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E-commerce in the molding industry
April 1, 2000
8 Min Read
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Five years ago, very few of us could have imagined the impact the Internet has today on our business and personal lives. Even the visionaries were thinking primarily in terms of communities and communication and online consumer shopping, instead of the business-to-business opportunities that now stretch out before us in virtually every realm of our business. Yet the competition for traffic and attention is ferocious, with many entities vying to be our portal of choice.
This overview will explore some of the possibilities, with a view toward developing each of them more fully in future issues as we uncover examples of successful (or discouraged) users. As this is written, we are launching a major survey of the injection molding community to determine just how common e-commerce is among molders, moldmakers, and OEMs.
The Players
A number of companies are striving for a preeminent position in e-commerce, especially for plastics. They fall, more or less, into these categories:
Major plastics-related companies expanding their business relationships electronically. These are represented by material suppliers (like Geon and Eastman), distributors (like GE Polymerland and General Polymers), equipment suppliers (like Maguire and Ferromatik Milacron), and even some molders and moldmakers (like Nypro, for training, and Creative Machine).
Online communities. Whether plastics-specific like PlasticsNet.Com and Polysort.com or more general industrial like VerticalNet, these hosting sites started as content and community providers and have grown to varying degrees to conduct or facilitate e-commerce activity, for which a small transaction fee is assessed.Software and netware providers, seeing an opportunity to take advantage of the plastics industry's thirst for services. Known as ASPs, or application service providers (like Mascon and apps4biz. com), these companies offer ways to manage data on the Web through proprietary software, not unlike how your broker's site allows you to manipulate your portfolio information.Dot-coms, companies whose presence on the Web is their only corporate presence, companies that are taking traditional business models and reinventing them for online use, not necessarily industry specific, but function specific (like FreeMarkets and Supplybase). Traditional business firms migrating to Web-based versions of the same or a similar service (online recruiting firms or used equipment sales). Large OEMs that want their suppliers to use the OEM's own website or extranet functions to interact with the OEM-everything from pull-inventory scenarios to data exchange to bidding to order tracking to performance reviews (such as GM TradeXchange, Ford AutoXchange, the GM/Ford/ DaimlerChrysler superexchange, or John Deere).
The Functions
From the simplest e-mail conversation to buying resin and selling services, nearly any aspect of today's business can be transacted over the Web. Future articles will explore just who is participating in each sector, and how extensive are both interest and participation among the molding community. Here are the functions we will explore:
Customer service. What kinds of services do customers want? An injection molder or moldmaker has both customers to service and is a customer who needs service from his suppliers. We'll find out what's going on in online ordering, order tracking, enterprise resource planning, customer technical support, and the like.
Online purchasing from suppliers. How many in the molding community are buying and selling online? At the recent SPI conference session on e-business where more than 60 molding-related companies were represented, not one hand was raised in response to a question soliciting response from those who were actively buying resins or equipment online. Where are the success stories out there? What are the benefits and drawbacks? How much does the fundamental way business is done have to change?Auctions or bidding markets. Again, molders can both buy and sell products and services. What have some of the experiences been of the pioneers in this arena? Has it saved money or brought new business? We'll explore how it actually works, rather than how the market makers say it works.Online applications. Offered by ASPs, or application service providers, many plant or business functions can be managed on the Internet rather than on a PC on someone's desk. The advantages: The latest software versions and enhancements are always available without having to purchase upgrades; and expert technical support should be available-usually a pay-as-you-go system. What kinds of applications are being used online by the molding community, and how well are they working? Web-based selling. How is it effective from the supplier's point of view? Who is selling molds online, for example, or how has the quoting process been implemented by molders and moldmakers? We'll assess the advantages and disadvantages and share success stories.
Regardless of the fact that e-commerce may or may not impact your business substantially in the near future, it is here to stay. Those who can find a way to take advantage of what it offers-either on the revenue side or the "better way to do business" side-will be ahead of the game. Stay tuned to future issues.
Editor's note |
E-commerce projections
One group making money on the Internet is market researchers. Here are some predictions from some of the leading sources. They may not agree on the baseline, but there is no question that the trend is straight up. (Found by Sharon Beckett of BBI on www.nuos.com.)
The Gartner Group predicts that business-to-business (commonly called B2B) e-commerce revenue will nearly triple from $145 billion in 1999 to $403 billion this year. Further, the group believes that total market revenues will reach $7.29 trillion by 2004.
The Boston Consulting Group predicts that business-to-business e-commerce will account for 24 percent of total business-to-business commerce by 2003. Currently, the $700 billion North American market is more than two times that of the rest of the world combined ($330 billion). For local market suppliers, B2B e-commerce is bringing significant growth opportunities, as networks and customer bases expand through new distribution channels.
Forrester Research also asserts that e-business is about to reach a point from which it will intensify towards "hyper-growth." Inter-company trade of goods and services via the Internet will double each year over the next five years, multiplying 30-fold from $43 billion in sales last year to $1.3 trillion in 2003.
What will be the catalyst for this exponential growth? Leah Knight, principal analyst at the Gartner Group, believes "the B2B explosion will be fueled by a combustible mixture of investment financing, IT spending, and opportunistic euphoria funneled into e-commerce initiatives."
But it's not just the research groups that think this market is headed for the kind of tremendous growth described above anymore. A recent worldwide survey of 500 large companies, conducted by the Economist Intelligence Unit and Booz-Allen & Hamilton, found that more than 90 percent of top managers believe the Internet will transform or have a big impact on the global marketplace by 2001. The bottom line, however, continues to be return on investment. The three-year return for a B2B integration effort typically exceeds 10 times the investment. A recent Benchmarking Partners study showed 90 percent of the profiled companies believed they benefited, whether qualitatively or quantitatively, from B2B integration. The remaining 10 percent were not far enough along in their integration efforts for benefits to be observable.
According to all sources, the largest barrier to achieving integration with business partners is the decision to invest in technology, implementation, and staff training.
Auctions: The good, the bad, and the ugly
If there is one area that makes molders more nervous than any other about e-commerce, it's the trend of some OEM customers to put jobs out for bid not just to a researched list of qualified suppliers, but to the whole world, so anyone can throw in a bid. A story related to the audience at the recent joint SPI Moldmakers and Midwest Divs. conference on e-business illustrates that just maybe the threat may not always be as bad as it appears. Phil Clemens, president of National Plastics Corp. of Fort Wayne, IN, shared this experience.
It seems NPC had been trying to work with one of its major customers, an automotive manufacturer, to raise the prices on the molding of some older parts. The quantities had dropped to small lots from the larger lots that had originally been quoted, and National Plastics was finding the profit level only marginal. The OEM had resisted the suggestion that a price increase was in order.
The OEM, instead, decided to put three lots of molding business up for online auction, through FreeMarkets On-Line Inc., and invited NPC to bid on any or all of the lots. One of the lots was the business on which Clemens had been trying to negotiate a better price. Each of the three auctions had a 2-hour limit. The first lot NPC had no interest in, and passed. The second lot opened at a price of $.13/piece; NPC dropped out at $.11/piece, and the bidding finally ended at $.06/piece.
With some trepidation, NPC placed the opening bid on the last lot at $500,000, the previously contracted price, even though the manufacturer wanted the bidding to start at $450,000. Two hours later, the auction closed without a single other bid. "The world said we were right," said Clemens. "We still have the business." Now NPC is trying to use the experience to convince the customer that the price really is too low.
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