InformationWeek
Defining The Business Value Of Technology
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Sept. 11, 2000 |
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Standing Out OnThe Web
Companies turn to E-commerce to differentiate themselves with customers
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he competitive landscape for industries such as metals, lumber, and paper presents some rough terrain: increasing commoditization, international pressure, and steady consolidation, to name a few. And E-business won't put an end to those challenges.Georgia-Pacific Corp. in Atlanta enjoyed 35% sales growth last year, but those numbers don't tell the whole story. "It's tougher and tougher to be recognized as anything more than a commodity manufacturer," says Chuck Williams, the Atlanta building, paper, and chemical products manufacturer's VP of information resources. "The Internet is part of the reason for that--clearly it puts more power into the hands of buyers."
Yet the Internet also represents part of the solution, as companies such as Georgia-Pacific experiment with how to use information to differentiate themselves and improve customer satisfaction. Companies in the metals and natural resources industries are delving into E-business, whether it means selling through online exchanges, enhancing front-end applications for business Web sites, or buying more efficiently through E-procurement.
Executives throughout the industry seem intent on harnessing the power of the Internet to improve efficiencies and customer service, but the common thread ends there. Companies have different predictions for the evolution of online customer relations--and are creating divergent E-business strategies as a result.
The forest products industry saw plenty of changes in the past year, including several prominent mergers, such as Georgia-Pacific's acquisition of Fort James Corp. and International Paper Co.'s acquisition of Champion International Corp. In addition, forest products got its first tastes of E-commerce with exchanges such as Paper-Exchange.com, which lets buyers and sellers complete transactions for major grades of paper such as newsprint, tissue, printing and writing, and "E-commerce really hit our industry late last year," Williams says. However, it wasn't a development that blindsided Georgia-Pacific. "Fortunately, we were already working on ways to deal with that," he says.
In July, Georgia-Pacific and two other forest-product powerhouses--Weyerhaeuser Co. and International Paper--committed $51 million to fund a global business-to-business electronic marketplace. Dubbed ForestExpress.com, the exchange is slated for launch before year's end in Atlanta. Initial plans include buying and selling building materials, printing and writing paper, recovered fiber, and timber. At least four other forest-products companies, including Boise Cascade Corp., have expressed interest in a strategic partnership with ForestExpress.
There's no proof yet that customers really want to buy products through an exchange. But if they do, ForestExpress has a leg up toward becoming the dominant E-business channel, says Robert Egan, director of IS for Boise Cascade in Boise, Idaho. "With the largest industry players starting their own exchanges," he says, "it will be interesting to see whether a third-party exchange will still be feasible or not."
Egan points out that existing exchanges tend to deal in surplus inventory, off-quality goods, or very generic products. ForestExpress will handle the made-to-order product that constitutes the bulk of what his industry sells. "Printers often need specific roll sizes and diameters, and the cores have to be cut just so," he says.
Still, with customers' acceptance of exchanges uncertain, Boise Cascade is hedging its E-business bets. Egan's group is adding an E-commerce environment for paper products to the company's sales and billing systems. Customers will be able to buy online as well as access real-time information such as inventory, production schedules, and order history.
Egan says his group will continue to add functions to meet customers' needs--such as letting them track shipments in real-time. Federal Express and United Parcel Service shipments are easy to track, but lesser-known truck carriers and rail carriers present a problem. That's on Egan's list of services Boise Cascade needs to add.
Eric Schrumm, VP of IT for Rayonier Inc., questions the long-term viability of Internet exchanges. Schrumm believes that as Extensible Markup Language technology advances, it will be easier for companies to do business online without the exchanges in between. "In the future, there may be much more direct communication, company to company," he says. "Exchanges will be more of a stepping stone of what will be, rather than a permanent fixture of the landscape."
Rayonier--which had $1.03 billion in sales last year, 40% outside the United States--has other plans for exploring the potential of E-business. The Jacksonville, Fla., company is running a pilot program with one of its largest customers, Eastman Chemical Corp. in Kingsport, Tenn., taking online orders using technology from webMethods Inc. Rayonier also is using the Internet to assist with its auctions of stumpage--trees that haven't yet been harvested. Stumpage is sold through sealed-bid auction, and starting this month, auction participants could receive prospectus information online.
Rayonier is working to bring the auction itself online. The company sells about $250 million worth of trading logs and building material annually around the Pacific Rim--a business which could be improved using Internet technology. "In the import-export world, there's a significant amount of the supply chain that can be streamlined," Schrumm says.
In the metals industry, MetalSpectrum.com, slated to launch this month, had 11 industry partners as of August, including Allegheny Technologies Inc. and Reynolds Aluminum Supply Co. MetalSpectrum.com CEO Alan Turfe expects to add four more partners before year's end, selling aluminum, brass, copper, and titanium. Turfe says his company might explore the possibility of exchange-to-exchange interoperability--to create more one-stop shopping for customers.
For Bethlehem Steel Corp., E-business really came alive last year, says Jim Reynolds, director of IT. In the E-commerce arena, Bethlehem has partnered with online exchange MetalSite.com and invested in OneBuild, a construction materials marketplace. "It continues to be one of our most important points of emphasis this year," he says.
The efficiency of E-business is the prime motivator for Bethlehem Steel, which makes steel plate, sheet, and specialty steels for the appliance, automotive, construction, and machinery markets. The company is in the midst of a limited rollout with an Ariba Inc. initiative to improve procurement, which lets buyers place orders directly instead of sending requests to the purchasing department and having them enter the order. "It also links back to our strategic sourcing," Reynolds says, "so each person doesn't have to haggle and try to determine the best price with vendors. All that will be done ahead of time." Because Bethlehem Steel has about 7,000 suppliers, the Ariba rollout will probably take 18 to 24 months.
The company also continues to update customer service on its site, which gives buyers access to information such as mill-test reports, production status, and shipping status. In addition, users can choose to have automatic notification of shipping via E-mail. Future options will include the ability to track rail cars, view statements of unpaid invoices, and summarize all order-status information.
U.S. Steel Group, the United States' largest steel maker and part of USX Corp., is trying to make E-commerce more convenient by letting customers access past orders when placing new orders. "It turns out that upward of 80% of our orders are repetitive," says Gene Trudell, manager of MIS. Customers can save time by using a prior order as the basis for a new order and can perform a search by purchase order or part number to access past information.
U.S. Steel also plans to improve customer service with its new order-entry system, slated for a complete rollout in early October. The system includes Oracle applications that walk salespeople through a decision tree, reducing the need for a broad base of industry knowledge. This represents an important tool for U.S. Steel because when the company's early retirement program kicked in last year, many company veterans retired and left in their place less-experienced salespeople without the same deep knowledge of the steel industry and its practices.
"There are any number of specifications that need to be applied to an order, and they usually come from years of experience or by referring to a long paper document," says Trudell. The new order-entry system reduces the need for that. A limited rollout is already producing results. He says the quality of the data to facilities has increased dramatically.
Rayonier's Schrumm says there's no question whether his industry will do business on the Internet. The challenge for IT is to understand how those online relationships will evolve. "Our customers require us to interact with them via the Internet," says Schrumm.
At Georgia-Pacific, the IT department received the Chairman's Award last fall as staff group of the year, thanks in part to its role in developing and promoting an E-business strategy. VP Williams likens it to taking home an Oscar, an executive nod that gives IT status as an equal with other business units. "It was huge for us," he says. "Now we're at the table when strategy is being developed."
Executives from around the company are looking to Georgia-Pacific's IT team to sort out E-business priorities. But Williams knows better than to sit still: "We're at the top of our game," he says, "but the game is changing."
Illustration by Jeffrey Fisher
Photograph by Jim Judkis
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