Stivison--E-commerce Has Arrived

Where does a 400-lb. gorilla sit?

In this era of mega-mergers and high-flying Internet stock valuations, we are hearing some very large numbers. But most of these numbers seem like abstractions. There is the common-sense part of our minds that rebels at multibillion-dollar market valuations of cyber companies with paltry physical assets and no profits whatsoever. Sure the numbers are big, but they seem as relevant to our day-to-day world of laying ink down on paper as those astronomers use to tell us the number of light years to some distant star.

But GM—the heavy steel, huge factory and honest-to-goodness tangible antithesis of the cyber company—recently announced in The Wall Street Journal that it expects to do more than $85 billion of commerce via the internet in 2001. That's real commerce for actual goods and services, not stock speculation. It is $85 billion worth of tangible steel, tires and printing. The orders might have been placed and billed in cyberspace, but the products are tangible and the dollars are very, very real.

Check your calendar, because 2001 is only next year.

Not just GM, but Ford is making similar projections, also in excess of $80 billion of annual purchasing.

Overnight, the 400-lb. gorillas of American basic industry have redefined the rules, the timing and the extent of business-to-business electronic commerce. They have chosen where they want to sit—and where they have chosen is right in the middle of the Internet. They have decreed that proprietary, one-company-to-another electronic commerce solutions are as outdated as mechanical adding machines. Companies that want a piece of the automotive business pie must participate in the Internet-based systems.

We are on the brink of something huge. Until now, the major justification for electronic commerce (electronic data interchange or EDI) was to reduce the administrative costs of handling paper. Business magazines have been filled with case studies of companies routinely slashing the costs of processing individual purchase orders from $40 to $2. Until now, though, the lion's share of the projected savings has been in the areas of purchasing and accounting.

But there is a new twist. Beyond eliminating paper shuffling, the big automakers are insisting that their suppliers use the same Web "bidding bazaars" to also do business with each other. Every step of the process—from raw materials to the delivery of products to the new car owner—will go through the same Internet-based system. Bidding, pricing, delivery, inventory-on-hand—all become much more transparent.

And the goal of all of this? GM explained that it sees the system as a way to assure itself of getting the benefits of the lowest costs at every step of the supply chain. By forcing its suppliers to use electronic commerce, and monitoring the results, GM can be sure that the efficiency savings—and the savings from open, competitive bidding—are being passed along to GM.

What's Good for the Goose
At one time, the nation laughed at Secretary of Defense Charles Wilson's claim that, "What was good for General Motors was good for the United States." However, Wilson's rationale for his statement, "Our company is too big. It goes with the welfare of the country," is still valid nearly 50 years later. What proves valuable to a single firm, which buys $87 billion of goods and services within the American economy, probably works as well for much of, if the rest of, the American economy.

The rules for doing business in America have changed. There can be no doubt that the electronic commerce model that boosts the bottom line in Detroit will spread quickly to energy, aerospace, communications, healthcare, consumer electronics, retailing and all the other major facets of our varied economy.

The graphic arts industry, the commercial printer in particular, is going to have to jump into the fray with both feet. Ford and GM have established the principle that a major purchaser can demand that its suppliers pass along the best deals on raw materials. How long can it be before our clients demand to see the evidence (rather than our best "package bid") that we are passing along the absolute best prices on paper, ink, bindery work, warehousing, etc.?

Each year, this column has attempted to predict the hottest business or technology trend for the next 12 months. I have absolutely no doubt the trend that will have the most dramatic effect on how we do business in 2000 is the impact of business-to-business electronic commerce.

The Fundamental Effect
Previous years' columns have focused on technology innovations like PostScript, CTP and ink-jet output, and their impact on the manufacturing process. By contrast, this year's trend affects our fundamental business franchise. It spans the entire breadth of our business relationships, from how we deal with our suppliers to how we deal with our customers.

The e-commerce imperative of 2000 addresses our basic ability to compete. In this era of mega-mergers and consolidation, every large printer has an ever-smaller collection of clients. However, each of these clients is taking on more of the characteristics of the 400-lb. gorilla. And the price of keeping the gorilla happy is to leverage the power of electronic commerce, demonstrably wringing the best prices and most efficient operations from our suppliers.

And the new business model does not just apply to the top-tier printers. The trend will rumble across our entire industry, regardless of a firm's size. Certainly there is no technology barrier to entry—everybody has a PC and a modem. There is a particularly attractive opportunity for second- and third-tier printers, where the openness and level playing field of the Internet bidding bazaar makes it easier for these firms to pick up the work, and where a particular combination of current capacity or location allows them to bid competitively against the mega-firms.

The impact will even extend to the specialists: mail houses, pick-and-pack operations, consolidators, off-shore brokers and color houses. They will be sucked into an environment in which "the big fish" have to demonstrate to the even bigger fish that they are wrenching every penny of economy out of their suppliers.

In 2000, you won't just be reading about the business-to-business electronic commerce revolution. This is the year in which it will hit your own desktop.

—Douglas Stivison

About the Author
Douglas Stivison is a consultant at PricewaterhouseCoopers, the world's largest professional services organization. He welcomes your comments via e-mail at douglas.stivison@us.pwcglobal.com or (973) 236-4908.