Building big brands on the Internet - Panel Discussion

Chief Executive, The, August 15, 1999

Feeling frustrated and flabbergasted by the Internet imperative? The CEOs gathered here hope to seize the moment and build their brands on-line. Visit their Web sites to see how well they've succeeded.

BEFORE E-COMMERCE WAS COOL

It's the one e-commerce certainty: if people and businesses are buying stuff on-line, then that stuff has to get to them. Fred Smith helped to drive one business paradigm shift when he founded Federal Express back in 1973 and convinced us that we "abso-lutely, positively" had to have everything over-night. He offered symposium participants his views on another paradigm shift, and shed light on how one big brand has built itself on the Internet.

Our involvement in electronic commerce reminds me of that old song a few years ago: "I Was Country Before Country Was Cool." We were the first company to put together an interactive order fulfillment or a call center integration with our operation units. That allowed FedEx to actually book orders on the telephone, and then electronically transmit those orders for fulfillment, which in our case were pickups, straight through to the cab of the vehicle, so there was no human intervention after the call was made.

Today many of these transactions are being done on the Internet directly with the customer, in essence interfacing with one of our 45,000 trucks, with no human voice interchange whatsoever. To handle the same number of transactions today with call centers, we would have to have about 20,000 additional employees at work. That's just part of what the Internet and our proprietary systems are able to do for us.

In 1994, we launched our Web site, which we upgraded in 1996 so you could actually do a transaction with us completely on-line.

Despite aggressive actions taken by our competitors, they have been unable to match our e-commerce innovations. Part of the reason is that we spend inside FDX [the holding company for FedEx and four other transportation and logistics companies] about $1.5 billion on IT per year, with capital and expense both. People are very surprised at that, because it really ranks us in the top 20 telecommunications information companies in the world.

If you really think about it, a warehouse is nothing more than a place to put something so you know you've got it. It has no other function in the world. It's total expense, no value added whatsoever. So what we decided some years ago inside the FedEx and the FDX systems is that we had to have every shipment we carried, millions of them, totally visible instantaneously to our customers so that they could put their goods in the FedEx system and constantly keep up with their inventory.

THE PARADIGM SHIFT

There is an enormous business paradigm change that's underway here, and e-commerce and the Internet portion is just a part of it. And if you don't get this thing, you're going to get into a lot of trouble.

The power generally in business was focused in between the consumer and the manufacturer. That middle person was providing the palpable feel of the customer demand, whether it was a supermarket operator who figured on the shelf space that was going to go for Wheaties or Cheerios, or the electronic parts distributor that knew its customers, put their products in the warehouse, and got it to them.

That's all going to change in a very big way in the next few years. The best estimate that we can find is that e-commerce between businesses, which is far and away the largest component of e-comm, this year is roughly $105 to $110 billion. About 46 percent of that is in the computer and electronic sectors - they are the early adopters of e-commerce on a business-to-business basis. Forrester Research believes that business-to-business e-commerce will be a $1.3 trillion marketplace by 2003. The business-to-consumer marketplace will be roughly $120 billion, up from this year's roughly $15 to $18 billion.

So there's an enormous power shift, because both businesses and consumers can now buy on the Internet and have access to goods and products without regard to time and place. And any product that can be put on the Internet can then be moved in a system like ours door to door within a matter of 24 to 48 hours.

The growth in high value-added and high-tech products as a percentage of the GDP has been compounded by 15 to 20 percent per year for the past 20, 25 years. The low value-added or commodity - lumbering, agriculture, mining, the extractor activities - the relative expenditures on those as a percentage of GDP are shrinking.

Underlying all of this has been this extraordinary logistics efficiency improvement. Remember that logistics is defined as the cost of transportation for moving goods, the carrying cost of that inventory, including obsolescence, and the interest on the inventory in warehouses, not the goods itself.

Dell Computer doesn't build the computer until you order it. What begins is this enormous choreography of parts and pieces around the world. They come into the point of manufacture; they own that inventory for a few hours; and then it goes back on the other side.