The Outlook for E-Commerce in the Window & Door Industry
Approaching the holidays, on-line shopping appeared to be the major story of the evening news every night. Amazon.com’s founder was named Time’s Man of the Year. The Super Bowl was renamed the Dot Com Bowl by many as Web-based businesses appeared to dominate this annual advertising showcase. E-commerce is the undeniable buzzword of the business world as we enter the new century and the window and door industry is not immune.
“Everybody knows they have to do it and that’s where it’s going,” states Richard Boyce, president of Bidmaster, Inc. “Some are really moving aggressively. With everybody really busy right now with the strong economy, however, some are not focusing on it as much as they might want to be or as they need to be.”
“There’s a growing interest among customers and prospective customers in using the Web to do business,” reports Mike Owens, national sales manager, DCC Woodware Systems. “Even if it’s not something they plan to do this year, it’s something most customers are talking about. They want to know what else is being done, what their competitors are doing, and what they might have to do to keep up.”
“E-commerce has evolved into a business necessity,” says Bill James, national sales manager for First Systech International. “Almost all of ou software clients are asking about E-business services now.” “With larger companies, it’s the buzzword right now,” states Diane Huybers, president of Computers Mean Business, Inc. Some small companies, she notes, are still relatively oblivious to the concept of E-commerce, but she projects its use will grow at a rapid rate and become well-accepted within about two years.
Byron Hansen, director of electronic commerce for Distribution Management Systems, Inc., (DMSi) offers a similar projection, suggesting that companies ordering windows and doors via Web-based catalogs will be the norm in about two years. In the market right now, he sees a great deal of interest. That interest, in part, is from the general notoriety of the Internet right now, but he also points out that many companies out there are always looking for better ways of doing things.
The level of interest and discussion is high, although activity, as far as implementation of true E-commerce systems, has yet to catch up, suggests Joe Thompson, vice president of business development for EdgeNet Media. Yet, he also projects E-commerce will be the norm for business-to-business transactions within 24 months. “E-commerce in this industry is much more complex than selling hats or T-shirts on the Web,” Thompson points out. Like most of the other suppliers, however, he does not see technical issues as the primary challenge. “The major constraints to true E-commerce are sorting out who’s selling to who and when.”
There’s a real push for E-commerce solutions now, states John Rowell, director of E-business for Friedman Corp., but segregation and differentiation of the customer base remain key issues to be dealt with. Flexible front-end Web-based systems can be established that meet the dealer’s need to take an order, check inventory status, etc., while at the same time, they can also be set up to act as a tutorial, so even a consumer can configure and order a window, he explains. But few manufacturers want to compete with their own customer base, he explains. In working to roll out systems with manufacturers, the questions start to arise: is the transaction going to be consumer to manufacturer, consumer to manufacturer with the order going through the dealer, or consumer to dealer? Addressing the structural issues between manufacturers and dealers takes time, he states.
Suppliers of software agree not only that E-commerce is coming to the window and door industry, but also that it’s likely to have a big impact on the way individual companies do business and the relations they have with their suppliers and customers.
Elements of E-commerce have been in place in the window and door business for some time. Electronic catalogs and software packages for product configuration and quoting are now the norm. Transactions between dealers and distributors, distributors and manufacturers, and manufacturers and component suppliers are also being done regularly through EDI (electronic data interchange) systems.
When people speak of E-commerce now, however, the discussion focuses on bringing all these various activities to the Internet. “Electronic catalog use has become widespread. These enable dealers or distributors to get quotes,” notes Owens. “Now, we’re designing these systems to be Web-enabled, providing a direct link that makes them more of a true E-commerce solution.”
“The basic goal of most companies is to get to the point where all products can be ordered electronically,” Boyce states. “They want their catalogs on the Web, enabling users to get a price and place an order.” Stand-alone configuration packages or electronic catalogs automate elements of the process, but it doesn’t necessarily do pricing, Hansen notes. An order has to be submitted, the customer has to wait for an acknowledgement, and there usually is some negotiation in the process, he explains. EDI links are also much more cumbersome and don’t support a fully graphic interface. Web-based catalogs work in real-time, enabling a user to build a total unit, see the price, and place the order, he continues.
Bringing product configuration and order entry to the Web will enable the dealer to enter an order and be done with it and provide immediate pricing, Thompson agrees. Currently, the industry is relying on hybrid systems rather than true E-commerce, he adds. Field-based configuration and ordering systems are being used, and in many cases, orders are being placed using E-mail attachments.
Going up the chain, Owens notes, many distributors have already established some sort of connectivity with their manufacturer suppliers using EDI. He suspects that many will maintain these existing links, just for convenience and security reasons, but more are moving to Web-based systems. “It’s more cost-effective, and you can do more with the graphic interface.” Simply stated, E-commerce is the act of conducting business over the Internet, states James. It includes the many-to-one solution: the sales of stock and configured products (special/custom products) to a large base of prospective customers, and the one-to-many solution or procurement that allows you to purchase on-line and to request quotes from many different vendors/suppliers.
Looking at the benefits of Web technology, Owens suggests, “It’s simply another, better way to communicate with customers. It can provide immediate information.” It’s hard to imagine how business was done before the fax machine, he continues, and the Web simply is the next step in improving the efficiency of communications and transactions.
Why are companies choosing to move to the Internet for their business-to-business and consumer-direct transactions? Systech’s James says the main reasons offered by customers are to increase sales, to make it easier for customers to do business with them, to allow customers to place orders at their convenience.
From a distributor’s perspective, Web-based commerce systems offer reduced cost and increased customer service, states DMSi’s Hansen. Salespeople can spend less time putting quotes together and more time talking to customers and developing prospects. They’re not always playing phone tag.
For their lumber yard and dealer customers, it provides a real benefit in that they receive much more control, Hansen continues. Web-based systems enable them not only to place orders, but also check the status of prior orders.
Bidmaster’s Boyce suggests that a major benefit is that products are ordered correctly the first time. At Home Depot, he reports, as many as 33 percent of window orders were incorrect or incomplete in the past. The manufacturer would get an order and have to call the Home Depot associate, then he or she would have to call the buyer to get the correct information. It would slow down the whole process and throw off lead times. With electronic ordering, that figure is down to less than 3 percent, he states.
Owens sees the big box retailers driving a lot of the E-commerce activity. “Because of the volumes they offer, they’re changing the way their suppliers do business in many ways.” Whether it’s bar coding or Web-based ordering, manufacturers and distributors continue to develop new systems to meet the needs of these customers, the Woodware executive explains. Big box retailers are not the only factor, however. There are also a lot of distributors which are implementing E-commerce strategies to meet the demands of smaller customers, whether its smaller chains or builders, he notes.
Contractor and builder customers are even more excited about this approach than the lumber yards and retail dealers, suggests Hansen. They can place orders 24-hours a day. They typically work in the odd hours and like to be able to place orders on a Saturday morning or in the evening. “Builders are busy and may want to order products at night. Remodelers too,” agrees Boyce. Manufacturers, distributors, and retailers see that if you make it easy for them to get access, 24 hours a day, these customers will take advantage of it.
Edgenet’s Thompson sees demand coming primarily from this grass roots level. Contractors, homebuilders, and architects are very comfortable browsing the Internet and they’re asking their distributors and dealers for more services on their Web sites. Distributors and dealers, in turn, are making the noise that’s getting manufacturers interested in E-commerce, he states.
There are market demands for E-commerce, Boyce states. He adds, however, that much of the development activity is not so much targeted at meeting any particular end user group’s demands or achieving specific benefits, but rather by the competitive nature of the business. “People believe that this is the way it’s going to be and they want to get a jump on the competition.”
Manufacturers recognize E-commerce as a competitive tool, Thompson agrees. If you look at a multi-line distributor that has the choice of two complex ordering systems and one that’s easy to use, he states, “all things being fairly equal, it’s clear the distributor is going to sell more products with the system that’s easy to use.”
For window and door manufacturers, it’s seen as a “tremendous competitive edge,” states Rowell. Their main goal is increased market share, and the improved service level E-commerce provides is “the number one motivator.” Controlling the costs of order management or reducing the costs of sales, those are secondary issues, the Friedman executive reports.
Replacement window manufacturers are eager to maintain the image that they’re at the leading edge, Huybers adds. Although their dealers aren’t necessarily demanding E-commerce packages, manufacturers of these products, particularly larger ones, definitely see the establishment of such a system as a good tool to impress and build loyalty in their dealer bases, she continues. “Creating a beautiful looking, and efficiently operating quotation and ordering system is a valuable dealer service.”
Although no one foresees any challenges that can’t be overcome, software suppliers agree that there are numerous hurdles toward greater use of E-commerce systems in the window and door business.
Until recently, many of the limitations of Web-based systems focused security issues, Owens notes. Now firewalls and encryption technology are available and the cost of these measures is low enough, that he doesn’t see that as a major factor.
Security issues are no longer a real factor, Rowell agrees. Pointing to people will still not provide credit card numbers over the Web, he states, however, that it is still a psychological factor that causes hesitation among companies.
Traditionally, the complexity of this industry’s products, with all the different sizes and options, has been seen as the primary challenge to automating various tasks. That challenge has already been addressed now, states Boyce, with the creation of electronic catalogs. “Everyone knows these systems are available now and understands how they work. Bringing them to the web is not that difficult,” he states.
The complexity of window and door products has been addressed to a great extent, agrees Hansen. The major hurdle to bringing these systems to the Web he sees is the attitude of many companies to let somebody else do it first.
Owens suggests that despite the widespread use of electronic catalogs and automated quoting systems, some distributors remain skeptical about the possibilities of E-commerce. His customers report that, in many cases, their own sales guys continue to go out and do take-offs on a jobsite for a builder or contractor. These types of customers may want to use the Web to check on an order status or for other information, but there are many which don’t want to take on the task of understanding all the different window requirements and entering the orders themselves.
He sees other issues as problematic. Windows, doors, and millwork are large and bulky to ship. You can’t just pack them up and send them out UPS. Many companies or locations only service a 200 mile radius, but with the web, you can reach anybody. One of his customers, he reports, has decided not to take orders on the Web, because they only want to work in a given area. Others have reached out to new customers, even consumers, shipping simple items like shutters or columns. In these cases, he notes, however, there are concerns about installation and warranties.
According to Rowell, many manufacturers are already finding ways to address such issues through affiliate agreements with other companies. If an order comes from outside a company’s business area, it might be fed to another firm in exchange for a commission, he suggests.
Owens’ projection for the most likely scenario for most companies in this industry is the use of a password-based web sites designed to service existing customers. Thompson agrees, stating that business-to-business will be the primary form of electronic commerce in this industry for the foreseeable future. The DIY segment of the business is relatively small, he notes. Consumers may want to browse the Web to see various features and options, but when it comes time to buy, most will go to traditional sources. He does foresee the Web encouraging consumers to “shop around” more.
Huybers notes that that is one concern she’s heard voiced by replacement window manufacturers. Those selling higher-priced product fear that once consumers find lower priced options on the Web, they won’t consider the higher priced windows, even if they are considerably higher quality.
If a site is targeted at consumers, Web-based order entry does present a limitation in that it potentially allows competitors access to sensitive pricing information, notes Sherif El-Dibani of Computers Mean Business.Flexible front end systems can address many of the limitations, asserts Friedman’s Rowell. Log-in requirements for dealers can address pricing concerns. For consumers, a tutorial can be built in to the order entry process that explains such factors as rough openings versus net openings, what argon gas is, etc., he explains.
Such systems are ready to be rolled out by a number of manufacturers, he continues. The hurdles he sees relate to those companies and individuals in the business that are still not up and running technologically. “There are a lot of old school guys out there,” he states, “and some of them still generate a lot of business.”
GOING UP THE CHAIN
Nick Carter, president of Woodware, sees E-commerce having a tremendous potential impact on the relationship between manufacturers and distributors. Eventually, he sees manufacturers and distributors moving toward a Wal-Mart model, where the manufacturer would manage inventory for the distributor. Under such a system, the manufacturer would monitor the distributor’s inventory and automatically replenish (or suggest it’s time to replenish) items on a regular basis.
Electronic relationships between manufacturers and distributors are going to increase, suggests DMSi’s Hansen. It may be a different interface, retaining more of an EDI approach, but he sees manufacturers using computer interfaces to monitor inventory levels at various distribution location. He also sees regularly downloading of new product information, pricing changes, and other data exchange that eventually will become a transparent process, on an on-going basis, conducted via the Web.
The future, in which manufacturers can monitor distributor or retailer inventories, automate ordering between various companies, is further down the road, Boyce suggests. This approach is already in place in numerous industries, but it’s still further off in the future for the window, door, and millwork business. “Unlike the auto industry,” he notes, for example, “there are so many manufacturers to start with.” Then moving down to the distributor and retailer level, there are so many individual companies competing for each order that they tend to be very close with their information. In the auto business, the Bidmaster executive continues, if a customer comes looking for a car and the dealer doesn’t have it, it can use a computer system to see if a dealer in the next town has it. That kind of thing doesn’t happen in this industry. Additionally, he states, there are so many software vendors and so many inventory systems, that a bridge has to be developed.
“Ultimately, that’s where it’s going to go, but the industry will have to change,” Boyce states. “There’s going to have to be a lot more trust.” “For it to work, everyone has to buy into it,” states Edgenet’s Thompson. He sees many potential benefits as well as increased discussion in establishing such links between manufacturer and distributor ERP systems, but he too emphasizes how such links can change the dynamics of a relationship between companies.
Rowell sees relations among manufacturers and their dealers becoming closer with E-commerce, because they’ll have to say “Let’s sit down and talk.” Each will have to make clear how it wants to deal with customers and how it wants to be dealt with.
Looking at the establishment of greater links between component suppliers and and window and door manufacturers, Huybers notes that while manufacturers have not been demanding it, suppliers have voiced a strong interest in finding ways to better monitor their customers inventory levels and needs. Suppliers see huge potential in being able to see what a manufacturer is using and when it is likely to need more. Interest is coming from suppliers of extrusions, glass, hardware, weatherstrip, and everything down to fasteners. It will probably take a couple of years, but people are beginning to grasp the benefits these types of systems could bring and interest is growing, she states.
Friedman’s Rowell sees interest on the part of many manufacturers for more automated commerce with suppliers, but suggests many suppliers aren’t ready. His firm’s manufacturer customers, he reports, want “a fully-closed loop, E-business solution.” He points to a door manufacturer with an ERP system already capable of automatically ordering hardware, glass lites, and other components. The suppliers of these products just aren’t technologically advanced to accommodate the door manufacturer yet.
This is where the Web can really help window manufacturers, suggests El-Dibani. “Imagine being able to communicate with your profile supplier to learn about their current delivery schedule, levels of inventory for a particular profile, or even the production schedule for the next few weeks. Then imagine your supplier being able to find out how much inventory you have and what is the scheduled and forecast usage of a particular part in your inventory,” he explains.
The impact on manufacturers’ and suppliers’ decision-making processes will be “enormous,” he continues. “You will be able to reduce your inventory levels, keep your promised delivery dates, and even lower your costs of production, to mention only a few of the benefits.”
EFFECT ON THE PLAYING FIELD
Although most of these suppliers report that larger companies are pursuing E-commerce strategies most aggressively, just about all suggest that one effect of these technological developments could be a levelling of the playing field. Most also don’t foresee E-commerce jeopardizing traditional channels of distribution.
“Fundamentally, electronic commerce will bring better accuracy and increase the speed of the window and door business,” Boyce concludes. Lead times will be reduced and more companies will operate with a just-in-time approach, as efficiency is improved throughout the process from sales to delivery.
He sees electronic commerce systems as levelling the playing field to a great extent in this industry. The costs of creating and operating an E-commerce system are fairly proportional to a company’s overall sales, he notes. “It provides both the smaller guy and the larger company with an opportunity and that’s a good thing.” He sees the advantages of these types of systems going primarily to those companies which are up and running with them first.
In terms of changing the relationships or the structure of the industry, E-commerce is going to have an impact, but it doesn’t mean the distributor is going to go away, Hansen states. The distributor must accept the challenge of cutting costs and providing good service, and E-commerce systems are simply new tools that allow the distributor to be more effective and more cost competitive than it would be for a manufacturer to maintain direct links to dealers, he explains.
Rather than supporting the larger industry players, he sees E-commerce technology as favoring the smaller operation. There are economies of scale advantages that remain for the larger players, but E-commerce can make smaller firms very competitive on a service level and on an image level, he asserts. “The little guy can put as good a web site up as the larger firm.” He even foresees smaller firms using these types of systems to form new alliances. A window and door company could set up a presence with a siding distributor or some other type of firm to provide a full service site for customers, he suggests.
Also suggesting that E-commerce has the potential to level the playing field somewhat is Edgenet’s Thompson, who points out that smaller companies can make the types of decisions required to establish a system more quickly. “The smaller manufacturer, with a smaller number of distributors, can connect the dots a lot faster,” he states.
E-commerce is certainly coming into the industry, but Owens concludes that it should not be seen as an end in itself.
“The main aim of E-commerce is faster turnaround time. It’s part of the overall trend to touch and handle products as little as possible,” he states. “In some ways, it’s a big change, but for most businesses, the key remains establishing and maintaining relationships. Are you able to meet customers’ needs? Get them the things they want when they want them?,” he concludes. “Web-based systems can be a useful tool, but they can also be a secondary issue compared with other challenges.”