E-volving the equipment vendor

Everyone knows Cisco Systems' e-business heroics, but how do other communications equipment companies size up when using the Internet to optimize supply-chain relationships, service customers and journey into e-commerce?

As a whole they're making progress, but many still have a way to go, said Charles Gerlach, director of eStrategy in the technology, communications and media practice at Mainspring. Vendors have tackled the "usual suspect" items such as providing limited customer self-service, knowledge bases and order status information through the Internet, but they have yet to develop more comprehensive e-business strategies.

Because equipment vendors are technology companies, e-business initiatives "bubble up" from many different areas, and the challenge is to bring a "coherent platform and strategy to it all," Gerlach said.

Though many vendors have realized an initial cost savings associated with basic tactics, they still haven't tackled the more complex issues - such as supply-chain and distribution strategies - that can provide revenue-generating opportunities, he said.

The sourcing and design of components and the capability to perform remote diagnostics of a carrier's equipment are two areas that offer a potentially huge payoff, Gerlach said. "Over time, there will be a more seamless process [in telecom equipment] for negotiating, purchasing and supplying components such that it will resemble the PC industry," he said. If vendors perform remote servicing of equipment, it cuts the staffing costs of the customer support department and presents a value-added service that vendors can sell at a premium.

Start-up telecom equipment outfits, unencumbered by legacy systems, are leading the e-business charge. For them, starting from scratch at the height of the Internet e-commerce boom has been advantageous.

"All of our infrastructure was set up assuming the power of the IP infrastructure that's in place today," said John Jendricks, vice president of business development and chief information officer of Juniper Networks.

Juniper, an Internet backbone router vendor, increased its sales from $3 million in 1998 to more than $100 million in 1999 and delivered three product platforms in 18 months, largely due to its "network commerce" philosophy and architecture, Jendricks said.

A key component of the strategy is to outsource equipment manufacturing - including final assembly and testing - to contract manufacturers, while retaining developmental control through the Web. Thus Juniper carries zero inventory on its balance sheet and can concentrate on developing product and servicing the customer. But it also can monitor product quality, debug problems and access component and ordering information through the Web.

To get an "available to promise" date on a product, a Juniper manager can search billing material data on the contract manufacturer's system rather than look for the data on its own enterprise resource planning software. "That allows us to turn up contract manufacturers quickly," Jendricks said. On the sales side, customers and resellers can log onto Juniper's Web site to configure products, obtain a quote and submit an order. Customers without Web browsers can interact with Juniper via e-mail.

Equipment makers selling more complex systems can't necessarily take and fulfill orders over the Internet, but they are finding ways to provide value-added services to carriers' buildouts. Where customer self-help is not appropriate, Ciena, a maker of dense wave division multiplexing systems, has implemented a series of Web tools to track every module in its customers' networks. The system enables Ciena to reduce operational costs for itself and for the customer in numerous ways, said Guy R. Van Buskirk, director of worldwide services programs for Ciena.

A weekly report tracks module-level changes to the racks sitting at customer sites. Physical moves, software configuration and even premature aging can be detected. "We can predict product problems before failures occur in the network, so modules can be replaced during normal scheduled maintenance," Van Buskirk said.

"We don't need to do as much emergency response. Our [support engineers] can sleep at night."

Another predictive maintenance function of the system tracks defective modules by model number. If a damaged module is accidentally re-installed into a network, tech support engineers are paged to alert the customer. "It's a fairly significant differentiator," Van Buskirk said. "I don't think many of our big competitors can harness their legacy systems to implement this quickly."

Established vendors with blue-chip carrier customers can combat the innovativeness of companies such as Juniper and Ciena by focusing on customer retention, said Phyllis Brock, vice president of Web Business at Nortel Networks. "E-business is way more than buying online - it's being able to service [the customer] as they go through any interaction with the company," she said.

Visitors to Nortel's Web site can complete a profile and receive a personalized Web page that is continually updated with new product and training information. Carriers are buying online from Nortel, but volume often depends on the complexity of the product, Brock said. Nortel is upgrading the Web experience for customers with a live chat option. By pressing a headset icon and entering a phone number, a Web visitor can get an immediate call from Nortel's support center for live help with completing a transaction.

With critical time-to-market issues at stake, some legacy vendors choose the independent marketplace route to get into e-business. telcobuy.com, a vendor-neutral business-to-business marketplace for telecom infrastructure and services, believes it can help vendors eliminate manual and paper-based processes, bring together a fragmented supplier base and remove other limitations inherent in traditional procurement.

telcobuy.com currently aggregates more than 500,000 products representing about 1000 suppliers. Major carriers comprise 70% of its buyers. A typical supplier setup takes a week to 30 days. In 1999, Fujitsu Network Communications and Lucent Technologies accounted for 88% of the total supply of products purchased through the marketplace. Major participating buyers included SBC Communications, Bell Atlantic and GTE.

telcobuy.com aims to be a seamless point of coordination to the customer, helping Tier 1 suppliers manage the major and minor materials needed for a customer installation. "We deal with everything from the 50cents nuts and bolts to the million-dollar switches," said Jim Kavanaugh, CEO of telcobuy.com. The advantage of telcobuy.com's operating model is that once a supplier is integrated into the system, the service can be replicated for incumbent and emerging carriers, Kavanaugh said.

The company takes a percentage off the cost of products that flow through the marketplace. Sometimes that means customers pay slightly more than face value for a product, but the total cost of acquisition can be less, Kavanaugh said.

But Mainspring's Gerlach recommends avoiding the temptation to rush into such B2B marketplaces that involve the purchasing of supplies or a change in distribution strategy. "They're more complicated than they appear," he said. "You can anger your suppliers by creating a type of marketplace that plays them off each other."

Where to start is a key question among the vendors vying to win large chunks of the telecom infrastructure equipment market, which is expected to hit $277 billion this year, according to Dataquest At Juniper, the key was starting from the "outside in," Jendricks said. "We started with customers' needs - the sales and service interface - and used that to dictate priorities and drive initiatives internally."

What hurts most traditional companies, Jendricks said, is taking the reverse view of their business - inside looking out.

"We're in a market that's growing three times per year and where customers have to make technology decisions every six months," he said. "[The Internet] is not so much a cost savings but a way to deal with customers while staying on pace with product innovation."