Leslie Walker's .com Live
Discussion with Ladd Biro of the
National Association of Manufacturers
1 p.m. EST: Thursday, March 16, 2000
How the Internet is transforming the way businesses
make things--especially the way manufacturers
communicate, buy and sell with their suppliers and
distributors--will wind up being one of the most
important stories of the digital age.
Business-to-business trading in the offline world has
always dwarfed the dollar volume of goods and services
sold directly to consumers, so it shouldn’t surprise
anyone to learn that the "B2B" Internet market may
wind up being 10 to 15 times bigger than consumer
Manufacturers face pressure to embrace the Internet on
several fronts—internally by integrating the computer
network into the way they buy supplies and manageg
inventories; and externally, by investing or
participating in the new electronic exchanges that are
being born to bring together buyers and sellers in
Manufacturers also face growing pressure to sell
directly to consumers from their Web sites or to let
other new e-tailers start selling their goods online.
But this creates potential conflicts with their
long-standing offline retail sales partners, many of
whom are worried about losing sales to the Web.
All of which makes it an interesting time to be a
Join Ladd Biro, senior vice president of the
National Association of Manufacturers, and me at 1
p.m. Thursday. We'll talk about this expanding
universe and how manufacturers are jumping into the
First, welcome to all of you and to Ladd Biro, who just returned to D.C. from his group's annual convention in Chicago. A word
about his association, which is based in Washington
and is the nation’s largest multi-industry trade
group. The National Association of Manufacturers has
14,000 member companies and 350 member assocations
around the country. Now to the questions.
Hello Ladd. Thanks for joining us today. There seems
to be a disconnect between all the media excitement over
business-to-business Internet trading and the news
coming out of your association. Last month you
released a survey showing 65 percent of manufacturers
still don’t have an e-commerce strategy in place. This
week came another poll from your annual convention in
Chicago showing most manufacturers are very wary about
the economy this year. How are your members feelingabout the Internet these days
Ladd Biro: Hello, Leslie. Yes, I've just returned from our annual trade show, National Manufacturing Week, in Chicago. We had over 2,000 manufacturing exhibitors and 60,000 attendees there, so I feel like I got a good perspective there on how manufacturers are feeling.
In a word, manufacturers are "guarded." Even though the overall economy is doing quite well, the manufacturing industry has been hit rather hard by increases in interest rates and by Wall Street's infatuation with so-called "tech" stocks.
Meanwhile, while the press has built up e-commerce as if everybody's doing it, in fact, we are still at the nascent stages of B2B e-commerce adoption rates. Manufacturers in particular are poised to adopt e-commerce in a major way, because they recognize the huge potential for productivity increases and expanded global markets.
This has to be a confusing time for manufacturers. On
the one hand, they’re safely perched atop the “value
chain”-- since the Internet can’t actually make many
goods, most manufacturers won’t be disintermediated.
But on the other hand, they Internet is having a
deflationary impact on prices. It also tempts
manufacturers to sell to pure e-tailers like
Amazon.com and eToys.com-- or even to sell directly to
consumers. How are manufacturers dealing with these
conflicts between their sales channels?
Ladd Biro: The Internet is certainly changing everything, and manufacturing is no exception. Anyone who claims to know exactly how it will change is fooling himself.
That being said, we in manufacturing think the Internet and B2B e-commerce, specifically, can vastly improved our supply chain efficiency. In some cases, this may mean that companies will go directly to the retail market. In other cases, they will maintain their relationships with their current distribution channels -- or develop new ones -- because they are highly valued for their ability to provide service and maintenance, among other things. Even so, clearly, relationships with manufacturing distributors will need to evolve with the rest of the economy.
Do you know how many manufacturers sell their goods directly from their Web sites now? And for those that don't, what percentage do you think will wind up selling direct in the near future?
Ladd Biro: According to the NAM's most recent survey, roughly 32% of manufacturers currently use the Web to market and distribute their goods. Among those who do not yet do so, the vast majority are preparing their inhouse systems to enter this brave new world.
Are there particular industries that have been slowest to use the Internet in their business, and what are they?
Ladd Biro: That's a good question. I am not aware of much progress being made by the construction industry to employ the Internet in their operations. The truth of the matter is, though, that very few companies are truly engaging in B2B e-commerce in a significant way. Most are simply dipping their toes in the water at the moment, and many are standing on the sidelines waiting for someone to provide a platform on which they can affordably conduct business on the Web.
Wye Mills, Maryland:
Will the Internet aid in getting product introduction to a wider range of consumers faster?
Good question. GE talks a lot about how much faster they can get their products to market because their development teams are doing so much collaborating online. I'm curious whether you think GE's experience is just the tip of the iceburg for manufacturers.
Ladd Biro: Yes, I think GE's experience is a good example of what more companies will be doing in the near future. IBM and Intel are other excellent examples of companies who are figuring out how to employ the Internet to improve their operations. We at the NAM are working on a series of case studies about these cutting-edge companies which we will be distributing to our 14,000 members soon, as an educational tool.
Your trade group announced it was entering the B2B
Internet land rush itself this week. Please tell us
how the “Manufacturing Central” Web hub you plan to
create will be different from the more than 100
business-to-business trading exchanges that have
popped up in the past six months.
Ladd Biro: Yes, Leslie, we just introduced the NAM's new manufacturing portal, "Manufacturing Central," which you can find at www.manufacturingcentral.net.
Though we just told the world about it, it has actually been in operation for a couple of months and the response from those companies using it has been outstanding.
We believe Manufacturing Central will soon be the Internet's leading portal for manufacturing e-commerce. It provides all the tools, technologies and services to enable manufacturers of all sizes -- particularly small and mid-sized firms -- to create a copmlete B2B e-commerce capability.
The response to our launch this past Monday has been impressive.
To specifically answer the original question, much of what you see in the B2B e-commerce space right now is either niche-oriented or "vaporware." In contrast, our platform is industry-to-industry (broad based) and we're operating right now.
What are the possibilities that all this
real-time ordering and bidding is going to
reduce profit margins to zero? It seems to me
that too much flexibility may make the old
economy as unprofitable as most of the
Ladd Biro: Real-time ordering and bidding holds the potential for vastly reducing the costs associated with marketing and procurement. Smart companies will use the added cost savings to maintain their margins, even as real prices for consumer goods trend lower. In short, increased efficiency does not equal lower profits.
Can you name some surprisingly successful B2B sites--perhaps something truly innovative?
Ladd Biro: I believe I answered this previously. "Manufacturing Central," the NAM's new portal, is surprisingly successful in its own right. And the best is yet to come.
What's the hardest thing manufacturers are going through as they move their operations online. Can you tell us some of the horror stories you've seen about the realities of turning an old-line business into an e-business. It can't be that easy!
Ladd Biro: The hardest thing manufacturers are facing is the realization that simply posting a Web site and awaiting orders isn't all there is to it. Online sales and procurement requires a comprehensive approach to their entire internal operations at a company. If the back end (e.g., inventory management and distribution) isn't tied to the front end sales function electronically, the whole system collapses.
I don't have any particular horror stories to offer -- most companies don't like to talk about their failures -- but it is a little scary that fully 20 percent of American manufacturers have not created Web sites for their business to date.
How much is the Internet changing the reach for manufacturers--are many smaller ones planning to go more global than they would have without the Internet? Should we believe the television commercials about how global the internet really is for commerce?
Ladd Biro: First of all, even before they were using the Internet, American manufacturers were "going global" in a big way. The Internet simply accelerates this trend, and makes it easier for companies to do business overseas.
In fact, the number of small manufacturers who are exporting directly has more than doubled in the past five years alone. Again, the Internet will play a major role in enhancing this export growth in the years ahead.
As an example of how the Internet is changing the face of global business, did you know that a man in Ethiopia is using the Internet to sell goats to Ethiopian immigrants in the United States? The world is changing, indeed!
São Paulo - São Paulo - Brasil:
As Brazilian and attending the revolution that Internet has been bringing to the United States, I 'm sure the government of my country should motivate and promote with the maximum of effort the development of this technology, but unhappily it seems that the government doesn't notice that that incentive will bring many benefits for the economy and all the people !
In your opinion, what at least should a poor country like Brazil do, for not allowing that train to stand back a lot!
Which are the best benefits of the Internet for the economy of the developed countries and to my country ?
Are they too different for each one?
Thank you and excuse my language errors
Ladd Biro: The best way for Brazil to enter the "Internet economy" is for Brazil's private sector to lead the way. In the United States, it wasn't the government that made e-commerce expand exponentially overnight, it was American entrepreneurs who were willing to take risks to bring this innovative new medium a reality.
Here in the United States, the NAM is encouraging the government to stay out of our way as we continue to develop the Internet.
What are the thorniest issues you see in the creation of these new B2B trading exchanges? Some analysts, for example, think there are anti-trust challenges lurking in the birth of these new B2B trading exchanges. Can you tell us how important you see neutrality or even-I know this is hugely controversial-- government regulation in the evolution of these new marketplaces?
Ladd Biro: I'm no lawyer, but it does appear that some of the recent announcements have potential antitrust issues associated with them.
One of the things we think is a sustainable competitive advantage with our B2B portal, Manufacturing Central, is that it is the first "many to many" platform for e-commerce. Meaning, it's not designed for one company to interact more efficiently with its current supplier base. It is designed for thousands of companies to expand their supplier and customer bases beyond their geographic neighbors and current relationships.
Great Falls, VA:
Why would a company use your NAM e-commerce site instead of just launching their own?
Ladd Biro: Excellent question.
For starters, we provide all the tools a company needs to get started in e-commerce, or to expand their e-commerce presence. Our platform is user-friendly and has been designed to meet the manufacturer where he or she is in the e-commerce cycle.
Second, did you know that thousands of Web sites are launched every day? Any one company who hopes to get noticed on the Internet is at a tremendous disadvantage if they intend to go it alone. As a part of Manufacturing Central, they will be exposed to the thousands of potential customers and suppliers who will be drawn to the portal by the marketing being done through the NAM and our sister associations. In addition, our partner in this endeavor -- Unibex Inc, a Washington, DC high tech firm -- will be doing a great deal of advertising and promotion to drive businesses to the site.
We are halfway through today's live discussion. Keep your questions coming in, folks!
Was there much buzz at your convention about the recently announced alliance between General Motors Corp, Ford Motor Co. and Daimler Chrysler to create a Web network or exchange to manage transactions with suppliers? In general, any thoughts about how old-line companies likely will fare against Internet upstarts in the long run?
Ladd Biro: Yes, there was some buzz, mostly from people wondering exactly how the Big 3's initiative will eventually play out.
In my opinion, though the Web upstarts have gotten a head start in this arena, it won't take long for "old line" manufacturers -- who have traditionally been the source of creativity and innovation in this country -- to catch up.
One year from now, I believe we'll look back on 2000 as the year that manufacturers revolutionized the Internet (whereas 1999 was the year the Internet revolutionized business overall).
How are companies benefitting that use e-commerce now?
Ladd Biro: First, they are expanding their customer base by exposing their products and services to a much wider audience.
Second, the ones who are doing it well are reducing their transactions costs, saving money even as they rapidly expand their sales online. Electronic transactions, of course, typically cost a fraction of a paper transaction.
Third, many firms are using the Web to more cost-efficiently train their workforce. One example, is the NAM Virtual University, which companies are using to improve the skills of their workers in everything from IT to OSHA compliance to high tech skills.
Can you describe how the economics of manufacturing are being changed by the Internet?
Ladd Biro: The entire supply chain is being affected by the Internet. It is frankly difficult for me to identify ANY area in manufacturing that isn't being changed by the Internet.
Fairfax Sta, VA:
Will your site, www.manufacturingcentral.net, have links to member-manfacturers who wish to maintain their own e-commerce sites?
Ladd Biro: Absolutely. The site will link back to member companies' Web sites, or host them within the Manufacturing Central platform.
In addition, it will enable our members to create a virtual trade show booth, post an online product catalog and -- most importantly -- engage in buying and selling exchanges all in one place.
The system that Unibex has created is both comprehensive and flexible. It has all the tools any company would need to do business over the Internet, but doesn't force anyone to use (or pay for) any tools it doesn't want or need. That's one of the main reasons the NAM selected Unibex as our partner in this endeavor.
Ralph Lauren announced last month he will partner with NBC TV and its Internet subsidiaries to launch polo.com this fall. He may not be first, but he's one of the biggest clothes manufacturers to clearly state bold plans to sell directly to consumers.
Have news announcements like this caused much talk among manufacturers? Also, do you think ther are certain areas of manufacturing that will never move into direct selling?
Ladd Biro: I'm not sure there's much of a buzz about these types of announcements anymore. It's de rigeur to see multiple announcements in the paper every day.
There certainly aren't many types of manufacturers that won't eventually be doing business over the Internet. That being said, the Internet can't put a tire on your car, or tell you a shoe fits you comfortably. There's always going to be a place for the "bricks" in the "bricks and clicks" economy.
Why will companies use your site instead of VerticalNet, which does the same thing but has been around longer?
Ladd Biro: VerticalNet got there first, but we believe we have a better platform. VNet is a hodgepodge of vertical marketplaces which do not not interact between sectors. It is also quite pricey.
Manufacturing Central, on the other hand, is extremely affordable (ranging from roughly $50 - $250 per month, depending on which tools are used), and it is what I like to call the first "horizontical" hub on the Internet.
What that means is that while business can be conducted within our vertical communities, companies can also cross communities to do business with other sectors. For example, while a candy company can purchase its raw ingredients from other companies within "Candycommerce.com", it can also go to "BuyReman.com" to purchase a remanufactured factory oven from one of the firms doing business in another Manufacturing Central community.
Who do you think will be biggest losers in the supply chain when the Internet is finally fully integrated?
Ladd Biro: The losers will be those that don't figure out fast enough how to use the Internet to enhance or change their way of operating. I don't think there's a business out there that can't survive in the new Internet-based economy if they are willing to adapt and think creatively.
One final question. What big issues loom for manufacturers that we didn't ask you about today? Are there any specific Internet challenges you see ahead for manufacturers that you think the media should be paying more attention to?
Ladd Biro: One of the biggest issues we face is the worker skills shortage. As manufacturers embrace the Internet at blinding speed, we simply must have the workforce capable of performing sophisticated tasks on the increasingly high tech factory floor. This is an issue we've been dealing with at the NAM for several years now, and it's probably going to get worse before it gets better.
We're about to wrap up today's chat, folks.
Ladd Biro: I appreciate the chance I've had to chat with you and your readers today, Leslie.
As you can tell, we're very excited about our new collaboration with Unibex in the e-commerce arena, and gratified by the tremendous interest we're getting from both the media and our manufacturing members.
We believe we're taking B2B e-commerce to the next level for manufacturers. I hope you'll go to www.manufacturingcentral.net to see what all the buzz is about.
Thanks again, and have a nice day.
We're finished with today's chat. Thanks to Ladd Biro for taking time to tell us how the Internet looks to manufacturers. Thanks, too, to those of you who sent in questions. We hope to see you in two weeks, when we will be talking about the explosion of wireless devices connected to the Internet.
Our guest will be Naveen Jain, chief executive and chairman of Infospace, a company whose software is being used by big telecommunications providers and media companies to help people navigate the Net from small devices like cellphones and Palm Pilots.
Hope to see you there!
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