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FINDING MIDDLE GROUND

Boise Cascade is using the Internet to lower costs, improve relationships with smaller suppliers and simplify the buying process



PC Week Online
September 22, 1997

The way most pundits see it, business to business Internet commerce will knock a lot of middlemen out of the supply chain. So, what's a poor intermediary to do? If you're $2 billion Boise Cascade Office Products Corp., you find ways to add value that an electronic medium can't duplicate, and you embrace the Internet as another way to make it easier for customers and suppliers to do business with you.

The Itasca, Ill., company, which is a go-between for 1,200 manufacturers and 17,000 customers, already has EDI (electronic data interchange) relationships with its major suppliers. However, Boise Cascade plans to tap the Internet to lower costs and improve relationships with its smaller suppliers. At the same time, the company is launching an aggressive Internet effort to simplify the buying process for its customers. The company must offer value-added services, "or we won't be around if the manufacturers start to provide all the services we could provide," says Laura Longcore, electronic commerce manager for Boise Cascade.

Experts say Boise Cascade will be insulated for a time because it offers a cost-effective way for customers to buy supplies. "But the Internet is already threatening the value of such 'store-and-forward' companies," notes Mike Moriarty, vice president and co-leader of the emerging technologies practice at A.T. Kearney, in Chicago.

One service Boise Cascade provides that can't be replicated over the Internet is a personal relationship. Boise Cascade's customers, particularly the Fortune 1000, like to get a weekly phone call or visit from a sales representative. "What you do is complement what the sales rep does, so the rep gets out of the order-taking business and focuses on selling, consulting and customer service," Longcore says.

VALUE IN THE MIDDLE
Boise Cascade's first step toward its value-added middleman approach is focusing on its customers, because reducing costs on that end goes directly to its bottom line. The company started offering Internet order placement in January, and so far, about 700 customers have signed on, exceeding expectations. Longcore figured about 1 percent to 2 percent of customers would sign up in the first year, but that number is on pace to increase to 5 percent by year's end and 10 percent by the close of 1998, she says. Customers are taking to the new approach because the intuitive nature of Web browsers makes it easier and faster to place orders over the Internet than by manually filling out forms, adds Laurie Beeson, vice president of marketing for Boise Cascade.

Customers go to Boise Cascade's public home page and enter the order site by typing in a user ID and a password. From there, they can peruse an online catalog of about 10,000 products. Or if they make regular purchases, they can call up "easy order forms" or file a template to order the same products they buy every month. Purchases are made online with common credit cards, such as Visa, American Express and MasterCard. By the end of the year, customers will be able to use digital cash to buy products.

Boise Cascade even has an answer for managers afraid of employees going online and making extravagant purchases. Through the use of IDs and passwords, the system knows who is making a purchase and what he or she is authorized to buy.

Boise Cascade's Internet effort has already paid for itself. The company paid "in the low hundred thousands" to set up the system, and after six months of operation, it has saved more than $1 million by reducing the time customer service representatives take orders on the phone, Longcore says.

Right now, about 80 percent of Boise Cascade's customers make their purchases over the phone or by fax. While some big customers have EDI connections with Boise Cascade, most find installing a VAN (value-added network) too costly. The Internet is at least 20 percent less expensive than using a VAN because it cuts out the cost of VAN transmissions, Longcore says. And customers don't have the added expense of buying new equipment and hiring experts to enable their systems to talk to Boise Cascade over a VAN.

The muscle behind Boise Cascade's Internet ordering system is I-97, a combination of E-commerce software developed in-house, and ECXpert, a package from Actra Business Systems Corp., of Sunnyvale, Calif. Boise Cascade used ECXpert to integrate I-97, which sits on a Solaris Web server, and its 3090 IBM mainframe, where all of its product and ordering information is stored. ECXpert has allowed Boise Cascade to translate its order status data on its mainframe into the new industry-standard EDIINT (Electronic Data Interchange Internet) document transfer protocol.

"That allows the documents to be transmitted in a secure fashion on the open Internet," says Mike Uomoto, a product manager for Actra, a joint venture of Netscape Communications Corp. and GE Information Services. "EDI over the Internet is much more cost-effective with EDIINT and is just as reliable and secure as traditional EDI implementations."

The next step for Boise Cascade is replacing its homegrown E-commerce application with Actra's full Internet commerce application, called SellerXpert. That new system, which will sit on the Web server, uses ECXpert to communicate with the mainframe, and brings a host of other E-commerce functions to bear, such as order management, payment and a next-generation electronic catalog, which will be stocked with Boise Cascade's legacy data, Uomoto says.

Boise Cascade looked at other products besides SellerXpert, including offerings from Open Market Inc., but a full implementation tying those systems into its mainframe would have run into the millions of dollars, Longcore says. The company also looked at alternatives to ECXpert, such as Templar from Premenos Technology Corp., but that particular product limited it to using only EDI formats.

On the supply side, Boise Cascade expects to work more closely with vendors next year to establish Internet E-commerce connections. The savings to Boise Cascade won't be as dramatic as that from cutting out the administrative costs of manual customer orders, but there are soft costs it can reduce. For example, by cutting paper out of the process, the company will get more accurate information and fewer returns. Also, online transactions will improve warehouse receiving procedures, eliminating the need for workers to crack open boxes to see exactly what's inside. Thanks to lower costs, "the Internet allows us more flexibility to partner with new suppliers than using VANs," Longcore adds.

How quickly Boise Cascade establishes Internet links with suppliers will depend largely on interest from those manufacturers. Interest isn't overwhelming, but the company is starting to hear from smaller suppliers that haven't been able to take advantage of EDI.

If the smaller suppliers can't get electronic access, they won't be able to enjoy the benefits coming to those who have EDI connections. For example, Boise Cascade will install a next-generation warehouse management system in about a year. The system is expected to improve the efficiency of EDI transactions and give suppliers real-time access into Boise Cascade's systems that track demand and inventory-stocking levels.

If the "exploration" reveals that only a few vendors want Internet access to the new system, it may be to Boise Cascade's advantage to give it to them. With business-to-business Internet commerce taking off, this is no time for a middleman to alienate its partners.



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