Buyers want more Web capability from distributors
By Staff -- Purchasing, 11/16/2000 2:00:00 AM
The Internet has quickly become a way of life for many electronics purchasers, especially for those who do the bulk of their buying from distributors. Most distributors' Web sites are chock full of technical information about parts, availability and pricing. Many have online ordering and order-status tracking.
Surveys suggest that buyers will continue to purchase more of their products online from distributors. Consider this statistic: A recent reader survey by Purchasing Magazine finds that 64% of electronics buyers have purchased parts online. Of that group, 82% buy online from distributors. AMR Research estimates that 55% of all electronics industry business will occur over the Internet by 2004. At the same time, distributor total available market (dtam)-the percentage of electronics parts sold through distributors-is rising. Five years ago dtam was about 30%. Today it's 36% and increasing according to the National Electronic Distributors Association.
So as more buyers purchase online from distributors, distributors say they will have to improve the functionality of their Web sites because buyers are demanding it. Purchasers want to use the Internet to help manage their supply chains, to reduce procurement cycle times and to lower costs. Distributors say they will enhance their Web sites by adding more supply chain capability mostly through extranet sites.
Arrow Electronics says it has 35,000 users of its Pro Series extranet sites and the number will grow because of the need for OEMs and contract manufacturers (CMs) to reduce costs and procurement cycle times, says Tom Hallam, president of Arrow's Internet Business Group.
Pro Series automates much of the purchasing process by providing information on prices, quotes, delivery dates and shipment tracking. Buyers can also buy parts, but so far are using the sites for information, says Hallam.
Buying the BOM
Using Arrow's extranet, buyers can store a bill of materials (BOM) for parts that are purchased regularly. When a buyer needs to purchase the BOM for a board, he or she can go to the extranet site, quote out the BOM, and buy the parts avoiding a great deal of phone calling and faxing.
If a buyer has a pricing contract with the distributor, the terms of the contract can be stored on the extranet and the buyer can purchase off the contract. Buyers can check stocks in real time and are starting to do RFQs, uploading Excel spreadsheets containing part numbers, quantities, and obtaining instant responses. "Contract manufacturers love it. Their success depends on how many of their customers they can quote and Pro Series supports their efforts," says Hallam.
Arrow's total online business including extranets totals about $1.1 billion and is rising. "Our customers have embraced online commerce at a steady rate," he says.
Other major distributors offer extranets as well and most are seeing growing demand for them. "Our number of extranets is exploding," says Wally York, vice president of marketing for Pioneer-Standard. "We have 3,500 extranets."
He says buyers are using extranets to store such information as parts purchasing histories, bonded inventory, and pricing histories as well. Some buyers use extranets to order parts, but most use them for market information and leadtime trends. York says that online access to price and availability information has allowed buyers to make critical decisions faster.
But purchasers see potential to save even more time and are looking for more advanced tools, York notes. "They want the site to be personalized and tailored to them. One size does not fit all. Buyers want advanced interactive Internet tools to help them with their strategic work to identify and cut their total acquisition costs. They want the Internet to drive their supply chain management efforts."
Example: Buyers would like interactive Web-based tools that can help them to better understand their total costs of acquisition. Such tools don't exist now, York says. "Right now, buyers are looking at piece part price A versus piece part price B. But there's a lot of ambiguity around what it costs them beyond the individual piece price," he notes.
Reduce total cost
Pioneer is working with Supplystream, a supply chain management software company, on an online tool that breaks down total acquisition costs for a bill of materials. It will identify the cost of handling money, the cost of terms, plus the cost of value-added services that might be involved with the purchase of a part. York says Pioneer Standard is using the tool with one customer and using it internally to measure total acquisition costs on a daily basis. Eventually, he notes, the tool will be available to other customers as well.
Beyond total cost tools, York says the company is planning to offer other online capabilities as well. "We're going to have reference block diagrams online for purchasers to identify alternative products for applications that they are looking to build," says York. "They will be able to load a full bill of materials and we can give them pricing on it instantaneously, without putting them through the laborious process of calling and sending faxes."
Pioneer will also have parametric search engines for parts so buyers don't have to put in specific part numbers. Alternatives will also be suggested. These added features, York says, are due for roll out over the next nine months.
P.J. Bellomo, vice president of e-commerce, Avnet Electronics Marketing, agrees that buyers are looking for more customized e-commerce capabilities. "There are a finite number of things that customers are screaming for right now," he says. "Some want to send POs, but most are content to call in orders and check their status online." In the near future, Bellomo says buyers will want to do more-including sending POs-but will also want their Internet business relationship with distributors to be customized.
"Purchasers want and will soon demand a personalized touch," says Bellomo. "They get that personalized touch when they call over the phone. The inside salesperson will say, 'I know this buyer. I know what he cares about' and he or she adjusts to that. We plan to bring that level of personalization and customization electronically," Bellomo says. What buyers may care about: special terms, bonded or consigned inventory programs and other value added services that may be involved with the parts he or she is buying.
"They want all of their information available electronically. They would like to take all the business processes and do them electronically when they want to do them," says Bellomo. One buyer at a company may want to do business over the Internet, but other buyers may still want to use the phone. The distributor will still have to do business both ways.
Can we negotiate?
While franchised distributors are improving their Web-based sourcing tools, so are non-franchised independent distributors. As the supply of electronic components tightens, many buyers are using the Internet as a tool to find parts and turning to the open market to find scarce parts. Independent distributors often have scarce parts, albeit at higher prices. Buyers typically will check for parts availability online, but then call the distributors to talk about price. However, at least two independents have online tools that allow buyers to negotiate pricing online in real time.
Smith and Associates, Houston, Texas, recently unveiled Open Market Messenger (OMM). "It combines instant messaging that people are familiar with like AOL or Yahoo Instant Messenger, but adds the ability for people to submit requirements directly into our database," says Aric Hooverson, communications manager for Smith. Buyers can ask about availability and prices of parts, receive responses, and then negotiate online without having to pick up the phone.
The advantage is that, having inquired about a part, the buyer does not have to remain on the phone. Traders check availability and price and send the information to the buyer. Responses pop up on the buyer's computer screen and the purchaser can accept pricing or negotiate online without having to pick up the phone. "Buyers don't have to do the call-fax-wait cycle any more," says Hooverson. "The buyer can decide when they want to talk to their reps because they are given the rep's chat identification number," he says.
"OMM will be most appealing with shortage items, the higher ticket parts," says Hooverson. "It is designed for one or two part requirements. It's for buyers who need to get a specific part today that is in high demand."
Hooverson acknowledges that there may be buyers who aren't comfortable about negotiating online. "We plan to continue to do the majority of our business on the telephone for awhile," says Hooverson. But there are other buyers who are "Internet oriented" and see benefits in the tool.
More capabilities will be added to OMM and it may be used as an extranet for buyers with their past orders and offers stored at the site.
"We expect the early adopters to be people who do business with us regularly. We have a dedicated person online 24 hours a day for OMM," Hooverson says.
necx.com, Peabody, Mass., also has online negotiating capability, says Robert Kramich, vice president of marketing. He says the capability is helping drive online business. For the first five months of this year, necx.com averaged $600,000 per month in online revenue. In June, the company did $2.8 million through 120 online negotiations.
He adds that necx.com will soon open an online trading exchange that will enable buyers and sellers to negotiate directly with one another. necx traders will not be involved but the company will charge a fee to either the buyer or seller depending on the component.
"When we look at growth in the future, we feel highly liquid commodities will have the most activity through online negotiations," says Kramich. He says market makers, OEMs and contract manufacturers are early "pioneers" of online negotiating.
He says large market makers will emerge to manage open market activities on behalf of major manufacturers. These brokerages will be heavy users of the online exchange to support spot manufacturing buys and non-spot opportunistic purchases to take advantage of market prices. Also, Kramich thinks large market makers will use the exchange to make markets with manufacturing excess. Soon after, he expects large manufacturers will become comfortable using online exchanges for opportunistic purchases and excess inventory liquidation via auctions. Online negotiating will be an important part of all this, he says.
There's more to e-commerce than POs
12/09/1998
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