In its second-largest acquisition, Amazon buys the company for $970 million.
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At O’Reilly Auto Parts, Beck plans to use the Internet to reach two goals: to get 90% of suppliers exchanging documents with it electronically, up from 60% today, and to let suppliers receive constant updates on demand forecasts from O’Reilly’s internal supply chain management system for its stores and distribution centers. The internal system from San Francisco-based Nonstop Solutions Inc. gathers and analyzes customer purchasing data at the point of sale to provide product demand forecasts.
By migrating its EDI system to the Internet, Beck says, the lower transaction costs will make it easier to engage more small suppliers-a crucial step toward reaching its 90% goal. He expects to include even his smallest suppliers, such as Minneapolis-based Solar, a provider of car battery accessories such as booster packs and converters for alternate current. O’Reilly buys only three SKUs from Solar, compared to thousands of SKUs from larger suppliers.
Retailers of apparel and other items sourced from small, foreign suppliers have often had the hardest time establishing electronic data transfers.
Neiman Marcus Group Inc., for instance, buys from a large number of boutique suppliers of luxury items and channels its orders and communications through agents in Asia and other areas. In the past, Neiman Marcus received information from these boutique suppliers by phone or fax at its Dallas headquarters. Now, working with a supply chain management application from Qiva Inc., a San Francisco-based provider of supply chain and logistics systems, Neiman Marcus arranges for its foreign boutique suppliers to fax, call or hand their information to a local sales agent who enters the data into a web-based system connected to headquarters.
Pressure from retailers and expectations of less costly and more efficient transmissions are not the only incentives for small suppliers to participate in web-based electronic document exchange systems. For some small suppliers, the motivation can come with the realization that connection to a web-based system can easily extend to integration with their back-end business software applications.
A cottage industry
So instead of just supporting the retailer’s desire to have purchase orders and other documents transferred electronically, the small supplier can save time and money by having the information in those electronic documents automatically update their own accounting, warehouse management and other back-end applications. Prices for back-end integration systems can vary widely. Manugistics, Rockville, Md., for example, offers a Web Connect integration tool kit that can cost about $200,000, depending on how many applications a user wants to integrate, Verheuvel says.
A number of business software vendors already provide integration between front-end web-based software and back-end software for small- and mid-size businesses, including Accpac International and Microsoft/Great Plains Small Business Solutions. The cost to implement such systems can vary widely based on such factors as a supplier’s number of products and the number of documents it exchanges with retailers, but a small supplier can expect to pay a few thousand dollars to implement an integrated system, plus several hundred dollars or more per month in fees, says Reg Cheney, business development officer for Edmonton, Alberta-based mBase, a software company that works with Accpac. And more integration providers are likely to crop up, says Pete Abell, director of retail research for AMR Research Inc. “You’ll see a cottage industry integrating software into Peachtree small-business accounting software,” he says.
A longer-term goal is for small suppliers to also participate in more sophisticated online collaboration with retailers, who would then be able to share real-time updates on changes in such areas as production flow and delivery times. Whenever it becomes known that intended merchandising plans will be killed by interruptions in delivery, supply chain systems can go a long way toward enabling retailers to take the best preemptive action. “Moving to the ‘Net will make it easier for small companies to join collaborative commerce,” says Bernard Goor, vice president, retail and consumer packaged goods, i2 Technologies.
How one small supplier moved to the web one step at a time
Acorn Manufacturing, a privately held company with 43 employees, makes hinges and other items used in installing cabinetry. For most of its 65 years, Acorn has used traditional mail to exchange purchase orders, invoices and other documents with customers ranging from local hardware stores to national chains like Ace Hardware Corp., Sears, Roebuck and Co. and The Home Depot Inc.
Business has been steady over the years, but Acorn’s system of exchanging documents was rife with data errors and untimely deliveries of purchase orders and invoices-common problems stemming from the manual entry of data into business documents. “There was so much manual labor and room for human error,” says Diana Macedo, office manager for the Mansfield, Mass., company.
Things started to change four years ago, when some of Acorn’s biggest customers demanded that it transmit and receive documents through electronic data interchange systems. Acorn then started using a service bureau to connect with EDI. Acorn would use a fax machine to exchange paper documents with the bureau, which would then translate and manually input Acorn’s data into a network connection to forward to the EDI systems.
But data-entry errors were still too common. And if just one character is wrong in an EDI invoice, Macedo says, Acorn wouldn’t get paid for it, and she would have to spend a lot of time rectifying the situation.