B2B Means Back To Business

Describe a grand vision of doing business with thousands of suppliers over the Web, and you'll be shown the door. Show potential customers that they can cut costs immediately with software that can be installed quickly, and you may have yourself at least one sale.

"We look at technology much harder now, and we don't have the resources to get involved in big projects," says Jerry Rowan, director of purchasing and materials management at KeySpan, a natural gas distributor servicing 2.5 million people in New York and New England.

Indeed, customer Dart Entities, a Los Angeles-based trucking and warehouse services company, has kept its IT budget consistent during the past several years.

"My IT budget hasn't been touched," says Herb Duggan, general manager of Dart's 720,000-square-foot warehouse near Chicago. "I have to continue to be state-of-the-art to remain competitive. If I fall back, I'll lose my edge."

Integrated Warehouse Solutions, a Downers Grove, Ill.-based maker of warehouse-management systems, is working with Dart to upgrade the Chicago facility's warehouse system. The upgrade will have capabilities that Duggan hopes will make it easier to integrate with customers' IT systems over the Internet. Today, customers send orders to the warehouse through every means imaginable: fax, telephone, floppy disks, file transfers and electronic data interchange. VARBusiness' 2003 State of Enterprise Spending survey found 67 percent of enterprises offer remote network access to their customers for business-partnering relations. In addition, 66 percent also have an extended network available to customers, suppliers, vendors or partners.

Get More From Less
While Dart's IT budget has remained consistent, other larger companies have had to scale back.

Specialty steel maker Howco Group has cut its IT budget roughly in half since 2000. Malcolm Howat, Web-development manager for the Glasgow, Scotland-based company, says it has scaled back projects to focus on developing software that gets more use out of existing systems. The company has also delayed upgrading desktops and office-productivity software, moving the cycle from every year to every two or three years.

"We want to make sure we get a return on what we invest in," Howat says. "Over the next couple of years, we see technology supporting the core business and helping the sales team grow the business."

For example, the company is building an intranet application and tying it to its ERP system built by solution provider Compusource, La Palma, Calif. The Internet-based application will enable sales staff to look up inventory, calculate quotes and enter orders while on the phone with customers. The technology is expected to take five months to complete and is scheduled for final release in midyear.

On the manufacturing side, Howco is deploying a bar code system that will scan raw materials arriving at the plants, so the actual receivable can be matched with the original purchase order and the supplier's invoice. Data from the bar codes will flow into the company's core Stelplan manufacturing system from Invera.

In today's IT market, the best strategy for VARs is to focus on only a few vertical industries or a specific niche. Companies are looking for partners who understand their businesses or can help them manage areas outside their core businesses.

"People buying technology are almost always interested in your business expertise," says Dudley Morris, senior vice president of custom software developer TenFold, in Draper, Utah. "They don't want to teach you about their businesses, or how to apply your technology to their businesses. [They] want to hook up with vendors with deep expertise who can help them with their businesses."

KeySpan wanted an expert to help it manage the hiring of outside labor, such as IT, engineering and environmental consultants, and the leasing of equipment and tools. For that task, KeySpan hired Zeborg, which works with KeySpan buyers and hosts the software used in negotiating a better contract. "They're not experienced in things like utility poles and transformers," Rowan says. "But they had two things to offer: sourcing experience and the software."

Vertical Prowess
Vertical expertise is mandatory in the health-care industry, where insurers and hospitals are working on technology to help meet requirements under the federal Health Insurance Portability and Accountability Act (HIPAA). The act sets privacy standards for electronic transactions involving patient records. The final rules take effect this month, but large health-care organizations have until April 2005 to comply.

According to those responding to the Enterprise Spending survey, 9 percent of VARs said health care was their top vertical market in terms of revenue. The segment tied with banking /finance for third place; manufacturing came in second, and government was the vertical in which enterprise companies derived their highest share of revenue.

Aberdeen Group predicts health care, financial services, manufacturing and telecommunications will be the top spenders on integration technology and services during the next three years. By 2006, financial services will account for 30.6 percent of the market, followed by manufacturing with 23.86 percent, telecommunications with 9.46 percent and health care with 8.23 percent.

For companies not affected by HIPAA, cutting costs will drive technology deployments for the future. Sign designer and manufacturer ImagePoint, which boasts a customer lineup ranging from Burger King and Taco Bell to Bank One, has licensed software from SupplyWorks to handle its routine purchases from suppliers. Those purchases make up roughly 25 percent of total spending, and include such items as nuts, bolts, screws and packaging materials.

ImagePoint expects to finish the project in mid-June, increasing buyer productivity by giving customers more time to focus on making deals with companies that supply customized goods. Today, buyers spend as much as 90 percent of their time faxing purchase orders, handling invoice problems and other issues unrelated to negotiations.

"It's just a very inefficient process from start to finish," says James Shafer, manager of process improvement for ImagePoint. The company hopes to decrease that time to roughly 60 percent.

In some cases, large retail companies will open up opportunities for IT vendors. Retail giant Wal-Mart tapped IBM and Sterling Commerce, a subsidiary of SBC Communications, to help move its 8,000 suppliers to Internet-based EDI. Wal-Mart uses EDI for exchanging purchase orders, invoices, shipping notices and other business documents.

The pressure to automate supply-chain processes is starting at the top with the retailer, and working its way down from the biggest suppliers. "[Major retailers] are merciless in stamping in efficiencies," says Scott McMaster, national sales manager for Costa Mesa, Calif.-based Syspro Group. "The tier-one [supplier] often gets charged for inefficiencies, so we're seeing movement down the food chain to get more efficient and cut costs."

Three years after the double-digit growth rates of the dot-com era, IT suppliers find themselves working harder for single-digit growth in a harsher economic climate. Customers want technology that can be deployed in a few months and pay for itself in a year. To survive, IT vendors need to understand their customers' B2B needs and know where technology can cut costs.