If you want to know how the Internet has changed the dynamics of business, read the following words from the CEO of a mid-market manufacturing company:
"We have a large customer to which we have supplied more than 250,000 units over the last two years with 100 percent on-time delivery and zero ("0") PPM rejects rating. However, their corporate office decided they would go on the Web and do an auction for all their procurement. There was a six-hour time span in which global suppliers were competing to supply the product. An offshore supplier undercut our price dramatically. We lost the business."
As this story indicates, the Internet is turning entire industries into single, global markets in which companies of all sizes compete for the same business. This can be a particularly frightening prospect for mid-market manufacturersthose with revenues less than $250 millionthat naturally lack the financial resources of the corporate behemoths with which they are now forced to compete. For instance, it is very likely the high-performing manufacturer in our opening tale lost this particular piece of business to a much larger company that could afford to cut its profit margin on the deal to the bare bones. Some large corporations even have the luxury of being able to take a loss on certain deals in order to establish a relationship with a customer that could bring more profitable deals down the road. The mid-market manufacturer who loses to such companies more than once will not be in business very long.
That's not to say that online auctions and other Internet capabilities are ringing the death-knell for mid-market businesses. In fact, Internet technology has the ability to create an entirely new, and much more prosperous, life for those that learn to properly harness it.
To prosper in the Internet Age, executive teams must realize that the same technology that allows their customers to seek new suppliers from around the globe also affords the opportunity to offer their own products and services in new markets. This technology, when deployed properly, can also enable mid-market manufacturers to create business processes that breed loyalty among customers who are looking for more than just the lowest price when choosing suppliers.
The most effective of these processes will center around one of the Internet's characteristics that has had the greatest impact not only on business, but also on the world at large: communication. With the Internet serving as a bridge for communication, cost barriers have been removed and the time it takes to build a collaborative business network has decreased significantly. All this is good news for mid-market manufacturers and distributors. The even better news is that these enterprises don't have to go it alone when trying to figure out how to incorporate Internet technology in their own businesses.
The Value of Web Portals
A Web portal can be an effective vehicle for communicating with and providing personalized service to customers. It also can serve as the entry point to an Internet-based exchange platform, which can be the conduit for organizing an entire supply chain.
Lister-Petter, a maker of construction cranes and earth-moving equipment based in Olathe, Kan., offers a good example of value that an integrated Web portal can provide.
Seeking to relieve its order entry department of the burden of taking multiple phone calls from customers with basic questions on the status of orders or invoices, Lister-Petter signed up to use a Web portal application that is actually hosted by its enterprise applications supplier.
The supplier simply put a link to the portal on Lister-Petter's existing Web site and Lister-Petter, in turn, gave its customers passwords to enter the portal. By entering this portal, which is connected to Lister-Petter's back-end business system, customers can check the status of current orders, review past orders, get answers about the dispensation of invoices, as well as a wealth of other information about their accounts. They can also place orders for spare parts and view information that Lister-Petter posts to the site, such as lists of available part numbers.
That last feature led to an unexpected, but now quite welcome, benefit for both Lister-Petter and its customers, who are equipment distributors. "Some of our distributors got together and started posting their own lists of slow-moving stock in their warehouses," says Matt Geiger, IT manager at Lister-Petter. "Now they can deal directly with one another if someone gets an order for a part for a 25-year-old engine that we wouldn't have in stock. That type of communication helps them serve their customers much faster."
Additionally, Geiger says Lister-Petter's new Web portal has boosted the company's own customer service ratings. "The general consensus among our customers is that they're very happy with this system," Geiger says. "They love being able to look up inventory availability and quantities on hand before they place their order."
The system has improved other aspects of Lister-Petter's business as well. "We have not had to deal with corrupt order information ever since customers started placing orders through the portal," Geiger says. This is due to the fact that order information goes directly from the portal's order-entry screen into Lister-Petter's order-management system.
"When we were entering part numbers manually, there was always a certain percentage of keying errors," Geiger says. "Those have been virtually eliminated. If errors do occur, the system throws up red flags before the order gets too far down the road to fix. We've been able to eliminate a lot of extra transactions, like issuing credits for incorrect invoice totals, and the entire order process is much smoother and more accurate."
With roughly 40 of its distributors now using the portal, Lister-Petter is also able to gather the "business intelligence" it needs to continually improve its customer service programs. "I can easily get a rough idea of how many people have been using the portal through a traffic report feature," Geiger says. "It also tells me exactly how customers are using the site, whether they are placing orders or just seeking information, as well as what type of information they are seeking."
A Competitive Advantage
Press-Seal Gasket Corp., an $18 million manufacturer of rubber and stainless steel seals and other devices that keep water pipes from leaking, used the same technology as Lister-Petter to set itself apart from its competition.
"We liked the idea of this portal from the beginning because it gave us the ability to engage in e-commerce," says Chris Slater, IT administrator at Press-Seal. "That is something that none of our competitors have."
Press-Seal customers can now place orders, check the status of existing orders or even view Press-Seal's current inventory at the click of a mouse. Meanwhile, the competitors' customers still spend time holding on the phone or dealing with busy fax lines.
When a Press-Seal customer requests information through the portal, the message is converted to Extensible Markup Language (XML) format and routed to a gateway application that is managed by Press-Seal's enterprise system supplier. The gateway program reads the message and then reaches into the appropriate area of Press-Seal's enterprise system to retrieve the requested information. It then converts that information into XML format before sending it back to the portal, where it is presented to the customer. All of this information transfer takes place in a matter of seconds, giving Press-Seal's customers the exact information they want at the exact moment it is requested.
That is a valuable capability for a company that does business with companies of all sizes in all corners of the world. "We do business in Asia, and our customers typically fax in their orders and requests for quotes," Slater says. "There's a 12-hour delay from the time they fax us something and the time we can respond. This portal, which is available for use 24 hours a day, is going to speed up that process."
Press-Seal expects the portal to remedy a similar situation with its smaller "mom and pop" customers, which are not equipped to conduct e-commerce. "We get the majority of orders from smaller companies by fax, but we're going to encourage these customers to move to the portal," Slater says. "All they need is an Internet connection and a Web browser, and we can immediately begin processing their orders and responding to their requests much, much faster."
The portal is also connected to a document repository that allows Press-Seal to share a greater amount of valuable information with its customers, as well as its own employees. "We have internal sales reports, for instance, that used to take a long time to download from e-mail, if the e-mail even made it to the recipient at all," Slater says. "Sometimes it bounced back. Now our sales reps just go to the portal and retrieve the report they need, anytime they need it.
"We also have the ability to attach documents directly to a part number. That allows us to attach [computer-aided design] drawings with dimensions of the product; the customer can then download it and know right away whether or not the product is the right size for their application."
In addition to continuing to cut costs and improve customer service, Press-Seal expects the new Web-based business system to help increase revenues by attracting new customers. "We can demonstrate to potential customers how easy it is to communicate with us," Slater says. "They will also see the advantages of the document repository, discussion boards and other methods that our customers have created for communicating with one another. That will really set us apart from the competition."
A number of software suppliers have developed packaged solutions that enable manufacturers to use Internet technology for competitive advantage. The best of these solutions are built to address specific issues that historically have prevented mid-market companies from adopting advanced technology. Those limitations include a lack of personnel to manage complex information technology networks.
Suppliers who understand such issues have developed end-to-end, completely integrated business application suites that allow enterprises to first run their internal operations with maximum efficiency and then easily connect with their customers and suppliers.
In recent years, the most forward-looking software suppliers have added supply chain management (SCM), customer relationship management (CRM) and business intelligence (BI) capabilities to their application suites. These are critical components for businesses that want to make sure their internal operations are running smoothly before they begin formal electronic collaboration with outside business partners and, particularly, customers.
Mid-market manufacturers now have ready access to applications that can remedy such problems if they seek the counsel of the right software suppliers. The right suppliers offer solutions that address four critical areas:
" Electronic data interchange (EDI), based on new open standards such as XML
" Web portals
" Internet-based trading exchanges
By taking advantage of the technologies available today and adopting a comprehensive enterprise business solution, companies of any size can easily communicate with business partners, streamline efficiencies and achieve the sustainable business growth needed to maintain valuable supplier relationships and compete on a global scale.
As President and CEO of Made2Manage Systems Inc., headquartered in Indianapolis, Ind., David Wortman helps create enterprise business systems for mid-market manufacturers.