufacturing E-commerce initiatives live up-at least initially-to their lofty promise. Only 15 manufacturers have gone live on the ambitious
Automotive Network Exchange auto industry extranet. When it was launched in 1997, ANX's backers, led by the major U.S. automakers, said the
extranet would provide 10,000 manufacturers with a standard virtual private networking platform to exchange order and inventory data, engineering
designs, and other information via CAD files, groupware, and E-mail.
"We're not satisfied with the 15," says Karl Schohl, ANX manager at the Automotive Industry Action Group, the industry organization that's coordinating
the ANX effort. Another 15 companies are preparing to go online, Schohl says, but that still leaves ANX a long way from the critical mass it will need to
become an effective industrywide program.
"It's not going as quickly as I had hoped, but it's definitely getting there," says Bhaskar Kakulavarapu, IS manager at United Technologies Automotive,
which has about 400 engineers using the system worldwide to swap CAD and PDM files, do FTP transfers, exchange warranty data, and even run
mainframe applications. Among the hurdles are continuing problems with VPN interoperability and getting a legal framework in place to address what
happens if service levels drop.
Another obstacle, Kakulavarapu says, is convincing industry suppliers that they can collectively gain by sharing some of their best practices with
competitors. "People don't want to share their benefits in public," he says.
ANX's goal of online communications for the entire global auto-industry supply chain is far more ambitious than industry-specific marketplaces. But the
fear of competitors' accessing strategic information has always been a barrier to participation in any Internet venture.
E-Steel has a potential solution to that problem. When E-Steel launches in March, it will use one-to-one profiling software from Broadvision Inc. to deliver
customized content and pricing to registered steel buyers based on parameters specified by the supplier. General price lists won't be posted. "The key to
building trust is allowing buyers and sellers to mirror their existing business relationships on the Web," says Chris Hanan, VP of business development at
E-Steel, in New York. "No one ever loses control over their information."
E-Steel isn't the steel industry's first Web marketplace. Last month, MetalSite (www.metalsite.net) introduced sales transaction capabilities to its site,
which debuted as MetalExchange last summer (InformationWeek, Aug. 24, 1998, p. 18; www. informationweek.com/697/97iuebz). A joint venture of
manufacturers Weirton Steel, LTV, and Steel Dynamics, MetalSite focuses on selling surplus inventory steel and metal products. The site has
commitments for more than 100,000 tons of steel per month, says MetalSite CEO and Weirton Steel CIO Patrick Stewart.
MetalSite is a rare example of an online industry venture of existing companies. E-Steel, backed by outside investors, is a more typical independent
industry marketplace, like PlasticsNet in the plastics industry. It's also more ambitious than MetalSite, aiming for all kinds of steel products, not just
surplus inventory.
Steel company executives are warming to E-commerce. At a November meeting of the Steel Service Center Institute trade group, 96% of steel industry
CFOs said they use the Net, Hanan says. "A year ago, it would have been 30%," he adds. "The penetration of Internet use is finally reaching levels that
really justify thinking about it as a business-to-business tool in this industry."
E-Steel will charge sellers a transaction fee of less than 1% on all purchases initiated on the site, though payments between trading partners will occur
offline. The site will also sell advertising and provide industry and trade news, job listings, and stock data. "But we're definitely commerce first and content
second," Hanan says. E-Steel will be based on a transaction engine custom built by Computer Sciences Corp.'s recently launched E-Business Solutions
practice.
E-commerce, of course, isn't just for old-line manufacturers. In April, Fujitsu Semiconductor Inc. will roll out Web-based ordering and shipment
tracking-integrated with its SAP R/3 application-for its computer manufacturer and distributor customers. The site will also let customers see what
inventory Fujitsu has in stock. "Our customers aren't asking for us to provide this type of Web application right now, but they will start asking us soon,"
says Walter Curd, VP of IT for the San Jose, Calif., semiconductor maker. "If we wait, it will be too late, because other companies are already doing this.
This is the way the world is moving."-with additional reporting
by Gregory Dalton, Tom Stein, Bruce Caldwell, and Beth Davis
---
Automated Transactions
How much of a manufacturing company's interaction is computerized?
Between shop floor and production planning 58%
Between product design and shop floor 48%
Between product design and customers 42%
Between manufacturing and marketing 41%
Between product design and vendors 33%
By: Clinton Wilder
Copyright 1999 CMP Media Inc. |
