Working on the B2B & B2C chain gang

The second half of our roundtable evaluates the e-commerce supply chain, trading exchanges, and the importance of integrated manufacturing.

By -- Modern Materials Handling, 7/1/2000

MMH: When we left off, we were talking about moving beyond the four walls of the organization to collaborate across the supply chain. So, let me ask you this: if we look at the supply chain and we look at the four walls, where would you say the majority of people are putting their focus right now?

Trew: That depends on what problem they're trying to solve. Today, I think the cost of transportation is dictating a lot of these issues. In the B2C world today, the transportation costs are being given away to the consumer.

Linnen: We're seeing two different things. Companies that have already changed the processes in their warehouses are now looking outside the four walls. Then there are companies, like the pure dot coms, that are operating outside the four walls but haven't done anything in the warehouse. They're learning that it might be great to have a Web page, but if you can't get product to your customer you're not going to be in business.

MMH: So different people are at different points?

Christensen: I'd agree with that. Some are still focused internally, and are going to fix their warehouse first. Others have already done that and are migrating on to other issues.

MMH: As you talk to people are you generally surprised by how far along, or how not far along, companies are?

Pulling: Yes, especially with some of the dot com companies. On the one hand, they're really challenging you to be able to provide a solution, now. And then they tell you they don't really know if they need a warehouse management system.

Enslow: You sit down to review a business plan, which is maybe two pages long, and they say: now, tell us what you have in mind for our fulfillment. They have no idea.

MMH: Where do trading exchanges fit and how are they impacting the supply chain?

Trew: For starts, trading exchanges are the most in vogue thing to do. Until the NASDAQ market crashed, all you had to do was put B2B in a press release and watch the multiple on your stock go up. Everyone wants to do one. But ultimately, I think there is going to be some sort of consolidation once somebody finds a good business model for the exchange. You can't have 15 new trading exchanges announced every day.

Pulling: I'm not sure the exchanges have figured out how to price their services. There are so many models out there. It's very difficult for someone who wants to join an exchange to understand what their costs are going to be.

Trew: Or to know what they're getting.

White: As I've been researching and talking to trading exchanges, I think they're being grossly misapplied to the supply chain problem. All that most of them are doing is speeding up what they already do today. That's great for commodity-type products, where price is the critical driver, where there are many sources of supply, and you can drop a supplier at the drop of a hat. But trading exchanges are being thrown at every thing that moves, whether it's food, clothing, glasses, or telephones. That model is not a long-term viable solution for the bulk of B2B. What's missing is collaboration. How can a single company, be it a buyer or a seller, collaborate and successfully share data with any system operated by its trading partners.

Christensen: It's become a virtual shopping mall, where people can transact business, but the exchanges have done nothing to integrate the business processes of these buyers and sellers.

White: And there is a backlash. Manufacturers are realizing it's becoming a margin war. We have customers that won't publish their prices and don't want the business because they know they'll be crucified on price.

MMH: On the surface, it seems that trading exchanges have the potential to turn everything into a commodity. And then there's going to be great reluctance to be part of an exchange.

Pulling: Yes, and I don't think exchanges will really work until someone figures out a way that all of the people in a supply chain derive some value from the sale and not just the buyer. It can't just be a commodities exchange.

Enslow: We've seen a lot of customer back lash, especially in the transportation and logistics exchanges. We're finding that many carriers are refusing to participate because they don't want to post their rates on the Web and marginalize themselves with their existing customers.

Linnen: On the buy side, our customers are trying to automate the process of purchasing commodities and supplies. On the sell side, they're looking to the exchanges as an additional channel to sell obsolete inventory. The sales department might already be working with liquidators,. But if the guys in the warehouse can turn to a trading exchange to get rid of their obsolete inventory, they can provide value from the warehouse back through the entire organization. But I would agree that there's a huge skepticism about the transportation exchanges, especially in this day of just-in-time deliveries.

MMH: If I participate in an exchange, how does that impact my supply chain activities, or is it the same as e-commerce?

White: That's a great question. If the focus is just on the transaction, a trading exchange is perfect. It's streamlined, it's quick, it's very efficient. If the focus is on the relationship, that's not an exchange. That's a trading community. So the answer is, where's the focus from the buyer to the seller? If it's one of transaction where price is the key driver, a trading exchange is perfect for that. If it's relationship driven, where customer service and performance are a key competitive advantage, a trading community is far superior model.

MMH: Where does the GM, Chrysler, Ford trading exchange fit. Is it a community or a trading exchange?

Christensen: It's a community. You're trying to build a common process in a finite group. An exchange is open. A community is more regulated.

White: What you wonder is: what do these particular manufacturers get if they club together? Do they just have a much bigger club to shove down the throats of their suppliers?

Tonaissen: It may be reduced administrative costs.

White: Yes, of course, but are Ford, GM, and Chrysler going to share those savings amongst themselves? Are they going to win with their competitors? A community is when you win with your partner. A trading exchange is when you win at the expense of your partner. What they've set up is something that says I'll win with my competitor because they share the reduction in transaction costs with each other.

Enslow: In the aerospace industry we're seeing two different competing super power groups arise.

White: Well, that makes sense because you have a value chain versus value chain. In the long run, GM, Chrysler and Ford are not going to share strategic cost advantages with their competitors. At some point, some supplier is going to say to one of the automakers: gee, I can give you a special deal.

Tonaissen: I think Andrew is probably right. They can all say, well, we'll share a 10% reduction in this area but we'll compete in this other, but then it will turn out that the other field isn't big enough for differentiation.

MMH: We've talked about the four walls and we've talked about the supply chain, but when is manufacturing going to become a factor in e-commerce?

Pulling: I think there is some stuff going on in collaboration. In the semi-conductor business, for instance, companies electronically collaborate to design, build, and synchronize business processes. In fact, I think there's going to be a strong move towards collaboration in any organization where you contract the designs and manufacturing of your core products.

MMH: Does it extend much beyond the high tech industry.

White: Very much so. In the last two years, we've worked primarily with manufacturing companies, initially with consumer products, on the collaborative replenishment of the fulfillment process. Raw materials suppliers are just waking up to collaborative process, and carriers are also getting involved.

Linnen: We're seeing it in the publishing industry, especially in the production of brochures, trade materials, and manuals.

Riggin: Most of our traditional distribution clients have come back to us and asked what can we do for them in the manufacturing arena. A number of them want to move some of the manufacturing process into the warehousing area, so they can manufacture on demand and ship directly to their customers without warehousing.

Enslow: Available-to-promise is becoming important in e-commerce. We're seeing a tight coupling between manufacturing, distribution, and transportation capabilities so you can tell a customer, yes, I can get it to you on this date.

MMH: Is e-commerce for everybody, or is it something you can say doesn't apply to you?

White: When you say everybody, do you mean everybody in the U.S.? One of the things that e-commerce is driving that we have very little preparedness for is the global competition. Back in the 70's and 80's, global competition required a physical presence and huge factories, multi-nationals, that sort of thing. The e-commerce thing is opening up global competition to anyone. Just ask anyone here. We have competition for our customers from global companies over the Internet. I think we should assume that all marketplaces are one, and that's going to be a big change. The question is when?

Enslow: And if you can do it before your competitor can do it to you.

Christensen: We've had several manufacturers come to us and say: Web sites are fine, industry initiatives are fine, but my channels are petrified of e-business because they think they're going to be taken completely out of the equation. We're working with them to say, here's another strategy where you can actually make them a better partner and keep them as part of the equation.

Trew: I think it goes back to what value does your channel partner add. If it is simply a wholesale/distribution operation, where they store your product for a period of time without adding any value, those people should be petrified of e-commerce. But if in fact your distribution center adds value to the product line within the supply chain, then it's not just a pure distribution product. In that kind of model, your channel is very well protected with the value that you add.

Linnen: What's also interesting is to see some of the big retailers open Web sites that compete with their stores and catalogues. I recently went to a local big retailer to buy some furniture, and then found the price was $20 cheaper on their Web site. The Web channel was competing with the retail stores.

Hopkins: That gets us back to this issue of e-commerce versus the traditional distribution model that is dragging down a lot of major players, like Toys R Us. They don't have the distribution expertise to handle the end delivery of their product to the consumer. So, some are going to try to take on Internet fulfillment directly to the consumer, and they'll be successful. There are going to be others who'll fall flat on their faces.

Tonaissen: One thing we haven't talked about is the buyers. I think there are some buyers who will never use e-commerce for certain goods. My wife, for instance, won't buy clothing over the Internet. She likes to touch it, and she likes the shopping experience. At one point, all brick and mortar stores were going to be destroyed, and now we've found out that is not the case. I think there's going to be an eventual balance. We may find that goods are distributed differently. But I think we're going to find that e-commerce is not for everybody who's a consumer in all things.

MMH: How do you know a company isn't ready for e-commerce?

Linnen: When they want to give you stock instead of a license fee.

Christensen: When you ask: What's your e-commerce strategy? And they say: Oh, we've already taken care of that. We have a Web site. Because now you have to go train them on everything that they have to consider for the move to e-commerce.

MMH: Is there a certain point when you look at a prospect and say: This is going to be a lot of work?

Enslow: Well, if the CEO doesn't use the Web, that's a bad sign.

Tonaissen: If the company says it wants to do B2C fulfillment, but doesn't want to change its pallet and case picking processes, that's a bad sign. I don't care how good your hardware or software is: If you're not willing to change your processes, it won't work.

Pulling: If they're just trying to automate the existing chaos, they're done already. The classic example is a company that shall remain nameless that put a visibility solution in to show what's going on in their warehouse and then continued to overnight batch all of their transactions. The product was getting to the customer before the advance ship notice. People who think that way aren't really ready.

Riggin: Or they aren't willing to recognize they're own weaknesses. I've been in operations where the distribution director says to me: we do everything perfectly and our customers are elated. You feel like saying: Then really, why am I here?

Hopkins: I'm sure we've all walked through installations with potential clients, and thought: they're just not asking the right questions. They really are struggling with this and don't know the right questions to ask.

Roundtable participants:

Steve Christensen, vice president sales, Renaissance Software

Beth Enslow, vice president strategic initiatives, Descartes Systems Group

Gary Forger, executive editor, Modern Materials Handling

Ed Hopkins, vice president sales & marketing, Kewill Logistics

Dave Linnen, vice president of product strategy, Intrepa

John Pulling, vice president and chief operating officer, Provia Software

Ron Riggin, vice president & chief technology officer, TRW's Marc Systems

Steve Tonissen, executive vice president of sales and marketing, McHugh Software International

Dan Trew, vice president product strategy, Catalyst International

Andrew White, vice president product strategy, Logility