As the third quarter ends and the weather starts to cool, industrial and distributor personnel come back from vacations hoping for an economic turnaround. The changes in the economy over the past year, with its highs and lows, wreaked havoc on many Internet-based companies, including software and hardware giants, as well as wholesalers and retailers.

Many major stories coming from the dot-com world were of layoffs and closings. The explanation from failed Internet exchanges was, "Customers and suppliers are not ready for the leap into e-business."

Still, there are positive signs regarding e-business, according to INDUSTRIAL DISTRIBUTIONS 55th Annual Survey of Distributor Operations:

• 72 percent of industrial distributors have Web sites
• 96 percent of distributors grossing in excess of $20 million have Web sites
• 96 percent of distributors plan to spend the same or more money next year on Web technology as last year
• 69 percent of United States purchasing organizations are actively pursuing new and improved relationships with sellers via the Internet
• Purchasing managers are fully aware that the cost of a purchase order drops dramatically when the process is digitally controlled
• Perhaps most telling of all for distributors is the fact that 69 percent of purchasing organizations are actively pursuing new suppliers, new relationships and partnerships built on the Internet; the Internet is the first source used to find new suppliers and new products.

Distributors should be ready to tackle the needs of their customers at any technological level necessary. But are they? Are distributor Web sites set up to satisfy the demands of industrial customers? If not, how much time and money will it take to accomplish that?

"B2B e-commerce is advancing quickly in terms of penetrating the total procurement market, but at the same time, remains fairly immature in its development," says Andy Blackburn, vice president of Boston Consulting Group, in a survey detailing the use of B2B Internet services. "By 2004, online purchasing will represent 40 percent of total purchasing, however only 11 percent of all purchases will involve online price negotiations."

Customers are looking for two-way partnerships online, not just sterile buyer/seller transactions. Contracting online means more trust and responsibility from both parties.

Blackburn's report indicates total B2B e-business spending in 2004, including EDI transactions, will be $4.8 trillion. The results are based on interviews with 260 buyers.

Comparing prices and services, a big stumbling block in the way of smoother e-business integration, will become easier for buyers. Then, Web procurement will accelerate, the report says.

Successful automation requires the elimination of errors, according to the National Assn. of Purchasing Management. Purchasing cannot justify the expense of automation and tying into distributors' systems if costly errors are not reduced.

Purchasing managers know that the way information flows between customers and suppliers — in segments and pieces, not in complete packages — introduces errors, even in orders that appear complete and correct.

For example, an ethernet network system works by dividing streams of information into packets and sending them to a receiving computer, where they are reassembled. If there are errors, the packets are still assembled into incorrect information. Likewise, if ordering information on a purchase order is in error, the order may still go through, compounding the time and expense the error caused.

More importantly, that error may show up time after time in the system once it is established. Who hasn't seen an error and corrected it, only to have it appear in the same form the following month? When the data is correct, efficiency, less cost and greater margin for the distributor kick in.

Can online purchasing truly be as efficient as software vendors claim? Many experts claim that, as errors are eliminated and personnel become familiar with the system, more time and money will be saved than with previous purchasing efficiency systems. The technology inherent in electronic document flow is the very thing that will streamline the purchase-to-payment cycle.

According to Vance Checketts, a vice president of Oracle Corp., several facts about paperless buying are significant. Buyers typically:

• Save one to two percent on every order with paperless transactions from lower payment fees
• Save 10 percent on the purchase price of indirect goods and services by strategically sourcing each category
• Reduce processing costs by $25 to $75 per paperless order
• Reduce collaboration costs—"the cost of doing business"—that were previously assumed
• Reduce costs by greatly reducing processing time in which transactions move in minutes, not days.

Due to their greater need for sophisticated computer systems, distributors who are involved in integrated supply (16 percent of distributors are involved to some degree) are more likely to have the technology in place to conduct e-purchasing, according to the ID annual survey. However, according to NAPM, less than 10 percent of customers feel their distributors' online capabilities are "very good or excellent."

That doesn't mean there is not a large window of opportunity for distributors. Over 84 percent of purchasers consider online purchasing to be "important" to their business interests in the next 12 months, but 83 percent admit their own companies are less than 20 percent along the way of total Internet buying capability.

One of the most important processes used by purchasing managers today is electronic, strategic sourcing. The Web offers more information in faster, more accurate forms than ever. Bidding and RFQ procedures are shortened by "instant Internet quoting," according to Praxair, Inc. director of global procurement, Lou Romano. Praxair is the largest industrial gases company in the Americas, and also produces high-performance surface coatings.

The company has been developing a sourcing procedure for over four years, Romano says. "We started re-engineering global procurement with strategic sourcing. It begins by analyzing data including users of commodities. The need is to manage suppliers and manage contracts. Are we being treated fairly? Can the supplier do the job we've asked them to do? Strategic sourcing of goods and services begins with Web-based negotiations," he says.

Romano and his staff researched commodity cost analyses on a global scale for Praxair. In 1998, the re-engineering began. They looked for providers of Web-based sourcing tools in early 2000 and selected B2Emarkets to fulfill their requirements. Praxair became the company's first customer in June, 2000.

"Strategic sourcing that requires formal quoting and acceptance procedures is hugely more efficient over the Web," says Romano, "It eliminates errors, is amazingly fast, can send vast amounts of information at the touch of a button, and connects parties instantly to the process."

"We have been able to provide 'procurement impact' to our company, reducing expenses and optimizing the productivity of our strategic sourcing resources when necessary. We can do much more with the same work force, or reduce that force to get the same results," Romano says.

The kind of technology that makes Web-based strategic sourcing work also attracts some of the best and brightest from the nation's universities to work for Praxair.

"We have gone to schools looking for supply-chain candidates and find they are very interested in our programs. Negotiation skills will always be a requirement of the [purchasing] job, but graduates want to see cutting-edge technology. There are certainly different skill sets for the job than just four years ago," he said.

In fact, the business of negotiation will turn more and more to the time-saving benefits of the Internet, Romano notes.

"We are still one of the few companies doing our own Web negotiations. We've been at it over a year, with 125 commodity groups in over 12 major categories sourced electronically," he says.

And sourcing has spawned a new term used by buyers. "Compression" — the shrinking time it takes to go from first RFP to final contract — is a cost saver for everyone involved, according to Praxair's director of global services procurement John Stevens.

"We saved millions of dollars by taking about four weeks out of the schedule for final contracts and implementation. The speed and compression we see is phenomenal. Our first [Web procurement sourcing] event produced 150 bids in one day. The traditional process is much less active. When you invite pre-qualified bidders globally, you have a new dynamic," Stevens says.

Praxair is now developing online transaction tools and will be more involved in Web-based negotiations and automated, paperless billing, Romano said.

Motion Industries, Inc., of Birmingham, Ala., uses a centralized system developed around a relational database for its e-business initiatives, according to Ellen Holladay, chief information officer. The company's capabilities include full electronic integration to its order fulfillment system. Integration is accomplished through EDI and XML transactions. The system allows for stock checks, invoicing and pricing. Motion also accepts orders from various Internet marketplaces.

According to Holladay, electronic transactions help eliminate wasted time and errors. Motion also has seen mistakes reduced because customers are using pre-defined templates to place repetitive orders.

"Reducing errors can be attributed to electronic processing in general. [When] information is right the first time it reduces the customer's costs and, on our end, increases order accuracy," she says.

Many of the customers integrating sales and billing with Motion Industries began by using EDI with the company. As customers have transitioned to the Web, they can track order status online from placement through fulfillment and billing. "That is something customers can do on our transactional Web site, motionmro.com," she says. "Customers demand those basic functions from their distributors."

Motion's group vice president - sales, Bob Summerlin, says that his sales force deals with a stratified clientele that can include very technologically sophisticated purchasing departments. His force is therefore trained in the technical end of transactions as well as products.

"The spectrum of sales ability has certainly grown. There are four issues involved with sales today: information management, transactions, cycle time compression and product management. The customer can get a lot more information through [the Internet] process. Our salespeople have to know where the customers are with their systems development process," he says.

"The Internet has changed the sales call for the better," Holladay says. "Salespeople can now spend their time on adding value, solving problems and looking for new business instead of carrying paperwork or making routine phone calls, which represent high costs for the supplier and the buyer," she says.

"The sophisticated purchasing department at our customer will use our technology to their advantage in saving time and money in the same way we use it," Holladay says.

Stafford Sterner is vice president of marketing and Web development for SJF Material Handling Inc. in Winsted, Minn. He spent much of the last two-and-a-half years developing an online ordering system at www.sjf.com that features four tools "that provide the largest savings and benefit to both the company and its clients."

First, he incorporated a specific materials handling help section for new customers and those not sure exactly what they want. The more customers use this feature, the more they save in phone time.

Next, Sterner integrated customer product reviews and multi-view product displays. The site shows up to eight detailed photos of a product. Customers can also see video and photos demonstrating products, Sterner says.

Lastly, SJF offers online live support for questions or problems.

"Thirty-five percent of all clients ... have a few questions that keep them from making an online purchase," he says.

Sterner considers Web purchasing to be limited only by the available systems and bandwidth.

"The biggest detriment is that [Internet buying] is inherently still very static. That is mainly a result of bandwidth. We are limited to what we can provide clients on the 'Net not by the technology available, but rather a means of delivering the content to the client," he says.

Sales and the sales call will be radically changed by the Web, Sterner adds.

"I see a day when we can deliver more information over the Web than can be supplied by a human representative ... A client could see a product live, in action via video."

Importantly, according to Sterner, the features of the SJF Web site are the result of customer feedback. Customers will return to the site because the features are important to them.

"To get clients to use the site and continually return to it is not a matter of promotions but rather a never-ending commitment to adding fresh, interesting content as well as incorporating new technologies as they become feasible ..." he says.