ITW Buildex

www.itwbuildex.com

Executive Summary

Established in 1917 (as W.A. Deutsher Pty Ltd), ITW Buildex is Australia's leading manufacturer and supplier of self-drilling screws. The company provides screws and rivets to the construction industry, with a focus on the plumbing and roofing sectors. Based in Moorabbin, Victoria, ITW Buildex employs 216 full time staff.

ITW Buildex implemented e-commerce several years ago through the use of basic EDI (Electronic Data Interchange) to correspond with customers and suppliers. Frank McKee, IT Manager, initiated the installation of an Enterprise Resources Planning (ERP) system in 1999 to manage the financial, marketing and distribution units within the business.

In 2001, ITW Buildex attributes $500,000 of revenue to e-commerce, which contributed $200,000 to gross profit, more than twice the ongoing costs of $138,900.  Cost savings totalled $138,900 in 2001.  ITW Buildex believes this is partially due to customers who were encouraged by the simplified ordering process and convenient access to product information.

The Business

Established in 1917 (as W.A. Deutsher Pty Ltd), ITW Buildex is a leading manufacturer and supplier of self-drilling screws. The company provides screws and rivets to the construction industry, with a focus on the plumbing and roofing sectors. Part of the worldwide ITW group (Illinois Tool Works) for 22 years, ITW Buildex exports to 18 countries throughout Asia, Africa, Europe and the Pacific.

The head office is based in Moorabbin, Victoria.  Sales, warehousing, technical service and despatch facilities are available in eight branch office locations across Australia. ITW Buildex currently employs 216 full time staff.

Getting Started

ITW Buildex implemented e-commerce several years ago with basic Electronic Data Interchange (EDI) between customers and suppliers.  Frank McKee, IT Manager, initiated the installation of an Enterprise Resources Planning (ERP) system in 1999 to manage the financial, marketing and distribution units within the business. 

Approximately 12 months ago, ITW Buildex installed an automated ordering system to reduce the significant time and resource commitments required with dealing directly with retail groups. Customer orders are now automatically uploaded into the Enterprise Resource Planning (ERP) system.

In selecting the appropriate ordering system, Frank conducted preliminary research by talking to traditional EDI providers such as Telstra and GE before discussing system requirements with the consultants that implemented ITW Buildex's ERP system. The decision was then made to utilise the skills and knowledge of web developers and e-commerce specialists who had already implemented an electronic catalogue system.

E-Procurement

E-procurement is the procurement of products and services over the Internet between businesses.  ITW Buildex participate in an online marketplace and industry portal called Timber and Hardware Exchange developed by Pacific Commerce.

The exchange uses an electronic cataloguing system designed specifically for the retail hardware and building industry. This allows retail storeowners and other users to access over 80,000 products contained in the online catalogue.

Customers can access company information, product details and select pricing based on their buying group. They can also perform advanced searches based on product code, supplier, brand, and industry standard product categories. Updated pricing, data sheets, safety sheets, images and application guides can be downloaded to the customer's system reducing the need for manual data entry and errors.

In addition, the service also offers electronic document delivery (order, invoice, etc.), where ITW Buildex can receive documents electronically and then translate data from the various system formats used by different trading partners into a suitable format for direct upload into their inventory management system.

Current e-commerce strategy

ITW Buildex's ERP system is the core component of the company's online system.  The ERP system integrates the functional areas of the business such as sales, accounting, marketing, planning and distribution.

Sales orders are received directly from customers via traditional EDI, FTP (File Transfer Protocol), or as a file embedded in an email. ITW Buildex has software that controls incoming documents and converts them into a standard format to enable the ERP system to automatically upload the documents to the database. The database is updated in batch format with groups of orders uploaded every 30 minutes. Operators in the customer service centre then receive notification of the new orders via an Intranet message.   The customer also receives an email or faxback confirmation of the order listing items and supply status.

A picking list is also generated and submitted automatically to the warehouse enabling staff to pick and pack the goods for delivery to customers.  This process then automatically updates inventory levels through the ERP system. Some invoices and statements are distributed electronically and customers can pay via EFT (Electronic Funds Transfer) depending on the extent of technology used by the customer.

Besides the ERP system, many of the company's other administrative functions are electronically managed. This includes payroll, international transfers and payments to suppliers.    In addition, staff access an intranet for internal communications and to retrieve databases and templates from the network.   They have also recently installed a virtual phone system, operated totally from the desktop, that further underpins the electronic commerce platform.

Revenue and Costs

* Note: Capital Expenditure was amortised over a four-year period

Financial Analysis

In 2001, ITW Buildex attributes $500,000 of revenue to e-commerce, contributing $200,000 to gross profit.  ITW Buildex believes this is partially due to customers who are encouraged by the simplified ordering process and convenient access to product information.

Cost savings totalled $138,900 in 2001.  The majority of this figure was achieved in improved staff efficiency in processing sales, finance and distribution transactions.  Staff time was saved in after sales service ($96,000), payroll ($24,000) and reductions in administrative errors ($1,600).  Use of email and EDI as the main form of communication between the company, suppliers and customers has reduced the volume of paperwork, reducing postage ($1,500) and photocopying costs ($200).

The establishment costs associated with the total e-commerce system (incorporating the EDI and ERP systems and the Exchange) totalled $79,190. Frank invested $5,000 of his time in preliminary research before hiring external consultants ($20,000) and web developers ($15,000) to implement the system. Additional computers required incurred $8,000 and a backup system for disaster recovery cost $4,000 for the hardware and $5,500 for the software. The EDI mailbox software incurred $10,000 and a further $5,000 was invested in staff training.

Ongoing costs totalled $65,658 in 2001.   Most costs were associated with support of the online system including system maintenance ($4,000), software licence fees ($1,500) and staff time spent in EDI co-ordination processes ($30,000).  Use of online banking incurs electronic payment system fees of $360 and bank fees of $100.  In addition, capital expenditure is amortised over a four-year period ($19,798).

Non-financial Benefits

The original ERP system has brought significant efficiencies across the various business units of sales, finance, marketing and distribution.  As many manual processes have now been upgraded to a simplified electronic procedure requiring little human input, staff productivity and satisfaction has improved.

More recently, implementation of the automatic ordering process via the EDI has been well received by customers.  In particular, large retail groups appreciate the more streamlined process of submitting orders.  For ITW Buildex, the new ordering system has been successful in meeting customer demand and has ensured the company retains its major customers and a competitive position within the industry.

Challenges

Having decided to implement an automated ordering system, the company discovered that the business service provider of the original ERP system could not offer a suitably advanced ordering module for the company's purposes.  In addition, as all major customers submitted orders in differing formats, it was important the e-commerce solution could accommodate for these disparities.

This problem was overcome with ITW Buildex developing customised software that would enable the automatic upload of orders. The ERP provider has since developed more sophisticated software which ITW Buildex is considering for future implementation. 

Future

The company intends to expand the e-commerce solution in the future to include automation of purchasing by ITW Buildex.   This would result in a fully automated supply chain from the receipt of customer orders through to the submission of purchase orders from the company.

Frank also recognises the need to modify the intranet and company website so that they use consistent formatting.  This would provide a centralised portal of information from which customers and suppliers can directly access the most up-to-date product and order information.