Industry Spotlight: Manufacturing Companies & The Internet

With all the talk about companies like Dell, Charles Schwab, Amazon, and eBay experiencing success using the Internet, it often gets lost in the clutter how mature, established businesses are making steady progress using the Web for competitive advantage. The manufacturing sector - classic brick and mortar, if you will - clearly falls into this category. Considered staid and obsolete during the Internet boom, these companies survived the crash intact. Even during these recessionary times, leaders in this group continue to invest in Internet projects to get closer to customers and improve business performance.

Establish Strong Foundation

Many manufacturers have overhauled their Web sites in recent months in an effort to upgrade from ineffective earlier versions. While every manufacturer faces unique circumstances, the impetus behind much of this activity is to ensure online strategies are tightly aligned with core business goals. For example, GE Plastics, whose online orders have increased from $10 million in 1998 to $2.7 billion last year, has spent the last few years refining its Internet strategy. In BtoB Magazine this month, the unit’s e-business services manager, Beth Pearson, commented, “The idea is to create a marriage between online and offline solutions. You go on the Web, look for what you’re interested in, and if the calculator or tool is too complex, you can connect with a live person.”

Many early sites also lacked basic fundamentals such as visual appeal, coordination with offline marketing collateral, effective information architectures, and desired information. ITW Thermal Films, a thermal transfer ribbon manufacturer and distributor, faced this scenario in early 2001. Vice President of Marketing Peter Gallette comments, “Considering both the growth in online sales-related activity in our industry and all of the purchasing research that was being conducted on the Web, we simply couldn’t risk having a weak Internet presence.” ITW Thermal Films, a subsidiary of Fortune 200 company Illinois Tool Works, is now pursuing the next step in its Internet strategy to incorporate additional functionality on its site to support sales efforts to both end-users and distribution partners.

Online Investment Continues

Newly revised B2B commerce forecasts justify continued online investments. This month eMarketer calculated the global 2001 B2B market at $475 billion and predicts activity to nearly triple by 2003. One obvious reason for manufacturers to stay focused on Internet strategies is to be in a position to capture new online sales. Another is to not get left in the dust. B.J. Scheihing, SVP of operations at Arrow Electronics, a manufacturer and distributor of electronic components and computer products, warns, “When the economy turns around and business picks up, you don’t want customers and prospects to view your organization as inefficient.” While Scheihing has been forced to work with a reduced budget this year, he’s had to prioritize investments. Many Web-related projects remain at the top of his list, according to his recent interview in Industry Week magazine.

Think Closer to Customer

The Internet isn’t all about sales, necessarily. Manufacturers are finding that the Web is a great medium to get closer to customers, support brand loyalty, and conduct market research. A recent analysis of John Deere’s online strategy in Business Week concluded, “What does Deere get out of all this [Internet investments]? It hopes customers will stick with the company because it’s easy to do business with.”

Customer loyalty is a primary goal of Procter & Gamble’s online strategy. Though P&G doesn’t sell directly to customers online, “We set out to drive brand awareness and let people learn about and try new brands,” says Gary Piller, digital brand manager of the pg.com site. According to a study by Information Resources Inc., 55% of all online consumers surveyed want free merchandise, but only 22% of manufacturers offer giveaways, highlighting an opportunity for Web savvy manufacturers to gain an edge on the competition.

The auto industry is taking a similar approach, de-emphasizing their focus on actual online sales and working to foster relations with customers and prospects. For example, DaimlerChrysler built a system allowing visitors to see dealer inventories online. FordDirect.com allows consumers to virtually build vehicles by selecting colors and options and then identifying where they’re in stock at local dealerships.

Online customer service is another no-brainer. According to Jupiter Media Metrix survey, a majority of consumers (57%) say the speed of a retailer’s response to customer service email inquires would affect their decision to make future purchases. Failing to have the necessary online customer service systems in place is inexcusable.

Doug Bartholomew of Industry Week magazine best sums up the opportunity for manufacturers to get closer to the customer using the Internet. He says, “Despite the dot-com bomb and the U.S. economic malaise, many manufacturers are staying the course when it comes to e-business. Some makers of consumer products, eschewing sales over the Web, are finding it a better vehicle for communicating with customers.”

Cost Savings Opportunities Abound

Perhaps the most compelling reason to invest in Internet initiatives given the economic climate is the potential for cost savings. According to a study by Forrester Research and the Institute of Supply Management, nearly half of all large U.S. corporations are using the Internet to cut down their supply costs. According to Bruce Temkin, a director a Forrester, “The discussion has moved away from if the Internet should be used, to where and how it can save money.”

DuPont estimates that purchasing on the Web has cut the cost of buying supplies by $200 million - a 5% reduction in the first year of the $15 million project. And the company expects to save another $200 million by 2003. John Doucette, vice president for e-business and CIO at United Technologies Corporation predicts like-minded results for his company. “IT is the key driver in introducing e-business activities that will boost productivity and deliver quality earnings,” he says. And don’t forget to take advantage of the simple opportunities for cost-savings: United is now prompting employees to use the Internet to look up a phone number rather than dial directory assistance at a cost of $1 per call.

Many Manufacturers Behind the Curve

In spite of the opportunities the Internet presents - and threats, if not addressed properly - many manufacturers are laggards when it comes to investing in online initiatives. In an interview with Ecommerce Times, David Alschuler, vice president at Aberdeen Group, commented, “I think that mainstream manufacturing, because they tend to be slow adopters in the mid-market [are behind].” Lisa Melsted, Internet market strategies analyst at Yankee Group, concurs: “As far as getting good sites up and running and really using the Internet as a tool to help their business, my suspicion is that [manufacturing] is behind.”

The Bottom Line

The Internet is a flexible tool used in a variety of applications by manufacturers - sales, marketing, and operations. Over the past few years the largest manufacturers have tested many online tactics and dramatically refined their Internet strategies in response to these experiences. Many small and mid-sized manufacturers are behind the curve when it comes to using the Internet to improve business performance. Companies that find themselves in this position must determine their customers’ Web-oriented needs, evaluate online best practices in their sector, and pursue Internet strategies in earnest before it is too late.