Windows shopping

If you haven't noticed it yet then you soon will. Europe's five million electronic traders in 1998 are set to grow to 50 million in 2002 by which time an estimated $45 billion will be spent over the Net each year.

Currently, as the phenomenal success of Amazon testifies, Internet purchases are mainly for personal use, but business trading over the Net will catch up as all kinds of retailers get on board.

In the building services arena, some contractors are already purchasing products from wholesalers electronically, but numbers are as yet few and far between. While electrical wholesalers have long recognised the benefits of electronic transactions (reduced costs being the prime motivator!), so far the links are between the larger wholesalers and their largest suppliers, most probably via full EDI (Electronic Data Interchange) systems.

With the rise and rise of the Internet comes the opportunity of a lower cost solution than true EDI and a system that suddenly becomes attractive to a whole host of suppliers and customers alike. It looks like the time is now right for electronic trading.

Consider this: Newey & Eyre and MK have used EDI since 1987 and yet the benefits have rarely energised contractors. Yet in May, WF Electrical's commercial director Richard Conradi addressed the ECA Electrical Industry Conference in Cyprus, saying: "Unless you embrace e-commerce you just may not be around to attend the Conference in 2004." Electrical wholesalers have been spreading the gospel according to e-commerce at a series of roadshows earlier this summer. Newey & Eyre, Senate Electrical, WF Electrical and Stearn Electric have come together to promote the benefits, initially to their suppliers rather than customers.

Newey has been particularly bullish in its e-commerce targets. Mark Southall, e-commerce manager at Newey & Eyre says: "Our aim is to trade electronically with all 700 of our core suppliers by 31 December 1999. That represents 96% of all our transactions."

This is a massive ramp up from its current EDI trading levels. Since the first link up with MK back in 1987, Newey has established EDI links with 120 suppliers, accounting for 70% of all inbound invoices and £220 million of outbound orders. A further 75 suppliers (14% of invoices and orders) are at test status. The reason why Newey will be able to claim 96% of transactions by the end of the year, is that prices have tumbled to such a level that Newey is offering smaller suppliers an Internet-based simple EDI product free of charge and free three month trials of traditional EDI software to medium-sized suppliers who have not yet taken the plunge.

Kewill Electronic Commerce is the company supplying the underpinning technology, from the basic Kewill Xtra Trade system through the Vision package to full true EDI. The decision on what system to use depends on the transaction volume, whether you have single or multiple trading partners and whether you are making a short or long term investment in EDI.

There are clearly savings to be made. Figures from Newey & Eyre estimate the true cost of issuing and placing an order to be £3 when using Internet EDI as opposed to £12 when using the phone, while the cost of receiving and processing invoices is £4 for Internet EDI as opposed to £17 for post. With Newey & Eyre dealing with 800 000 orders per annum generating one million invoices with its suppliers, that's a lot of savings.

But what about contractors? With Newey's 120 000 customers placing over 3 500 000 orders and 4 200 000 invoices to deal with (the majority still paper), there is clearly cost savings to be made there as well. But no-one is being so bullish about how much trading they will be doing with contractors.

While wholesalers can largely lay down the line to suppliers as to how they will trade, you can't be so dictatorial with your customers. As WF's Richard Conradi points out: "We will invest in the technology. It is up to customers to take that option if they want it. At present the value of orders placed by contractors electronically isn't great, but the slow take-up isn't surprising given the nature of the person doing the buying – they are often on-site and on a mobile, not sitting at a desk looking at a pc." Contractors actually seem more comfortable using a wholesaler's web site to browse products, availability and price but leave the actual transaction to more traditional methods. Perhaps there are lurking security fears, as indicated in a recent DTI survey which showed that 69% of those contacted cited security as a major inhibition to the purchase of goods over the Internet.

However, a change is going to come. Newey & Eyre's commercial director Stewart Hodges argues: "Within a couple of years, we believe it will be commonplace for the contractor on site to use their mobile phone to order from our catalogue via the Internet, and have it delivered direct to site by the local branch, all handled electronically. The availability will literally be 24 hours a day, 365 days a year." Newey will be launching a dedicated strategy for its customers in September, with Newey as Internet Services Provider likely.

As with any investment decision, if there is a good enough business reason to use a new system then it will start to roll. With Amazon, the books on offer are cheaper than you can find on the High Street. And while many observers argue that the likes of Amazon will only start to make money once they put their prices up, in the meantime they are building up a healthy customer base who will have grown to like the way Amazon do business and will stick with them even if their prices are similar to the High Street in the future.

Wholesalers seem unlikely to need to kick-start Internet use by offering cheaper prices than a trip to the counter because they are not building up a customer base from scratch. But there are other reasons. Richard Rose, managing director of WF says: "The slim margins on offer in the electrical sector will be the biggest limiting factor on price differentials." A more likely benefit for contractors will be the time savings. With the Egan Report calling for 10% cuts in construction time and costs and productivity improvements of 10%, contractors may have to look back at the trip to the trade counter as a thing of the past.

As with Amazon, wholesalers will also build better relationships with customers than is possible over the counter. "If we know a contractor is into data cabling, then we can offer them our new range of data products when they log on," says WF's Richard Conradi. "It's all about added value services and tailoring products which are appropriate to a contractor's needs."