E-commerce tackles direct production
By Mark Vigoroso -- Purchasing, 7/15/1999
Most of today's electronic-commerce systems aim to trim costs, shorten leadtimes, and improve overall sourcing strategies for the procurement of indirect production materials and parts--those that do not go into manufactured products. These low-dollar, high-volume goods are often termed "low-hanging fruit," meaning that cost savings are relatively easy to achieve through consolidation of the buy and improved business processes. But what about production materials and parts?Typically, companies balk at the perceived risk of procuring such crucial supplies online, a channel not yet battle-tested and time-proven. But Chicago-based e-commerce service company Consolidated Commerce tackles direct production parts, hoping to extract costs from fragmented supply chains and uncover savings that can be shared by buyers and suppliers alike.
Consolidated Commerce (CC) offers secure trading community environments to buyers, suppliers, and distributors in such industries as truck parts, foodservice equipment, marine parts, and janitorial supplies. The company's solutions are geared toward buying groups and major corporations with fragmented dealer or distribution channels.
It's important to note that CC's networks are built in line with vertical industries, where product diversity is minimal. Consolidated Commerce builds secure, proprietary networks for each individual buying group or corporation. Reason: The open, standards-based e-commerce trend that is sweeping indirect materials procurement is inappropriate in the highly specialized arena of direct production.
"The common thread that weaves our customers together is that it's very expensive for suppliers to serve these fragmented industries, especially with smaller trading partners involved," says Michael Soenen, president of Consolidated Commerce.
Participating buyers and distributors perform cross-catalog searches for products and submit their orders in their own format. Interoperability within each CC network is extensive. Trading partners can access the network via a Web browser, phone, fax, or EDI system. Inherent in the architecture of the CC network is an intermediary point that accepts and distributes communications of all types. Consolidated Commerce intends for trading partners to participate in these communities with minimal impact on existing operations and procedures.
"We don't want to ostracize trading partners due to technology shortcomings or disparities," says Soenen. "Web connectivity is ideal, and we're encouraging progress in this direction, but CC networks accommodate existing modes of communication."
Communication consolidation
CC culls numerous orders from different buyers and submits single consolidated high-volume orders to the relevant suppliers via its "procurement consolidation" solution. The intervals between consolidated order submissions are based upon the type of product and the demands of the trading partners. Suppliers receive single orders and single payments in the formats of their choosing. Mimicking a consortium model, this process benefits both buyers and suppliers. It allows small to mid-size buying organizations to achieve volume discounts, and it reduces order processing costs incurred by the supplier by eliminating disparate correspondences with customers.
With Web connectivity, suppliers can make real-time updates to their product catalogs. There's also a feature in the CC platform that allows suppliers to run specials to move sluggish inventory and broadcast these specials to all buying members.
In addition to lower product costs, buyers also reportedly enjoy lower inventory and transportation costs thanks to CC's "logistics consolidation" solution, which allows for the delivery of smaller product quantities at more frequent intervals. CC consolidates multiple suppliers' goods into a single shipment, which allows smaller buying organizations to order smaller quantities from several suppliers and still enjoy the reduced transportation costs of full-truckload shipping. By taking advantage of these frequent consolidated shipments, smaller buyers can carry smaller inventories and incur lower inventory costs, where previously they would have had to wait for a full-truckload delivery from a single supplier. As with procurement consolidation, shipment intervals are determined according to the type of product and the needs of the trading partners.
In a private corporation implementation, a CC-enabled supply chain reduces distributors' product costs , administrative purchasing costs, and logistics costs; a portion of these savings can then be passed along to the buyer.
"We're trying to find money that's being left on the table," says Soenen. "We're talking about new money that's typically wasted."
Participating buyers pay at most a negligible fee to join a CC trading platform. "Payment has to come from the supplier side, because we're lowering their costs, and providing a new revenue stream from customers they couldn't reach previously," says Soenen.
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