| By
Tom Stundza [Purchasing.com]
August 9, 2001
Ford uses e-Steel's technology
to coordinate its multi-tier supply chain of steel producers
and contract stampers worldwide.
The list of Internet portals devoted to online commerce
for ferrous and nonferrous metals is shrinking. When
the dot.com investment bubble burst on Wall Street,
many third-party platforms saw their capital disappear.
Starved for cash, they pulled the plugs on operations,
severely downsized or changed directions. Gone are MetalSite,
Metal Spectrum, Aluminium.com, e-Copper, Metique and
MetalMaker. Four other metals sales pioneers—e-Steel,
MaterialNet, MetalSuppliersOnline and Core Markets—have
changed their focus from being marketplaces to being
providers of electronic procurement systems. And this
has opened the door for metals companies, such as Carpenter
Technology Corp., and service center chains to expand
e-commerce capabilities.
Purchasing Magazine estimates that the annual world
market for production grade metals is $900 billion,
with some 40% of that centered in the U.S. Purchasing
execs in North American manufacturing companies continue
to express their interest in using the Web as a buying
tool for metals. However, the move online has been slow
because of numerous problems with the initial three-dozen
sites organized worldwide. That's why "there are
now only bankruptcies and shells of what were once Internet
companies engaged in fast and furious competition for
a portion of the billions of dollars spent annually
on metals products," says analyst Richard McLaughlin
at market consulting firm Hatch Beddows in Pittsburgh.
"There's no doubt about it, the first phase of
the e-commerce Gold Rush has come to a close,"
says Chris Sypolt, vice president at OnlineMetals.com,
a Seattle-based site for small-volume buying of stainless
steel and nonferrous metals. "Many of the leaders
of the Gold Rush have laid off significant portions
of their staffs, and many metals-oriented business-to-business
players have had to modify, if not scrap entirely, their
business plans."
Wilfried von Bulow, president of Ferrostaal Inc. in
New York, a global trading company, notes that market
analysts got carried away and telescoped anticipated
events into an unrealistically short time frame. "Internet
technology is no doubt having an impact on the way steel
is being distributed," he says, "but the rate
at which it is displacing traditional sales and distribution
methods is much slower than anticipated."
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McLaughlin at Hatch Beddows says metals buyers' needs
require differentiation between suppliers that e-auction
sites, especially, don't provide. "Buyers have
service demands, delivery and freight preferences, possibly
technical support needs, and a variety of other ancillary
demands that increase the level of differentiation among
suppliers," McLaughlin says.
The days of relationship selling are not over, agrees
Bud Siegel, president of steel distribution conglomerate
Russel Metals in Mississauga, Ontario, who adds that
"the message has finally gotten through that e-commerce
is not the panacea it was made out to be." He says
"There is no question in my mind that the most
profitable survivors of the economic cycles will be
well managed suppliers, the ones that have service relationships
with customers. "That's probably why last year's
$13 billion in Internet-based U.S. steel sales compares
to $44 billion forecast.
McLaughlin's view—and that shared by many buyers—is
that metals auction houses pushed commoditization of
products so commerce was based entirely on price. There
was little effort made at providing value-added processing
or other customer services that would attract buyers
to the Web sites. And, based on Purchasing Magazine
surveys, what remains most disturbing to metals buyers
is the continued lack of metals industry standards on
how to specify steel, nonferrous and ferroalloy materials
in electronic transactions. The computer software industry
learned a long time ago that standards had to be developed,
published, and adhered to by members. "The metals
industry needs to develop standards now, and make them
available to every member of the industry, so that e-commerce
transactions can move forward," says Sypolt of
OnlineMetals.
Purchasing Magazine surveys find that the bigger metals
buyers—the Big Three automakers, major appliance
makers, Boeing, Deere, Caterpillar and the like—are
all heavily engaged in implementing some form of structured
e-procurement systems, although their strategies used
differ widely. And few involve partnerships with third-party
auction sites. Also, for many smaller metals buyers,
e-auctions are either being ignored or have been tried
and rejected. And, the small-volume buyers who are opting
to buy metals through third-party marketplaces aren't
providing sufficient commissions to keep the market
makers afloat.
Adam Fein, president of Pembroke Consulting Inc., a
strategy consulting firm in Philadelphia, says "The
online metals industry was confounded by a glut of competitors
at the earliest stage of its evolution. Yet most industries
usually support three to six national competitors along
with many smaller, niche players."
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Changing focus
Now dismissed as fanciful,
early e-commerce studies by Wall Street analysts had
estimated that 20% of all metals produced worldwide
would be sold over the Internet by 2000 and half would
be sold over the Internet by 2005. A lot of dot.com
investment income went into marketplace financing in
1999 and 2000. But, Wall Street's cash spigot was turned
off when less than 5% of metals commerce went through
the Web in 2000. Faced with this market reality, e-Steel
and MaterialNet were among the first third-party Web
sites to move to software-based sales strategies, rather
than charging transactions fees for facilitating metals
trade.
MaterialNet originally burst onto the Internet scene
as an e-commerce portal linking suppliers and buyers
of ferrous and nonferrous metals in a reverse auction
format. David Centner, chief strategy officer, now describes
the Lake Success, N.Y.-based company as "a technology
provider" primarily offering software for the electronic
procurement of direct materials, indirect materials,
goods and services. "We provide a very comprehensive
suite of technology in which we call the 'custom procurement
platform', which is a Web-based tool for large industrial
manufacturers to manage more efficiently the day-to-day
procurement of all of their direct materials needs."
Similarly, CoreMarkets, of New York and Metal Suppliers
Online of Andover, Mass., now are earning money by helping
steel companies develop e-commerce platforms. Metal
Suppliers Online was on the verge of closing until it
received a cash infusion earlier this year.
At present, though, e-Steel appears to be the premier
software site, building and operating Web-based applications
for corporate steel buying groups that will manage supply
network transactions, product and market information
and partner relationships. According to Peter Regan,
vice president of marketing for the New York-based portal,
the firm has maintained a private online marketplace
for registered buyers, but its chief focus now is to
become the Web-based steel-selling and steel-buying
technology provider for large suppliers—such as
BHP Steel of Australia—and buyers—such as
Ford Motor Co.
Ford's steel supply chain is a complex, multi-tier network
comprising Ford's in-house procurement group, steel
producers, and large and small contract stamping houses.
There are more than 1,200 participants across hundreds
of companies throughout North America and Europe, and
Ford depends on these companies to coordinate activities
to ensure the carmaker's assembly plants receive materials
exactly as specified on precise schedules. Five years
ago, Ford began operating a program it termed a "steel
remarketing program," which negotiated large aggregated
steel purchases based on Ford's model-year demand. The
steel was then sold to suppliers based on contract commitments
for components to be supplied to Ford. This allowed
the Dearborn, Mich., automaker to aggregate demand for
steel and keep negotiation leverage with steel suppliers.
However, Bob Adams, the automaker's director of global
raw materials procurement, says Ford found itself able
to manage only its most critical suppliers who depended
on the automaker for a large percentage of their business.
But Ford's procurement organization is now using e-Steel's
steel-buying management engine as a private exchange
to help the company and its suppliers coordinate the
large numbers of component contracts that require suppliers
to purchase $1.2 billion worth of steel each year through
the remarketing program. Ford buyers believe the e-Steel
platform will let it scale supply programs down to smaller
suppliers who rely on Ford for smaller portions of their
business. Regan maintains that e-Steel's supply chain
management technology has the ability to be flexible
and fast enough to help Ford meet its goal of taking
the remarketing program from 60% of eligible supplier
contracts to 100% by the end of 2001.
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Service centers
go online
The shakeout among third-party online metals market
makers has given traditional bricks-and-mortar companies,
mills and service centers, a little breathing room to
develop their own e-commerce strategies. "The strongest
driver for change in the longer term still is e-commerce,"
says Fernand Lamesch, chief executive officer of trading
house TradeArbed in New York. "Although many continue
to view the tools with great skepticism, I am convinced
it is only a question of time before metals suppliers
must all respond to the challenge."
One problem, however, is that several mills and major
service centers were affiliated with the marketplaces
that have gone under.
"Eventually, e-commerce is going to have a great
impact on all of us in metals distribution," says
Norman Gottschalk, president of the Marmon/Keystone
service center company in Butler, Pa. "Our industry
has been slow to move, but the speed of e-commerce really
will be determined by what customers want." Marmon/Keystone's
new e-Zone platform "won't change people doing
business with people or reduce the importance of on-time
delivery and quality," he says, "but it will
give certain kinds of buyers an online opportunity to
be serviced." Marmon/Keystone is one of the world's
largest distributors of specialty tube and bar. Its
"e Zone" portal allows buyers to browse and
buy from the company's catalog of carbon, aluminum,
stainless steel pipe and tubing; bar products in chrome,
stainless, and nitro steel products.
Ryerson Tull of Chicago, North America's largest service
center conglomerate, has RyTEC, where 500 regular users
buy $200 million worth of product annually from a catalog
of 100,000 carbon, alloy and stainless steel, aluminum,
copper alloys and industrial plastic products. That's
about 7% of the firm's total annual sales of $2.9 billion.
RyTEC is available to any Ryerson Tull customer, although
online purchases tend to be made by the larger contract
customers who can specify processing all the way to
fabricated parts and subassemblies. Neil S. Novich,
chairman of Ryerson Tull Inc. in Chicago says the company's
RyTEC platform is designed for customers with complex
buys. "The idea is to support OEMs who order several
types of processed metal products to be delivered as
a package at specific times on a repetitive basis."
i-Solutions offers customers of Houston-based Metals
USA, the third-largest metals service center company,
a Web-based order fulfillment system that has the ability
to accommodate customers who need unique formats or
have complete procurement requirements for the company's
catalog of heavy carbon steel, flat-rolled steel, specialty
metals and metals-based building products. Once online,
customers place orders in shopping carts modeled after
those used by dot.com retailers.
Earle M. Jorgensen Co. has an interactive e-metals Web
site where registered buyers can source shapes and grades
of bar, sheet, plate, structurals, expanded metals,
tubing and pipe in carbon, alloy steel, stainless and
specialty aluminum and steel. Sales last year were about
7% of the firm's $1.07 billion total.
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Esco Corp. of Portland, Ore., has an interactive business-to-business
site called The Steel Store through which users can
access its specialized inventory of stainless steel
sheet, plate, bar, pipe and tube. The site has full
product availability, general pricing, quoting and ordering
capabilities.
Olympic Steel Corp. in Bedford Heights, Ohio, started
Partners in Steel as an Extranet site for contract customers.
The system was designed as an Olympic-to-customer specialized
Web site that tailors to the specific needs of the customers,
especially those who want guaranteed 24-hour turnaround.
Macsteel Service Centers USA has launched its own metals-procurement
e-commerce platform called MACNET for customers of its
operating firms Edgcomb Metals, Ferro Union and California
Steel and Tube. MACNET is a contractual order entry
site designed for average orders in excess of $10,000.
Also, High Performance Alloys, a service center in Tipton,
Ind., has Shop.HPAlloys.com, an online site for registered
buyers of superalloys and super stainless steels.
To date, among major mills, Carpenter Technology Corp.
and Weirton Steel Corp. are using their Web sites to
sell online. In fact, Weirton's Web site for auction
sales of secondary and excess prime products for registered
customers went live at the end of June.
Carpenter, based in Wyomissing, Pa., is the only specialty
metals producer selling online through its carpenterdirect.com
portal. The idea is to use Internet technology to provide
user-friendly, one-stop shopping for general tool and
machine shop customers and other metals fabricators,
says Scott D. Myers, general manager for e-business
for Carpenter. The site allows buyers to source stainless
bar, including Carpenter's Project 70-brand stainless
machining bar, carbon and alloy steel, aluminum and
brass.
Birmingham Steel plans to be making online sales soon.
U.S. Steel, the largest steelmaker, is planning to launch
an online metals service center to be called Newco.
The plan is to sell semi-finished metal products over
the Internet to end users—such as roofing or siding
manufacturers and industry machinery makers—that
use flat-rolled carbon steel for manufacturing and fabrication.
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