So far, Internet has positive impact on MRO distributors
By Staff -- Purchasing, 7/13/2000 6:00:00 AM
More than 75% of distributors in the U.S. expect the Internet to impact their business, according to a new survey by Cap Gemini Ernst & Young. However, distributors will have to adapt to a few changes to remain a player in the Internet business arena.
The research indicates that, despite the fact that the Internet already has impacted a majority (59%) of the intermediaries, very few of the companies they do business with think that the Internet will take them out. All of the suppliers and their customers are confident that distributors will not disappear or be replaced by new types of competitors during the next one to two years.
So far, the Internet has had a very positive impact on the American middleman: Distributors have been given opportunities to sell more services (main impact for 11%), broaden product ranges (11%), and improve delivery, flexibility and speed (6%). According to the research, the Internet will continue to have this impact during the next one to two years.
"All players agree that the Internet will have a limited impact on distributors' prices," says David Ridemar, head of the Cap Gemini Ernst & Young U.S. strategic research group. "At the same time, two-thirds expect the main driver for the Internet effects to be increased transparency and new competitors entering the market. That's a classic set-up for price pressure and consolidation.
"It looks like traditional distributors are in for the surprise of their lives when the price effect of e-procurement and vertical trade exchanges kick in," continues Ridemar. "You will probably see a 60% to 80% reduction of transaction costs for customers in the most e-mature industries, and most of that comes from the intermediaries' part of the value chain. Only the best will survive."
All players (intermediaries, suppliers, customers) believe that traditional distributors' qualitative assets will make it possible for them to maintain price levels and fight new forms of competition. Relationships with suppliers and customers are seen as the distributors' main assets by almost half of the players. Information technology is almost considered a non-issue-now and in the near future (main asset for 4% and 5% of intermediaries, respectively)-despite the fact that 18% of the intermediaries already conduct more than 50% of their business over the Internet.
"Once again, this is an effect of traditional distributors possibly not yet understanding the magnitude of the shift brought by Internet technology," says Fabio Rosati, a leader in the e-business practice. "In most e-mature industries, the experience has been that increasing interaction over the Internet reduces customer loyalty as we know it. If the players don't do anything about it, increased Internet business volumes weakens the classic business-to-business relationships between the intermediary and its business partners, not the other way around."
In addition, the Internet adoption rate is higher with suppliers and customers than with distributors; 55% of the suppliers and 45% of the customers will conduct at least 25% of their business online in the next one to two years compared to 43% for the intermediaries.
"Some distributors may be underestimating the potential demand for Internet-based services," says Ridemar. "Those who under-invest in Internet technology and strategy now will probably be locked out of a major part of the business."
The research is focused on understanding how and why the Internet has and will change the role of the intermediary. It is based on 432 Internet interviews with a representative sample of U.S. intermediaries, suppliers and business-to-business customers.
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