DISTRIBUTORS IN TRANSITION -- E-enabled Dealers

BY CAROLINE MILLER

When Imaging Supplies & Equipment e-enabled their Website six months ago, they didn't see themselves as trailblazers. Instead, the $34 million Fuji dealer, based just outside of Los Angeles in Lindwood, CA, thought of it merely as a good business strategy, reports Imaging Supplies & Equipment President Chuck Bertoni.

"We saw it as good business sense. We wanted to put a tool together for our current accounts and to make it easier for them to do business with us," he says.

Even so, according to North American Graphic Arts Suppliers Association (NAGASA) President Greg DuRoss, companies like Imaging Supplies & Equipment are indeed the pioneers.

Today's dealers are being assaulted by a variety of challenges. As a result, they are often putting e-commerce on the back burner, states DuRoss. "This is an unprecedented era of change and upheaval in the industry. E-commerce is just one of those mega-forces that dealers and manufacturers must deal with all at one time. There is also consolidation, rapid technological change and a bad economy with an uncertain short-term outlook. Given all of these mega-forces, e-commerce can be a tough sell."

The sell only gets tougher when dealers begin to factor in the cost of e-enabling their Websites.

"Dealers are skeptical of e-commerce. They're required to spend all this money to become e-commerce enabled. They see this as cash outflow with no increasing cash inflow to cover those costs," he reports.

However, Bertoni sees the investment into an e-commerce enabled Website as a way to eventually improve his efficiency while saving money—not only for Imaging Supplies & Equipment, but also for its clients.

Imaging Supplies & Equipment clients can access their accounts 24 hours a day by typing in their passwords. Clients can then use a host of tools that enable them to track deliveries, as well as their spending habits. Customers can also order some supplies over the Internet, Bertoni explains. Currently, Imaging Supplies & Equipment is testing an inventory capability that would enable it to manage clients' inventories and alert them when their inventories run low.

While Imaging Supplies & Equipment salespeople are only using the system with a limited number of customers at this point, those who are using the new Website have been very happy with the system's new capabilities.

"They love it," reveals Bertoni. "It provides them with access 24 hour a day. For example, if their CPA is working late on invoices, he has the ability to get up on the Web and look at the data."

It's just these kinds of report capabilities for which customers are looking, claims Pitman President and CEO Joe Demharter.

Printnation Reincarnated
In an attempt to meet this growing trend head on, Pitman acquired the defunct Printnation Website. Pitman then combined Printnation's assets with Pitman's product line, as well as Pitman's nationwide bricks-and-mortar infrastructure—which includes 20 warehouse locations across the United States. In May, Pitman relaunched the site as Printnation, powered by Pitman.

This marriage of technology and infrastructure now provides Printnation with the delivery, service and support network to drive its e-commerce offering, something that was missing in the original business model.

Although there are a few clients that purchase supplies online, most have not yet begun to purchase over the Web, according to Demharter. "We do have some customers who buy from us online. We have a very large printing company that buys $750,000 worth of products online. That's how they desire to do business. That is the exception rather than the rule, but we are beginning to see that change."

Part of the reason that online purchasing has not taken off is because e-commerce requires clients to make a cultural shift, which many are not quite ready to make.

This was one of the many barriers that ultimately hurt sites like the former Printnation, says Robert FitzPatrick, an industry consultant and editor of The Eagle, an independent journal covering the distribution business in the digital imaging industry.

"These products are not just commodity products. They require significant, hands-on customer service. The dotcoms don't make distinctions. It doesn't allow the manufacturers to segment their customers, which is all based on complex menus of variables," notes FitzPatrick.

Want Personal Service
Also, dotcom's could not provide the level of service that printers were used to receiving from their dealers, claims Demharter. He adds that clients want a salesperson who is on-site working with them by assessing their requirements. Clients also want access to dealers via the telephone, so they can talk with a technical salesperson or a customer service rep who can answer their questions.

But just because some dotcoms have failed in recent months doesn't mean that the Internet does not have a place for dealers and their clients. "The Internet is just another alternative way for us to serve our customers," contends Demharter.

"We want to offer the customer all the alternatives. We don't care which alternative they use to buy from us—as long as they buy from us. We don't want to push our customers towards buying online, but, as they evolve, we want to be able to satisfy their needs."

It's just this kind of forward thinking that dealers must adopt, agrees DuRoss. While clients may not be currently clamoring to purchase products online or even to gather data online, it will come. E-

commerce is not going away, he states, and dealers must begin to plan for the future.

Still, some dealers are just not answering that call, contends FitzPatrick. "Many dealers spent last year investigating and studying e-commerce. They approached it skeptically and carefully because of the exaggerated claims by some Internet companies and pundits.

"As, we know, during the past year many of these Internet companies have collapsed, which has caused many dealers to hesitate," FitzPatrick explains. As a result, companies like GoPrinter.com—an ASP model that built dealer e-enabled Websites—have closed their doors due to lack of interest.

While initial promises failed to come to fruition, it does not negate the ultimate promise of e-commerce, claims FitzPatrick. "The necessity of e-commerce has actually increased, and that is driven by declining margins and sales, thus forcing the need to reduce costs. There is just no way to get around that. Every distributor and manufacturer in the next couple of years will have to put into place an electronic information and e-commerce program to take advantage of the inherent cost savings.

The Chicken or the Egg?
"The cost savings have been demonstrated," he adds. "The real obstacle is fragmentation: who goes first, the dealer or manufacturer?

While FitzPatrick thinks that the retail model was wrong for the industry, he does believe that the Internet can offer ways to make dealers more efficient. "The correct model is going to shorten and make more productive the transactions that go on between the manufacturer and distributor, because there are huge redundancies in inventory and transaction processing occurring. Inventory costs alone are staggering. People carry redundant inventory because they can't account for the products," he says.

Yet, despite these cost savings, many dealers are also fearful of taking the plunge because manufacturers have not developed a strategy to address this issue, states DuRoss. Dealers can't afford to make a mistake. They can't afford to make a decision that takes care of their customers, but doesn't integrate with one or more of the manufacturers with which they have a relationship.

One company that is attempting to address this conundrum is VieNet.com. VieNet builds a Web-based inventory supply chain management tool that connects manufacturers, dealers and end users, according to VieNet President Richard Chance.

"Our basic premise is to streamline the current supply chain as much as we can, thus reducing inventory and saving transaction costs, while making the current supply chain more efficient. We aren't changing the model and the way it's done; we're just making it more efficient."

The most prevalent users of the VieNet technology have been dealers, says Chance, although VieNet is currently in discussions with some manufacturers.

Dealers using VieNet can view multiple, remote customer inventories. By using a bar code system, VieNet records, in real-time, the consumption of those products so everyone in the supply chain can see the inventory. Manufacturers can look downstream to the dealer's inventory and dealers can see into the end user inventory.

"We provide all kinds of Web-based reporting tools. The dealer can view his client's inventory and do replenishment within the system," Chance reports.

Whether solutions like VieNet become highly successful or go the way of GoPrinter.com remains to be seen. What is certain is that Web-based solutions will continue to impact dealer and end user relationships, concludes DuRoss.

"The trend is clear that down the road clients will come to expect dealers to integrate the Internet into their businesses. As with any change, there are those who are leaders and those who are followers."