CASE STUDY

Adding value to the supply chain via e-commerce

How one local company does it

Tony Waltham

IT companies seem to be the pioneers which are deploying the very technology that they sell to others, and probably one of the best exponents of electronic commerce in Thailand at the moment is hardware and software distributor The Value Systems.

This company has the goal of getting 90 percent of its 1,000 dealers nationwide to get online to place orders for computers, peripherals and software and by the end of this year to increase its online revenues to be 20 percent of its total.

President of The Value Systems Narong Intanate sees that in two to three years, the company's on-line transactions will increase to become the majority of its sales through its dealer network and, having successfully implemented this business-to-business ecommerce system, that the company could add in some additional products, such as telecommunications products, using the same processes.

Mr Narong sees a lot of opportunities for e-commerce here, although he feels that the Government is holding the country back by not deregulating telecommunications and in not stepping in to reduce Internet costs or passing laws to support the electronic infrastructure. However, he acknowledges that theNational Electronics and Computer Technology Centre (Nectec) has been doing its best with the resources it has.

His company, an IT-products distributor for over 15 years that represents leading computer and peripherals manufacturers including Hewlett-Packard, Compaq, Microsoft, Sun Microsystems, Apple Computer and 3Com has taken an initiative that has put it ahead of other such companies throughout the region, enabling its network of dealers to place on-line orders over the Internet and to check inventory in the company's warehouse in real-time.

This real-world example of business-to-business e-commerce here went live at the beginning of this year with a web-based application designed in-house and built to interface with an SQL database by a third party developer over a period of six months.

He explained that this "extranet" system servicing The Value System's dealer network was essentially an extension of the company's internal intranet. The company now owns the source code to the system and it is working on the next generation version that would incorporate many more features that will support multiple warehouses as well as to serve as a portal for its dealer community, which may communicate with each other.

Since the Value System's on-line system went live at the beginning of this year it has seen a steady growth in the number of hits each month, as well as in the revenues _ and profits _ from products ordered in this way.

Mr Narong notes that he offers incentives for dealers to place their orders electronically, rather than by using the telephone to contact sales staff. These include a 0.5 percent reduction in price for ordering this way and regular price promotions that only apply for products ordered over the Internet.

In addition, orders can be fulfilled on the same day if ordered through Value's E-business network, as opposed to the next day when ordered over the telephone, and Narong is working on a points system incentive campaign to encourage its dealers to take the electronic route to ordering stock.

When dealers earn enough "miles" by placing orders this way, they will become eligible to qualify for a free Internet account that The Value Systems will provide in conjunction with Internet Thailand, Mr Narong said.

One of the biggest problems that ecommerce faces in Thailand is slow Internet connections through some of the ISPs here that do not have sufficient bandwidth, he explained.

"This is not a problem at our end, where we have a 64Kbps leased line connection with LoxInfo and a 256Kbps connection with Internet Thailand, which in Thai terms is a superhighway," he said.

"However, we feel we need to solve the problem for some of our dealers where Internet access may be slow _ sometimes this is too slow for our server," he noted, adding that the points system would be one way to reward dealers with a good and reliable Internet connection.

Other challenges to e-commerce encountered included the behaviour or habit of dealers, who find it hard to break with their customary haggling with The Value Systems' sales people in efforts to try to get a better price.

However, Mr Narong also admitted that The Value Systems needed to invest more effort in better matching product prices to its dealers, since these prices were different for each dealer, depending on their market segment.

With some 20,000 different items in stock, it would not be a small task to fine tune this, he added.

The Value Systems may be a pioneer in distributing IT products using this electronic system, but Mr Narong already believes that all current and future services that the company offers will be web-based.

So far, the electronic ordering of products from dealers already amounts to around 1 per cent or revenues, and Mr Narong has charts that clearly plot the rapid growth in popularity of this new channel of business.

In January, some 81 dealers connected with The Value's NT servers located in the Charn Issara, while this had jumped to over 250 in April and by July numbered almost 500 hits from dealers.

Mr Narong hopes that the role of its telephone sales staff, who today spend 70 percent of their working time taking orders and selling products and 30 percent managing the dealers, will change to mean that they spend 70 percent of this time managing the dealers.

He also sees the e-business solution as a competitive weapon and he hopes to be able to take over some market share from the competition _ and this is a share of what is now a growing market.

While The Value System's sales of all IT products in the first quarter of 1999 dipped by 10 percent, they jumped by 31 percent in the second quarter, meaning that sales for the first half of the year for the company were up by 10 percent.

But, extrapolating on trends, Mr Narong now estimates that sales for the second half of this year will by up by 73 percent over the same period of last year, for an overall boost in sales of 35 percent.

Mr Narong has also contacted his suppliers, the leading global IT product manufacturers, about being able to log into his system and automatically replenish his stock that is getting low. But while this is being practised in North America, no supplier here is ready to do this yet, he notes.

He also believes that if his company is to continue to exist in its role as a distributor, essentially as a middleman, it has to do this e-business service.

Mr Narong observed that he was a little surprised that not a single dealer of computer products here had explored the idea of offering on-line sales of IT products with him.

This would be easy to do, given the Value Systems' interface. He stressed that his company intended to continue as a supplier to dealers, rather than to engage in any form of direct sales.

Perhaps it will be someone "totally new" who might provide such a service here, he predicts, noting that we are now in a new era, the Internet era, and that only a few of those from the "PC era" of computers are making the transition.

"Even me... I am still talking here about extending my business," Mr Narong said, although he adds that there is no reason why the distribution model he is perfecting for IT products could not be applied to a completely different line of business.

Today, The Value Systems is probably the best example of a local company that is implementing the principles of electronic commerce and that, as a result, is gaining invaluable experience and insights into this efficient way of conducting its business. And, as such, what Mr Narong is doing today should serve as an excellent example for other companies here.