Online prospects debated in Webcast

By Staff -- Industrial Distribution, 2/1/2001

NEWTON, MASS. The future of online exchanges was debated in a live Internet broadcast Dec. 12, the first Webcast on industry trends produced by Industrial Distribution.

The hour-long broadcast examined what's next for distributors considering online exchanges, many of which opened with high hopes and venture capital early last year-but have largely failed to take hold since then. Four panelists gave insights on online MRO marketplaces as more than 100 people watched and listened from computer monitors.

Distribution consultants Adam Fein and Bruce Merrifield were highly critical of the exchanges, saying they face barriers like customers' tendency to rely on existing trading partners. Fein, principal of Pembroke Consulting, predicted that as many as 80 percent of the public exchanges will exit, while private exchanges established by manufacturers and distributors, and sometimes with customers, will do better.

Merrifield, president of Merrifield Consulting Group, said most independent exchanges won't be able to match the fulfillment capabilities of local distributors. He also expects supply chain networks, or private exchanges set up by industry groups, will have a hard time. The slow development of digital standards to share product identification data on the Web is another hurdle, he said.

Fein said the reason most exchanges have not succeeded is not because it's too early for industrial distributors to embrace e-commerce. He said the technologies offered to date by many exchanges won't easily replace existing trading partnerships among end users and MRO distributors.

"If new technologies can't improve those channel relationships, they're not going to be adopted," he said. "So maybe e-commerce is not ready for the industry."

Two other panelists, Holden Lewis, a senior equity analyst at CIBC World Markets, and Jerry Steinbrink, formerly vice president of Manufacturing.Net, an online exchange, gave a different view. Lewis said distributors do need to join an exchange to survive-with qualifications. He said it is vital for distributors to develop an internally branded, online catalog to participate in various exchanges and be ready to meet customer demands, given the widespread moves toward Internet procurement.

Steinbrink said distributors who are not content to merely survive should consider online exchanges. Firms should ask about an exchange's catalog-building technology, how it will deliver audiences, strengthen brands, if it provides orders or request for quotes, its funding and integration with back-office systems. He noted that 84 percent of manufacturing buyers specify products online, and 40 percent of MRO buyers say the Net is their preferred channel.

"I think the right exchange can make you stronger," he said. "Sooner or later, most customers will demand to buy from you online."