Internet to play bigger role in distribution
By Staff -- Purchasing, 4/22/1999
Electronic distributors say the Internet will have far-reaching effects on electronics distribution. Not only will the bulk of electronics purchasing occur over the World Wide Web, the Internet will be the link that connects distributors to their customers and suppliers."The Internet is an inflection point in business in general and certainly within the electronics distribution industry," says Roy Vallee, chief executive officer of Avnet. "It is a big event. It is a productivity and efficiency enhancer. We are at work today throughout the enterprise identifying how to use the Internet to become more efficient at doing what we do. It has applications in almost every functional area of Avnet's business."
Vallee says he does not believe those who say distribution will be disintermediated by the Internet. "If distributors stop changing, some will be disintermediated, but we look at the Internet as an exciting, enabling technology that allows us to create a brand-new value proposition that didn't exist before and couldn't exist before the Internet."
He says the Internet is becoming an important tool in the integration of the supply chain that links Avnet to its customers and supplier, but also the customer's customer and the supplier's supplier.
Within five years the volume portion of Avnet's business will be conducted through supply contracts that will be automated on the Internet using extranets or protected Web sites. "I wouldn't be surprised if five years from now that will be 80% of our volume," Vallee says. Current contract agreements are administered via EDI.
The other 20% of the business would be more traditional distribution business where buyers would call for availability, quotes, and to place orders. That will likely be conducted online using "amazon.com" business model, says Vallee.
The Internet will also be an important tool in demand creation for Avnet through its Design Services unit. Avnet's engineers aid OEM in the design of new systems. "The Internet is an extremely efficient information-delivery system, so it plays a big role in the demand creation piece of our strategy in addition to demand fulfillment strategies," says Vallee.
Simplifying the business
Tom Pitera, president, Industrial Electronics Division of Pioneer Standard, says Internet sales are growing every month, but sales are still a relatively small portion of its overall business. But that will change. More and more customers want dedicated extranets "where they can set up their contract pricing and special terms and conditions, order off that contract pricing, load their own part numbers, and have access to technical information. Pioneer Standard has about 100 extranet customers and that figure will grow rapidly over the next several years," says Pitera.
Extranets will grow because they simplify the business and help reduce costs for the customer. "It also gives everybody within that customer access to the information," he says.
Pitera says Pioneer Standard has many customers who use EDI and doesn't think the Internet will displace EDI. "It will offer customers another vehicle, another methodology to access data and to transfer information.
"We have large customers who have chosen to use the Internet. We have large customers who do EDI transactions," he says. "Same thing with small and mid-size customers. It's customer preference. The real trend is the need to shorten the whole supply chain process and to take cost out. It can be done via the Internet or EDI," says Pitera.
He says customers who use the Internet do so because they want access to information anytime, 24 hours a day, 7 days a week. Use of the Internet is driven by its ease of use and the real-time availability of information.
Extranets will be an important part of Arrow's Internet strategy, says Loring Anderson, vice president of strategic customer marketing. Arrow had taken a wait-and-see attitude toward the Internet, but will begin rolling out Internet initiatives over the next few months. "We chose to let others be the pioneers in terms of investment and education," says Anderson. "We sat back and watched until there were signs that this was going to be important to the business."
One Arrow initiative is called "itrack." It will allow customers to get into Arrow's system and look at part availability and the customer's price. It's an extranet and will be used for production volume buying eventually.
"Mainstream production buying on the Internet has not happened yet," says Anderson. "It's been a vehicle for onesey and twosey engineering buys, but now the groundswelling of interest in buying large volumes is starting to occur. Large production volumes currently are handled via EDI. In fact, while there is growing interest in the Internet, Arrow's EDI customer base is growing."
Anderson says the advantage of the Internet over EDI is that it expands the base of customers that have access to computer-to-computer transfer of information because of the lower cost.
Arrow has had its extranet for a year, but only recently added request-for-quotation and purchase-order capability to it. "We are now taking orders from customers via the extranet," says Anderson.
"We have thousands of customers on the extranet, but they are not necessarily placing orders," says Anderson. "They are using it to check availability, pricing, PO status, delivery status. We have direct links to FedEx and UPS for their tracking capability."
Anderson says one reason Arrow is increasing its Internet capabilities is that it is looking to expand its customer base and potential customers want to do business with Arrow in different ways.
"There are some who like to have a phone conversation, others like self service, and some may be in different models at different times and want the flexibility to do that," says Anderson. "The Internet may be a useful tool from a cost perspective in servicing smaller customers."
The Web offers a communication vehicle that can help Arrow communicate important information to customers quickly even before the customer knows he needs the information. Example: A component supplier declares end of life on a certain semiconductor. "We can inform all of our affected customers immediately," says Anderson.
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