Let the games begin
MSC and others step up their e-commerce plays
By Ken Brack -- Industrial Distribution, 3/1/2000
Newton, Mass.--MSC Industrial Direct Co.'s investment in a plastics industry electronic marketplace and other distributors' sign-ups with Internet exchanges emphasize this rapidly emerging sales channel.MSC recently made major moves that place it among the e-commerce leaders in distribution. Those include its investment in Commerx, Inc., the parent company of an Internet market called PlasticsNet.com. MSC also
announced it will sell more than 400,000 products through Ariba, Inc., a leading provider of procurement software and B2B networks.
MSC's backing of Commerx is believed to be the first major investment by an industrial distributor in a vertical e-market -- an Internet market for buyers and sellers in one industry. W.W. Grainger, Inc., was the first industrial distributor to create its own vertical exchange, OrderZone.com, for MRO goods and services last year.
"The significance of it is it's the first of its kind for them and for the industry too," said Patrick Parr, an analyst at ING Barings LLC. "It gets him (Jacobson) into a channel -- products where he has not had exposure, and for a couple of million, it's a way for him to expand his reach."
MSC executives would not confirm the size of the investment nor elaborate on why they aligned with an e-commerce developer in industrial processing markets as a first step. But Mitchell Jacobson, MSC's chairman and CEO, said gaining access to plastics buyers is the first in a series of upcoming e-commerce moves that may include alliances with other Internet exchanges.
"The agreement with PlasticsNet.com gives us our first portal outside the traditional industrial marketplace and provides access to thousands of potential new customers," Jacobson said.
The opportunities for MSC to sell products through Ariba, which has assembled customers with more than $100 billion of spending on operating supplies and services, are obvious. Within a few weeks of the Ariba announcement, MSC and Dana Corp. said the $13 billion automotive and aftermarket supplier will buy goods from MSC via Ariba's e-commerce network. MSC's account with Dana is believed to be worth $20 million.
"Dana is committed to driving its procurement costs down using e-commerce solutions. MSC will realize increased revenues and we will continue to reduce our costs as well," Jacobson said in a prepared statement. "We expect to partner with Ariba in more transactions like this one as businesses move to reduce their procurement costs."
Other large distributors like Ferguson Enterprises, Inc., WESCO International, Inc., and Hughes Supply, Inc., recently upped the Internet ante as well. Some, like WESCO, have formed relationships with several leading procurement software providers that operate Internet exchanges.
WESCO recently picked MRO.com, a division of Project Software & Development, Inc., to improve its existing online catalog with analytical and comparison features, initially for a half-million electrical and industrial supplies. The firm also hopes to reach end users who order products through PSDI's maintenance management software.
PSDI is investing big to bolster itself, as well. The company paid $55 million in January to acquire INTERMAT, Inc., a provider of MRO content management tools and cataloging services, most notably a dictionary that standardizes product data.
In another move, Ferguson Enterprises joined with Datastream Systems, Inc., which hosts more than 100 companies buying products through its iProcure™ network.
"More and more of our integrated customers are turning to the Internet for their procurement needs," said Fred Stapleford, manager of Ferguson's value-added services. "Ferguson can now streamline the otherwise complex and cumbersome task of ordering critical industrial supplies for entire manufacturing facilities."
In another approach, supplyFORCE.com, the firm Affiliated Distributors formed in November, is building a large base of distributors for its own exchange. It plans to expand into other markets besides its core of electrical, PVF and industrial products.
SupplyFORCE.com expects to open an Internet exchange early this spring where its national account customers can order products. At press time, about 250 distributors were signed up, each of which has an equity stake in the company's future.
David Cohen, vice president of marketing, said the company is actively looking to expand. "There certainly are some fringe vertical markets we will expand into. There are three or four on the horizon," he said.
The firm is rapidly adding to its information technology resources and hired about 10 employees in a recent two-week period.
Industry analyst Parr suggests there are three emerging electronic channels: firms that establish an Internet presence with an electronic catalog and a Web site; companies that contract with so-called horizontal players -- like Ariba, MRO.com, or PurchasingCenter.com; and those that align themselves with vertical portals.
"Since we're so early into the evolution here, it's essential to pursue all three paths," he said. "That's the safest way, since it's not clear how this is going to play itself out."
Parr suggests mid-sized distributors face the biggest challenge "because they don't have the resources to pursue a broad strategy. They have to be real focused on what action they take. The first step is to get all data and product lines in an electronic catalog friendly form, and establish a Web site so that as these trading communities expand -- you can connect and be, at the least, a regional or local supplier."
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