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Adapt or Die: Web-based B2B is the future of Business
By David N. Deinzer
President & CEO, Denman & Davis
This story appeared in the August 23rd special supplement of American Metal Market
Remember the old advertising slogan for the New York State Lotto — "You Gotta be in it to Win it?" The same philosophy rings true for E-commerce. If your business does not have a web site where customers can browse, buy, and get quotes online — you and your company will be out of the mix, and, in time, possibly, out of business as well.
Such a scenario is becoming even more pronounced in the business-to-business arena where E-commerce is poised to change as well as enhance the traditional customer relationship model. While no one can foresee the future direction of the web, one thing is certain at the moment — steel service centers are getting in on the act.
Recently, large "Amazon.com-like" metal exchanges have surfaced on the web, providing customers with on-line metals marketplaces that include wide vendor selection, competitive pricing, ways to electronically track and analyze purchases and ways to retrieve stock quotes and breaking news. These mega-sites, a new category known as business-to-business ORMs (operating resource management), are business-to-business portals that enable buyers to drive the market by making their own purchasing decisions via Internet access 24 hours a day, seven days a week.
The birth of this online commodity marketplace presents a whole new set of challenges for independent service centers that want to remain in the game and be competitive in this new cyber arena.
It also spurs a host of questions that independent service centers now must ask. Should they offer E-commerce on their own web site, and, if so, how soon? Should they join one of these online metal marts as a member? The best solution may involve a combination of both.
E-Commerce: The Great Equalizer
For independent service centers, competing against these large "Amazon.com" metal sites will be no different than competing against nationwide conglomerates. All the technology does is put a new face on the same competition issue. Which may work to the advantage of the independent service center as E-commerce becomes the "Great Equalizer" and sets the stage for a more level playing field.
Once everyone is in the E-commerce game, competition among players will drive the costs out of the process. One of the most obvious benefits of online sales is that the cost of doing business-to-business drops. For one, transaction costs drop dramatically as customers enter orders directly onto online field forms, rather than talk to customer service representatives over the phone. Second, the cost of elimination of paper and the time needed to traffic that paper is eliminated.
Another money-saving benefit of online sales is greater accuracy. There is no misinterpretation of what was ordered, by what dimension, by quantity or anything. In the near future, this drive toward a more streamlined and paperless workplace will gain momentum to the point where business-to-business billing — a labor-intensive task — will eventually be done electronically. At present, some companies, including Denman & Davis, use EDI (electronic data interchange) to conduct business electronically with some customers, but emerging E-commerce technology will likely take precedence.
Mill certifications, which cite the steel's pedigree, can also be scanned and entered into an online system. Doing so enables browsers and potential buyers to click on a secure site and call up the mill certification to check the credentials of what the seller is offering. This creates an archive that the customer can easily access on his own, which, in turn, saves time and improves operating efficiencies.
E-commerce also frees up workers to have flexible schedules and be more productive by increasing telecommuting possibilities. Customer service and sales representatives, with the help of an Internet-enabled PC, can take orders from home. Say, for instance, a caller phones the company's physical location looking for a particular sales representative (who happens to be working from home that day). Not only could the call be forwarded to the at-home sales person, but that same sales person could access a database through a secured company web site and begin processing that customer's orders electronically.
Recognizing that E-commerce will be the way business-to-business will be conducted in the future, Denman & Davis has incorporated applications in its revamped web site (www.ddsteel.com). Customers who visit the new Denman & Davis site can securely fill out quote requests online. They can also browse a "Special Offers" area that features products that are offered at discounted prices. In the near future, the site can be expanded to include technology that will enable customers to check the status of orders online. Small service centers of less than 20 employees may still elect to steer clear of the web, either to maintain personalized service or because it may be cost prohibitive for them. However, in the long run that may work against them in the fact that they may lose market share to competitors selling on the web.
At this time, we are on the cusp of total acceptance of web technology. While there are still those who are concerned about security issues or hesitant to totally embrace this new frontier, there is a whole generation rising through the ranks who were weaned on computers. This generation will move the technology to the next level, making it difficult for centers not involved in E-commerce to survive.
To compete in this new cyber environment and evolving supply chain schematic, businesses, such as independent service centers, will need to differentiate.
Same Industry; Different Story
Perhaps the greatest area where the need for differentiation will be felt is sales. This is where people come into play.
The lesson is straight out of "Business 101." If a customer has a choice in buying the same item (apples to apples) from two different vendors at the same price, from whom does the customer buy? Answer: The vendor the customer likes and has a relationship with.
E-commerce will place a renewed emphasis on sales people. As it drives the costs out of order processing and the tracking of paper flow, centers will need to be very aware of the sales image they project and the people they hire to project that image. Ongoing training of sales teams will become a critical link.
Another way service centers can differentiate themselves is through location. Steel does not transport well, so it doesn't matter if an East Coast buyer gets his best online quote from a Chicago distributor. The cost of transport alone would be prohibitive. Therefore, a regional service center that differentiates itself by catering to a specific area and offering value-added services such as Just-in-Time delivery already has two pluses to leverage itself against competition on an Internet exchange site.
Power in Numbers
Another way that independent service centers can head off competition from Internet metal exchanges is through solidarity. In the last few years, independent service centers have formed cooperatives such as NASA (North American Steel Alliance) to buffer themselves against the purchasing power of nationwide conglomerates.
Cooperatives give independent service centers a leg up against competition and purchasing power they otherwise would not have if they were not banded together. Through cooperatives, independent centers have the muscle to contain costs and compete head-to-head against the purchasing power enjoyed by nationwide conglomerates.
A cooperative Internet exchange could function as an online auction model involving all members and/or links to members' web sites. The site could direct customers to the best buys by service center, region or product offered. NASA, for example, has 73 members in North America with a combined revenue exceeding $3.3 billion.
Sign on or Stand Alone: The Question Facing Service Centers
The old saying goes, "If you can't beat 'em, join 'em."
In the case of E-commerce it's all about competing effectively and using all available means to air your company's business-to-business messages. As E-commerce evolves, independent service centers will need to consider supplementing their own web sites with outside sites.
In the foreseeable future, independent service centers, such as Denman & Davis, will need to be tied into larger sites simply to maximize exposure and compete effectively. This larger site could be either a cooperative-run site, a large "Amazon.com-like" metals marketplace, or both.
Whichever mix a business chooses in developing its E-commerce edge, the bottom line is the sooner an Internet strategy is developed, the better the chances are that a business can hold its own in this rapidly evolving marketplace.
Consider the case of Amazon.com, the nation's largest online retailer that took the market by storm. Much of its retail competition that waited too long to launch their own E-commerce operations are still considered "cyber also rans," and to this day continue to play catch up with Amazon's lead.
The sobering news for any business considering E-commerce is that business-to-business E-commerce is expected to outpace consumer E-commerce. Analysts estimate that the business-to-business E-commerce markets will grow to between 10 and 20 times the consumer E-commerce market. According to consulting firm Forrester Research, business E-Commerce will be worth $1.3 trillion in the United States by 2003.
The writing is on the wall. E-commerce will be the way to conduct business-to-business, period. Centers that don't join up may very well be playing a game of chance they cannot win.
David N. Deinzer is President and Chief Executive Officer of Denman & Davis, a steel service center headquartered in Clifton, N.J. He graduated from Lehigh University and is a member of the Board of Directors and a past president of the Steel Service Center Institute. He is also a member of the Associates Committee of the American Iron & Steel Institute.
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