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February 9, 2000

7 Min Read
OEMs go online to buy from molders

When Dave Larson, vp and coo for Mastercraft Cos. in Phoenix, AZ, received a notice in the mail that one of his primary customers wanted to move its purchasing to a new, Web-based sourcing system and that it would cost him $1500 per year to participate, he was just a bit skeptical. "I’m going to pay to be a supplier to this company?" he asked himself.

However, the notice was fairly blunt: Participate in Internet purchasing or forfeit your right to be a supplier. OEMs are driving suppliers into the depths of e-commerce, and although it’s in its infancy, online supply-chain management promises to be the next big wave for molders and moldmakers.

The New Sourcing Game
In an effort to support its customer and to find out the value of this new technology, Mastercraft took the plunge, signing up with a new service from Supplybase Inc. Headquartered in San Francisco, Supplybase offers Web-based solutions designed to address a critical segment of the supply-chain management marketplace, which it calls Custom Development and Sourcing (CDS).

The company has developed several products—Supplybase.manager, Supplybase.exchange, and Supplybase.source—that are targeted at different levels of the manufacturing market. These products create an online marketplace that facilitates a "broader volume of business between buyers [OEM product manufacturers] and sellers [suppliers] involved in the manufacturing of custom parts and assemblies," says the company.

Supplybase.manager, for example, is a Web-based solution that optimizes the development and sourcing of custom parts and assemblies for high-tech manufacturers.

"Supplybase.manager allows our customers such as Nortel, Flextronics, and other large customers to reduce time to market dramatically for new products while maintaining costs, leveraging strategic sourcing relationships, and capitalizing on internal knowledge," says Rix Kramlich, director of marketing for Supplybase.

Traditional e-commerce tools as they currently exist, notes Kramlich, tend to be very price-focused and try to drive component costs into the lowest common denominator. "I’m not sure that’s a win for the industry, and anything that’s not a win will not have a great deal of success," he adds.

Supplybase differs in that its goal is to make Web-based purchasing beneficial not only for the OEM but for the participating suppliers as well.

"The OEMs work with a range of specified vendors," says Kramlich. "The real push as we expand our business is to bring more buyers into the mix to increase business for these vendors."

The primary benefit, says Dave Mendez, director of professional services for Supplybase, is that participation can open up opportunities for molders to do business with procurement groups for a company on a global basis, eliminating the need for molders to contact each procurement group individually. The system allows these large OEMs to share supplier information to all their locations worldwide, explains Kramlich.

And although Mastercraft joined Supplybase through Flextronics, other Supplybase customers can also access the company’s information. Using Supplybase.manager, Mastercraft keeps its profile updated itself so that Flextronics and potential new customers always know what new capabilities or press sizes are available.

New Source for Customers
Supplybase.central is a comprehensive aggregation of supplier intelligence for custom part development and global sourcing. It allows a buyer to find all suppliers in a category in which they have requirements. Supplybase.central is accessible through all of the company’s products.

Kramlich is quick to point out that Supplybase is not an auction program. "Specifically, our system enforces a process that works with approved vendors, and has a module for engineering to collaborate during the design phase, transfer of documents, and design feasibility."

A scorecard is provided to give OEMs information on suppliers. "Price will be just one of many criteria for awarding business," says Mendez. "That a supplier’s past performance is factored into the decision-making process is an important part of our product," Kramlich adds. "All our products allow suppliers and OEMs to forge a direct relationship, and once that’s established they can do business."

Reality Check
That’s all well and good, but Mastercraft’s Larson says, "We are very early in the technology with [Supplybase and Flextronics]. Mastercraft has actually made a $1500 investment just to explore how this might benefit us."

The primary reason Mastercraft made the investment, notes Larson, is that "we are a preferred supplier of Flextronics and want to keep that status. And since we are a Flextronics supplier, and there are other companies using Supplybase, there’s an opportunity to quote for other companies." However, Larson adds, "the hits we’re getting from being connected to Supplybase are so few that so far nothing has come in as a result of this connection."

Kramlich believes that new products such as Supplybase.exchange and Supplybase.source, to be introduced in the first quarter of this year, will increase buyer traffic and drive business to suppliers.

Jim Mahon, regional manager, business development, for SPM/A Dynacast Co. (Anaheim, CA) says his company also signed up with Supplybase at the request of its customers. "Up until now we’ve not really advanced very far [with supply-chain management]," he says. "It’s new and there’s some potential benefit in that it’s a platform for communication."

"We’re not trying to change the process," says Kramlich, "just make it more efficient."

SPM’s Mahon adds, "We have to be open to the fact that technology is driving change in the way everybody is doing business. You really have to look at this and ask how it can be used to improve business."

Online supply-chain management might prove great for OEMs, but molders are approaching the idea with caution. SPM’s Mahon notes, "We’re in the business of custom components, although there is a real drive on the part of OEMs to make what we do a commodity. You can’t bring a program to life in a vacuum," he adds. "We need to sit down face to face with the customer, identify issues, and solve problems. [Online supply-chain management] is not going to eliminate that part of the equation."

Where’s it going?

A report in the Oct. 21, 1999 issue of Purchasing magazine noted that 89 percent of buyers now have Internet access, compared to 26 percent in 1995. The percentage of buyers that use the Internet on the job has nearly doubled in two years to 81 percent in 1999, compared to only 45 percent in 1997. For those buyers that use the Internet in purchasing activities, 82 percent use it to communicate with suppliers, and 93 percent use it to research potential suppliers.

Most buyers, said this report, believe the Internet "to be a supply management tool that can save sourcing time, efficiently locate new suppliers, reduce costs, improve communications, help track supplier performance, and free purchasing agents for higher-level, more productive work."

Two primary concerns of this more frequent use of the Internet include the notion that "reduced face-to-face contact inherent in using high-tech tools, including the Internet, will inhibit the building of closer relationships with suppliers," says the report.

Security remains another primary concern to most OEMs. In fact, 63 percent say that inadequate security is the biggest barrier to e-commerce. Another barrier is that 47 percent of the buyers surveyed report that few suppliers have the technology to do business over the Internet.

In November, both Ford Motor Co. and General Motors Corp. announced plans to set up huge online supplier marketplaces for all the goods and services the automakers buy—everything from pencils to contract manufacturing services.

The head of GM’s purchasing, Harold Kutner, says that by the end of 2001, GM expects all of its purchases to go through the online site, and it also expects all of its suppliers to be active participants.

The hope is that an online supplier marketplace will reduce costs, not only of the goods purchased but also of processing a purchase order, estimated to be about $100 each for the hundreds of thousands of POs the automakers issue each year.

Tom Connors, procurement manager of worldwide plastic resins for Hewlett-Packard in Palo Alto, CA, says that H-P is developing an online supply-chain management system. However, "our partners would not need to pay to enter into this," he says.

H-P plans to implement e-commerce tools that will operate inside its supply chain to provide real-time information on orders and shipments, and provide faster ordering to its supply chain.

"In many instances, information flows are not timely and it’s building cost into the supply chain," he says.

Although the system, a first step in proving the benefits of e-commerce, has yet to be fully launched, Connors believes that if H-P can build a community of suppliers operating within the Web, the company will realize advantages across the entire chain.

Contact information
Supplybase Inc.
San Francisco, CA
Rix Kramlich
Phone: (415) 618-9900
Fax: (415) 618-9910
Web: www.supplybase.com

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