A version of this article first appeared in Computers & Finance, a magazine published 10 times a year in London by TBC Research.Through its comprehensive portfolio of magazines, events and research, TBC Research is dedicated to helping senior business professionals make more informed technology decisions.
John Samuel, finance director of Ellis & Everhard, the fourth largest chemicals distributor in the world, has a deep-seated belief: "As soon as you start saying distribution, you have to talk about the Internet.... You can't get away from the fact that the Internet and online order tracking are at the forefront of what we do."
In spite of Samuel's reluctance to compare his company with book distributors, the parallel is clearly there. Amazon.com recently announced plans to make its books available on a same-day delivery basis in some British cities.
The times really are changing, and both bricks and clicks companies are coming to accept the absolute requirement for some electronic element in the way they deliver their products.
The Internet brings with it an expectation - at times overstated - of quick delivery, cut-price bargains, and try-before-you-buy returns policies. It allows customers, particularly in the business-to-business arena, to check product availability, track order status, and reroute orders. Transactions over the Internet are so much cheaper than paper transactions that manufacturing and distribution operations which don't move into the e-commerce arena are losing the ability to compete. Those who have made the move issue a warning; it's a whole new ball game and sizing up customer expectation is a crucial precursor.
For Samuel, the game has moved on from simply allowing orders to be placed over the Internet. The company has recently gone live with an order-taking e-commerce system, which provides customers with detailed information about the orders they've placed and their handling.
With Ellis & Everhard's system, developed with Ironside Technologies, customers can now view all the data that sits in its back-end Baan ERP (enterprise resource planning) system, which was implemented in 1999. That includes information on past orders, product catalogues, order status, accounts status and credit. In addition the large amount of documentation that is exchanged with a chemicals sale, such as the materials safety data sheet, can all be passed over online, providing an obvious saving for the customer as well as for Ellis & Everhard.
For its customers, the changes are likely to be profound. Samuel notes that while the cost savings are often cited, service to customers has also reached a higher level, and he hopes this added convenience will gain the company market share. "Today 90 per cent of our orders come over the phone and fax. Now they can come in and [place their orders] themselves."
Other early adopters of e-fulfillment systems also like to focus on the customer convenience benefits. Korean car dealer Hyundai is soon to roll out access to its recently implemented JD Edwards One World ERP system to its dealer network. Dealers already have access to some of the company's internal applications for warranty claims and parts ordering, but in surveys of its 160 partners, it was made clear that supply chain pipeline information, previously provided over the phone via a call centre, was poor.
Ultimately, however, the main benefits come further down the line. "When you go to a dealership and you want to get a car that's not in stock, it's easier to find out where else [and when] you can get hold of it." To make it possible, Hyundai UK's operations are interfaced to the main factory in Korea, while the whole supply chain from the logistics operation in Tilbury right through the dealer network is plugged directly into One World.
It's significant that both Ellis & Everhard and Hyundai have recently implemented ERP systems. Without that backbone in place, they maintain, the move to e-fulfillment is simply unimaginable, and for many smaller manufacturing and distribution companies, that step is yet to happen. "Having an ERP system to begin with is what counts. That's why we're far ahead of some of our smaller competitors," claims Samuel.
Some Operations Not e-Fulfilled
Others have not been so lucky. PC vendor Evesham.com, recently rebranded as an Internet-only company, embarked on an e-fulfillment project with Baan and Deloitte Consulting in April. But after the problems Baan has been through - the company is subject to a takeover bid by Invensys - the project has not progressed and lawyers have been called in.
Operations director Luke Ireland despairs of the current state of its systems: "We were looking for a front-to-back e-enabled system where you can place an order on the Web and track its progress and where suppliers can come in for vendor-managed inventory." Asked if the company could not build the integration itself, he says: "Believe me, if we could do it, we would."
Others are in an even worse state, partly because of the inherently conservative nature of the manufacturing and distribution sectors. Martin Howard, manufacturing product specialist at mid-market ERP vendor Navision, claims that since manufacturers tend not to have generic requirements, software vendors have been unable to take the lead in building next-generation products for them. "Systems are... built in-house by small suppliers, and each time they need changes they go back to the supplier until they're locked in," says Howard.
Nonetheless, some conservative, established companies do have certain advantages over the small dot coms which are currently stealing their thunder. Not least are their established logistics operations. Nice PC was set up at the start of 2000 by Stan Buffrey in response to a request by Fujitsu Siemens to sell PCs direct to British consumers. Buffrey chose sister company ASI, a traditional corporate PC dealer, to run the operation because of its established warehousing and logistics. "We got the whole thing up and running in less than a month," he says.
With a call centre already set up, the company could put orders straight into its Navision system for processing. The next stage, which went live last month, was to set up an online store using Navision's Web Shop, and integrate it to the back end. But Buffrey says he would not have set up an online capability until he had complete confidence in the back end operations.
Companies like Nice PC and Ellis & Everhard have been lucky to have the time or foresight to size things up before charging into e-fulfillment. Ellis & Everhard's Samuel wanted to get into the arena some time ago, but customers and suppliers had other matters such as Y2K on their agenda. He used the time to gauge customer expectations and claims the final system has benefited from that.
Consultants heartily recommend a sizing up of expectations before embarking on such projects. Bob Wild, e-commerce and CRM consultant at Compass, says: "When you create an e-strategy the target audience is not necessarily your entire customer base. You need to conduct a number of surveys to find the expectation. The most important thing is to meet whatever expectation you set."
AMR Research analyst John Fontanella thinks that for many manufacturing and distribution companies, old ways of working could be a millstone. "If it's not used to going direct, a bricks-and-mortar company will go in and think it can disintermediate its distributor. The whole profile of its business changes. It may have the edge operationally, but its systems are built [from] product and cost models based on a particular order size and customer base, often a few large orders. When you move from hundreds of customers to thousands, things like returns and inquiries become unmanageable."
With a target of 50 per cent of its UK customers using its e-commerce site for placing orders within a year, the implementation of an e-fulfillment system is already having a dramatic geographical effect on Ellis & Everhard's business. "We have 21 sites that are all order-taking and pretty independent," says Samuel. "But now we're all working with the same system and taking orders through a regional call centre. We [now] have a fully integrated national distribution company and we don't need to have all the sites. The technology has driven that."
At this stage, neither Ellis & Everhard nor Nice PC really know what take-up their systems are likely to enjoy. The PC vendor is in the process of promoting Siemens' "underagrand" Website through the Internet Exchange CyberCafes, and Buffrey expects significant business from this. But whatever happens, because their back-end systems are in place, both expect to be able to meet the demand that comes their way. "We've no idea what demand it will generate. But we've got to be sure we can service them in the expected time limit," says Buffrey. "We're ready."