TECH SPECIAL

B2B OR NOT B2B?

Chris Wood May 21 2001
TECH SPECIAL

B2B OR NOT B2B?

Chris Wood May 21 2001

B2B OR NOT B2B?

TECH SPECIAL

Chris Wood

He is the classic man in the middle. From his home office in Medina, a dot on the map of Upstate New York, Brian Napoli works the phone, fax and his e-mail to connect mainly foreign buyers with mainly American sellers of anything from high-fashion fabric to latex surgical gloves. Take the deal he did recently with a fellow in Singapore. That guy needed to decorate a chain of luxury hotels and was shopping for chichi upholstery and wall-covering in silk and linen. Such stuff gets $190 a yard wholesale. But U.S. manufacturers still turned the business down, saying it wasn’t worth the hassle of export paper-

work. Napoli arranged the details, netting a healthy commission on the $150,000 order. “That was nice business,” Napoli says. And, he adds, he owes it all to a barely known company in Victoria. “Worldbid.com,” Napoli says, “put us together.”

Have your software agent call my software agent. Business computing has evolved far beyond spreadsheets and inventory databases. Think of something closer to HAL, from the movie 2001, A Space Odyssey, except this cyber species knows only one purpose, and it is not the welfare of a space crew—it is the art of the deal. And it is probably coming soon to a workplace near you.

If you want to move your business relationships online, here’s what B2B experts advise asking yourself:

O Is my business already digital?

OK, duh. But your business information (customers, inventory, process) must be computer-based or there’s nothing to share online.

(And if you’re not on computer in 2001, you may have other problems.)

O Do I have a strategy?

First, know what your business is really about.

“I make a living writing cases on companies that haven't answered this question,’’ says Michael Parent of the Richard Ivey School of Business. Then, define the clear benefit that online activity will deliver to you and your business partners.

O Who else is playing?

Before joining any online exchange, consider who the other members are. Are they customers or suppliers you truly want? Does the exchange add real value to your existing relationship with those partners?

O How will I know it’s working?

Determine in advance what benchmark you will use to measure the return on your investment in online business.

O How’s my software?

If your accounting software doesn't talk to your inventory database, it might be wiser to integrate what you already have before you take on the world. As for B2B software, buying the market leader may be simplest. Online relations depend on your data and your partner’s getting intimate. That’s easier when both talk the same language.

For a time, as the tech bubble bloated last year, stock-pickers touted “B2B”—meaning business-to-business commerce over the Internet—as the real deal at last, the Net killer app that would keep the momentum going after B2C (business-toconsumer) plays ran out of air. The premise was that online markets could connect sellers with new buyers anywhere on earth electronically, cut out the middlemen, force prices down as volumes rose, slash costs and make a ton of money. Smitten investors launched new e-marketplaces during 2000 at the astonishing rate of one every eight hours. But the promise didn’t quite work out. B2B stocks tumbled along with the rest of the high-flying tech alphabet. Onvia.com Inc., the B2B marketplace started by Canadian Glenn Ballman, lost $180 million on revenue of $228 million last year; its stock, once nearly $95 a share, was last seen at $1.51-

So what to make of predictions that global B2B e-commerce will reach nearly $3 trillion by next year?

It may happen. Behind the smoke rising from dot-com flameouts, new Internet software really is revolutionizing how busi-

From buying flowers to fixing cars, deals made across the Internet are changing the way business is done

ness is done. Victoria’s Worldbid Corp. is one example. Its plain-jane Web sites in a dozen languages are a global buy-and-sell for everything from fancy wallpaper to industrial chemicals. But matchmaking is only the start of what new business software tools now make possible online. Consider other fields where B2B is sprouting, and in many instances flourishing:

• Flowers. When Winnipeg florist Brian Cantlon sought some spring colour for a March wedding, he couldn’t find the selection he wanted from local wholesalers. Instead, he logged on to Bloomauction.com and used the online service to buy $300 worth of tulips and gerbera daisies directly from the Ontario Flower Growers Co-op auction in Mississauga, Ont.

Candon says he would not buy all the stock for his Village Green shop online. Whatever its other merits, the Internet cannot convey the freshness of a floral spray (and in any case, Bloomauction does not even provide pictures of what’s for sale, only floral names). “Cherry blos-

soms: are they in bloom or are they still tightly budded?” Cantlon wonders. “It would be nice to see the product.” But at prices as low as half local wholesale, he expects to keep coming back to the site.

• Earthmovers. On a sunny day, the inventory on Finning International Inc.’s Vancouver backlot glows like so much burnished gold. It should. The Caterpillar heavy equipment lying in stock at Finnings Canadian, British and Chilean divisions can be worth up to a third of a billion dollars on any given day. It used to be even more. But Finning, the world’s largest Cat equipment dealer, has linked its order-keeping software—at what vicepresident Brian Bell calls a “very intimate level”—with that of its Illinois supplier. The payoff: better sales forecasts—and fewer D-10 Cats kept on hand just in case. Cutting inventory freed up so much working capital that in January Finning bought a company in Britain—heavy equipment rental outfit Hewden Stuart PLC—with the savings.

Alberta dozer dealer Rick Ramias is a fan of another Finning e-venture. From his base in Pincher Creek, Ramias buys and

sells used equipment from Australia to Russia. Since Finning began putting used items online for auction last year, Ramias has become an enthusiastic bidder. Compared to the three-day turnaround of attending a live auction outside the province, the online version takes “a couple of hours,” he says. “I’ve gone out on the lot and sold a tractor and come back and finished bidding on a piece. It’s fun.”

• Chemicals. Methanex Corp. is a world leader in something everyone uses but no one knows about. Methanol keeps windshield-washer fluid from freezing, but is more important as an ingredient in hundreds of other products, such as plastics and particle board. Factories around the world count on a steady supply, about a quarter of which flows through the Vancouver firm’s hands. It sends 200,000 faxes a year to keep track of North American orders alone. In February, Methanex launched a Web site it hopes will slash that number, by letting customers place and track orders themselves, right down to the

tank cars location. Methanex expects the completed initiative to pay for itself in 90 days.

• Furniture. Some of the toniest interiors in New York City, Chicago and Atlanta come from nowhere near those places. They originate in the cutting and finishing shops of Calgary’s Smed International Inc., which ships 300 semitrailers a month of custombuilt high-end office furniture to mostly U.S. customers. About half those loads ride in Smed’s own trucks. To ship the rest, says logistics analyst Hans Lehman, “we used to be on the phone constantly, calling carriers to see if space was available.” No more. For a year now, the company has used a service developed by another Calgary firm, Logisight Corp.

“We post our loads on the Web site and select our preferred carriers,” Lehman explains. “The carriers quote on each load and we’re able to make a selection.” An added bonus: the system keeps an audit trail of transactions, a feature Lehman says has put an end to “he said, she said” disputes.

• Labour. In remote West Coast valleys, this is the season when fit men and women in ragged lines climb clear-cuts, stabbing the earth with spades and thrusting in seedlings of spruce or fir before taking another step up the mountain. Brinkman and Associates Reforestation Ltd. of New Westminster is a power in the annual effort. Its crews, managed by independent | contractors, recently spudded their 600 millionth 1 tree. But with workers camped for six weeks at a time & in some of the world’s least accessible places, § Brinkman spent a formne on satellite phones and air % couriers to obey a provincial law requiring planters to ° be paid for work promptly.

In March, Brinkman instituted a new system. Some crew bosses now enter their payroll data into Microsoft Excel files on laptops, then e-mail them back to head office. “Our payrolls are coming in two to three days faster, which is significant when you’re trying to do things in a week,” says technology manager

E-marketplaces ‘considerably underestimated the value of human relationships,’ says one expert

Gordon Grant. And, he says, “it looks like we’re saving 20 per cent of staff time in the office for each payroll.” Soon, Grant hopes to tie crew reports directly into customers’ networks. Then, clients will be able to monitor work they’re paying for on a daily basis.

• Cars. Late last year, Ford Motor Co., General Motors Corp., DaimlerChrysler AG and Renault-Nissan Motor Co. launched one of the most ambitious new B2B ventures: Covisint LLC, an online catalogue, auction and bidding site for automakers and parts suppliers. The site features sophisticated software that lets

designers on different continents look over one another’s shoulders as they work. When an engineer in Detroit alters a blueprint on her desktop computer, a colleague in Düsseldorf, Germany, can see the design change on his screen. In the first three months of 2001, Covisint’s 3,000 transactions and 100 auctions generated more than $1.3 billion in traffic.

With technology company Bell & Howell, but without Renault, the same Big Three North American carmakers will launch a different service this month, covering collision-repair shops. OEConnection LLP of Ohio aims to reduce the 30 per cent of parts that body-shop staff incorrectly identify and must reorder (the reason, the company says, why the average repair requires 4.1 separate orders). “If it’s your car getting repaired,” says marketing director Mike Reilly, “that’s an extra day or so.”

Companies riding the crest of back-shop B2B show little surprise that highly touted public online exchanges like Onvia have failed to prosper. “Stand-alone dot-com marketplaces did not produce a lot of value for participants,” says Ed Kilroy, IBM’s former worldwide manager of e-commerce, who last month became president of IBM Canada. Sellers saw little merit in a business model

that required them to pare margins to the bone. As well, many e-marketplaces “considerably underestimated the value of human relationships,” argues Jeffrey Gandz, who teaches at the Richard Ivey School of Business in London, Ont. “Computers don’t smooth out the bumps between buyer and seller very well.”

Not every market site is doomed to struggle. Two chartered banks and Bell Canada are among the companies backing a site called Procuron Inc., which mirrors much of Onvia’s line in office supplies and services. But a promise by its deep-pocketed patrons to spend $1 billion through Procuron in its first year “does make us a little bit different,” allows president Steve McKeown. “Right out of the gate, we’ve got great liquidity.” McKeown insists his site “is not about the rock-bottom price. We don’t want predatory pricing; ultimately there’s a backlash.” Still, he hopes to save his shareholders $40 million this year.

Of more than 1,000 B2B exchanges launched last year, Forrester Research Inc. of Massachusetts predicts fewer than 185 will be left standing by 2003. But that won’t stop business-by-Web growing at staggering rates in less visible ways, wherever software can save time, paper or money—or let people do things they absolutely could not do before, like follow a tank car from afar. Forecasts by Forrester and others range from $4 trillion to $9 trillion in e-business conducted worldwide by 2004. For reference: Canadians did $5.7 billion in B2B e-business last year, according to Statistics Canada—not a lot, if you consider it was nearly $2 billion less than Hudson’s Bay Co.’s total sales.

If the carrot is not enough, there is also a stick. As leading companies adopt e-business, smaller players must adapt or perish. Microsoft, for instance, has refused since 1999 to pay invoices that arrive on paper instead of by e-mail. Already, says Gandz, “if you want to be a supplier to the automobile industry and you say, ‘I don’t want to do electronic data exchange,’ you’re not a player.” Soon, the same will be true for most everyone else, predicts David Hazzan, the CIBC vice-president in charge of its investment in Procuron. “In five years, there

The B2B field is booby-trapped with unwieldy abbreviations.

A primer:

O CRM: Customer Relations Management. Software that keeps track of customers’ accounts, buying histories and preferences; can also make service and follow-up sales calls.

O EAI: Enterprise Application Integration.The goal of getting all the different kinds of software a business uses-for accounting, inventory and customer relations-to work together.

O EDI: Electronic Data Interchange. How big business has been moving data electronically for 20 years. To Web-based e-commerce approximately what the mainframe was to the Palm.

O ERP: Enterprise Resource Planning. Software that gives executives a unified view of activity in all a business’s physical plants, raw material Inventories and financial resources.

O PDM: Product Data Management. Keeps track of revisions as engineers and marketers argue over the specs for a new product-then spits out a list of needed parts and raw material.

O XML: Extensible Markup Language. Evolving standard for e-documents. Crucial to the goal of seamless B2B.

will be no alternative. It could be sooner.”

Before then, the marriage of computing and business processes is expected to take yet another great leap forward. Researchers at IBM are working on smart code capable of shopping for an entire grocery list of industrial requirements, keeping in mind quantities and delivery schedules as it does so. A pilot version cruises the Internet calling up quotes on cocoa butter and sugar for a European confectioner. Insurers are toying with the possibility of putting low-cost satellite positioning units on vehicles—and charging for coverage by the minute, with prices weighted to reflect things like the time of day (rush hour or noontime?) and neighbourhood (Saskatchewan rural, or Montreal downtown?).

Meanwhile, every big software maker and many small ones are lining up to sell tool kits and advice to businesses eager to wire up. But that remains a troubled task. Most software designed to get around incompatibilities among dozens of different existing business applications amounts to “Krazy Glue, binder twine and balsa wood,” scoffs Paul Kedrosky, an expert on business computing at the University of British Columbia. Often, consultants must write special code to bridge the gaps between one company’s software and its partners’. A global consortium of Web engineers took a step towards solving the problem in early May, adopting a standard called XML, which lets many different applications read the same digital document. Even so, “out of the box plug-and-play is not really there yet,” admits Stuart Pothan, a B2B specialist for Oracle Corp. Canada Inc., whose parent company claims to have saved $1.5 billion using its own software.

But that will change. Kedrosky believes innovation follows a four-part cycle: euphoria, disillusion, shoot-the-messenger and, finally, useful tools. “We’re in shoot-themessenger phase right now,” he says. “So we should be reasonably close to useful tools.” The question for many businesses, though, will be whether those tools come in time to let them reap a little of the e-business bounty. ED