Customers control your profits

See how successful businesses like Cisco and Dell operate: Customers can go online to configure the system to their liking, and an online expert system interface designs the system according to the customer's needs.

Manufacturers orient themselves in response to customer decisions and order parts from suppliers based on actual rather than predicted demand. Manufacturers' expert interfaces can even optimize their systems if customers don't think twice at the beginning of the configuration process. In the past, customers had to talk to an engineer or computer expert to configure the system, but now the computer can "talk" directly to the computer, knowing the full reflection of each change in the design.

System configuration is just one example of interactive e-commerce. Companies are harnessing the power of computers to eliminate inefficiencies and streamline supply chains by giving consumers direct control over the configuration of the products they buy.

This method enables businesses to sell products to customers at or below the cost of inventory. In fact, Dell and Cisco have been able to sell custom products for less than stock prices. For example, an off-the-shelf computer with the capacity and speed of a Dell Latitude notebook costs far more than a computer configured for consumers. This is possible for several reasons. If Dell were to manufacture finished computers and put them on the shelves, it would have to pay all the costs associated with warehousing and retail inventory, insurance premiums, and carryover costs while the product waited for a buyer. And when all products are customized, that is, each product is configured for a known buyer, the traditional risks and costs associated with distribution in the retail market are eliminated.

Technology is rewriting the rules of shopping

Technology is rewriting the rules of interaction between customers and manufacturers of products or services. As computer innovations continue to emerge, the customer-supplier relationship is changing rapidly. These innovations were brought about by synthetic systems suitable for use on the Internet, which enabled the computers of consumers and businesses to exchange information with each other in an automated fashion without hindrance.

Information is communicated automatically through such a real-world event-based platform. For example, there is now a commercial refrigerator with a barcode scanner on the door. When a restaurant worker removes a certain food item in the hope that the supply chain will replenish it, he can scan the barcode on the door. The supplier of the food was immediately alerted that the restaurant needed a refill, and the information needed for delivery and payment was programmed into the system. People no longer have to call to place orders or fax food lists. This exchange of information is a seamless business-to-business (B2B) transaction.

Let's take this example one step further, to real interaction. When a customer makes a purchase at Walmart and pays, Walmart's supply chain instantly knows the full details of that purchase. The supply chain also learns how out of stock these items are on the shelves and when replenishment is needed to keep the shelves full. This information flows through inventory and accounting systems at different links in the supply chain, and is aggregated into suppliers' inventory and accounting systems. Walmart has fully automated its own supply chain, and has achieved truly efficient and profitable automation of delivery information for multiple in-stock product lines.

Now apply these two examples to a custom configuration model based on B2B principles. When you configure and purchase a Dell computer using the Internet, you interactively type in your computer performance requirements through the web. This information is automatically sent to different parts of the supply chain and then to the assembly line where the computers are needed. Sending information does not require human intervention.

Want a custom vitamin supplement? Acumin, which operates online, helps its customers choose personalized nutritional supplements. First, get an overview of the customer's body through an online diagnostic test. Consumers describe their health problems in detail: such as feeling tired or nervous, weak, etc. All this information is entered into the customer's personal formula, which selects a unique combination of vitamins, minerals and antioxidants from nearly 100 ingredients to formulate a tailored vitamin blend for the customer.

The impact of these technological advances has been staggering. Now, customers are not only in control of the design, manufacture and delivery of certain items they buy. They are also gradually taking control of every purchasing and design decision, while being fully involved in design selection, pricing, parts inventory and production planning. These systems are open and ready to be inspected, changed, upgraded, replaced and reorganized.

In the past, manufacturers have gone to great lengths to limit customers' control over design and pricing choices. The purpose of this is to ensure your own profitability by reducing the learning curve of creating or installing products and services, or simply because of laziness.

But today, customers are gaining that control by instantly searching for alternatives and their associated prices through a wealth of online resources. It's getting easier and easier to shop around. If you're visiting the Amazon bookstore and want to know the price of a book you're interested in on another competing site, it's just a click away. Buy.com is so confident in their prices that they've already done it for you, and they rank competitors' offers alongside their own. Through hyperlinks between websites, customers can compare prices from various suppliers across the city with the click of a mouse.

Interact with customers to make money

Is your business ready to survive and profit in a world in which the economic world is moving at hyper-speed, and the barriers that the old economy placed between customers and the limitless choices they take for granted are gone? If you haven't already, you'd better think about how to reinvent the wheel to make your business interactive and able to conduct e-commerce. The first thing to recognize in forming an interactive community is that your business plan must take into account the fact that barriers are gone, and as technology improves, switching costs will decrease. If companies rely on one technology solution to offer several cheaper alternatives than their competitors, they will soon find that better technology is taking market share away from them.

The key is the community, not the technology itself. By creating a real community or virtual marketplace on your website, you can engage customers in a much deeper experience than the one-time buying and selling process. You can integrate them into your system's data protocols and strengthen their customer profile so that allied suppliers can deliver them a wide range of targeted, value-added options and services.

Another key to creating interactive programs is to recognize that a product is a collection of parts. You can break down the process into very specific component steps, and use clever computer systems to plan and monitor those steps. In the case of automobile manufacturing, you can even transfer accurate unit costs and highly accurate labor budgets from one assembly model to another, thus applying the experience and data from one type of automobile manufacturing to another. Get up the car.

See how this programmatic approach works. McDonald's has 25,000 restaurants. But how do you think they can run each restaurant so efficiently? How can they ensure that buyers of these concessions are profitable? How do they hire such a largely unskilled and often temporary workforce, yet still be able to run a high-tech business so well?

McDonald's made it programmatic. McDonald's knows how long each order of fries should be fried, what the temperature of the oil is, how much salt to put in the finished product, and how many servings of each product should be used in a day. Because they know the cooking and delivery process so well, and monitor any deviations from the process to make sure it's perfect, you'll get the same product no matter which McDonald's restaurant you're in around the world. McDonald's even calculated the exact weight difference between a serving of medium and large fries: 13 grams.

Business owners around the world wish they were so business-savvy. How did they do this? McDonald's studied the process of cooking fast food and broke it down into its constituent steps. McDonald's puts these steps on the critical path and then monitors their execution. For example, when the fries were over fried, they shortened the cooking time to adjust. McDonald's collects this knowledge, writes it into programs and applies it everywhere. They continually update the program to weed out all sorts of inappropriate and inefficient aspects of the system. When companies deal with system problems in this programmatic way, they find themselves able to use the time previously spent "fighting fires" to find ways to further improve efficiency.

Once this approach to information management quickly develops to a certain stage, because the process is tracked so closely, you can gradually focus only on events that don't match expectations, and you only need to focus on exceptions. This "exception management" is the primary proof that a programmatic system is working efficiently, because each time a critical path is run, it can take into account how changes in it will reduce the efficiency of that critical path. How is the result? McDonald's can really accurately predict costs, labor and inventory. And it's all in the service of the customer: Customers at any McDonald's restaurant get the same product.

Today's customers are savvy, knowledgeable, and technically savvy, and they can see through quality at a glance. The dissemination of information by technology and various media has greatly promoted the transparency and multi-sourced purchasing process, and all levels of the process are increasingly challenged by competition. Former customers will demand full information on designs and materials, and, with the Internet as the ultimate search tool, buyers have a fairly broad perspective when searching for the item they want, no matter where the item is made and sold. Under the influence of this dynamic, if companies cannot quickly and confidently adopt custom designs and price them accurately, customers will look elsewhere.

Originally reprinted with permission from The Interactive Marketplace: Business-to-Business Strategies for Delivering Just-in-Time, Mass-Customized Products, by Keith T. Brown Copyright 2001. Translated by Lian Qingsong.

Keith T. Brown is Chairman of BuildNet, a developer of e-commerce, technology and project management software. He is the author of The Builders Revolution.