THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, July 1, 1996 TAG: 9606290158
SECTION: BUSINESS WEEKLY PAGE: 8 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY DAVE MAYFIELD, BUSINESS WEEKLY
LENGTH: 318 lines
A year ago, Eastern Data Inc. was almost exclusively a local enterprise. Today, the Virginia Beach-based reseller of data-processing equipment and supplies goes nationwide. It's done business as far away as Hawaii.
The difference is electronic commerce.
Turning on a computer in their Lynnhaven office, Eastern Data's brother team of Gary and Chuck Reich each day browse through dozens of electronic bid requests from government agencies across the country.
They've zapped through their modem more than $1 million in winning bids for contracts from 200 federal purchasing offices outside Hampton Roads in just over a year.
``It's caused a dramatic change in the way we do business,'' says Chuck Reich, who dubbed himself director of electronic commerce for the seven-person company.
Eastern Data is one of the latest on board a fast-moving train that's helping to dramatically reshape our economic landscape. All across the country, businesses, government agencies and individuals are using computers more and more to buy and sell products and services.
The Internet, the fast-growing and much-hyped global computer network, is part of this trend. It's widely expected to become a mass marketplace.
But the Net now barely accounts for even a smidgeon of total electronic commerce.
Private networks that require some prior authorization to participate handle the other 99.9 percent of dollars exchanged electronically for goods and services.
A large part of this commerce is business-to-business. It's corporations like Wal-Mart Stores Inc. and Ford Motor Co. flashing purchase orders to their suppliers: computer to computer. INPUT, a Mountain View, Calif., research firm, estimates the global value of all this activity, known as Electronic Data Interchange, at more than $130 billion last year.
This trend isn't immediately apparent to most of us. But its impacts are large.
The increased automation of ordering and order-processing is eliminating thousands, perhaps tens of thousands, of jobs each month in specialties like purchasing, invoicing and funds transfer. The Fairfax-based oil giant, Mobil Corp., slashed its accounts payable staff by 70 percent alone when it implemented Electronic Data Interchange with suppliers last fall.
The nearly instantaneous nature of computer-to-computer communications is also taking a toll on loggers, paper-mill workers and warehousemen. Paperwork is cut dramatically when printed invoices and purchase orders give way to electronic versions. And there's not nearly the need to stockpile goods when your company can use computers to constantly monitor its customers' demand and then ship to them just in time.
Which leads to some of the positive effects of electronic commerce. Better inventory control means less risk of pileups of unsold goods - the result of which historically has been factory shutdowns and a downward spiral toward recessions that can smash millions of jobs.
The consumer benefits of electronic commerce are big, too, says Benjamin Wright, a Dallas-based attorney and author who edits a quarterly journal of the field known as EDI Forum.
When companies and their suppliers adopt it, he says, ``they're not merely replacing paper. They're drawing their trading partners up close to one another and saying, `I'm going to talk to you all day long.' Take Wal-Mart and Levi Strauss, for example. Wal-Mart tells Levi what pair of blue jeans it sells, every time it sells one at each and every store.''
That lets manufacturers respond to consumer demand much more quickly, and to experiment more with new products, Wright says.
The U.S. government, the biggest buyer of them all, is a Johnny-come-lately to electronic commerce. But federal agencies are taking the plunge, goosed by a 1993 order by President Clinton calling for government-wide use of Electronic Data Interchange by next year.
Although problems with implementing that order will likely delay universal government use of electronic commerce for at least a few more years, just about every federal branch is soliciting some bids and awarding some contracts electronically.
The aims of the government's effort are different in some respects from private industry's. For one thing, Uncle Sam hopes to increase the number of bidders for contracts. In the commercial world, companies using Electronic Data Interchange typically whittle the number of suppliers and form stronger bonds with those that remain.
But in other ways, the government's and industry's aims are the same. Administration officials hope by using electronic commerce to tilt the government toward just-in-time purchasing and make costly depots and warehouses obsolete.
They also hope to cut the cost of processing transactions with contractors as much as 70 percent.
In a downsizing environment, there's simply no alternative but to go electronic, says Mark Lumer, director of contracts for the Huntsville, Ala.-based Army Space and Strategic Defense Command.
Lumer, who spoke last week at a procurement conference in Chesapeake, says his procurement staff has been cut from 95 people to 64 in the past four years. His experience mirrors that of nearly every government agency and is fast turning time-consuming paperwork into procurement officers' Enemy No. 1, Lumer says.
``If you haven't invested in computer technology to do business with us,'' he told contractors at the conference, ``the train has left or is just about to leave the station.''
Because of its reliance on the military, no area in the country will be more transformed by the government's growing embrace of electronic commerce than Hampton Roads. More than 100,000 local civilians owe their livelihoods - directly or indirectly - to government contracting.
And the biggest local contractor of them all, Newport News Shipbuilding, has heard Uncle Sam's message: loud and clear.
The shipyard, in partnership with several other companies, is pursuing a Navy contract worth an estimated $6 billion to $8 billion to build and handle the lifetime maintenance of 12 advanced amphibious ships known as LPDs.
One of the main criteria for who wins the contract is how well the competing shipyards and their partners and suppliers are geared to exchange information and payments electronically, says Stephen C. Hassell, director of the yard's process innovation systems team.
The Navy intends to be part of that open electronic line as well, Hassell adds.
``In a sense, what we're doing with our partners, customers and suppliers,'' he says, ``is form a virtual enterprise in which the end product is the ship.''
For Newport News Shipbuilding, the effort has involved considerable streamlining and some catching up.
Hassell says the yard had about 300 mainline computer systems in January. His goal is to cut that number to 50 and get them talking to each other more effectively.
Electronic mail, which is widely used by its largest customer, the Navy, is virtually non-existent at the yard. But Hassell projects about 4,500 Internet e-mail addresses for yard managers and workers by early next year.
The shipyard will push computers and access to them down in the organization to create what Hassell calls a ``shared data environment.'' That will help people ``make decisions as close as possible to where the work is being done,'' he says.
Another of the yard's big efforts is to get its suppliers on board the electronic ship. It's set up an Internet homepage to communicate general information to them. Eventually, Hassell says the yard will routinely post requests for bids, send purchase orders and exchange technical information via computer.
Newport News Shipbuilding was moving in these directions even before the Navy's prodding, Hassell says. Yard executives realized that, ``the key to being more competitive is being able to collaborate more with outside entities, be they suppliers or previous competitors.''
An essential means of accomplishing this, Hassell says, is computer-to-computer communications.
Hassell's rosy outlook on this dramatic shift isn't shared by everybody in the Hampton Roads contracting community.
Take Deborah Williamson. Her experience with Electronic Uncle Sam has been largely negative so far.
She's the president and owner of Virginia Beach-based Rayco Supply Inc., which distributes valves and other industrial products.
About a year ago, Williamson plunged her company into Electronic Data Interchange with the government - at the urging, she says, of federal contracting officers. She plunked down $7,000 for a new computer system and has spent a couple of thousand dollars more on fees and phone calls to a private computer network that serves as an electronic intermediary between contractors and the government.
For all that, she's won less than $25,000 of contracts electronically, Williamson says. At her margins, that's translated into only a few hundred dollars in profits.
One big reason for her frustration is that local Navy contracting authorities aren't using the government's electronic procurement network. They and most of the rest of the Navy stopped doing so last August until problems with the network are resolved - chief among them, its inability sometimes to capture the truly lowest bids.
Even successful exploiters of the network, like Eastern Data's Reich, say they've been burned by their bids getting hung up. Reich says he's lost count of the number of contracts he's lost this way. One recent one, to supply computer supplies to an Army command, would have been worth $44,000 to his company.
``The margin on it was so low,'' he says, ``it wasn't worth the trouble of protesting it.''
Rayco's Williamson says she tries to be patient. Electronic commerce is a huge undertaking. ``But they had people jump on board before they were ready,'' she says.
Her only solace is her belief that contracting by computer is here to stay. ``Hopefully, we'll have a track record where other people won't,'' Williamson says. ``That's the reason why we're biting the bullet and we're still biting it hard.''
The problems with the Federal Acquisition Network, or FACNET, have created a loud debate in contracting circles. Many believe the government should concede that it's been defeated technologically, stop trying to develop a proprietary architecture - and hitch its post instead to that rapidly growing public free-for-all of a network known as the Internet.
Indeed, a few agencies like NASA are already using the Internet exclusively to post certain contract solicitations. ``FACNET is cumbersome and the Internet is user-friendly and easily accessed,'' says Sandra S. Ray, a contracting officer at NASA's Langley Research Center in Hampton.
The Navy hasn't given any signal that it, too, plans to veer toward the Internet. But Nenette Day, Electronic Data Interchange coordinator for the Navy's Fleet and Industrial Supplier Center in Norfolk, says the options are open.
``They'll either get FACNET worked out or we'll find some way to get it worked out without them,'' she says. ``It'll be solved one way or another.''
Day is an enthusiastic agent for electronic commerce. She's helping set up a Defense Logistics Agency-funded pilot of an electronic catalog for Norfolk-based ships and shoreside commands. Tentatively slated to start in October, it will give participating vendors the opportunity to continually add items and change prices. Potentially hundreds of thousands of office-supply items, tools and repair parts will be included. The catalog will be accessible to ships via satellite, and Navy buyers will typically use credit cards to make purchases.
The vendors will be paid electronically as well - through fund transfers to their banks.
``The entire thing will be electronic,'' Day says. ``There will not be any paper.''
Initiatives like this strengthen the arguments of electronic commerce's advocates that it's time to join up - or be left behind.
``It's not a rose garden. It's a thorny bush and you'll get brambles all over you,'' Bosquet N. Wev Jr., outreach director for the Fairfax Electronic Commerce Resource Center, told contractors at last week's procurement conference in Chesapeake.
But the government, like the rest of the world, is moving forward - problems and all. ``They've decided it's better to do an 80 percent solution,'' he said, ``than wait for it to be perfect.'' MEMO: EFT
ELECTRONIC TRANSMISSION OF PAYMENT TO ONE'S BANK ACCOUNT
In the federal government's road toward electronic commerce, you can
mark this one as deadline No. 1: July 26, 1996.
Under a provision of the Debt Collection Improvement Act passed by
Congress earlier this year, that is the date on which all new recipients
of federal payments will have to begin receiving those payments via
something known as electronic funds transfer. This includes new
recipients of Social Security payments and anybody who wins a new
federal contract starting that day.
By Jan. 1, 1999, all federal payments must be made electronically.
The only exception to the law: Internal Revenue Service payments.
Basically, EFT is the electronic transmission of a payment to one's
account in a bank.
JoAnn R. Boutelle, who helps manage electronic commerce programs for
the Defense Department's Finance and and Accounting Service, says for
federal contractors the shift toward EFT as a payment means requires
some preparation.
They need to make sure that their banks are set up to handle
Electronic Data Interchange, she says. Without the accompanying data on
what each funds transfer covers, Boutelle says, contractors may have
difficulty matching the payments with specific items in their accounts
payable.
If their banks aren't capable of Electronic Data Interchange,
contractors may need to make an arrangement with the procurement offices
of agencies with which they have contracts to get hard copies detailing
the payments. Eventually, contractors should be able to hire a separate
data intermediary known as a value-added network to provide the
accompanying payment information, she says.
- By DAVE MAYFIELD
SEVANET
HELPS COMPANIES FIGURE OUT A WAY TO USE THE INTERNET TO DO BUSINESS
He's sold welding machines to a sculptor in Minneapolis, a landscape
architect in Atlanta and a car mechanic in Durango, Mexico. His sales
channel: the Internet.
Ken Benassi, Hampton Roads regional manager for National Welders
Supply Co., said since he posted his company's first homepage on the
sprawling global computer network last fall, he's processed about
$12,000 worth of orders from customers in cyberspace.
It's a drop in the bucket. The Charlotte-based National Welders does
$120 million in sales a year, mostly to industrial customers.
But Internet business is business that National Welders wouldn't
otherwise have had. And it's let the company inexpensively test a
technology and sales channel that pundits predict will be a mass market
someday.
National Welders' Hampton Roads operation is one of a couple of dozen
companies participating in a state-subsidized experiment conducted
through Christopher Newport University in Newport News.
The aim of the project, through an arm of the university known as
SEVANET, is to help companies figure out a way to use the Internet to do
business.
Benassi says he's never quite sure how National Welders' Internet
customers get to the company's site. He's gotten inquiries from as far
away as Australia. The customers pay by money order or credit card, some
simply sending their card numbers to National Welders electronically
with no spoken words ever exchanged.
To participate in the project, it has cost National Welders about
$1,500 in the first year. Benassi plans to stay in the project as long
as it lasts.
``This is another channel of distribution, another way, to get to
potential markets,'' he explains.
- By DAVE MAYFIELD
RESOURCES
Federal contractors looking for more information on electronic
commerce or Electronic Data Interchange can turn to these sources:
-Virginia's Center for Innovative Technology. The state agency has a
regional director, Karen Jackson, who helps local companies learn how to
use Electronic Data Interchange. CIT and the Hampton Roads Technology
Alliance are co-sponsoring two 4-hour seminars July 16 at the Quality
Inn, Hampton, on electronic commerce. Price: $50 per seminar. Speakers
will include representatives from Newport News Shipbuilding, the
University of Virginia and the Norfolk-based law firm of Vandeventer
Black Meredith & Martin. Call Jackson at her CIT office in Chesapeake by
July 5 to register. 523-2920.
-Electronic Commerce Resource Center, Fairfax. A federally funded
operation that holds seminars and publishes materials on electronic
commerce with the government. 800-691-3867.
-Procurement Assistance Center, Petersburg. Part of the Crater
District Planning District Commission, this federally funded operation
provides general assistance to contractors. 804-861-1667.
-In addition, Hampton Roads congressmen Owen B. Pickett, Norman
Sisisky and Bobby Scott all have sponsored seminars on Electronic Data
Interchange and dedicated staff members to dealing with contractor
issues. ILLUSTRATION: [Cover, Color illustration]
MAKING MONEY WITHOUT PAPER
JOHN EARLE
The Virginian-Pilot
[Color Photo]
RICHARD L. DUNSTON
The Virginian-Pilot
JoAnn R. Boutelle
[Color Photo]
JIM WALKER
The Virginian-Pilot
Stephen C. Hassell
[Color Photo]
JIM WALKER
The Virginian-Pilot
Ken Benassi
KEYWORDS: PROFILE ELECTRONIC COMMERCE by CNB