Electrical distributors attending the National Association of Wholesaler-Distributors (NAW) Annual Meeting did not stand alone in their concern about emerging competition from new dot.com competitors.
But speakers at the meeting, held Jan. 31-Feb. 3 in Washington, D.C., told attendees from distribution businesses in a broad array of industrial, commercial and retail fields that dot.com companies will have a tough time outservicing distributors in their core competencies-order fulfillment, warehousing, delivery and deep customer relationships. However, distributors should consider building "bricks-and-clicks" relationships with the best of the dot.coms targeting their markets, said several speakers. Even though in recent months many of the dot.coms have hired electrical industry insiders who understand their targeted market segments, these companies tend to have a ton of technical smarts, but lack the market knowledge, logistical infrastructure and in-depth customer contacts.
One glaring example of a dot.com attempting to expand its package of services past the Web is Amazon.com. Scott Latham, senior analyst, AMR Research, Inc., Boston, Mass., said that although Amazon.com is now building a network of 11 warehouses around the U.S. to service orders it gets from its Web site, this effort takes the company away from its core competency-attracting online buyers to its Web site and enticing them to place orders for a wide assortment of goods.
Latham says that although 80% of the online shopping technology necessary to build virtual marketplaces is now "out-of-the-box" software, it still makes more sense for most distributors to partner with someone who lives in the Web world 24 hours a day, and to not attempt to reinvent the wheel.
"You are in the driver's seat," he says. "You have the relationships. I'll take them any day over a pretty dot.com."
Latham says although e-business is for real and that it will inevitably change how all distributors do business, it has been slow in coming. An AMR surve y showed that less than 5% of all business transactions in the distribution industry as a whole are conducted over the Web. A distributor like W.W. Grainger, Inc., Lincolnshire, Ill., with over $200 million in business annually over its Web portals, is far and away one of the distribution business' leaders in e-business; few other distributors are even close, he said.
"The reality is that not everyone is doing e-commerce," he says. "There is a slow adoption rate. Electronic commerce is absolutely going to change the way you do business. But if you haven't done anything in it yet, don't panic. You are not behind the eight ball." He did caution distributors that if they continue to do business only by fax and phone, "Maybe not this year or next year, but you will go away."
"Wholesaler distributors will need to become excellent in the game of e-commerce and will need to do this quickly," says Michael Moore, president, Applied Industrial Technologies, Bloomfield, Mich., and outgoing NAW chairman. "Investors are fueling a feeding frenzy in technology stocks, and as a result venture capitalists are funding dot.coms at multiples even the best traditional companies can't hope to match. Some of these dot.coms have their eyes on nipping off chunks of the distribution function."
Adam Fein, president, Pembroke Consulting, Inc., Philadelphia, Pa., agrees with Scott Latham's take on the adoption rate of e-business in the distribution business and his ideas on how distributors can use their inherent strengths to compete against and partner with dot.coms. Fein also believes customers will scrutinize the service they receive from dot.coms more closely this year than in the past. "E-fulfillment will be the mantra this year," he says.
To arm its members with some new e-business weapons to compete in this new world, NAW rolled out a suite of online services at the meeting, including the partnerships it has formed with Electronic Freight Exchange (EFX), El Dorado Hills, Calif; TradeOut.com, Ardsley, N.Y.; and Simplexity.com, Reston, Va. EFX will offer NAW members an online solution to reduce transportation costs and simplify logistics and operations. TradeOut.com helps distributors dispose of surplus inventory and Simplexity.com helps wholesalers purchase telecommunications services, including local, long-distance, wireless and Internet services.
NAW has also formed a partnership with Tactive, Inc., Columbus, Ohio, an Internet solutions company that plans to help NAW members tighten the electronic bonds between their companies and customers.