AS THE 'E' TURNS

E-commerce adoption didn't match last year's expectations. So what's in store for 2001?

By -- Industrial Distribution, 1/1/2001

An interesting thing happened to the e-commerce wave last year. It got blown off course.

Instead of e-commerce adoption building like a tidal wave, reality set in. Hyped-up expectations that gazillions of customers would begin doing Internet transactions didn't materialize. Dot-com exchanges exploded on the scene, but those that failed to attract enough buyers and distributors were dragged back into the surf.

Many of you chose to stay on the beach or just get your feet wet. That probably won't be the case in 2001.

Make no mistake, the e-commerce-or more precisely, the e-business-wave continues to build momentum.

According to Market Facts Inc., the number of companies that used the Internet to order MRO goods doubled from eight to 16 percent between 1998 and 1999. And a recent study done for the Industrial Distribution Assn. and American Supply and Machinery Manufacturer's Assn. found that half of the respondents expect to accept customer orders online by this spring, up from about one quarter last winter.

Of course, no one knows exactly how the next 12 months will play out. Depending on who you talk to, this could be the year when Fortune 1,000 buyers turn to e-procurement en masse or the year when many distributors begin to integrate their back-end enterprise systems with online ordering.

"The real value of B2B e-commerce systems for customers won't be ordering, but just-in-time information, education and motivation," says Gene Roman, CEO of Systems Design Inc., an enterprise systems software provider. Roman says distributors will also provide extra value to customers with online training and tools to manage relationships.

Expect small steps in 2001

Others expect that distributors who watched other companies plunge in last year will take modest steps in 2001. Some industry leaders like Bill Derville, president of General Tool & Supply Co. in Portland, Oreg., caution that integrating enterprise or legacy systems with trading partners, and connecting those systems to online ordering, inevitably takes a lot longer than expected. Developing a searchable product catalog has taken 18 months longer than Derville's company expected, for example.

"Distributors will react as their customers drive them," says I.D.A. president Bruce Baker. "Whether it's a marketplace or a Web site, you still have to get your customer to go out and buy from you. They still need to know there's something behind it."

One rock-solid truth emerged last year about e-commerce in distribution: It's no longer just focused on adding Web sites and online catalogs. There is no such thing as simply "build it and they will come."

That's not to suggest that virtual catalogs and online exchanges are going away. In fact, Frank Lynn & Associates estimates that by 2005 up to one-third of all MRO transactions will be done through online marketplaces. Lynn believes that "early adopters" of online exchanges, which are typically large distributors, currently make up only five to seven percent of the market. The consulting firm expects widespread adoption of online marketplaces by distributors in the next two to three years and says that will coincide with a continuing shakeout of dot-com MRO intermediaries to perhaps three or four viable players.

Meanwhile, industry groups are working on product identification standards, which once completed will open the spigots for mass automated transactions through "public" online exchanges, private networks and searchable catalogs.

In this special report, Industrial Distribution examines what's changing in e-commerce and updates some of the risks and benefits for distributors. The first article takes a critical look at the online exchanges and the debate over charging transaction fees. A second article explores why many buyers remain wary of Internet procurement technologies, despite the consultants' lofty predictions.

A third article profiles the development of supplyFORCE, which recently shifted its strategy because small end users have been slow to embrace e-procurement.

A fourth article offers practical Web design tips to help build a simple, customer-friendly site and put your catalog online.

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