Succeeding in the Brave New World of E-Commerce
by Jack Shaw

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This is the case for two reasons. First, a small number of forward-looking distributors are actively planning for e-commerce. While there are some exceptions, these progressive companies tend to be the larger distributors. Those distributors who do effectively implement e-commerce will have the advantages of increasing productivity and achieving more effective supply chain management. Result: These industry leaders will significantly reduce their costs of doing business.

Second, responding faster to customer needs with products and services more closely targeted to those needs improves market share. The combination of reduced costs and improved customer service will allow these forward-thinking distributors to reduce prices to their markets while maintaining or perhaps even improving profitability. This, in turn, will result in further increases in market share for these progressive dealers.

How ready are equipment dealers for the new world of electronic commerce? To determine the answer to that question, AEC, with sponsorship from NB Solutions, a joint venture of Bramco and National Distributor services, has produced a new study, The 1999 AED Electronic Commerce Report. The report is based on a late-summer survey of nearly 700 U.S. and Canadian distributor members.

The instrument used to conduct that survey was designed to determine which dealers are investing the most in electronic technology and systems; how they`ve structured their hardware and software systems; how they`re using e-commerce to interact with their manufacturers, customers and bankers; the bottom lines and exactly how much money dealers are investing—and plan to invest—in e-commerce, both today and in the next 12 months.

AED received responses from 287 members—a high number for this type of survey. That`s an indication, I think, that AED members are at least aware of the importance of this issue and are interested in learning more about it. But as we`ll see in a minute, they still have a long way to go to be fully prepared e-businesses.

Of the largest represented equipment segments, heavy equipment dealers are about 64% of all participants, followed by light equipment companies (12%) crane and manlift dealers (8%), engine and power system companies (7%) and paving and crushing equipment dealers (6%). Thirty-two percent are in the $15 million to $50 million volume category, another 30% in the $5 million to $15 million category, and another 25% in the more than 50 million bracket. The rest were under $5 million. About 75% of the respondents are multilocation companies.

My business specializes in helping organizations make the critical transition into the Digital Economy. I was involved in the survey design, and I also wrote the analysis and commentary for the report itself. This article is a condensation and summary of many of the conclusions we reached, based on survey data. We`ll look at where AED members are in terms of a few key areas such as the prevalence of CD-ROMs, the amount of online access (to both customers and suppliers) and electronic financial transaction.

But this article is only a capsulation. To truly understand the complex topic of e-commerce, to get a more complete picture of the survey data and, most important, to learn more about the steps your dealership must take to remain competitive in the 2000s, I urge you to purchase the complete report.

Thriving in the Digital Age

Earlier I said that the most progressive and forward-thinking companies, in terms of electronic commerce, will gain market share. Where will this increase in market share come from?

For the most part, it will come at the expense of those distributors who fail to survive the transition to the the Digital Economy. Some distributors will muddle through with minimal enhancements to their e-commerce capabilities. However, based on my review of the AED survey results, somewhere between 20% to 40% of current distributors will be acquired by their more visionary competitors or simply fail altogether.

There will be many explanations given for the lack of success of most of these disappearing distributors. However, I believe the majority will boil down to one thing—a lack of foresight and vision by top management.

Very few distributors are investing anywhere near enough in e-commerce to compete effectively in the future. Based on survey data, virtually no equipment distributors have a written e-commerce strategy in place today. Relatively few have even recognized the necessity of developing one. And, incredibly, some indicate no intention to plan for e-commerce at all! This kind of stick-your-head-in-the-sand denial is tantamount to organizational suicide.

However, for all but the most obstinately recalcitrant organizations, there is still time for any given distributorship to ensure that it is among the survivors. In fact, for most, the potential still exists to become one of the winners. Those who start the e-business planning process now, and who continue to plan and to implement those plans with discipline, will not only most certainly survive but have a good chance of bineg among the big winners.

Now let`s see what the data revealed about some key areas on e-commerce.

Catalogs on CD/DVD-ROMs.

Most distributors expect relatively little increase in the use of CD/DVD-ROMs. On the average, each AED member has CD-ROMs available from five manufacturers now. Overall, 90% expect that number to stay fewer than six in the future. For distributors for whom five or six manufacturers represent the vast majority of their equipment supplies, this is to be expected.

For those who routinely deal with much larger numbers of suppliers, this is likely an accurate prediction also—but perhaps not for the reasons they may have expected. I infer from survey comments that many distributors feel that only the largest and most advanced manufacturers can use perceived sophisticated technologies like CD-ROMs.

In fact, CD-ROM technology is becoming easier and less expensive to use, a trend that would imply increasing use, especially among smaller manufacturers. However, another trend will most likely override that one.

Over the next few years, data communications capacity or "bandwidth" will increase dramatically. Millions of smaller businesses (not to mention homes) will migrate from dial-up Internet connections at 28 or 56 thousand bits per second to broadband communications via cable modems or digital subscriber lines (DSL) at speeds of six million to 10 million bits per second.

At these speeds data can literally be transferred more quickly over the Internet than it can be read off of a CD or DVD-ROM drive. Once that happens, there`ll be little incentive for using CD/DVD-ROMs as information-distribution devices.

Online access to manufacturers. Frankly, the survey results on this question are unclear. It appears that many distributors fee there will be relatively little increase in the availability of online information from manufacturers in the next year. Distributors also seem to think there will be some slight movement from proprietary systems to the Internet.

Over the next 12 months distributors may be correct, but, in the longer run, the trends of the economy as a whole paint a very different picture. Proprietary only systems are more expensive to access, maintain and enhance that Internet-based systems. Furthermore, manufacturers of all sizes are recognizing that an effective Internet presence will be mandatory to their survival over the next few years.

The implications of these two trends over the next few years are two-fold: 1) Most if not all manufacturers will go online via the Internet, 2) Most manufacturers who are already online with proprietary systems will convert them to Internet-based systems.

Online access by customers. AED members are missing opportunities for both improved customer service and for additional sales over the Internet. A fair number of distributors have some kind of online presence. However, few provide inventory availability, order status, warranty claims or technical information online. Providing this information online will make customers happier. It will also increase productivity for the distributor by reducing the number of customer service telephone calls.

Equally important, distributors are losing potential online sales. Only about a third of distributors even provide online catalogs. Less than half allow customers to actually purchase products online. Those distributors who claim that their customers are not asking for online access would do well to consider the likelihood that their customers will never ask for it. They`ll just quietly take their business to the competitors who already have it.

Electronic customer payments. Over half of all large distributors have at least some customers paying electronically. But very few distributors plan any meaningful increase in electronic customer payments. Here they are missing a bet.

By having customers pay electronically, distributors increase productivity in their financial departments and improve cash flow control. Some distributors may fear that customers will be unwilling to pay electronically. However, for a discount of, for example, 1%, most companies would be willing to pay via EFT. That`s much less than the discount required to accept purchasing cards.

Paying suppliers electronically. Here many distributors are missing an even easier opportunity. Some 45% of mid-sized distributors and fully 60% of large distributors responding to the AED survey pay at least some of their supplier electronically now. There`s little reason for the rest not to move to this practice. And there`s a compelling reason to do so.

As with electronic payments from customers, paying suppliers electronically increases productivity in accounting. It also provides improved control of cash flow—you know exactly when funds will be required. Most manufacturers offer at least slightly better terms for electronic payments. If they don`t offer them, ask for them. The manufacturers benefit from being paid electronically (just as distributors benefit from being paid electronically by their customers), so they should be willing to provide incentives to do so. It`s a win-win situation.

E-commerce investment. There is a very good reason why many equipment distributors are not reaping the benefits of e-commerce. They haven`t invested nearly enough in e-commerce to begin to generate benefits—and certainly not enough to compete in the 21st Century`s Digital Economy.

At a minimum, distributors planning to stay in business should invest 1% of their gross revenues per year into enhancing their e-commerce capabilities. Of the more than 200 distributors responding to this survey question, only six are already investing at this level currently. And only 20-25 plan to invest at this level over the next year. The average distributor is currently only planning to invest at 15-20% of the level needed to compete effectively in the future.

The adjacent chart depicts recommended minimum guidelines for investment levels in e-commerce and e-business. Keep in mind that these are minimums. Leading edge businesses in many industries often invest at five to 10 times these levels.

Business gained/cost savings. Remarkably, a quarter of distributors claimed moderate or substantial business gained and nearly half of distributors identified moderate or substantial cost savings resulting from e-commerce. Given the very low level of investment made in e-commerce by the industry as a whole, these are very encouraging results. Certainly, one can safely infer that, with an effective level of investment, business gains and cost savings would both be much higher.

E-commerce strategy. It`s even more remarkable that so many distributors recognized the benefits of e-commerce when one considers that 92% of survey respondents say they have no e-commerce strategy! In fact, of the 272 respondents to this question, only 21 have a written e-commerce strategy.

In the digital environment that we are quickly moving into, it`s highly unlikely that any small distributor will ever grow to be a large one without a sound e-commerce strategy.