A playing field
New e-commerce initiatives seek to level the playing field for smaller distributors
By John R. Johnson -- Industrial Distribution, 1/1/2000
Not too long ago, Peter Madsen had no idea how he was going to tackle the giant albatross called e-commerce that was quickly threatening to impact his business. Neither did Jim Jacques, the owner of a small abrasives house in Rhode Island. In fact, the startup costs alone required to initiate e-commerce could very well have washed away all of Jacques' and Madsen's yearly profits."Forget the profits," says Madsen. "From what I've been told, there isn't enough money to pay for a good [e-commerce solution]. It can be very, very expensive to go it alone. It's a wild West show out there. Everyone is scrambling and nobody's sure what the final picture is going to look like. But if you're going to be a player, you need to play now."
While both Madsen and Jacques are still unsure of the role the Internet will play in distribution's new frontier, they are gambling that they may have found the answer. Madsen, owner of Madsen & Howell, and Jacques, of Massasoit Tool, have signed on with Eventory Inc., a new venture that is providing e-commerce opportunities to distributors.
For a minimal signing fee, a distributor's entire inventory can be placed on Eventory's site (eventory.com). Based in Bedford, Mass., Eventory will take approximately two percent of each sale that comes through the site. Within five years, Eventory executives predict that $5 billion worth of MRO goods will pass through their site.
"I'm really concerned about taking care of e-commerce for the future, and [Eventory] looked like a good alternative, rather than developing something on our own which may be nearly impossible for a small distributor," says Jacques. "I know there are others out there, but there are more and more of these superstores developing, so it's important for us to have some kind of a presence there. Nobody seems to know for sure, but this may be the way it's all going to go."
For that reason, distributors aren't the only ones embracing startups like Eventory, Toolsupplier.com, PurchasingCenter.com, and SupplierMarket.com. Those are just a handful of close to 50 sites to emerge in the last year. While distributors are hopeful, so too is the investment community, which is throwing money at MRO-related dot-coms by the fistful.
Barbara Cohen, Eventory's chief financial officer and a former distribution analyst at Schroders, says Eventory's first round of financing ($500,000) was oversold. Cohen claims that a long list of investors are waiting for the next round of financing, which was set to occur late last month. She expected that round of financing to raise approximately $2 million.
"The overnight sensation of the Internet is going to happen in this industry," says Cohen. "We just don't know when."
One of those early financiers was Doug Trauber, a vice president at E-Offering, a division of E-Trade. While his firm has yet to invest in Eventory, Trauber plunked down a six-figure sum of his own money on the firm, founded by Cohen, her husband, Jon Cohen, who is chief executive officer, and Bharat Mirchandani. Trauber was the firm's second-largest investor during its first phase of fundraising.
"It's always high-risk, high-reward early on, but this is a huge [market]," said Trauber. "It's a $200 billion market, and in a space like this there's a huge ability for these startups to create incredible markets. It's very conceivable to have huge volumes moving through a site like theirs. I wouldn't have invested had I not been able to vision that kind of volume moving through."
Banking on e-distribution
Distributors who sign up with Eventory will have their own storefront on the Eventory site. When users visit the site, they will get the appearance that they are traveling directly to the distributor's site. The only evidence of Eventory is a logo on the bottom of the page, which emphasizes the distributor's brand, not Eventory's.
Signing on with Eventory doesn't prohibit a distributor from selling from his own site. In fact, Madsen is also setting up a site (purchasethat.com) to test e-commerce on his own. He says he has been approached by companies who currently use large chain distributors, but are unhappy with the service levels they provide. Those firms have hinted about switching back to local distributors, but still want to have the online purchasing ability offered by larger distributors.
And, distributors who specialize in hand tools, for example, will be able to form alliances with distributors from other product segments on Eventory's site, meaning that the small hand tools house can now offer safety supplies and, perhaps, construction supplies as well.
At press time, Eventory had signed up about 30 distributors. Eventory has signed on as an associate member of the Industrial Distribution Assn., and signed up five distributors on the spot at I.D.A.'s convention in November. Eventory's founders were overwhelmed at the interest they received.
"We were surprised at how ready the industry was to hear our message," said Jon Cohen, "and that they already have bought into the fact that they need to get e-commerce capable. Most of them realize this, but have just been stuck because of the cost of a do-it-yourself solution.
"There are a lot of folks today that think the Internet will be used to displace the industrial distributor and reduce things down to a price-based purchasing decision. Anyone familiar with the industry sees that's really not going to happen. Our vision and technology can actually make local selling more efficient because you keep the value added service and the relationships. We think that the existing industry structure can persist into the future."
In this new frontier of e-commerce, nobody is sure who is going to win the race. Indeed, new players are entering the arena every day. There will be big winners, and there will be big losers. Just as there is consolidation occurring among brick and mortar distributors, there are sure to be several combinations of MRO dot-coms in the future. In fact, industry experts admit Eventory would be a great add-on for an existing portal like VerticalNet, for example.
In the following text, we've highlighted just a few of the most well-known names out there. For a more complete list, turn to page 70.
PurchasePro.com
PurchasePro.com, operational since March 1997, bills itself as "a network of buyers and suppliers." The company's core product, Purchase Pro, is a business-to-business communications network which electronically links buyers to suppliers. Its goal is to streamline the entire internal and external procurement cycle -- from request, to order, to payment -- for both the buyer and supplier.
PurchasePro's target customers are primarily small and medium-sized businesses interested in buying and selling a wide range of products and services over the Internet. With a standard Internet connection, a Web browser, and a PurchasePro.com membership (average subscription fees run $90 a month), members can participate in interactive public and private communities or "e-marketplaces." This B2B e-commerce service began serving the hospitality industry three years ago by creating an electronic marketplace where users can shop and create catalogs, send and receive bids, and place and fulfill orders for everything from generators to cocktail napkins.
PurchasePro.com's latest developments are designed for the fragmented construction industry. In October, the company announced the release of AEC Connect, a complete, browser-based e-commerce transactional software tool for the architectural, engineering and construction industry which links architects, engineers, contractors and the supply chain electronically.
And in September, PurchasePro.com entered into a strategic relationship with Primavera Systems, Inc., to develop PrimeContract.com, an e-commerce marketplace for construction companies, subcontractors, project owners and suppliers. PrimeContract.com, which was slated to commercially launch in December, will electronically automate the entire sourcing, bidding, and procurement process for commercial construction projects.
For construction distributors, PrimeContract.com provides "visibility to people who are buying your products," says Joe Montgomery, president of AEC Connect. "When a contractor is sorting out buying nuts and bolts, we provide him with the tool to identify the manufacturers and distributors that supply those products.
ProcureNet, Inc.
ProcureNet, Inc. was an early player compiling structured, searchable MRO content for both catalog and spot buy purchases. The firm's origins were in medical supplies purchasing during the late '70s and today more than three-quarters of transactions conducted through it are industrial MRO products.
ProcureNet calls itself a procurement organizer that acts as an integrated supplier, and says it differs from software firms that have entered MRO procurement because of its experience and strategic relationships with suppliers. The firm touts its data cleansing, parametric searching capabilities and says its site powers more than $2 billion in Web-based transactions.
Its major customers are in government, institutions and utilities, and ProcureNet created a buying portal for MRO supplies, PurchasePlace™, more than two years ago. Its flagship product, OneSource™, has been available in a Web-based version since 1996 and includes products and services from PVF and HVAC, lab equipment to health care.
"It's imperative for vendors to provide their customers with rapid response to their MRO requests in order to address issues like maverick buying," says CEO Walter Ulrich. He says the company's goal is to work with top companies "to build a world class portal and deliver service levels that will satisfy our customers' needs and allow them to minimize their MRO procurement costs."
Based in Fairfield, N.J., ProcureNet incorporated two years ago with the merger of four firms experienced in procurement applications, electronic catalogs and data rationalization: SourceSys Inc., Fisher Technology Group, Structured Comp Systems and Strategic Procurement Services. The company also provides full back office processing, meaning it connects into a customer's enterprise system to enable purchasing, invoice handling and other functions.
SupplierMarket.com
SupplierMarket.com is an online marketplace for built-to-order direct materials. The company facilitates requests for quotes (RFQs) for industrial manufacturers and opened its virtual doors last October for an estimated $300 billion direct production materials and parts market. A month later it reported having more than $100 million worth of RFQs on the site for a few hundred buyers, plus having qualified and registered 6,000 suppliers.
The firm conducts bids for products ranging from fasteners to molded parts, and through matching information technology enables end users to broaden their supply base. Buyers use the services for free, while sellers pay a commission of between one and four percent once the sale closes.
The firm says suppliers will benefit from reduced sales cycles and prospecting costs, access to a large number of qualified RFQs, and the ability to compete on a level playing field and quickly fill excess capacity. Based in Waltham, Mass., the company was started by two Harvard Business School graduates who left blue chip companies to become pioneers in the Internet economy.
"There are significant procurement inefficiencies within the direct materials supply chain," says Tim Minahan, director of research for e-business at Aberdeen Group. "SupplierMarket.com addresses many of these inefficiencies by providing a virtual marketplace that automates and streamlines product sourcing, negotiation and the selection processes."
SupplierMarket.com has assembled a board of advisers that includes Jerry Jasinowski, president and CEO of the National Assn. of Manufacturers, and Charles Ferguson, co-founder of Vermeer Technologies, which developed FrontPage, a software product used to create and manage Web services. Through December, the firm was backed by $8 million in financing.
PurchasingCenter.com
PurchasingCenter.com is an Internet portal dedicated to save MRO buyers at mid-sized manufacturers time and money -- without having to buy expensive software. Its sweet spot is linking facilities with 100 to 1,000 employees with qualified distributors. The firm calls itself the only buyer-centric, single source site in the MRO procurement market.
The company launched its site in October and, so far, enables buyers to send RFQs, personalize a list of distributors to contact for quotes, facilitates excess inventory auctions for industrial supplies and provides industry articles and other online content.
Initially, the company expects its key users will be maintenance, engineering and purchasing employees who make spot buys. But during the first quarter of 2000 PurchasingCenter.com plans to enable planned e-commerce procurement transactions and will charge a four to six percent commission on sales. The company hopes to represent three to four million SKUs by mid-2001 and already has a searchable database of 6,000 distributor locations that includes firms such as Kaman Industrial Technologies.
"We're giving distributors a channel to capture customers they don't currently serve," says Fritz Troller, vice president of sales and a former executive with W.W. Grainger Integrated Supply. Besides Troller, the founders and top managers of the Burlington, Mass.-based firm include former executives of e-commerce software provider Open Market and American Express' corporate purchasing card division.
Through December, PurchasingCenter.com had received $8 million in two rounds of venture capital financing.
MRO.com
MRO.com has created an online community designed to reduce the purchasing and inventory costs associated with the maintenance, repair and operating materials procurement market and to streamline the procurement process. MRO.com links participating distributors and buyers together through a group of proprietary Internet-based desktop requisition and online procurement software products including mroBuyer™, mroSupplier™, mroMarketplace™ and mroTransaction Server™.
"Small and mid-sized distributors face a dilemma: they know that this Internet procurement thing is real and for the most part, they feel quite threatened by it and they don't know what to do about it," says Maurice Plourde, MRO.com's director of e-commerce strategy.
"What will happen is that these distributors will be faced with having to connect to their customers individually and the smaller distributor won't be able to cope with the [information technology] resources necessary to maintain these one-to-one connections," Plourde says. "That's why we conceived this idea of an electronic marketplace that allows us to connect a supplier to all of his customers, but in such a way that the distributor only requires one connection to the marketplace."
Live since April 1999, MRO.com's name is still gaining recognition, but this online community is backed by the recognized name of its parent company, enterprise asset maintenance software developer PSDI, and has created alliances with leading software providers for the distribution market. A few of the distributors currently registered include Applied Industrial Technologies, Westburne, Midwest Fluid Power, Bowman Distribution, Ferguson Enterprises, and JLK Direct Distribution.
Associate Editors Ken Brack and Susan L.P. Srikonda contributed to this report.
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