Distributors are the focal point of a supply chain — or at least they should be, in spite of companies like Wal-Mart, according to Bill Osborne, president of the Ottawa-based The Business Network.
“Distributors should dictate how the supply chain operates because they are truly the nucleus of the supply chain, giving the manufacturers the means to communicate more effectively with the resellers,” he says.
“Although Wal-Mart is near the bottom of the chain of product from the manufacturer, they dictate as though the supply chain revolves around them.” Even with distributors as the focal point, Osborne sees the supply chain as ultimately forming a straight line down which information should flow fluidly from manufacturer at one end to end-consumer at the other. In contrast to ERP software which he sees as having a specific focus on one company’s dealings within its own small supply chain network, his company’s offering has a broader focus on a channel or industry.
The Business Network, or tBN for short, currently provides an e-commerce tool that enables primarily the IT industry’s hardware and software manufacturers to reach down through distributors and their value-added resellers (VARs) to the end consumers. It can be described as an ASP platform that links into the catalogue trees of member manufacturers to create an online storefront whose design can be modified to reflect the look and feel of any participating distributor or VAR. The result is a presentation to an end user — the VAR’s customers — that is a vendor (manufacturer?)-controlled representation of the merchandise, conveniently available whenever the individual end consumers are online.
“There’s a huge disconnect when a manufacturer comes out with a product that is the first to market,” Osborne argues. He suggests six weeks can easily pass by the time a new product goes from the manufacturer’s warehouse through distributors to resellers. Another eight weeks can go by before consumers start to hear that the product is available, he says, given the time it takes for the resellers to pass the information on to their sales people who in turn inform the consumers.
“A product with a lifecycle of about three months has already lost 50 per cent if not two thirds of its lifecycle in terms of being new and revolutionary because competitors are now at the doorstep,” he continues. “They didn’t have a speed-to-market opportunity because of the channel and the way it worked. Now we’re winning the hearts of the manufacturers because at the push of a button they are communicating with their supply chain more effectively than ever before.”
The tBN network includes about 300 of the estimated 7,000 VARs in the IT channel. Osborne says the tBN recently licensed the technology to about 15 IT manufacturers. The key benefit for manufacturers or vendors to participate seems to be to drive the flow of information without adding sales staff.
According to James Drohan, president, CDI Computers in Markham, Ont., tBN does away with a common problem in the manufacturer-reseller relationship. Sometimes resellers only tell customers about half of CDI’s wares, “and that’s being far too generous,” he says. “With this [tBN] process, we give customers access to 100 per cent of our product information 24/7.”
He anticipates that the online presence will free up CDI’s sales reps to address customer satisfaction. “These individuals have a lot more to offer than just being order managers. There are countless other things they can be doing on a more strategic level than just handling orders and communicating ‘do you want to buy it?’ That’s just so old.”
“The challenge is to put our product in front of the right purchasing people at the corporate end users or our dealer base,” confirms John Steward, vice-president of sales, Targus Canada Ltd. He explains that his company’s participation means that the resellers currently involved in tBN have a Targus shopping page on their Web site accessible to their corporate end users.
“It looks like their page but it is really a shopfront for Targus products. tBN gives me an avenue to put our products through a reseller straight into a corporate end user. I just don’t have enough feet on the street to do that.”
Further, as a vendor, Steward can monitor the reseller purchases from participating Targus distributors because he gets sell-through reports every month that reveal what types of products are being bought and in what quantities.
Vendors can also have promotional sales offerings, such as bundled complimentary items, appear in their online storefront window.Similar to tBN, iBIZ10 from Markham, Ont.-based TechnoPlanet Productions Inc. is an e-commerce solution with both an entry-level ASP and a standalone offering that uses XML technology to broadcast participating IT industry manufacturers’ information through different VAR portals to end customers. President Julian Lee reports the firm also has smaller networks for the automotive and pharmaceutical industries.
Both companies have demonstrations at their Web sites: www.businessnetwork.com and www.ibiz10.com. “Any time there are a lot of components within an industry and a large numbers of parts and you need to have accurate purchasing programs in place, the online market is doing extremely well,” says Lee. “The online world starts to become a very good assistant to the sales of both the VARs and manufacturers. With so much information coming from so many manufacturers, it is very difficult for the VARs to absorb this information, let alone pass on to the end customers. This is where I believe the bottleneck is in the channel today.”
DOUBLE TROUBLE
Not only is there a disconnection on the sales side of the supply chain; there’s also an information bottleneck on the buy side.
Beth Enslow, vice-president, Enterprise Research at analyst firm Aberdeen Group, reveals what she calls “the dirty hidden secret of how enterprises really do business with their suppliers.” From her base in Waterloo, Ont., she cites Aberdeen’s Supplier Management Benchmark Report, which recently revealed that 92 per cent of companies still use phone, fax or e-mail with at least some suppliers. Only 17 per cent do not use these methods with their top suppliers.
“Enterprises talk about great Web sites and e-commerce initiatives, but if you look under the covers, they may be doing that with just their top customers,” she says. “It’s only better companies that have committed to making everything electronic when ordering from buyers, for instance.”
“Better” doesn’t necessarily mean bigger, she adds. “The smaller companies are adopting Internet-based communications with their suppliers at a faster rate than the big guys. The smaller companies have figured out that in order to become more cost efficient [and] more responsive to their customers they need to start doing the electronic commerce through the lower cost method of over the Internet.”
She says the larger firms with an entrenched EDI department may face a greater challenge in changing processes or investing in more IT resources to do things differently. “Most corporate IT departments are so stressed that anything that’s going to require more IT resources gets nixed,” she adds. But for those who surmount the obstacles and create a truly electronic process with their suppliers, the Aberdeen Supplier Management Benchmark Report reveals the rewards are lower transaction costs and a lot fewer data errors and delays.
While Enslow interviewed only U.S.-based companies for that report, she believes that the findings would resonate with Canadian companies, especially those that are smaller divisions of large companies.
She says a second generation of supplier portals are now offering value far beyond the first generation that typically require