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Mining E-Commerce Goes Mainstream.

Byline: Russell A. Carter, Western Editor

E-commerce in the mining industry is no longer being treated as a red-headed stepchild of the 1990s Internet boom, regarded suspiciously by traditional channel buyers and sellers alike as a risky business without clear benefits. Innovations and expanding interest in both public and private exchanges have prompted the industry to embrace the e-commerce business model as a billion-dollar baby with a rosy future.

The growing involvement in e-commerce by mining companies and their suppliers was underscored recently when Quadrem, a global e-marketplace for the natural resource sector, announced that its major buyer customers had committed to more than $1.5 billion in trading volume for 2003. Quadrem, which opened in 2000 with 14 original members, now claims more than 1,800 trading partners and has registered an average monthly increase of 30% in transactions over the past year, representing a 20-fold growth in trading dollar volume during the same period. Transactional throughput for this year is estimated to total more than $400 million, although as a private company, Quadrem does not disclose the revenue derived from throughput. Quadrem CEO Mike Efting predicts that by the end of 2003 more than 3,500 suppliers will be using Quadrem's trading platform, a goal that Quadrem intends to meet by adding at least 125 suppliers per month during the year.

For producers of raw materials - whose financial health depends largely on cost of production - the change in attitude is simple to explain: Time is money, and the less time spent on internal and external transactions, the lower the cost of doing business. The emergence of private and public e-marketplaces that enable quick procurement of products and services is especially useful to mine operators because of the crucial role that spare-parts availability and maintenance play in the production process. In particular, companies that operate mines in remote locations, far from supply centers and transportation hubs, are finding that e-business can eliminate or reduce supply-chain kinks.

For suppliers of mining equipment and services, e-commerce offers new avenues to reach both vertical and horizontal markets, such as a pump manufacturer whose products are used not just in mining, but also by pulp and paper or chemical producers. Smaller companies may find that e-commerce capability is becoming a prerequisite to begin or maintain business relationships with their larger customers, while major manufacturers see electronic collaboration as a means to better manage inventory, improve material flow, and fine-tune production capacity planning, among others.

Caterpillar (CAT), for example, became interested in what presently is known as electronic data interchange (EDI) for its suppliers as far back as 1981, and began using EDI on a routine basis in 1984. By the end of the 1990s, CAT was communicating via EDI with more than 1,500 suppliers and processing 17 million EDI documents annually.

EDI, the traditional vehicle for most electronic transactions, provides a collection of standard message formats that offer businesses a simple way to exchange data via any electronic messaging service. However, most EDI traffic typically travels over private networks called VANs (value added networks), which can be an expensive proposition for small businesses to set up and operate.

A major factor in the recent growth of e-commerce participation by equipment suppliers of all sizes has been the emergence of XML (extensible mark-up language) as the vehicle of choice for online product cataloging and commercial transactions. XML provides a file format for representing data, a method for describing data structure, and a mechanism for extending and annotating HTML, the universal language of Web information. Perhaps more importantly, it offers a means for businesses to conduct e-commerce transactions via the Internet.

And, just as EDI capability became the cost of admission in the early 1990s to conduct business with the government and between companies in many business sectors, XML is seen by many as the "next big thing" for improving the usefulness and performance of online marketplaces, as well as a possible means of automating a wide range of corporate business processes. However, no one is advocating the overnight dismissal of EDI as a functional business tool. A service from accounting software developer ACCPAC, for instance, allows companies to send and receive encrypted EDI business transactions over the Internet to a gateway that serves an EDI processing system, and most of the major e-commerce system solutions from vendors can be set up to handle both EDI and XML capabilities.

Another powerful force in the growth of e-commerce has been the improved ability of e-commerce applications to integrate with a customer's Legacy software or enterprise resource planning (ERP) package. Both CAT and Komatsu Mining Systems have recently adopted comprehensive supply-chain support programs that fit and function well within their respective corporate infrastructure and vendor relationships. In CAT's case, the company teamed with IBM and i2 Technologies in 2001 to implement a system that was designed to improve Internet-enabled collaboration and reduce supply-chain costs among its many vendors.

In 2002, CAT followed up by demonstrating at a trade show its OEM Service Interlink system. This system provides a secured intranet database for CAT dealers that enable original equipment manufacturers (OEMs) to provide model-specific information that can include any type of PDF (Acrobat) document, digital photo, or PPT (Microsoft PowerPoint) file such as a service or maintenance training courses or troubleshooting instructions. According to CAT, OEMs that lack a nationwide or global product support network can now use its product support network to provide information on servicing their product. OEMs also will receive e-mail messages providing a customer name and phone number, CAT servicing dealer phone number, and the reason for their customer visiting the Cat dealer.

In 2000, Komatsu Mining Systems began a phased introduction of a Web-based portal and private network that interfaced with its existing Baan ERP system and automated many direct procurement processes involving its suppliers. Komatsu's approved vendors, which number in the several hundreds, now can participate in transactions that range from purchase order exchanges to joint scheduling and planning. The setup allows vendors to access the supplier portal by means of a Web browser or to download documents directly to their own business systems. After implementing the system, KMS reported that lead times for parts delivered from many of its major suppliers were cut in half.

Peter Suchting, general manager of e-business for Mincom, offered a glimpse into the strategy and importance that system interoperability and system flexibility hold for business-solution providers and their customers. "Our approach to e-business is broader than just a focus on e-procurement, for example. We identify the major mining business processes, which can include everything from asset management and procurement support to outbound logistics or 'pit-to-port' processes, and all of the possible trading partners that a producer might want to link up with. These can range from coal buyers and equipment manufacturers to contractors, engineering firms, and other service providers. An increasing number of our customers also want to connect with e-marketplaces and financial institutions.

"We think it's essential to avoid a specific connectivity solution for each of these trading partners, who may all be using different technologies, standards, or security requirements. So, we've designed Axis, our basic e-commerce product, to provide a foundation layer that handles connectivity issues and allows the customer to connect with any business they may wish to trade with and conduct any type of business transaction, using structured or unstructured content."

Products such as Mincom's can offer integrated solutions to many of the options and challenges facing both buy-side and sell-side enterprises ready to enter the digital marketplace. Principal among the decisions to be made are whether the business will operate its own private e-hub to conduct transactions with selected customers, hire another company to host the private hub, or join one of the public e-marketplaces.

There are costs as well as benefits associated with any of these options: Choose to set up and operate a private e-hub and, along with the high degree of control and privacy offered by this approach, a company also will incur development, maintenance, and other costs such as content management or data-analysis expenses. Opt to join a public e-marketplace and you will pay some sort of subscription/membership and transaction fees.

Axis customers, said Mincom's Suchting, currently are offered a hosted-hub approach in which Mincom will set up and host a private hub for a flat monthly fee. Further customization of established e-commerce packages can be tailored to specific industry structure; for example, Axis comes with "prepackaged" integration capability for CAT's supplier e-hub and Quadrem's public marketplace.

The global nature of e-commerce dictates that the structure of standardized transaction formats and protocols must be augmented by a degree of platform flexibility that accommodates regional and cultural business practices. In South America, for example, very little in the way of products and supplies are purchased via catalog; most orders begin as requests for quotes, information, or proposals (RFx). Accordingly, Quadrem's newest e-commerce product, an RFx workflow management package called Quest (Quadrem Electronic Sourcing Tool), was recently introduced in South America and Africa. As a result, Peru's Buenaventura is one of Quadrem's newest members.

According to the company, Quest is an integrated solution that combines RFx workflow management, collaboration, and decision support capabilities with an embedded global supplier directory. To be included in the directory, suppliers must register and complete a profile that allows them to designate products, services, the regions, and language in which the supplier does business. An automated search feature identifies suppliers for participation. Once the buyer opens bidding, selected suppliers are notified by email and can access RFx information online. Quest can be accessed via a standard Web browser.

Perhaps one of the most attractive aspects of e-commerce for mining companies, and their suppliers, is the ability to set up electronic networks to suit their business strategy and philosophy. Among Mincom's Axis customers, for example, Anglo Coal Australia opted to integrate directly with a public marketplace, trading exclusively through Quadrem; while its competitor, M.I.M. Holdings, is collaborating with its top 20 suppliers to establish direct point-to-point connections with each via a private e-hub.

In the United States, Joy Mining Machinery's eMinePortal staff worked closely with several companies and suppliers in the initial stages of the electronic marketplace's development to determine which data and communications formats and protocols would be most useful to buyers and sellers and to test ERP-to-ERP communications as well as message traffic inbound and outbound at the portal. One of these "pilot" companies, RAG American Coal Holdings, recently expanded its participation in eMinePortal by connecting its Twentymile Coal and RAG Cumberland Resources units to the site. Its Emerald mine was an existing participant. Other coal companies using the portal include CONSOL Energy, Freeman United, and Blue Mountain Energy.

EMinePortal, which has been operating since August 2000, currently lists six suppliers on the Web-accessible site, and, according to a company spokesman, is negotiating with additional vendors to join. In order to maintain an arms-length relationship with other site participants, Joy contracted site hosting and handling of sensitive data, such as pricing and catalog information, to a third party and, therefore, doesn't track volume or value figures for non-Joy-related transactions. Nevertheless, the "trend is definitely up" for site usage, according to the spokesman, with growing interest being shown from international sources.

Most e-commerce experts agree that fundamental changes in the way a company conducts business may be necessary to achieve maximum value from e-business systems and tools. But experienced e-business practitioners warn that some fundamentals, including customer relations, can't be ignored. Marion Wagner, an e-business specialist with Shell's mining lubrication team, says that knowing the customer is key, particularly when dealing in the compressed time frame of on-line auctions and bid requests and responses.

According to Wagner, "It is strategically critical for both the mine operator and the supplier to have maximum collaboration - ensuring that the mine operator is familiar with the supplier's brand quality, reliability, and on-site services rather than resting on price alone. While online documentation provides much of the information on the type of products and services a customer is looking for, there is no substitute for knowing the customer's operational needs and understanding its cost drivers. This can best be assessed through direct customer/supplier interaction."

Wagner noted that, as a global supplier, Shell has embraced the move to e-commerce, including on-line auctions, and has invested in four regional e-commerce support units to provide support to both Shell sales teams and customers. However, he said, the company remains "very keen to maintain strong direct and face-to face customer relationships, which have traditionally been very successful for us."

eBay Expands to Business Sector

The promise of profits brings all sorts of companies out of the woodwork, especially since eBay has announced plans to expand its services to include the business sector. The opportunity for eBay seems tailor-made, as the high-flying auction house found that many businesses already were using its services for used computers and office equipment. In January, the company launched a subsite to access a wider range of business sectors, including agriculture and construction. And its only a short step from there to mining equipment.
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Title Annotation:e-commerce is becoming more popular among mining companies and their suppliers
Author:Carter, Russell A.
Publication:E&MJ - Engineering & Mining Journal
Geographic Code:00WOR
Date:Jan 1, 2003
Words:2190
Previous Article:People.
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