MRO distributors embrace e-commerce
By By Jianfeng Pei -- Purchasing, 11/2/2000 7:00:00 AM
The Internet offers traditional bricks-and-mortar MRO distributors new opportunities and many of them are making efforts to develop e-commerce solutions that strengthen their ties with current customers and give them access to new markets.
The MRO market is believed to be ideal for Internet-based services because most MRO purchases are unplanned spot buys driven by unpredictable needs. But despite the push by distributors toward e-commerce, online sales seem to be growing less rapidly than many had expected.
Sales via the Internet at Wesco International, based in Pittsburgh, Pa., are coming steady, but slowly, according to Russ Lambert, director of e-commerce. "There is so much over-hype about e-commerce by dot.com marketplaces and software developers," he says. "The reality is a long curve for customers to switch to this new purchasing channel." Lambert expects it will take five to seven years for e-commerce to be substantially adopted by customers. "It will be a slow and steady process. E-commerce will come, but it will take a long period of time."
At W.W. Grainger, a leading industrial distributor based in Lake Forest, Ill., online sales were $100 million last year, accounting for 2% of total sales. This year, sales from the Internet are expected to reach $300 million, about 6% of total sales.
"Most online sales are from small and midsize customers at this time," says Bill Hefferman, vice president of business development. "Many large customers have complex purchasing approval processes. When these large customers get ready for B2B e-commerce, sales through the Internet have big potential to grow."
Online sales are very small at Hughes Supply, based in Orlando, Fla. "About 99.5% of our businesses is done by traditional ways," says Steve Zepf, chief financial officer. "Sales via the Internet are growing very slowly. Most of our customers still prefer traditional ways of doing business. They like to get product information from the Internet, but not to order online."
Motion Industries, based Birmingham Ala., sees sales via the Internet growing every month, but online sales are still "under 5% of our total sales," says Ellen Holladay, chief information officer. "The vast majority of our customers use the Internet to look for product information and availability." Holladay remarks, however, that "The Internet is changing the way we do business. Its success should not be judged only by transaction values."
According to a survey by Market Facts Inc., which was commissioned by W.W. Grainger, the most common method of ordering MRO supplies continues to be the telephone, used by 85% of all companies. Other major ordering methods include: visiting retail outlets (79%), fax (64%), giving orders to MRO supplier reps visiting the office (64%), visiting MRO suppliers' local branches or distribution centers (50%).
The survey found that use of the Internet for purchasing MRO supplies doubled since 1998 with 16% of all companies ordering MRO products online. Importance of the Internet will continue to grow as 86% of current users expect to increase their use over the next year or two.
Convenience and speed are the most frequently mentioned benefits of ordering MRO supplies online. Biggest barrier to use of the Internet is lack of access. About 37% of respondents to the Market Facts survey say they have no access to the Internet, down from 49% in 1998.
Clicks and bricks
Even though sales via the Internet remain relatively small at this time, most MRO distributors believe the Internet offers huge opportunities and they're investing heavily to develop e-commerce solutions that will transform them from traditional bricks-and-mortar distributors to new clicks-and-bricks companies.
Most large MRO distributors have launched their own Web sites to do business online or provide customers with product information and other services.
W.W. Grainger has developed four e-commerce businesses: Grainger.com, FindMRO.com, TotalMRO.com and an online auction site.
Grainger.com, which was established in 1995 and recently upgraded, offers customers one-stop digital solution for MRO purchases. "This Web site is the extension of our core business," says Hefferman.
FindMRO.com is a sourcing marketplace for hard-to-find MRO products. It offers access to more than five million MRO supplies through a database of more than 12,000 suppliers and 100,000 brands so that buyers can source hard-to-find products quickly and more cost-effectively.
Launched in March of this year, TotalMRO.com is an e-commerce solution with aggregated content from major MRO suppliers. It's available through the Ariba B2B Commerce Platform and SAP's Procurement solution. So far, 16 MRO suppliers, including Wesco and Motion Industries, have joined the marketplace.
Grainger's online auction site offers customers an opportunity to place real-time bids on surplus industrial supply products from a variety of categories, including hand and power tools, metal working products and janitorial supplies.
Besides developing their own e-commerce Web sites, many MRO distributors have joined dot.com marketplaces to have quick access to online transactions and reach more customers.
According to the survey by Market Facts, multiple-supplier marketplaces are popular among MRO buyers. About 68% of Internet users say they would be interested in ordering from a site with multiple suppliers. Nearly half (46%) of non-Internet purchasers say that a multiple supplier site offering one invoice and standard pricing would increase their likelihood of ordering via the Internet.
Wesco International has joined several MRO marketplaces, including MRO.com, TPN.com and Epylon.com. "To join these marketplaces is a low-cost method to gain market access," says Lambert. "Many of our customers choose to do business from these marketplaces."
Wesco selected MRO.com, based in Bedford, Mass., as its system integrator and technology partner with responsibilities for developing a new turnkey solution for enhanced e-commerce enablement.
"Most distributors follow their customers," says Colleen McCretton, product marketing manager at MRO.com. "Buyers like to go to a marketplace where they can find many suppliers."
Motion Industries adopts different channels to serve different customers. It distributes electronic catalogs to its large customers. About 20 to 25 large customers host its catalog contents. It also participates in selected marketplaces to serve smaller customers. "Small customers prefer B2B marketplaces," says Motion Industries' Holladay. "We are negotiating with several marketplaces and will establish partnerships with some of them."
Hughes Supply has invested in two e-commerce MRO marketplaces: Bestroute.com and Supplyforce.com, according to Steve Zepf. Bestroute.com is an online stocking distributor specializing in a real-time inventory of hard-to-find products not typically stocked at local distribution centers.
Even though it has several online marketplaces of its own, W.W. Grainger is talking with a dozen dot.com marketplaces and will establish relationships with some of them, says Hefferman.
B2B marketplaces
The emergence of Internet marketplaces is a challenge to traditional distributors. According to research by Forrester Research, based in Cambridge, Mass., these B2B marketplaces undermine traditional distribution channels as they:
-
Disrupt information flows. Traditional channels distribute information sequentially from manufacturers to wholesalers and to resellers before coming to customers. Online marketplaces don't follow this path and make product information widely available to everyone.
-
Grab customer relationships. Marketplaces allow customers to quickly evaluate product and service offerings from multiple suppliers. These new online markets will increasingly marginalize long-standing relationships between buyers and their distributors.
-
Usurp service offerings. Distributors deliver a number of services to customers including product selection and application-specific advice. Such information-based offerings will easily be taken away by online marketplaces.
However, most distributors don't see these start-up marketplaces as a threat to their businesses. "Customers can place orders through these B2B marketplaces, but the physical fulfillment still need to be done by distributors," says Hefferman of W.W. Grainger.
"About a year ago, we believed that online exchanges were a threat to us," says Lambert of Wesco. "But now these dot.com markets themselves are at a risk. Many of them will fail without support from distributors."
Steve Zepf of Hughes Supply believes that the new Net marketplaces are an additional tool.
"It is a cooperative relationship between distributors and online marketplaces," says Holladay of Motion Industries. "The two can co-exist nicely."
B2B marketplaces generally agree with this sentiment and are trying to encourage more distributors to join their markets. "We are not a threat to distributors. We want to establish partnerships with them," says Colleen McCretton of MRO.com.
Launched in April 1999, MRO.com has seen its business grow steadily. It now has more than 800 registered buyers and will have 50 suppliers by the end of the year, says McCretton.
Unlike other marketplaces, members of MRO.com only pay subscription fees and can do as many online transactions as they want.
Purchasingcenter.com, based in Burlington, Mass., went live in March of this year. It now has more than 8,000 buyers and 40 suppliers.
"We prefer to work with fewer distributors, establish close relationships with them, and integrate our businesses together," says Bill Sullivan, vice president at Purchasingcenter.com.
TPN Register, based in Rockville, Md., offers TPN Marketplace, a horizontal eCatalog Net market that creates and distributes catalog content for buyers and suppliers.
The competition among online marketplaces is getting fierce. Mergers and consolidation are expected to happen soon.
"I expect the subscription and transaction fees to drop at these marketplaces," says Lambert of Wesco. "About 70% to 80% of online marketplaces will be out of business as the result of consolidation."
Now Playing: 
