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Moving Metals Online
Why Internet marketplaces are the future for the global wire and wire rod industry

By Jim Knott

People around the world are harnessing the power of the online marketplace. From airline tickets to advanced electronics, tungsten to tires, the Internet is a shopper's paradise -- a 24-hour buying frenzy featuring reduced costs and increased efficiencies.

While many in the consumer marketplace – such as Amazon.com and eBay – have pioneered and capitalized on this new medium, business-to-business e-commerce is now poised to make a similar dramatic impact on the commercial marketplace – and the metals industry. Expediting the buying and selling process, increased control of surpluses, ease of transactions and more choice of product and suppliers are just a few of the advantages of a business-to-business online metals community. e-commerce is not just a tool of the new economy – it’s a tool of the real economy.

The Online Advantage

As the pace of e-commerce continues to increase at warp speed, the wire industry will be led by those companies that can deliver, supply and market product faster than their competitors. e-commerce, with its unlimited potential for communication, information and speed, is the answer. Developing a business-to-business sales chain, however, is a complex process that requires time – much more than business-to-consumer transactions.

Most wire production is highly customized, requiring detailed communications between producers and purchasers -- much more interaction than a catalog-based purchase or the consumer market. In addition, the needs of just-in-time delivery and the question of price versus quality add further complexity to the process. Despite these inherent problems, many business-to-business e-commerce communities – such as MetalSite – have developed successful technologies to navigate these complexities. Now a viable, sophisticated and proven new medium exists for business-to-business transactions – and it will be coming soon to the wire and rod sectors of our industry.

A study by the investment bank Dresdner Kleinwort and Benson estimates that companies using e-commerce venues could slash procurement costs by 10 percent – an almost incalculable saving. Such business-to-business efforts, according to a Goldman, Sachs and Co. economic study, will boost the long-term annual economic growth of industrialized nations by .25 percent.

Indeed, it is no surprise that most experts agree business-to-business e-commerce is poised for a period of hyper-growth throughout the world. In Germany alone, total Internet transactions are expected to reach 68.5 billion marks by 2004. In fact, e-commerce's share of the total business-to-business market is expected to double or triple in each of the next several years, reaching nearly 10 percent of the total market -- or $1.7 trillion (US) -- by 2003.

The wire industry – through the development of commerce communities – stands to greatly benefit from this e-commerce explosion. An e-commerce community brings all parties of the industry together in a single online marketplace – providing a one-stop source for information while facilitating the buying or selling of wire products. Unlike online auction houses and distributors, commerce communities provide full-service solutions to specific industries.

Today, online steel communities such as MetalSite.net, provide greater sales flexibility and synergies for participants. MetalSite allows suppliers and buyers to participate in auctions, standard pricing sales, online negotiations or to initiate a request for quote. In essence, participants can do business the same way they did with a telephone and fax machine – only faster, cheaper and with access to more customers throughout the world.

According to the investment firm of Morgan Stanley Dean Witter, 50 percent of the steel spot market sales in the U.S., Japan and Europe may be sold through the Internet by 2001 – a total of more than 79 million tons of steel. The firm also asserted that companies moving quickly to integrate Internet technology with their business will expand their customer base, increase average price realizations by at least $50 per ton and achieve 5 percent savings in operating cost.

Steel industry executives must be listening. For example, since MetalSite facilitated its first transaction in 1998, more than 50 sellers and 19,000 users have registered to participate in its services. As the Internet becomes even more integrated into typical business functions, it won’t be long until business-to-business e-commerce transactions are the method of choice within the wire industry.

10 Tips for Selecting an e-commerce Partner

Choosing the right e-commerce partner is a crucial decision. Switching partners can be very costly once a relationship is established and a history of electronic records is built. Like any business investment, take the time to research and identify a partner that best fits your needs. Here are ten items commonly cited as important factors for choosing an e-commerce provider.

1. Critical mass. In the site selection process, a business will examine the number of related companies in the region before relocating. The same is true for relocating a business in the cyber world. Successful e-commerce partners have established working relationships with a high volume of businesses. More sellers and buyers participating in a marketplace provide more sales and purchasing opportunities for each participant.
2. Product depth and breadth. Not only should the electronic marketplace offer products from numerous sellers, but also it should provide a wide range of product types and extensive product information.
3. Industry awareness. A good online marketplace is easy to use, structured to make sense to users in that industry sector and sensitive to user input. Businesses should be wary of auction houses and commerce communities that are not tailored specifically to their industry – industry processes may not be accounted for and well represented.
4. Global reach. One of the major advantages of online transactions is an expanded customer/supplier base from around the world. Regionally focused commerce communities do not maximize the benefits of the Internet.
5. Flexibility. Some sales work best through different methods. e-commerce communities should accommodate various methods for business transactions. For example, MetalSite conducts daily sealed-bid auctions, provides a product guide for list pricing, contract pricing and online negotiations and offers a request for quote functionality, plus various other transaction procedures.
6. Integration. Electronic marketplaces should assist electronic integration across business processes, including buying and selling, enterprise resource planning (ERP), accounting and inventory management from one computer system to another through a wide range of electronic formats from EDI to XML.
7. Technical support. As businesses transfer their work online, quality online communities should provide strong technical support to assist with system glitches and user questions at all times.
8. Unbiased. The marketplace should provide equal access and opportunity to all participants. MetalSite, for instance, verifies its fair and impartial position by receiving an independent audit every six months from Arthur Andersen.
9. Security. Of course, one of the greatest fears of online transactions is the potential risk of unauthorized disclosure, either by the commerce partner or intruders. Seek assurances from the site provider that their site is secure and free from unintended information leaks.
10. First-mover advantage. Finally, experience matters. Even in a fledgling industry such as e-commerce, businesses with an established history have an enormous advantage. Commerce community leaders such as MetalSite can offer efficient and effective business transactions, tailored directly to steel companies, in order to help them take advantage of e-commerce’s opportunities.

Considering the benefits of e-commerce, in terms of reduced business costs, increased competitiveness and time efficiencies, the effort made to evaluate and join the e-commerce revolution could be one of the smartest investments your company will make this year.

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