Part 2: Case Studies
There are many examples of New Zealand businesses that are using the Internet and e-commerce. The following case studies illustrate the range of ways in which the Internet can be used, and the kinds of results that can be achieved.
If you haven't done so already, make it a priority to go browsing, to form your own view of what is being offered. As a starting point look through a New Zealand on-line directory such as www.accessnz.co.nz
Find out what other companies in your industry sector are up to. (If you can't immediately get on line to look, ring a few of your mates, and ask them what they're up to. You'll find out quite quickly if you're way behind your competitors.) Don't be afraid to apply the thinking of others to a similar problem of your own, especially if their business model looks as though it could work in your industry sector. Imitation is the sincerest form of flattery - and there's no harm in imitating a success story.
B2B: Becoming More Efficient
Renaissance Distribution
www.renaissance.co.nz
www.thewebconduit.com
Renaissance is a computer distribution company based in Auckland, handling technology products for Apple, Hewlett-Packard, Toshiba, Compaq, and Microsoft. Currently it does 30 per cent of its transactions on-line - about $1 million worth of business every week.
In the three years since Renaissance started using an e-commerce platform called Conduit, transaction values have doubled, while the number of people required to service that business has gone down by a third.
According to Clive Lewis, one of the directors, "The principal reason we went into the partnership [with Conduit] was to reduce the overall cost of transactions. There's no question about it, we are delighted with our success; and the reason is that we have re-engineered the business around the system. The changes have made us more price-competitive, which is good for our customers, and made us more profitable, which is good for us."
Customers who order on line can see what they are buying and check its availability. Orders are converted into despatch notes instantly, and sent out the same day. This replaces a system where orders were taken over the phone, confirmed by fax, and keyed into a distribution system, allowing errors to creep in. "We have calculated that it takes us six times as long to implement a credit note than it does an invoice. With our error rate now below 1 per cent, we are making significant savings in time, and so are our customers."
Renaissance expects to be transacting at least 50 per cent of its business on-line by the end of 2000, and is seeking to reach 100 per cent eventually. They are trading 24 hours a day, seven days a week, and 12 per cent of their orders come in after dark, so the new business hours obviously suit their customers.
But Lewis warns, "For businesses to gain the full advantage of e-commerce does require considerable thinking. It's a great opportunity to look hard at the business model you are operating and eliminate a huge amount of wastage."
Servotech
www.servotech.co.nz
One company that has had to fit in with its key customers' procurement systems is Servotech Instrumentation Ltd. Servotech is an ISO 9001-accredited company that designs, manufactures, and repairs laboratory and industrial temperature equipment, mainly temperature probes and their associated electronic instrumentation. It's the only New Zealand company that specialises in temperature measurement.
Servotech has a network of specialist suppliers around the world, such as Japan, the UK, the US, Canada, Germany, and Asia, and sources raw materials such as stainless steel, cable, adhesives, and welding supplies from New Zealand suppliers.
Servotech customises products to customers' requirements, and offers fast delivery and high quality for virtually any temperature application. Its competitive advantage comes from its specialist knowledge of temperature probes, the ability to customise, and fast delivery of a quality product. Nearly 70 per cent of its business is repeat orders of existing designs for regular customers.
Servotech's three major customers, BHP NZ Steel, Fletcher Panel, and NZ Dairy/Anchor Milk all use electronic procurement systems. All three work with their key suppliers so they can place orders electronically. BHP NZ Steel, for instance, has automated its inventory system. When stock gets low, an email order is automatically sent to Servotech to supply.
Servotech plans to upgrade its Web site with an interactive catalogue, showing existing customers their special probes, with part numbers. Customers will be able to place an order by point-and-click, or build their own probe on screen and click to order it. Currently Servotech takes payment from the site using credit cards, but once the new site is up they will progress to electronic invoicing and purchasing.
B2B: Finding New Customers and Overcoming Distance
Talbot Plastics
talbotplastics.com
Talbot Plastics Ltd is a private company that was established in 1972 to provide specialist custom injection-moulding and tool-making services. Well over half the company's output is exported, and the majority of its New Zealand customers are exporters in their own right.
Talbot Plastics was originally set up to serve South Island industry, but its customers now range from Invercargill to Auckland as well as Singapore, the Philippines, Japan, Indonesia, the United States, the Pacific Islands, and Australia. Its customers are generally manufacturers who value quality and service, and require technical back-up and continuous product and process development.
Manager Steve Wilson explains how they have made the Internet an important marketing and sales channel. "We are certainly not e-commerce whizzes at Talbot Plastics. While e-commerce plays a major part in our business and its development, it is very much at the `oily rag' end of the technology spectrum. There is nothing particularly clever or glamorous about what we do. We have a crude Web site, but it is not important to us, as we have very few proprietary lines that we want to use it as a shop window for.
"We use the Internet extensively to establish and maintain contact with export customers. We begin by researching potential new customers (generally in the US), and then we cold-call on them by e-mail. Because we can carefully target customers whom we can be fairly sure of attracting, the success rate is good. These initial cold calls include a simple company profile in Word, photos of our factory and myself (to personalise the approach), and details of referees and their email addresses. When we have attracted some interest, and we have convinced a customer to send us a digital design file of a plastic part or assembly they want us to price, we try to get a quotation back on their desktop by the next morning. We use the key strategic advantage that we are awake, and at work, while they sleep.
"We offer to have rapid prototypes made for them and, if they agree, we courier them via FedEx or DHL. Often we can get a prototype on their desk within a week to 10 days of their original enquiry. That impresses them. In the early days of a relationship this is important.
"Once we convince a customer to email us an order for a new mould (generally in the $10,000 to $50,000 range), and telegraphically transfer us a tooling deposit, we then send them digital photos showing the progress with tool-making, to cover the natural nervousness of sending money to the other side of the world, and not being sure that anything is happening for it.
"Generally, once a relationship is established, it becomes a steady one. We probably get to know our Internet-based customers better than our local ones, as email communication forces you to personalise things, and to be explicit.
"Our experience illustrates what a leveller the Internet can be, if it is used effectively. Furthermore, it allows a customer to fit their own image to a supplier, based entirely on performance. It gives a New Zealand supplier with customers in other time zones a competitive advantage that helps off-set the distance from its markets."
Needlecraft Distributors Ltd
www.needlecraft.co.nz
Needlecraft Distributors is a supplier of embroidery and patchwork requisites, based in Palmerston North, and calls itself "the largest specialist stitching supplies retailer in New Zealand". Needlecraft has three channels: the shop, the mail-order business, and the Web site.
The Needlecraft site has an electronic catalogue to display patchwork fabric and embroidery supplies. This has several advantages over the tabloid publication Needlecraft News, which is published bi-monthly, with only some pages in colour. The Web site is updated weekly and all samples are in colour. While some of Needlecraft's customers do not wish to order on-line, they use the virtual catalogue on the Web site to select their purchases.
Another benefit of the on-line catalogue is that designers see the site and approach Needlecraft to carry their products. This has meant reduced travel costs. The owners used to travel to the United States to find new products but now find that they can view these on the suppliers' and manufacturers' Web sites.
Needlecraft's Managing Director, Vallis Peet, says: "The Internet has opened the world for our business, both in additional customers and in helping us find new and exciting products to add to our range. I recommend getting on to the Net ASAP but make sure you update your site frequently, otherwise the hits will stop coming. The Internet and e-commerce will only continue to grow, and those businesses that do not have Web sites will miss out."
B2C: Mail Order Gets Wired
E-tailing has taken off in the United States, and is the public face of e-commerce. Most people have heard of the on-line bookstore Amazon.com. While Amazon has been phenomenally successful in capturing global attention and market share, it has yet to make a profit. In New Zealand, attempts at mass-market e-tailing have not been all that successful. On-line supermarket shopping is probably the most successful example, but that is probably because it caters to a niche market - those people who are too busy to do the weekly shopping themselves and can afford the delivery charge. Indeed, in New Zealand successful e-tailers have tended to be those businesses that cater to a niche market, often combined with a global outlook. Consequently they don't have a very high profile in the media.
Companies best equipped for B2C or "e-tailing" are those that already sell by mail order, as these companies have already addressed many of the issues that arise from the e-tailing business model (such as fulfilling orders). Those retailers that move into e-tailing must decide what it means for the focus of their business, and how they will manage a whole range of issues from marketing, fulfilment and customer relations to how to manage returns. Of course, if your business is based on a product that can be delivered digitally via the Internet, like software or music, then obviously the Internet is the way to go.
What exactly is a "global niche"? Good question. The "global niche" can be defined as a market that is too small to be profitable in any one locality, but becomes viable when aggregated on a global scale.
OBO is an example of an existing business that has established Web-based transactions in addition to traditional channels. Many B2C e-commerce examples start off as a traditional business ("bricks and mortar") and then develop their on-line channel ("clicks and mortar").
Some e-tailers use the Internet to create an entirely new business model, creating extra value for their customers and themselves. One of those is International Cars Direct, a New Zealand importer of used Japanese cars - to order.
Cranium.co.nz
www.cranium.co.nz
The founders of Cranium Music know about catering to a niche market and thinking globally. The guys at Cranium are based near Hamilton, but their site, selling a rather specialised range of music, attracts enthusiasts from all round the world. The site offers CDs, LPs, videos and books for sale (with free shipping to "anywhere on the planet"), a searchable catalogue, links to other sites of interest, discussion forums, free MP3 downloads, and a sense of community through a shared interest.
Cranium shows how New Zealand e-tailers can be successful, not by emulating the mass market approach of an Amazon, but by selling to a "global niche" in this case by being a supplier to the world of Progressive, Space, Kraut Rock, Psychedelic, Electronic, and Experimental music from all around the world, and backing that up by being a clearing-house of information on such music.
OBO Goal Keeping
www.obo.co.nz
OBO sells protective hockey gear for goalies. Based in Palmerston North, it is already a market leader, with annual sales totalling nearly $3 million. One third of its market is in Europe, where it has up to 60 per cent market share in some countries. OBO went into manufacturing in 1992, and eight years later the gold-, silver-, and bronze-medal teams at the Olympics in Sydney were wearing OBO gear.
OBO sells a niche product, and the New Zealand market is small. But there are 100,000 goalies in 120 countries round the world, and OBO can now reach them directly via its Web site. OBO sells via agents in 15 countries, with another 11 handled by the European agent. OBO's Web presence, www.obo.co.nz, has enabled the company to reach a much wider audience than that previously served by agents.
The site is working well - there are now 100,000 visitors to the site annually and around $150,000 in sales. But it is important that the site should not compete with the existing distribution channel in the biggest markets. Prices through the site are higher than those through the agent network, so that the retail presence is maintained in key markets.
Company director Simon Barnett says: "The Web site has been an enormous effort. You can imagine that a company that is set up to deal with 15 agents is quite different from one that sells to 100,000 people. The site is very information- and communication-oriented. We are pretty clear that it is a support mechanism for the brand and the sale of equipment through the agents - and we will pick up the odd sale here and there."
A strong relationship with field hockey goalies has been made by establishing a virtual community. Barnett comments: "We sponsor goalkeepers. We email out to 900-1000 people bi-weekly, and give them the opportunity to ask an expert about the game and the equipment, join a database, link to other hockey sites, and seek readers' opinions. We try to get people involved by having their photo on the Web site. If we can get people involved, they'll love the brand name and the image and the feelings that go with it.
"We use the Web site for research and development through focus groups. We give a topic such as goal-keeping shoes - is there a need for them? What features should they have? What pricing? The focus group is carefully selected off the database, given the brief, and asked to respond by the end of the week with their opinions. People write pages and pages… We circulate the responses by email, draw them together, ask for comments on the final summary, and then write the product brief for the shoe. It costs us almost nothing."
Barnett summarises succinctly: "You need to distil a key point of difference. What is the point of difference you are providing that is relevant to the market? You need to be able to provide it in an on-going way."
International Cars Direct
www.carsdirect.co.nz
Cars Direct is the virtual side of a Christchurch car company. They offer 3,000 cars to choose from on their Web site, half of which are in New Zealand already, and the remainder in Japan. If you can't find the car you want, you can specify your requirements - such as make, model, year, engine size, mileage, colour, any other features, and maximum price - and Cars Direct's representative will contact you by phone.
When you have decided what you want, Cars Direct's Japanese agent will try to source the car from Japan. Once the car has been located, photographs are taken inside and out and e-mailed to Cars Direct for the prospective customer to look at. If you are still interested, the car is shipped to New Zealand for your inspection.
Even after freight costs have been included, prices are somewhat lower than usual, because most vehicles are bought by the customer who initiated the order, rather than waiting in the yard for a buyer to turn up. The agent saves on inventory costs, and the customer gets the benefit of buying in the huge Japanese market. Other features offered include the ability to search the database to compare features and get the best deal, as well as warranties, finance, and leasing options. The advantage is that the customer is buying from a licensed New Zealand motor vehicle dealer, based in New Zealand, and subject to New Zealand consumer law - with premises in central Christchurch. Today, Cars Direct is doing more than 60 per cent of their business via the Internet.
Internet-Only Businesses
Many B2B business models could not have been implemented in the pre-Internet world, because they depend totally on its connectivity. One of these is Sparesfinder. Sometimes people manage to create a successful business out of their own enthusiasms. Arts & Letters Daily is a case in point.
Sparesfinder.com
www.sparesfinder.com
Not yet three years old, Sparesfinder has already signed up all the major companies in the petro-chemical industry in Australia, New Zealand, and the North Sea, and almost all those in the power generation industry. With sales and representation on all five continents, Sparesfinder.com is now a global business.
Engineering consultant Brian Oxenham used to walk around large engineering and manufacturing firms every day, and observed that almost every site carried far too big an inventory of spare parts. Thousands, sometimes millions, of dollars worth.
Ironically, parts not needed at one site could be desperately wanted elsewhere, even within the same company. But with no secondary market with which to sell or trade surplus parts, there was no easy way for buyers and sellers to find each other.
One evening Oxenham asked colleague Stephen Herstell, "Could we do this?" "I thought it was an absolutely brilliant idea," says Herstell, "and we did."
The result is an entirely Web-based business. Clients, typically large industrial companies, pay an annual subscription per site. For that they receive easily loaded software that plugs into their own inventory control database and automatically updates their stocks of spare parts to the Sparesfinder.com Web database. Viewing rights for the information can be restricted so that only the parent company's world-wide sites can see the data, or unrestricted so that any other client can use the data, depending on the client's requirements.
Users looking for a spare part on the Web site use a simple text-based search engine, doing away with complex, inter-site cataloguing issues. "We have been able to jump over this problem by using a fuzzy logic search engine," says Herstell.
If a match can be found among the 34 million items currently listed, (with a combined value of US$1 billion) clients are guaranteed the telephone number of one or more sites holding the part within 90 seconds.
"We simply provide a matching service … we don't take any part of the transaction, which could be in cash, a swap or a loan," Mr Herstell says. "We're working with one large client who expects to save ?250 million, just by connecting their various site inventories together around the world. They expect to make this saving through avoiding purchasing, and by sites collaborating and sharing stock which will lead to sites carrying lower stock levels."
To make their initial idea a reality, the co-founders worked out their business model in detail. This included offering the service globally via the Internet, and extending the marketing of the service internationally using franchise agreements. The model also included no administration, employees or large assets and no corporate presence outside the Internet.
The development of the database software, Web site and management system was contracted out to Hamilton-based Internet specialist CSE. It was a six-month job.
Today, Sparesfinder.com is purely a marketing company. "The site provides a one-stop shop for industrial clients to optimise multi-site engineering inventories and to locate engineering spare parts at best cost," says Herstell.
"Marketing to prospective users is easy. Clients are impressed just by showing them the system as it is. The idea was simple - an obviously sensible market proposition we could deliver efficiently using the Internet and technology, ending up with effectively a zero marginal-cost base."
Arts & Letters Daily
www.cybereditions.com/aldaily/
Back in 1998, an academic at the University of Canterbury, Denis Dutton, started an e-zine called Arts & Letters Daily ("Ideas, criticism, debate")
Denis Dutton explains the thinking behind his project: "At this stage in its evolution the Web resembles a typical Australian gold field, with vast mountains of low-grade ore.
"Mining in both cases can be arduous. On the Internet it means sifting through endless streams of verbose, under-edited, often self-indulgent prose, frequently accompanied by tedious graphics that negate the 'instant information' advantage of the Web.
"Precious nuggets of real content are there to be found, however, and it's the mission of Arts & Letters Daily to extract them for our readers."
Arts & Letters Daily was free, and provided readers with a fascinating range of tidbits and articles from the Web on a range of topics, from literature to politics. Unlike similar US e-zines, such as Slate (www.slate.com) or Salon (www.salon.com), Dutton's project didn't involve a large team of people, advertising, or much graphic design. Nor was it actively marketed; instead, it attracted readers on the basis of its content, the old-fashioned way - by word of mouth. Readers tended to be people with an interest in the arts, and with a taste for irony and irreverence - well read, somewhat sceptical of hype. Dutton "got out of bed early" every morning for a year to produce a new edition of his e-zine. As the months went by, the readership became increasingly international. When he received a substantial offer from a US company to buy Arts & Letters Daily, he accepted.
Dutton explains: "As the Web has continued to grow, so must we. In November 1999 we agreed to be acquired by University Business, LLC (subsequently renamed Academic Partners, LLC), which publishes University Business and Lingua Franca magazines. This new partnership will provide the resources necessary to continue mining the ever-expanding Web. With more sifters in our crew and valuable technical support, we will continue to pan and elect from among the most intellectually stimulating sites on the Internet, updating daily, and making the best of the Web available at a click."
Today, Arts & Letters continues with Denis Dutton as Editor, and a team of people carrying on the good work within the original editorial guidelines.
B2B Exchanges
What exactly do we mean when we say that B2B improves internal business processes and streamlines the relationships between businesses?
B2B exchanges are a new Internet-based trading model that pundits believe will bring huge efficiencies to B2B relationships. A B2B Exchange is a centralised on-line market-place where businesses can buy and sell goods and services from each other. One example is the trading of New Zealand's wholesale electricity, which takes place entirely electronically in an on-line exchange run by www.m-co.co.nz.
An example of an exchange dealing in physical goods is the LIGNUS trading exchange. The exchange was set up in March 2000 by two Christchurch brothers, John and Rodney McVicar, who teamed up with Cardinal Enterprise Systems to develop a global electronic trading portal for the timber industry. The McVicar family has been in the timber industry for four generations and the brothers left the family company, McVicar Timber Group, to establish Lignus Corporation.
The Timber Industry Federation is right behind the LIGNUS portal. According to Chief Executive Wayne Coffey, the Federation exists o promote more efficient business, "and this site will do that."
For more information, take a look at the LIGNUS site, and note its distinctive features. It also covers the basics well, being simple to navigate, easy to use, and secure.
The LIGNUS Trading Exchange
www.lignus.co.nz
LIGNUS is a neutral trading exchange for logs and timber. It enables buyers and sellers to negotiate and directly transact with one another through its marketplace. The LIGNUS exchange is leading the way in bringing the competitive advantages of e-commerce to the wood industry. As a neutral, negotiation-based trading exchange, LIGNUS serves both buyers and sellers.
All members can trade faster and easier, across town or across the world. Missed phone calls and faxes, and the double-handling of information are eliminated. Fewer errors, less paperwork, and faster transactions mean reduced costs, tighter inventory controls, and more time to focus on business.
Membership is open only to approved wood industry organisations, and is free. There are no set-up fees, and no licenses. A 1 per cent transaction fee is charged to the seller; while buyers pay no fees. All members of LIGNUS are security-and credit-checked to protect other members of the trading community.
LIGNUS is accessed by individual members through their own private window. It enables the detailed specification of product and terms, facilitates negotiations between trading members, enables binding transactions to be formed, issues invoices and purchase orders, and then stores all historical information on the trade in the members' private areas.
LIGNUS does not own, buy, or sell any products itself; it simply provides a secure trading exchange for buyers and sellers. It eliminates the barriers of time, distance, and market knowledge to enable smooth business trading in solid timber, logs, panel, plywood, veneer, and chip. LIGNUS members include forest owners who sell logs, saw-millers who buy logs and sell timber, panel manufacturers and veneer mills who buy logs, industry brokers and traders, wholesalers, and retailers. Members trade both domestically and internationally on LIGNUS.
LIGNUS was founded on three important principles: neutrality, functionality, and relationships. These guiding principles ensure that traders on the exchange remain in control.
neutrality LIGNUS is a completely neutral and independent organisation formed to operate a global exchange for professionals in the wood industry. Neutrality is vital to the successful operation of any trading exchange. Buyers and sellers must be able to come together in a fair and impartial environment to do business. Members must be treated equally whether they are buying or selling. Neutrality is critical to general security and ensuring that commercially-sensitive information is kept confidential at all times.
functionality LIGNUS uses state-of-the-art-software to provide its members with the most sophisticated and secure electronic exchange available today. All organisations have different business processes - but traders shouldn't have to change these to operate on-line. LIGNUS members are able to transfer their present trading practices to an easy to use, efficient electronic environment. Members make contact, negotiate, and conclude binding agreements with other members based on their own product specifications, price, and terms and conditions. LIGNUS does not make the rules. Members choose which currency they want to deal in, what the price will be, what the terms will be, and most importantly, who they want do business with.
relationships The wood industry succeeds by virtue of well-developed and valuable relationships that are based on trust and quality. The ability to maintain and service existing relationships is as important as the ability to forge new relationships. LIGNUS puts the control firmly in the hands of its members, who choose whom they trade with, who sees their offers, whom they negotiate with, and whether they remain anonymous. LIGNUS gives traders the flexibility to operate different pricing strategies and control how they leverage their existing relationships. Using LIGNUS, traders can:
- offer to sell a product for a particular price or under certain terms and conditions
- make an offer to buy a product and specify what price they want to pay
- search a database of products for sale
- search a database of products wanted
- specify what type of offers they are interested in
- directly receive offers that match their interest profile
- negotiate the price and terms and conditions they want, and
- conclude a contractually-binding deal.
For buyers, LIGNUS helps optimise purchasing decisions, and reduces transaction time and cost. Buyers use LIGNUS to increase their choice of suppliers, discover new products and negotiate the best prices.
For sellers, LIGNUS makes selling logs and lumber easier, cost-effective, and efficient, giving instant access to a whole new group of qualified customers. Sellers use LIGNUS to reduce their cost of sales, and forward sell to optimise production planning, optimise purchasing and production decisions, and reduce inventory. For international traders, LIGNUS brings the power of global communication to the desktop, instantaneously, across countries and time zones. LIGNUS is a 24 hours a day, 7 days a week, 365 days a year managed electronic environment.
LIGNUS will increase traders' market knowledge, lower the cost of entering new markets, and create opportunities for new and profitable business relationships. Traders don't have to worry about technology specifications, expensive hardware or software investment, or specialist IT skills.
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