Intrigued by e-commerce but uncertain how to proceed? A good first step is to examine the economics of online buying

— By Abigail Kelly, Contributing Editor

The players differ significantly, but their stories all seem to start the same way. It was a year or two ago — maybe three or four for the veterans in the field — and one day in a meeting or over lunch, perhaps, somebody threw out an idea that made sense: Bring e-commerce to the facility arena, and we’ll improve the procurement process and tap into a market worth billions. The idea started small but grew fast, and soon employees were added and budgets increased. This was, everyone said, the Next Big Thing — facility executives would be quick to embrace a system that was faster and simpler than the traditional purchasing process.

Now, a short time later, the word is out on facility e-commerce, and scores of online procurement providers — some brand new, others offshoots of older companies — are clamoring for facility executives’ business. Each offers different tools, services and offerings, as well as its own philosophy on how best to harness the power of the Internet for facilities.

Despite this explosion, however, the actual volume of online purchasing in the facility marketplace remains low. While online purchasing of MRO products — whose lower costs and predictable demand cycles make for easy, low-risk e-purchases — is gaining speed steadily, online transactions involving major building systems and construction materials are still few and far between. And, says Brian Brown, president, manageStar.com, “online service provision is basically not happening at all yet.”

Executives at the online upstarts are far from discouraged, however. “I think we’re in the first inning,” says Brandon Oft, CEO, eFiltration.com. “Down the road, I predict that it will be a completely different story.”

Overcoming Hurdles
Online procurement providers understand that they face a number of obstacles. From the facility executive, their coveted customer, they perceive a mixture of fascination and lingering hesitancy, and they are the first to admit that the emergence of dozens of facility e-commerce providers almost overnight isn’t helping.

“All of a sudden you’ve got all these tech companies running into an industry that hasn’t done a lot with this technology,” says Terry Diaferio, vice president of e-business, EggSystems.com. “It’s getting very confusing very quickly.”

This confusion is a major reason why the e-procurement trend has yet to really sprout wings: Many facility executives are simply unsure how to proceed. And issues like spotty access to the Internet and concerns about security cloud the situation further. But the greatest obstacle, say e-commerce providers, is plain old habit.

Though facility executives will admit that their decades-old procurement processes are often rife with inefficiencies, few are eager to simply cast them aside. “When we meet with prospective customers, we spend 10 percent of the day talking about the technology, and 90 percent talking about how we are going to change the system and actually do it,” says John Bodrozic, president and co-founder, Meridian Project Systems.

When all is said and done, however, e-procurement providers are confident that facility executives will come around. “This is a substantial change,” says Chad MacDonald, CEO, ebuyxpress. “But the efficiencies are compelling. We’re replacing the phone and fax with what will be a much more efficient system.”

Industry insiders point to several major benefits of e-procurement. Ease of ordering tops the list, along with the time and money savings that come with eliminating steps and paperwork. “If you look at the total logistical work flow associated with placing an order as you traditionally would, receiving the order, processing the invoice, and sending off the payment, you can see why doing it all online in a few clicks will significantly streamline the process,” says Steve Braun, vice president of marketing, Grainger.com.

There’s another plus, proponents say: By allowing managers to place restrictions on which products can be ordered and how often, “maverick” purchasing can be reduced or eliminated. Most sites also offer tools that simplify the tracking of purchases as well as “shopping lists” that make reordering regularly purchased items fast and easy.

“Buying materials is not the core competency of facilities,” says Matthew Provenzano, marketing manager of SupplyCore.com. “By simplifying that process, you can divert your energy elsewhere.”

Additionally, online procurement “can automate processes so that people who don’t know how to put together a traditional bid, for instance, can go to the Web site and see how to do it right away,” says Kathryn Hughes, product manager of Energy.com’s business-to-business division. “It eliminates a great deal of research and cuts a task that once took days down to perhaps an hour.”

Whether online procurement will result in lower prices across the board is debatable. While some argue that the aggregation of many site users’ purchasing power will mean lower prices for a site’s customers, others believe the Internet will simply make pricing more consistent and ultimately force suppliers to compete more on the basis of service and relationships than pricing. Either way, the consensus is that simplifying the procurement process will produce savings.

“The cost of an item might be $10, and maybe through aggregation you can get it down to $8.50, but the real cost saving is in the reengineering of the process,” says ebuyxpress’ MacDonald. “You reduce multiple purchase orders, get just one invoice, just one shipping order — that’s where the real savings come in.”

Other potential benefits include the sites’ ability to provide nearly unlimited information about their products and to keep details like pricing and availability updated more effectively than catalogs can.

What’s more, proponents say, online purchasing provides a new level of flexibility through 24/7 access to procurement capabilities. “We’ve been surprised to see how much of our business comes in late at night,” says Kent Wills, CFO/CPO, FiltersRx.com.

A Time of Transition
With so many benefits to online procurement, why stay with a more traditional system? Along with the hassle of the transition, many facility executives are leery of replacing a knowledgeable and trusted manufacturer’s rep with a machine.

E-commerce providers are keenly aware of that wariness and are making efforts to address it. In some cases, that means forming alliances with suppliers or keeping local representatives on staff.

Facility executives who are concerned that preferred brands or product lines may be difficult to find online need not fear. Though not all manufacturers now make products available electronically, indications are that most soon will.

“The incentive is going to be demand from customers,” says Jason Pratt, director of product management, Buzzsaw.com. “They see that and are working on it.”

Ultimately, the e-commerce revolution will likely de-emphasize the role of the supply-chain middleman. It’s still difficult, however, to predict how things will shake out. “What will happen to distributors who today provide a very important service?” asks Jim Popeo, executive vice president of sales and marketing, Bricsnet.com. “We may find — and this hasn’t happened yet — that there are super-warehouses that are clearinghouses for manufacturers. But someone still has to deliver the product to the site.”

E-commerce providers across the board are emphasizing expert support via e-mail or phone. “We offer live customer service on our site,” says Jackie DeCarvalho, vice president, eLights.com.

“A site may say you can call us or e-mail us a question, and we promise to get back to you within 24 hours,” says Energy.com’s Hughes. “Give it a try — that’s a good litmus test to see what kind of service they will provide.”

Choosing Your Partners
The human touch is one criterion to look for in possible providers. But the list shouldn’t end there; industry insiders recommend that you evaluate an e-commerce provider much as you would any other prospective business partner. “You can’t give up the responsibility of being a good buyer just because you’re buying online,” says Daniel Miller, senior vice president of marketing, myFacilities.com.

As with any potential service provider, you should educate yourself about the depth of a company’s expertise — both technical and facility-related. “I’d look at what type of domain expertise the partner brings and be wary of anybody who just shows me a flashy Web site,” says Gina Haines, senior vice president of operations and co-founder, FacilityPro.com.

Given the number and variety of e-commerce options, it’s important to make sure a company’s core skill set matches your needs. “Look at the services that are provided and make sure that they are geared specifically toward your key priorities,” says Margaret Latshaw, managing director, RealCentric.

“There are a lot of companies out there trying to create procurement tools,” says Meridian Project Systems’ Bodrozic. “Does that mean we’re all competitors? No; we’re focusing on many different aspects of how people buy.”

Be sure to take a careful look at the Web site itself. The first thing to notice: Is it easy to navigate and use? “We emphasized a number of design features with the customer in mind,” says Raj Shah, co-founder and chief marketing officer, SiteStuff.com. “Keep it simple is our number one principle.”

Features that can enhance user-friendliness include straightforward search capabilities or pull-down menus that direct users to desired product categories. Graphics are another consideration — too many can clutter the site and slow downloading. Also, can you customize the site? Look for one that recognizes you as a user and gives you fast access to purchasing records or shopping lists.

Shopping and payment capabilities are also important. For example, can you find your products and proceed to checkout in just a few clicks? “You need to make sure the site has payment options that meet your internal system requirements,” says Jo Pierce, vice president of business development, Cleanfresh.com. “For instance, if your maintenance staff members don’t have company credit cards, you want to make sure the site allows them to order via an account.”

Walk Before You Run
Facility executives who devote some time now to thinking about their procurement process and learning how it might be improved by e-commerce are likely to reap the rewards; after all, eliminating inefficiencies and streamlining your processes next week is preferable to doing it six months from now. But there’s a lot to learn and little point in jumping in unprepared.

“It’s kind of a hairy jungle out there right now — there’s a lot to look at,” says Steve Keltz, vice president of marketing, ServiceChannel Inc. “You have to give a lot of thought to your total e-facility strategy.”

The task of weighing your options is likely to get easier as the market sorts itself out. “What I think you’ll find is that as Web sites start to evolve, they will all really focus on excelling in certain areas,” says myFacilities.com’s Miller. “I think you’ll see the sites become more specialized.”

In the meantime, many e-commerce companies point out that there’s nothing wrong with testing the waters. If you’re uncertain about plunging in head first, try online procurement with a few items you buy frequently and know price, delivery and performance. By experimenting with different sites, you can get a sense of differences and similarities, as well as which features matter to you. Learn how various companies handle questions, problems or returns. This will also give you a chance to learn the ways in which ordering alters or improves upon your usual purchasing process.

“Once people start looking at their cost of business, they see the potential to drive significant cost improvement, which is very exciting,” says FacilityPro.com’s Haines. “Before you know it, the issue isn’t where to start, but where to stop.”

Abigail Kelly is a writer who specializes in facility management issues. She is the former editor of EducationFM magazine.

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