Originally appeared in MSI Magazine
June 1, 1998

E-Commerce is a Contact Sport

According to IDC, web commerce is supposed to explode to $200 billion by 2001. Admittedly, that sounds like a pipe dream, given that the best that the web can offer today—Amazon.com—sells less than 10% of the revenues of its more conventional rival Barnes & Noble.

But the IDC numbers should not look so startling to manufacturers, who practically invented electronic commerce. It was called EDI, and for the past 20 years, it has been standard practice among the world’s largest manufacturers.

Naturally, the battle cry, “Move over Amazon, we’ve got to spam our customers with a bunch of advanced shipping notices” doesn’t sound terribly enthralling. That’s because the manufacturing world has realized that electronic commerce is not simply a matter of hard automation. It’s reinforcement of what industry learned from the debacle of lights-out manufacturing: Competitiveness in the electronic marketplace is a matter of keeping people in the equation.

That fact was all too apparent at AMD, which has embraced a web catalog-based solution for managing procurement of incidental supplies. These items were never tracked by MRP, and often weren’t ordered in the types of quantities that would have justified EDI.

Sure, the web catalog ordering eliminates all those ugly purchase orders and the need to pick up the phone, with the application also automating approval workflows to boot. The Ariba solution may save time and along with a few trees, but ask anybody in AMD procurement as to the real benefits, and they will invariably answer, “relationship management.” Procurement specialists now have a chance to troubleshoot recurring bottlenecks or spend more time negotiating better deals.

Internet was also supposed to eliminate legwork performed by second- and third-tier suppliers who could never afford EDI. Traditional EDI was generally conducted over proprietary, and expensive, value-added networks (VANs. You paid by the character, a relic of expensive mainframe computing cycles, data storage, and pricey network bandwidth. CMOS mainframes, disk prices that are falling 40-50% annually, and the explosion of bandwidth have made mockeries of the traditional EDI pricing model.

All you needed was an Internet connection plus a way of guarding security. A couple years ago, Premenos released Templar, a software package designed to provide that security. Pay the software license, file the transactions, and stop paying transaction charges.

Not so fast.

Internet EDI required even more legwork, because much of the work traditionally performed by VAN providers, such as providing a mailbox, transaction integrity, and security, now was borne by the user. And by the way, there was still the job of conducting the “handshake,” configuring your transactions so they matched the format of your trading partners. More people, more time.

Not surprisingly, Internet EDI has yet to live up to its potential. A Templar user whom we tracked is phasing out the product after a couple years, because its trading partners found it too costly and time-consuming. And Premenos itself, was recently sold to Harbinger after a few too many bad quarters.

The payoff from web commerce comes when organizations realize the need for resources. Investing those resources delivers strategic benefits. Avex Electronics, a contract manufacturer, opened up its production lines to its customers via the web. It has done so by implementing an MES system that, in turn, requires close attention by shop floor staff in entering data such as testing results.

Appropriately, Avex calls its on-line system TIME, which in this case has a double meaning. Avex’s operations staff invests the time to track production, which in the long run saves Avex’s customers time by logging onto a “self service” web site for real-time data on the status of their products. Today, Avex competes on its ability to save its customers precious time.

The “self service” web site should not be confused with a lack of human intervention. Admittedly, it allows the user to get information any time without need of a person at the other end of the line. But behind that self service site is plenty of human effort, entering and managing data, and managing the customer experience.

Maybe Amazon.com promises a seamless, lights-out book buying experience, but for manufacturers, the ties between trading partners are so close that, behind every self-service web commerce site, there’s plenty of human tender loving care that is invested to strengthen trading relationships.