A direct hit on distribution?
Milacron's new Web site may not represent a threat to distributors
By Ken Brack -- Industrial Distribution, 3/1/1999
CINCINNATI, OHIO--Milacron Inc.'s new Internet tool crib provides early evidence that business-to-business I-commerce is shaking up the distribution channel.While some distributors view the firm's announcement to allow customers to buy from its Web site as a direct sales threat, Milacron and industry experts say distributors that sell products on the Internet themselves should benefit from their suppliers' online ordering and problem-solving initiatives.
Milacron, a manufacturer of cutting tools, grinding wheels and metalworking fluids, went live with milpro.com in January, the first such Web site in the industry. The company calls it a direct way to reach small job shops that it was previously unable to service effectively. Customers may get answers online to applications questions and obtain material safety data sheets in addition to searching and ordering from a catalog of 50,000 products.
A search engine to help customers locate distributorships by product name, state and zip code was expected to be added by the spring. Milpro.com also will provide links to distributors' Web sites and even includes a "flea market" for used machinery.
The implications of direct Internet selling by manufacturers are huge. Total business-to-business Internet sales already dwarf retail transactions. Within weeks of Milacron's announcement, competitor Kennametal Inc. revised its Web site to provide technical information and links to its distribution company.
While a Milacron executive expects it will take up to two years before its Web orders really pick up, one expert suggests distributors should form a serious I-commerce strategy before 2000 if they don't want to be left out.
"I think that it's something distributors need to address this year," says Jack Shaw, a consultant and e-commerce author. "How are they going to use those tools to strengthen relationships with manufacturers and end users?"
Thomas Russell, general manager of The Gage Co. branch in Indianapolis, Ind., expects manufacturers reaching customers directly from the Web to be "a wave of the future."
He says that as long as suppliers provide an option for customers to select distributors, that presents an opportunity for more sales leads. "At least I know [the customer] is looking for this product. But it gives the buyer more options," says Russell.
Alan Shaffer, Milacron's group vice president for industrial products, says the key to its Web strategy is the Milpro "Wizard," which answers detailed applications questions at any hour.
"We're not just taking orders on the Internet, not just showing catalogs. This is full e-commerce," he says. "Our whole strategy was, 'what will allow us to grow sales faster?'"
Milacron believes that enabling customers to choose any item for a machining operation, find the correct fluids and help them set up the machine on a 24/7 basis is a significant shift. "This changes the access to application information," says Shaffer.
He insists the online tool crib will boost distributors' sales despite being perceived as a threat. Milacron has identified more than 117,000 small metalworking shops, which he says represent ripe opportunities for distributors with expertise.
"How you like to buy it -- that's up to you as it always has been, but we make it very easy for any of our customers to determine which product they need and go ahead and place the order," he says. "Up to now we didn't have a service to help customers find a distributor."
Milacron will fully support its own direct sales reps in the new venture. It is addressing potential conflicts by paying full commissions for online sales made in their territory -- even if they had nothing to do with the sale. Meanwhile, earlier this year Milacron also launched truck fleets to bring products and services to small shops, which it defines as having 50 or fewer employees, and equipped hundreds of reps with notebook computers to demonstrate the Web site.
Shaw believes distributors that add value will play an important role in a Web-based environment.
"Too many have a perspective that when a manufacturer puts up a site and has the ability to go direct, that's an immediate threat or direct attempt to disengage," says Shaw, who is president of Electronic Commerce Strategies, Inc. in Marietta, Ga. "I think that's an overreaction on their part. The ones that really add value play key roles that most manufacturers don't want to do."
Shaw says providing online links to distributors should reduce fears of manufacturers going direct. A handful of suppliers in other industries are doing that on comparable Web sites. In one case, National Semiconductor creates "buyer bulletin" profiles of products end users have selected, then lists preferred distributors to choose from in a geographic area. Once an order is selected, the site lists which distributor has it in stock.
Still, as they learn of Milacron's Web initiative, some distributors worry how far direct selling will go.
Alan Gilbert, president of Quality Mill Supply Co., Inc. in Columbus, Ind., credits the $1.6 billion supplier for being "a little bit ahead of their time." He says the Web site's tie-in to distributors is vital.
"One of the keys, if it's going to happen and be successful, is you need to make sure that the people at the dance are tied in there with you," he says. "We're the people rolling up our sleeves on the shop floor. Let's make sure we're not out there on our own."
Dan Jennings, department head of the industrial distribution program at Texas A&M University, suggests Web commerce sites such as Milacron's create an alternative channel, or at least, "change the relative power within the channel."
"The question is: how can I take e-commerce to develop someone's core competency? A lot of it has been done at the operational level, but it hasn't got up to the strategic level," says Jennings.
Before designing its Web site, Milacron surveyed more than 5,000 small job shops about Internet use and online buying. Thirty-eight percent reported using the Internet.
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