Dec. 21, 2004
Is Manufacturing Missing the E-Commerce Boat?

In 1994 John Patrick, then a 28-year veteran of IBM, wrote a paper called "Get Connected." By doing so, he staked a claim as the Pied Piper of the Internet inside Big Blue. At that time, the Web's potential wasn't so clear. And for Patrick, convincing a huge corporation that "e-business" was the future wasn't all that easy.

What changed the tide for Patrick was IBM chief Lou Gerstner. The new CEO moved quickly to embrace the Internet, Patrick says. "Lou is the great communicator," he says. "He instantly saw the potential for this." In those days, IBM's new mantra was something called "network-centric computing." Today it's e-business.

Now that he has convinced IBM, who's next? Would you believe manufacturing? "I believe manufacturing companies are missing the point," he says. "I hear manufacturing executives say, 'We make motors and drill presses. Consumers don't buy what we make.' What they're missing is that the Internet is not a consumer thing -- it's a people thing. And business-to-business is really people-to-people."

By that, Patrick means that even the largest corporation conducts business through its people. For instance, employees do the purchasing. "It's a purchasing agent dealing with a supplier," Patrick says. "These people go home and get on the 'Net each night. Do you really think that after doing e-commerce on the Internet, they are going to be perfectly content filling out three-part carbon forms?" This year IBM will complete a switch from processing 5 million paper invoices to zero, he adds.

Patrick thinks all companies -- service, retail, manufacturing, agricultural, etc. -- need to embrace the Web to compete. "E-business is about the marriage of information technology and the Web," he explains. "The magic of it is that it is compatible. If you don't take advantage of that, you're going to be at a disadvantage."

Most of what Patrick calls "physical businesses" have both overcapacity and inefficiency in their operations. This inefficiency makes them vulnerable to "virtual" competitors that lack the infrastructural burdens of the past. "The guy that always wanted to have a business of his own can," he says. "And he can do it on his second shift."

Among other changes Patrick anticipates is the lessening of the role of the personal computer. "PCs are going to be a minority device. Within three years or less, the PC will represent less than 50% of the devices on the 'Net." He believes people will be using hand-held devices such as 3Com Corp.'s PalmPilot or a digital telephone to go online.

Yet another area that's already being turned upside down is distribution. "Companies need to think through their distribution strategies in light of the Internet," Patrick says. "They should ask themselves, 'Is our distribution strategy relevant anymore?'" Other strategies that may need overhauling, adapting, or refining include order fulfillment, order processing, and customer support.

Too many companies are only willing to try out electronic commerce a toe at a time, barely getting their feet wet. According to Patrick, who is chairman of the Global Internet Project, a group of companies dealing with taxation and other Web commerce issues, that's the wrong tack. He thinks changes in business processes to meet the challenge of the Internet should not be made timidly. "Start simple and grow fast," he suggests. "You've got to be willing to make mistakes. I know, because we made plenty of them."

But not that many. IBM saved $1.7 billion by streamlining its purchasing and system of setting up vendor contracts, including $800 million in reduced inventory costs. A good chunk of the savings came through automating the process and using the Web to do e-commerce. What's more, IBM is selling its own PCs via a company that handles its online ordering called

Of course, the bottom line of the e-commerce message for manufacturing companies looking to do e-business is that they should make sure their Web-based efforts are business driven, with businesspeople involved in their creation and operation.

IBM's Enterprise Web Management unit, which initially reported to Corporate Communications, now reports to the CIO. The reason? "It's got to integrate with your back-end systems," says Patrick. Even so, overseeing the operation is the Enterprise Web Management Marketing Council, whose members include the chief marketing officer from each operating business.

"E-business initiatives cannot be IT projects," says Steve Hasbrook, e-commerce manager at Brady Corp., an Eau Claire, Wis., maker of graphics and direct-marketing products. "They have to be business projects."

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