Focus On: E-Commerce Efficiency
For manufacturers to best serve their customers in light of persistent economic doldrums, low margins, and fierce global competition, they need to be nimble, forward-thinking, and willing to adapt not only their products but also their business models. Embracing e-commerce and business model innovation can be critical in maximizing efficiencies for buyers and sellers throughout the supply chain.
Just as business-to-consumer (B2C) websites (e.g., Amazon.com) have revolutionized the retail world, manufacturers are recognizing that business-to-business (B2B) e-commerce is a faster, more efficient and sustainable way to grow business, retain and expand their customer base, and interact with prospects. E-commerce enables customers to compare prices, place orders, check order status and generally “self-serve” at any time from anywhere in the world. This presents a tremendous advantage, especially to a new generation of customers who are comfortable with purchasing online. Innovating in the business model space can help companies meet the complex requirements of today’s organizations in areas such as protecting cash flow, managing inventories and capturing savings.
According to Forrester Research, B2B e-commerce is still relatively new but growing quickly. The firm cites the 2009 U.S. Census Bureau statistics (the latest year for which data was available): B2B e-commerce in the U.S. totaled $352 billion, more than twice the size of the $145 billion market for B2C e-commerce. In addition, Forrester reports that a growing number of U.S. companies say that B2B e-commerce will represent nearly 50% of their total sales within a few years.
In the case of Dow Corning, a leader in silicon-based technology, the company had virtually no online sales in 2002 when it launched its XIAMETER® business model. This effort was made in an attempt to serve customers who wanted and needed around-the-clock, market-based pricing for standard silicone products used widely as performance enhancers by multiple industries, including personal care, textiles, construction, automotive and more, where they provide qualities such as durability, stability, adhesion and weather resistance. Today, approximately 40% of Dow Corning’s global sales are online.
Based on its success and ongoing research of customer needs globally, the XIAMETER model now features thousands of standard silicone products, enhanced self-service functionality, a variety of volume quantity, pricing and credit term options, and the ability to buy directly from www.xiameter.com or through local distributors. XIAMETER customers can control inventory costs by choosing the most appropriate price tier based on the amount of volume they want to purchase without compromising quality standards. When their inventory costs are low, they can choose to take advantage of lower prices through higher volume purchases, or vice versa when their inventory costs are higher.
ENFORCING CLEAR BUSINESS RULES
Web-enabled business models can also help manufacturers create significant supply chain advantages—but only if the strategy is executed properly, which many companies fail to do. In other words, realizing the efficiencies and cost savings of B2B e-commerce, instituting rigorous processes, and enforcing them as part of day-to-day operations is critical to achieving efficiency benefits.
For example, fundamental to the XIAMETER business model are clear business rules, such as mandatory order lead times based on the amount of time it takes to produce and package the material. Customers have become accustomed to lead times, and the number of late shipments is reduced—a win-win for both.
Another business rule that has improved efficiency in the supply chain is minimum order requirements. In many cases, full pallets are a required minimum and multiple of ordering. If a customer needs a smaller volume than what is available online, they can purchase through a local distributor.
Minimum and multiple order quantities also drive efficiencies related to inventory and transportation. Minimum-order quantities promote efficient use of warehouse space through full-cube utilization. Similarly, prices are quoted based on logical and efficient shipping quantities of a single product for a single ship date. By consolidating orders and shipping in full truckloads or tankers, the number of shipments is optimized and transportation costs reduced.
These cost savings in the supply chain are especially important for multinational companies dealing with rising freight costs, excessive inventories and warehouse inefficiencies. Customizing orders and addressing special shipping requests adds significant costs to the order and delivery process. If companies can find a way to standardize these services, the savings directly impact the bottom line.
HARNESSING THE POWER OF IT
The key to the XIAMETER model is Dow Corning’s global SAP platform, which helps manage a huge amount of data about product availability, customer orders and pricing information. The XIAMETER website directly links the order-entry system—what the customer sees online—to production planning and inventory management. When a customer places an order online, manufacturing is automatically notified via SAP to produce the materials. In addition, the XIAMETER model can source materials from any Dow Corning plant around the world and can determine which site provides flexibility in the supply chain, helping to ensure reliable supply, limit inventory costs, maximize manufacturing capacity, and boost profitability.
The SAP system ensures a smooth order flow experience (with no human intervention) from the time the customer places an order on the web all the way to the scheduler at the plant, which minimizes manual labor and mistakes. Just seconds after a purchaser places an order, confirmation of the price and quantity is provided, along with the freight terms, credit terms, and shipment date, which is based on current supply capability. Customers do not need to call a customer service representative, fax an order or wait for a response.
Since all related product and delivery documentation is online, most of the paperwork has been eliminated. The system automatically sends electronic order confirmations, notices of shipment, customs and duties information, and invoicing, and can track orders and histories. The purchaser does not have to call their receiving department or accounts payable group. The job is done the moment the customer clicks to complete the order.
Given the global business environment, supply chain managers need to rapidly respond to change and manage costs with increased vigilance. Aligning a company’s core business with its supply chain capabilities is critical. It is also important to get the business model right up front, and have the right people and processes in place to manage operations according to ever-evolving external conditions.
Understanding customer needs and adopting business models that provide customers with options and the ability to self-serve while also providing efficiencies can be a path to success. Ultimately, a supplier that can respond to change more rapidly and manage costs with increased vigilance gains a competitive advantage by helping its customers gain their own competitive edge.
ABOUT DOW CORNING
Dow Corning provides performance-enhancing solutions to serve the diverse needs of more than 25,000 customers worldwide. A global leader in silicones, silicon-based technology and innovation, Dow Corning offers more than 7,000 products and services via the company’s Dow Corning® and XIAMETER brands. Dow Corning is a joint venture equally owned by The Dow Chemical Co. and Corning, Inc. More than half of Dow Corning’s annual sales are outside the U.S. For additional information, visit www.dowcorning.com.
The XIAMETER brand offers market-driven prices for standard silicone products. Introduced in 2002, the business offers thousands of products, including silicone fluids, sealants, silanes, antifoams, resins, emulsions and rubbers. The XIAMETER brand is a no-frills model offering cost-effective products through streamlined services and a web-enabled order platform. Learn more at www.xiameter.com.