July 3, 2022

Article 8.11


The "maintenance, repair and operating"(MRO) goods distribution channels are currently being hyped about the fourth, but not final, business model for electronic commerce on the net (ECON). First, there was IndustryNet, a yellow page service for suppliers that died because it was useless to end-users. Then, big distributors started spending millions to create and maintain selling sites that received negligible orders from any customer big enough to have an internal buying procedure that wasnít going to be changed to do web order entry.

A third model is currently starring over 20 "buy-side, online procurement" software solution vendors such as Ariba and Commerce One that have collectively raised about $1 billion in venture capital and IPO cash proceeds. Their products let the end-user in the plant buy their own MRO needs from the desktop in a paperless, often people-less process. These products usually require the creation of a customized catalog on the companyís intranet that would include all MRO items under contract from integrated suppliers.

These "bolt-on to your legacy system" products have proven to be, however, too expensive and complex to install for most prospects, and the costs for the customized e-catalogs a non-starter. So, the buy-side vendors are rolling out a fourth major model centered on "trading hubs or market exchanges".

Over 10 hubs are up or pending in the MRO "space". They offer many of the benefits to buyers that the bolt-on solutions do with less cost. Now an individual can click on a supply category icon on the company intranet to be transported outside the corporate firewall to the trading hubís server. Once there, the employee will see a custom designed site for their company that allows them to buy pre-approved goods.

This new model is easier and less expensive for would be suppliers too. They only have to be able to communicate with the hub and publish their e-catalog content once to the hubís server to be potentially included in any of the custom sites created for buy-side customers that a given exchange can capture. The large distributors that have spent fortunes to have e-selling sites are "partnering" most of these hubs, because they have the e-capabilities to do so.

95%+ of all distributors and manufacturers in MRO channels, however, do not as yet have sufficient e- capabilities to participate in all of the hubs; the costs are prohibitive for smaller firms. This means that big end-users that sign with a given hub will not be able to use many of their regular, local suppliers for their plants across the country.

This dis-connect with traditional suppliers raises some questions:

  1. Will big buyers command traditional suppliers to eat the cost of hand creating e-catalog content to be on the hub or lose all business to the national distributors that are on the hub? Some may try until they find out how much local, de facto special stocking and servicing is going on beyond some general supply categories like office and janitorial supplies. Even people within channels under estimate how much hidden complexity and customization of service really exists.
  2. If even a few global 1000 end-users shifted business to mega-distributors, because they were on a chosen hub, wouldnít this panic most manufacturers and the rest of their distributors? To do what?
  3. When central purchasing realizes how hard it is to get broad supplier participation in hubs as well as local participation from end-users in the plants, what will they do?
  4. When the trading hub companies canít get contracts to go past stalled pilot tests for office supplies, what will they do before their stock prices start to tank?

Perhaps all parties will then realize that the time has arrived for creating end-to-end supply chain ECON standards as Rosettanet is now doing in the PC distribution channel. E-standards would allow all small manufacturers and distributors to play in the ECON game at an affordable rate, because technology providers could leverage one central product data warehouse to populate selling sites and keep them current on a paper and people-free basis.

Given the progress that Rosettanet has been making, it may not be too early for any channel to start thinking about ECON standards, especially those channels under assault by third party dot.com start-ups. Who will be the standards leaders in each channel? What new roles could traditional trade associations play in the standards setting process? Is it time for a conference on channel ECON issues that channel leaders might attend? Let me know!

Merrifield Consulting Group, Inc. Article # 8.11