Distributors Adapt Via 'Re-intermediation'

SAN MATEO (01/28/2000) - THE MORNING AFTER Y2K, many IT leaders are waking up to a new fear: dis-intermediation. The dreaded "D" word carries the threat of getting "Amazoned" -- seeing your core business evaporate in the heat of emerging digital marketplaces.

But the threat also implies hope: Some traditional distributors are finding that the Web isn't always the enemy. Analysts are starting to recognize a move toward re-intermediation, the use of Web-based e-commerce systems to strengthen existing supply chains and business models rather than create new ones.

Companies such as Farmchem and Nebraska Book Company are, for example, taking action to make sure they are not the next casualties on the business-to-business e-commerce battlefield -- a battlefield that has moved into America's heartland.

Ames, Iowa may be a long way from Silicon Valley, but Dion Buhman, CIO of AgWizard, the online subsidiary of Farmchem, has set up shop in Ames with the mission of preserving Farmchem's supply chain by revolutionizing it.

"Our business puts us right in the middle of the supply chain for agricultural chemical parts -- things like sprayers, pumps, and meters," Buhman says.

Farmchem distributes these goods to dealers throughout the Midwest.

Traditionally, farmers bought chemical equipment from these local dealers.

Some of the farmers had discovered a new channel that circumvented this long-standing channel.

"There are now Web sites that sell directly to the grower," Buhman says. "This bypasses the distribution chain that makes up our core business."

So Farmchem created AgWizard. com to support its customers, the local dealers.

"We serve over 1,500 dealers," Buhman says. "With our Web site, www.agwizard.com, we are making it easy for them to do business [with us] on the Web."

Dealers can use the site to purchase goods online and create their own Web pages, which can be turned into a retail outlet that sells directly to the farmer.

"This gives the dealer a line of defense against Internet brokers," Buhman says. "We launched the site in mid-January, and we now have 250 cash-and-carry stores signed up."

"This is an example of re-intermediation," says Hollis Bischoff, an analyst at the Meta Group, in Stamford, Conn. "Distributors, wholesalers, and consolidators who were getting cut out of the loop by the dot-coms are finding they can get back into the game via the Web."

But it takes some effort. Farmchem had to create AgWizard and install eBizness suite from IPNet Solutions.

"The software enables our dealers to place orders and to customize their own Web storefronts," Buhman says. "It is all integrated into our database here in Ames."

Buhman hopes that farmers who had been lured away by other Web sites will find that AgWizard.com offers the best of both worlds: Web convenience and the personal touch of a local dealer.

Richard Finkelstein, an analyst at JK&B Capital, a venture firm in Chicago, says it is a safe bet that some of them will.

"It is a fallacy to assume that the distributor is just there to make money," Finkelstein says. "The question is not whether or not the distributor will survive in the new Internet economy, but rather how will they adapt to it?"

CollaTech, in Champaign, Ill., has developed a suite of applications called CyberVendor to help distributors adapt. Nebraska Book Company, a textbook wholesaler in Lincoln, Neb., using CollaTech's solution, is fighting to preserve its role in a supply chain that is rapidly evolving in the Internet economy.

Like Farmchem, Nebraska Book is using the Web to enable bookstores not only to browse catalogs and order books, but also to set up their own Web storefronts.

"We can give our customers the benefit of CollaTech's expertise in e-commerce combined with our knowledge of campus book selling," says Mark Oppegard, president of Nebraska Book Company. "We are creating a solution that helps bookstores increase sales and profitability."

The Meta Group's Bischoff says we can expect to see a lot more of these solutions soon: "It is one of the hottest areas in e-commerce right now. We call it PRM [Partner Relationship Management]. The bottom line is that the middleman in a supply chain still has value to add -- it is just going to be a different set of values in the Internet economy."

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