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March 20, 2000 01:00 AM

Doing business on the Net sparking rapid `e-volution'

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    For all the attention lavished on online auctions, e-marketplaces and dot-com initial public offerings, those are minor issues in the overall scheme of e-business. The real value of the Internet to businesses will come from streamlining and enhancing communication and data sharing at every level of a product's life cycle.

    Most pundits and supply-chain experts assert that such tools, once fully developed and properly applied, will help improve production and demand forecasting, slash warehousing and inventory costs, enhance customer service, facilitate design collaboration, assist employee training, compress product development and delivery times, and generate new growth and revenue.

    Even makers of complex products such as automobiles, for example, are banking on the Web to help them build and deliver custom-ordered vehicles in a fraction of the time it takes them to make standard models today.

    IBM Corp. global marketing executive Archie James told attendees at Plastics News' Feb. 22-23 e-briefing in New Orleans that the Internet's supply-chain potential can be summarized in the following scenario: Within seconds of a customer removing a plastic toy from the shelf at Wal-Mart, an oil field foreman in Texas knows that another few ounces of black crude must be drawn from the ground to make that toy's replacement.

    Or, as Raymond Pollard, director of global strategic alliances for GM TradeXchange, phrases it: "When the customer looks at leather seats on the Internet, the cow in the field will wince!" GM TradeXchange is General Motors Corp.'s online supplier marketplace.

    Almost everyone recognizes that changes wrought by the Internet will be swift, sweeping and profound.

    Keith Goodwin, vice president of Americas operations for Cisco Systems Inc., told e-briefing attendees in New Orleans: "The business climate used to be like a ship on the ocean. Today the business climate is like a raft on a white-water river. Change is happening, and agile companies will win."

    Cisco should know. Founded in 1984 as a two-employee company in San Jose, Calif., the maker of computer networking hardware was valued at 12 cents a share at the time of its 1990 initial public offering. A share is now worth roughly $140, and the firm, employing 25,000, has sales of more than $12 billion and a market-capitalization second only to Microsoft Corp.

    Cisco's application of the Internet to its own business practices has produced astonishing results unmatched by any corporation to date. Goodwin estimates its transition to the Web, where Cisco today takes 85 percent of its orders, has helped his firm save $175 million in annual operating expenses, slash its order cycle time by 70 percent, and cut inventory for Cisco and its partners by 45 percent. The bottom-line impact to Cisco in fiscal 1999 of applying Internet business solutions to its operations: $825 million.

    That's all well and good, you say. But, by the very nature of its products, Cisco's entire customer base is immersed in the Internet culture. What does that have to do with me — a medium-sized, Midwest plastics processor? The answer is "plenty," because increasingly your customers and suppliers will be demanding that you deal with them online in a fashion not unlike how Cisco deals with its partners.

    Witness the online "superexchange" formed recently by rival automakers GM, Ford Motor Co. and DaimlerChrysler AG, through which they intend to conduct nearly all their supplier business in the foreseeable future. Anyone who wishes to have any hope of supplying those firms soon will need to interact with them online.

    Lee Sage, global automotive leader for consultants Ernst & Young LLP in Cleveland, told a gathering of automotive suppliers in Detroit March 6: "There is $123 billion in inventory somewhere between the customer's driveway and the steel mill. That's the opportunity that exists for e-business" in the automotive industry.

    Still, apart from the need to squeeze out inefficiency and keep pace with customers, many people are missing a key point about the true potential of e-business, according to one independent consultant. Ed Matheny, a former member of Andersen Consulting's chemicals practice who since January has run his own Decatur, Ga.-based firm called Atlantic Systems, is frustrated by the current obsession with Internet-driven cost cutting.

    "It's a little haphazard of folks not to focus some of their efforts around revenue generation and competitive differentiation," he suggests. "They need instead to focus on top-line growth." After all, Matheny noted, a dollar of cost savings has a real value of one dollar. But every dollar of revenue generation can translate into roughly twice that in real value, after factoring in its impact on market share, company valuation, compound growth and the like.

    Cost reduction is fine, "but too much anything is not a good thing," said Matheny, who has conducted more than 150 workshops with resin companies, chemical suppliers and plastics processors around the world.

    Matheny complains that too few of these companies are focusing on delivering value online.

    "People worry about everything being commoditized online, on the sell-side. I believe the Internet will allow you to differentiate your product on the basis of services, alliances, information, convenience, etc."

    Currently, he contends, value-added services such as technical support, research and development skills, applications expertise and the like get lumped into an indistinguishable bundle and that suppliers frequently do not get the price or credit for them that they deserve. He believes the Internet can change that.

    In many respects, he says the plastics industry lags other sectors in its adoption of the Internet, but the industry's extreme fragmentation makes it a prime candidate for the e-revolution.

    "There are a ton of inefficiencies in the [plastics] supply chain," which translates into a huge opportunity to effectively apply e-business principles.

    Others agree. Richard Crawford, chairman of Cambridge Industries Inc., a Madison Heights, Mich., supplier of plastic automotive components, said: "The Internet will drive any inefficiencies out of systems [that currently exist]. You'll see changes that you wouldn't believe."

    Bill Lloyd, global purchasing director of Troy, Mich.-based Delphi Automotive Systems, suggests the Web can be "an enormous facilitator for clarity and transparency" throughout the entire supply chain. Delphi already has participated in more than 60 online procurement events with auction partner FreeMarkets Inc., and last year alone saved more than $60 million. Lloyd believes e-business offers tremendous opportunities for the 213,000-employee Delphi.

    "You learn to live with the [price] transparency, and you adjust," Lloyd said by telephone. "When price and quality are givens, innovation and creativity will be the differentiating factors."

    Additionally, he noted, ingenuity thrives in an environment of worry and uncertainty. He believes that the current angst over e-business provides a useful tension to spur creative solutions.

    The breakneck pace and novelty of change may have us all confused now, but some believe that will all change.

    Textron Automotive's Larry Hamilton says: "I think the `e' eventually will be removed. In three to five years, it no longer will be e-business; it'll just be business. It'll be the way we all operate."

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