Investor's Business Daily
By J. Bonasia
December 28, 2001
"Dot-Com Debacle Taught Some How Net Could Work For Them - Loss of big customer led Owens & Minor to build an extranet to share data "
Managers and investors are still picking up the pieces one year after the dot-com train wreck. But Internet companies and brick-and-mortar firms have drawn crucial lessons from the rubble.
The dumb concepts are gone. Pets.com expected to make money shipping cat litter nationwide.
These pioneers delivered a wake-up call to older firms that suddenly feared being left out.
Top firms now use the Internet to boost sales, speed internal processes and improve collaboration. The best ones have adopted Net strategies to gain an edge. Owens & Minor, a leading distributor of medical and surgical supplies, uses the Internet to share product data. Don Stoller, director of information management, says the Net may have even saved the 119-year-old company.
"If we didn't adopt this new technology, we'd have fallen behind."
In 1998, Owens & Minor's largest client, Columbia/HCA Healthcare, canceled its contract. That cost O&M about $ 360 million in lost sales, or 12% of its total.
Wake-Up Call
Owens & Minor embarked on a plan to build a supply chain extranet to share product data online. The goal was to help customers and suppliers track inventory, costs and shipping times. That led them to negotiate better deals.
"You've got to have a technology infrastructure in place to be a survivor," Stoller said. "The Internet is a great vehicle."
Owens & Minor used software from Business Objects SA to let trading partners view product data over the Net. Such data had been locked up in mainframes.
"Before, they had to ask for a sales history report at the end of the month," Stoller said. "It's a lot more productive to just punch into the Net and get it."
The extranet has been a deal-clincher. Stoller says it's helped O&M land $ 100 million in new business the last three years. "A lot of deals came our way because of these tools," he said.
Cutting Overhead
Owens & Minor also deployed business intelligence software to cut inefficiency. It slashed 300,000 products to 140,000, and 2,000 suppliers to 1,400.
"By reducing our inventory investment, we can run leaner," Stoller said. "With fewer suppliers, we carry less weight."
Mattel's Web strategy evolved as it learned from its mistakes.
Mattel moved onto the Web by acquiring Pleasant Co. of Middleton, Wis., in 1998. That firm had a direct consumer business called American Girl, which sold educational dolls over the Web only.
Once Mattel absorbed American Girl, it rolled out similar e-commerce sites for Barbie, Hot Wheels and Fisher-Price. But Chief Information Officer Joe Eckroth says the headlong rush into direct sales was a mistake. "It doesn't make sense to spend $ 2 to ship a $ 10 Barbie doll," he said.
Mattel also found its Web sales caused too much friction with retail partners such as Wal-Mart, Target and Kmart. "Retailers got up in arms about competing with us on the Web," Eckroth said.
Now Mattel maintains branded Web sites to promote products. Consumer sales are made at the retailers' sites. This cuts Mattel's site costs and gives it access to new data about toy buying.
In addition, Mattel earns more shelf space on toy store floors by sending sales from its branded sites to retail partners.
"That's our reward," he said.
Mattel used software from Oracle to build a system for online order management and direct marketing. It also uses a homegrown warehouse management tool.
Like Owens & Minor, Mattel created an internal portal and an extranet to manage product data. Eckroth says the new mattel.com saved the company $ 500,000 on printing and communication costs since it launched in June.
Perhaps no pure dot-com has fared as well as auctioneer eBay Inc. Spokesman Kevin Pursglove says eBay was the first company to use the Internet to connect large groups of buyers and sellers. It generates $ 26 million in daily transactions among 37 million users.
EBay's unique model differed from most dot-coms. It taps the public's passion for swapping and collecting. It has no sales staff, inventory or warehouse.
"There is no land-based analog to eBay," Pursglove said.
Sellers pay 30 cents to $ 3.30 to post each item. Then eBay gets 1.25% to 5% on all final sales.
Lately the company has expanded beyond collectibles. It also directs sales from firms such as IBM and Home Depot. So far, large sellers make up just 5% of sales.
Pursglove says founder Pierre Omidyar and CEO Meg Whitman stuck to some basic rules.
"Expenditures don't grow faster than revenue. Every dollar invested must have $ 1 or more in return," he said. "The first wave of the Internet had a few successes and a large number of wipeouts, but it established the foundation," he said. "The future for the Internet is very bright indeed."
