B2B E-Commerce: A Look at What Works
The economy is in the dumpster; news reports are filledwith business-to-business exchange failures; and no one seems to be spendingmoney on the tools needed for these systems. Now for the good news. There aremany companies that have successful exchanges. Here’s a look at whatthey’re doing right.
byLeslie Langnau, senior technical editor
Despitethe gloom-and-doom reporting about business-to-business e-commerce, it’salive and well. Like most changes in business processes, it’s not livingup to its hype, but then, nothing ever does. For example, it’s not theright tool for turning your company around. But it is the right tool for otherimportant material handling tasks.
Drivingout inefficiencies was the top reason for B2B exchanges last year. That’schanged. “People are more concerned with stability of their demand insupply chains than in driving out inefficiencies,” says Louis Columbus,senior analyst at AMR Research Inc..
Butthere are other reasons for establishing e-commerce exchanges as well.“The Internet is a tool that helps us do our business,” says BradMoszkiewicz, manager of operations, Panasonic Services Co. “Itdoesn’t drive our business. It’s a more efficient way for us tocommunicate with our partners, plus we can offer them enhanced services. But itwon’t solve all your business problems. In fact, it can create problemsif you don’t have the right processes and systems in place.”
Othersagree. Management at the Rexroth Bosch Group, for example, states thate-commerce should be used for offering existing customers and suppliers morecomprehensive services.
“Forus,” says Fred Loepp, vice president of product management, W.W. GraingerInc., “it was a way to provide supplier performance reports in a moretimely manner. We wanted as real time as possible, as it would reduce the costof poor-quality service. Our system makes our business partners and suppliersmore efficient, it makes us more efficient, and it benefits the entire supplychain. Now we handle transactions, debit memos, invoice status and otherfunctions through the system.”
Cost versus gain
Eventhough the overall market for e-commerce exchanges may be in a slump, fewanalysts think it will turn out to be just another management fad. “Theemphasis on real-time sharing of demand, inventory and shipping informationcontinues to grow,” adds Columbus.
Butmanagers may have to be patient with an immature market and technology. A lotof infrastructure still must be put in place, says Sal Spada, senior analyst atARC Advisory Group. Only recently have tools for collaboration and procurementbecome available, for example. Now some companies are introducing supplierrelationship management software, which functions a bit like customer relationshipmanagement programs. Others are offering services that make linking to a supplychain easier.
However,there are still issues to resolve. Perhaps the most important reason forsluggish B2B implementations is management concern that the gains aren’tworth the cost.
“There’sa new era of intense pragmatism,” says Columbus. “Who actuallyfunds this technology has changed. Venture capital has dried up. This isforcing end-user companies into the role of venture capitalist. That’swhat’s making this market so tight because companies have less money torisk. But someone has to play the money capitalist role in any market, and nowthe users are in that position. In one sense, this is good, because you can geta better product. But it’s forcing decisions to be made at the CFO levelto ensure a return on investment. If venture capital comes back, you may see awatershed of products, but they won’t be so ephemeral as theywere.”
Pilotprojects are still going on. And that seems to be the best way to start or continuean implementation under today’s business conditions. “Managers aredoing pilots with discretionary funds in their budgets,” adds Columbus.“I’m talking at the level of a vice president and below.They’re also working on projects that can be completed in 90 days or lessto keep them under the ‘corporate radar.’ That way they don’trequire divisional or CFO approval.”
Severalcompanies have pocketed impressive savings. Panasonic Services Co. has managedto handle a 50 percent increase in business without adding personnel. Graingerhas documented $20 million in savings through the use of its B2B e-commercesite. And iFulfillment went from nothing to a functioning and profitable 3PL inless than three months. So it’s possible to develop a successful B2B e-commercesolution.
“Westarted with a business-to-consumer [B2C] site first,” says BradMoszkiewicz. “We made a business decision soon after we installed ourMcHugh warehouse management system that we wanted to go after end users becauseit offered a higher margin of return. In addition, it would allow us to changeto a different order entry process.” Panasonic had been using an 800number for order entry, an expensive process with business partners as well asconsumers. “The Internet seemed a more logical way to go.”
Thatwas back in the early to mid 1990s. The company benefited by having severalInternet-savvy employees who understood the ramifications of this technologybefore it became popular and who were willing to champion it. “Everyonewas so excited about it,” adds Moszkiewicz. “We had a lot of buy-inas well as enough capital and corporate acceptance.”
Soonafter the launch of the B2C site, work began on the B2B site. System design,setup and programming were done in-house. Before going live, though, thewarehouse fulfillment processes were checked to ensure they were ready for thechanges.
“Wehad to make a few revisions to the shipping system as the workload grew,”says Moszkiewicz. “We adapted our shipping lanes and shifted someprocesses into shipping because we’re sending out a thousand more smallerorders a day than we were before.”
Today,all their business sales come through their business site and more than 50percent of end-user sales come through the public site. And the costs of orderprocessing continue to go down.
“Changesto our partner site are continuous,” says Moszkiewicz. “Initiallywe just put in the bare bones to place an order, handle follow-ups and do somebasic information. Now, we have Web-based training on the site. You can alsofile warranty claims and check on order status. Anything we have in the systemfor your account, you can access yourself now.
“Andwe’re continually adding features for our ‘servicer’ clients.Almost any interaction they have they can handle with us over the Internet.Their need to contact us via phone or fax is minimal.”
W.W.Grainger may be more well-known for its consumer e-commerce system, but it alsohas one for its suppliers and business partners — supplierconnect.com.“About four years ago,” says Fred Loepp, vice president of productmanagement at Grainger, “we looked into this e-commerce software.We’d been providing performance measures to our suppliers for a longtime, but we saw the need to do this faster. If we could do it in real time,then there would be no lag between learning of a problem and fixing it. Thus,you reduce the cost of poor-quality service.”
Thesite was developed internally. “When we started doing this,”continues Loepp, “there weren’t a lot of commercial packagesavailable. Some are coming out now, and we’ll take a look and see if wewant to use them when it’s appropriate. All our 1,200-plus suppliersshould be using the site, because it’s the main way we communicate withthem.”
Graingercarries more than 500,000 products and replacement parts of inventory in anationally distributed array of more than 390 branches and nine distributioncenters. Building sizes vary from 1,200 square feet to more than 360,000 squarefeet. The catalog, available on the consumer Web site, carries about 225,000products.
Overthe last two years, the e-commerce solution has saved the company about $20million by reducing errors and improving supplier performance. “Forexample, when a supplier sends us nine air conditioners — but the shipnotice says there should be 10 — we know the costs to correct the receiptvariances,” adds Loepp. “We’ve translated all the trackingtime, discrepancy identification time, resolution time and so on into cost. Forevery type of error we track, there’s a cost we’ve documented. Andwe’ve worked with the suppliers to solve the problem as well as reducethe time it takes to discover the problem and correct it.
“Thisbenefits our suppliers too, for it saves them money,” continues Loepp.“We’re aiming to get the right product to the customer at the bestcost.”
LikePanasonic, Grainger engineers are continually changing and tuning their system.“We have nine performance measures that we track, and we’re lookingfor more. We’ve picked the ‘low-hanging fruit,’ and we knowthere are more performance measures out there that we ought to be looking at.We continuously try to find them and add them to the system. So we’restill finding cost savings.”
iFulfillmentis a third-party logistics provider that began operations as a fulfillmenthouse for Nordstrom.com, Nordstrom’s on-line business. “This was abrand-new facility,” says Kevin Hart, COO of Optum, the consultant thathelped iFulfillment get started. “It was a new business model, plus, themanagement was going through the process of finding a customer, acquiring allthe material handling equipment, setting up the infrastructure and laying outthe ERP and fulfillment systems. And we did this all in 11 weeks.”
Thatwas about 18 months ago and they had 40 employees. Now they have a few morecustomers, including Archibald candies, and a few more employees.
Thefacility is about 200,000 square feet and stores primarily shoes and candy.Shoes take up a lot of space. There are about 5,000 slots for them.Optum’s MOVE software schedules slotting and directs the putaway and picklocations and activities. All orders come in on-line, and at peak ship theysend out 2,500 pairs of shoes a day.
One ofthe challenges they had to deal with was returns. Women ordering on-line ordertwo or more pairs of shoes to see which size fits best. Thus, they alwaysreturn one or more pairs. “When you look at the flow of goods in a B2Bsite tied in with the consumer, it’s amazing how it affects replenishmentand stock-outs,” says Hart. “It’s a vendor-managed inventoryset-up, yet the returns come back to iFulfillment. iFulfillment might thenresell the shoes or send them back to the manufacturer and work out the creditwith Nordstrom.
Thereare plenty more successful exchanges, for those who make the right moves. SCF
Whileevery implementation is different, there are common practices each site hasfollowed to help ensure success.
First,successful installations have accurate data — across all partners andsystems. Data accuracy cannot be overemphasized, as lack of it can sabotageyou. PricewaterhouseCoopers reported that worldwide, bad data costs businessesmore than $1.4 billion. They have found that many companies have had to delayor scrap their implementations because of this issue.
Some ofthe data problems to watch include common terms and formats. Everyone mustrefer to company names, product descriptions and numbers and other pertinentinformation in the same way. A simple discrepancy such as Co. versus Companycan cause needless duplication of records.
Then,it’s important to determine what systems to access and in how many ways,what data to pull, where they will go and what type of analyses will be done onthem. And, who will have access to these data. Some system integrators suggestthat everyone should access partners’ systems in the same way.
Otherbest practices include:
•Establishing an exchange with one partner at a time. You may find that keycustomers are more than willing to help because such arrangements benefit them,too. Plus, you get honest feedback about what works and what doesn’t.Each link adds value in terms of efficiency as well as stability.
•“Obtain the right mix of managing capital, management leadership skills,scale, and branding, but don’t focus too much on branding,” saysPaul Evanko of St. Onge Corp.
•Gain upper management support. Gain employee and operator support as well.
•Thoroughly define goals for the system and measure them. “Some crucialmeasures to consider include on-time shipping, receipt variances, supply andaccuracy of advanced ship notices,” says Loepp.
•Before starting, make sure the needed fulfillment infrastructure is solid.“Be sure you have the ability to handle piece-pick operations,”advises Hart. “People grossly underestimate this. They start moving frompallet or full carton to piece pick, and their distribution centers are not setup to handle a piece-pick environment for pick and pack or replenishment.”
•Frequently test the system throughout implementation.
•Have a returns procedure in place. “People grossly underestimatereturns,” says Hart. “Stuff comes back. If you think picking inpieces is hard, try to handle individual piece returns. It’s ten timesworse. Some companies have warehouses full of returned product that theycan’t give away. And it’s a cost.”
Barriers to Implementation Success
Thereare plenty of problems that can arise to slow or halt the establishment of aB2B e-commerce system. Some are obvious, like hardware and softwareincompatibility and connecting to legacy systems. Here are a few, less obviousbarriers.
•Cynicism. It’s easy for some to think that B2B e-commerce is anothermanagement fad. It’s up to management to ensure it’s not.