"Hooked Up" Feature Article, April 2004

hooked up

Taking a page from dating services, buyer and supplier find each other on the Internet.

by Jean Thilmany, Associate Editor

The online garage sale eBay set the tone, by bringing together the Hummel collector with the Hummel nonenthusiast, the buyer nostalgic for a 1955 Barbie game and the seller cleaning her closet. One man's trash is another man's treasure, after all.

In the age of the Internet, supplier and manufacturer also benefit in new and sometimes surprising ways, say those who take advantage of relatively new, online sites intended to link buyers and suppliers who never would have found each other otherwise. Other sites help suppliers cast a wider net when seeking customers.

At least one of these new sites allows manufacturers to vet suppliers via the Internet. The model is not unlike the way men and women looking for romance use online dating services. As with online dating, the newbie supplier-manufacturer relationship either works—and goes forward into the future—or it doesn't.

The benefits of using the Internet to pull a wider range of clients are clear for both buyer and supplier. Manufacturers buying parts can choose from a greater number of quotes, and compare fees and supplier capabilities much more readily. Suppliers get to plumb a deeper market for customers who may seek their particular specialization or may be outside the geographical market they normally serve. Certainly, the practice of requesting quotes, finding clients, and asking questions can be greatly streamlined with technology's help.

Just ask George Bertram, vice president of engineering at Intellipack of Tulsa, Okla., with offices in Asheville, N.C., and Oxford, Conn. The company makes foam-packaging equipment for lease. The equipment disperses liquid, which expands to surround a company's products in foam for safe transportation or storage.

About a year ago, Bertram began submitting requests for quotes, or RFQs, for equipment parts via an online service called MfgQuote that aims to link supplier and buyer. It allows a number of suppliers—who pay to use the service—to bid on submitted RFQs. Buyers can compare a number of bids, and suppliers can bid on jobs they would never have known about otherwise.

Without access to the service, Bertram estimates his company's parts costs would be double what they are today. Intellipack makes about 600 foam-dispensing machines per year in two models, valued at about $10,000 each, and leases them to users. Both models are made up of about 1,000 parts. Bertram uses MfgQuote, which is based in Atlanta, to find suppliers for about 300 of those parts.

"No way could I find suppliers the old-fashioned way and survive," Bertram said. "We found wonderful vendors we'd never find in a hundred years."

EMachineShop, a virtual machine shop accessible on the Internet, includes CAD software that customers use to design, price, and buy parts via the site.

Bertram posts a request for quote via the service and includes a CAD model as an attachment. He specifies the quality of the part and the lead time, and includes any special requests. The service includes a comment section, where suppliers ask questions of Bertram. They then answer the RFQ. Bertram chooses the supplier that best meets his needs and price.

Like online dating, meeting suppliers via MfgQuote has had some misses, but Bertram has mostly positive things to say about his experience locating part suppliers over the Internet.
"We found some amazing vendors that make parts at a really good price and deliver them when we need them," he said. "You find some stinkers, too. But if you try someone and they don't work out, you try someone else."

Intellipack is a small company and a young one, with about 25 employees. Bertram began buying parts in late 2002. At first, he searched for suppliers in what he called the traditional way. He'd call local vendors that he found by word of mouth.

"I chose the people I could find names and contacts for, then I put drawings together with a request for quote and sent them out in mailings," he said. "But it was a small sampling of vendors I was able to identify myself. I didn't get too far outside my area."

His traditional method met with poor results, at least compared with how the company now asks for bids, Bertram said.

"We paid much higher prices for parts than we do now, and in some cases we had some quality issues from vendors we probably never want to use again," he said. "It was very slow, and we were basically not getting competitive bids. And vendors weren't particularly interested in our lead-time needs either. Occasionally, we'd get parts on time."

A sea change has begun for companies of Intellipack's size that seek suppliers, he said. The traditional business model is changing so fast that Bertram can speak of the way he procured parts only 18 months ago as old-fashioned.

"It's given us, as a small company, tremendous purchasing power," he said. "We have efficiencies and cost savings that are a big benefit to us. We can post a drawing one time and get quotes from a lot of people. Doing business the old-fashioned way, I contacted a lot of people and got maybe three quotes.

"We can get quotes from 100 vendors if we need them—quotes from vendors in Canada, California, Texas, even some in Asia," Bertram said.

Parts usually arrive by truck, although for small rush jobs, suppliers will send them via quick shipping, using a service like FedEx or UPS.

The online business model works well for Bertram and for other manufacturers who find new suppliers on the Internet. But are suppliers meeting with the same success? These sometimes-small shops are, after all, competing against many other suppliers when bidding for jobs. Also, suppliers pay a subscription fee of $4,000 per year to bid through MfgQuote. Manufacturers who place RFQs pay nothing.

Still, suppliers benefit, according to Mitch Free, president and chief executive officer of MfgQuote.

About 1,200 suppliers subscribe to the service, bidding for jobs posted by the 26,000 registered buyers. That ratio favors the suppliers. Each day, about $16 million in open RFQs is posted on the site and that number grows by 10 percent each month, Free claims.

The suppliers perform more than 100 manufacturing processes. The bulk of RFQs that Free's business sees are requests for machining, molding, fabrication, die and mold building, casting, forging, and metal stamping. The RFQs are also posted for custom springs, wire forms, and circuit boards.

"For the supplier, it's a sales lead at the exact moment the buyer has a need that matches the supplier's equipment, expertise, and capacity," Free said.

"Contrary to popular belief, the low quote rarely wins," he added. "More than 80 percent of the time, buyers don't choose the low quote. The logic seems to be that the high quote is ridiculous, the guy with the low quote doesn't know what he's doing, and the one in the middle is about right."

Suppliers who use the site aren't just blindly responding to RFQs. They must set up what Free calls filters that screen all incoming RFQs for those that exactly match what the supplier can offer. For instance, a supplier might specify that he wants to see all RFQs for machined parts in quantities greater than 1,000 from aerospace buyers located within 300 miles of the supplier's ZIP code and with delivery not before a specific date.

If buyer and supplier have much the same specifications, the supplier receives an e-mail notification to view the RFQ details, which include engineering drawings. Suppliers can ask buyers questions and then can prepare a quote and submit it to the buyer online, Free said.

Kurtis Van Kampen, president of Input Technologies in Colorado Springs, Colo., says he rarely chooses the high or the low bidder. His company makes keyboards, track-balls, and other computer input devices for rugged environments, such as military installations or public kiosks that get a lot of use.

Van Kampen has used MfgQuote for about two years. Some months, the company puts 10 RFQs online. Another three or four months might go by before another RFQ goes up from Input Technologies. Nearly 50 suppliers reviewed the company's most recent RFQ and quite a few placed bids, he said.

"The nice thing about the volume is that we're able to determine a good median price for a product," he said. "Some suppliers will try to lowball us to get our business. Others will bid very high, thinking that maybe they'll get the business. We put the quotes in a spreadsheet, evaluate them, drop off the top and drop off the bottom, and figure out what the part will cost that way."

Though Van Kampen might choose to award a contract to a previous supplier found through the online service, he may still put an RFQ for that part on the service to ensure the previous supplier is pricing its services competitively.

Supplier Goes to Buyer

Of course, in this Internet day and age, nothing stops suppliers from seeking out their own Web presence. At least two innovative companies are doing just that.

The four-year-old eMachineShop of Midland Park, N.J., bills itself as a virtual machine shop. Buyers seeking parts can design, price, and order custom parts via the company's Internet site, said Jim Lewis, the president.

A user downloads design software from the site and uses the software to construct a customized part. The user immediately gets a price quote on the design. If the quote is acceptable, the customer orders the part.

Lewis's company currently offers computer numerically controlled milling, turning, punching, laser cutting, wire cutting, plastic extrusion, thermoforming, tapping, and bending services, and will soon add injection molding to the mix. About 20 small contractors provide these services for eMachineShop, which functions mainly as a middleman and a CAD software provider.

The online service MfgQuote lets suppliers that pay to use the service bid on requests for quotes that are submitted by potential buyers.

Technology has meant upheaval in the way suppliers must operate. In a changing business environment, many suppliers aren't exactly sure how much to reinvent themselves with the times. Though Lewis has approached many job shops, some resist his business model because they aren't used to receiving quotes via the Internet, he said.

"It's kind of interesting, because in many cases they're just used to the process of quoting manually," Lewis said. "They say, 'Just send me a drawing' and we say, 'There is no drawing, just a CAD design.' A lot of them can't make the switch. For 25 years, they've been taking drawings. And they resist working in a new way like this."

He bills the service as a time-saver for buyers, who don't have to hassle with back-and-forth faxes and e-mails to their suppliers.

"You can spend weeks going through quotes, getting straight your definition of what your job is, placing an order. Then a vendor comes right back to you with a question," he said. "It's a tedious process. We wanted to make it as easy as ordering a book from Amazon."

Another company, Quickparts in Atlanta, uses a similar business model to provide custom-manufactured rapid prototypes, and plastic or metal low-volume production parts. Using the company's QuickQuote software, buyers upload three-dimensional CAD data to the site and include their project specifications. The company quickly answers with a binding quote, said Sameer Vachani, director of marketing.

The four-year-old company sought a way to differentiate itself from other rapid prototyping manufacturers, Vachani said. The supplier business is a numbers game. Shops get only about 15 percent of the jobs they bid for, he said.

"The best thing you can do is up the number of quotes you can make," Vachani said. With that in mind, company founders turned to the Internet, naturally. They developed the QuickQuote software that allows them to accept 3-D CAD files, analyze them, and quickly make a customized quotation that addresses the quantity and type of parts the vendor specified.

Buyers can run unlimited what-if scenarios as they design to see how changes affect part pricing. When manufacturers are ready to buy, they click a link. Their shipping and billing information is verified. Then they enter the number of a purchase order or credit card. "You quote and buy in a matter of seconds," Vachani said. "You define your inputs, and the price fluctuates accordingly."

The company offers a number of services, including stereolithography, cast urethane production prototypes, CNC machined parts, metal castings, and sheet metal prototypes. Quickparts contracts with one supplier for each of the services it offers, managing those vendors and ensuring that they meet contract times.

Kathy Joy, a senior mechanical engineer at DRS Tactical Systems in Palm Bay, Fla., has used the system for three years to get rapid prototype parts for the rugged computers and casings her company makes for military installations. The company needs to check parts quickly to ensure that they fit the design, before manufacturing begins. She also likes to see a physical prototype, rather than a computer model.

"Sometimes, if you look at something on a computer, it looks good, but it feels awkward in your hand," Joy said.

In an era when people turn to the Internet to find everything from love to a favorite recipe, it makes sense that buyer and supplier would use that service to find each other. And that business would find a way to ensure that the pairing is possible and profitable.