Island Block and Paving

www.islandblock-paving.com.au

Executive Summary

Island Block & Paving (IBP) was established in 1993 as a manufacturer and supplier of concrete masonry and paving materials. The company provides both the retail and construction industries with a full range of landscaping, domestic, commercial and industrial paving units. Based in Breadalbane, Tasmania, IBP employs 30 full time staff.

Bill Fawdry, General Manager, initiated the company's e-commerce implementation in 1998 with the objective of promoting the business and streamlining internal administrative processes. Bill believed that additional revenue could be generated by using a website as an advertising tool because of its ability to reach not only local, but also national and international markets.

IBP has adopted a "clicks and mortar" approach to selling products over the Internet.  This strategy involves extending operations to the Internet whilst continuing to trade from a physical location.  Using this approach, companies expose their business to a wider customer base without incurring the overheads associated with setting up new operations in interstate or overseas markets.

The e-commerce initiative contributed $60,000 to gross profit in 2001, as a result of online product sales as well as customers having found the business through its website.  IBP also achieved cost savings of $119,200, mostly from improved efficiencies in inventory management and staff productivity in general administration and communication.

The Business

Island Block & Paving (IBP) was established in 1993 as a manufacturer and supplier of concrete masonry and paving materials. The company provides both the retail and construction industries with a full range of landscaping, domestic, commercial and industrial paving units. IBP also provide a pavement laying service and civil engineering advice for customers.

Based in Breadalbane, Tasmania, IBP employs 30 full time staff.

Getting Started

Bill Fawdry, General Manager, initiated the company's e-commerce implementation in 1998 with the objective of promoting the business and streamlining internal administrative processes. Bill believed that additional revenue could be generated by using a website as an advertising tool because of its ability to reach not only local, but also national and international markets.

The company's internal operations were largely manually based with little interconnection between the accounting, purchasing and inventory management systems. The automation of these processes provided a means of increasing staff efficiency.

The project was implemented incrementally with the first step being the introduction of several standalone computers to automate some of IBP's administrative procedures. Several more computers were then added to complete the hardware requirements of the network solution.  Networking software was installed to interconnect each computer.

Following establishment of the network, a company website was constructed by an employee with advice from an external web developer. Initially, the website provided brochure style information about the company and its products.  The site was later enhanced to include interactive features such as an ordering section allowing customers to place orders directly online.

Bill directs the company's e-commerce strategy with guidance from IBP's part-time accountant and input from a range of key staff. The involvement of staff ensures system developments are based on user requirements.

E-sales

IBP has adopted a "clicks and mortar" approach to selling products over the Internet.  This strategy involves extending operations to the Internet whilst continuing to trade from a physical location.  Using this approach, companies expose their business to a wider customer base without incurring the overheads associated with setting up new operations in interstate or overseas markets.

The core feature of IBP's electronic sales (e-sales) plan is an interactive website with order capabilities. The site contains detailed information on the company and its products, enabling potential customers to research materials and past work completed by IBP.  Orders can then be placed online regardless of differing time zones or geography.

The customer can calculate the number of boxes, freight costs, and total cost for the order online before electronically submitting the order to the sales department. Customers are then contacted by phone to arrange payment via credit card. Although customers cannot pay online, this avoids the risks associated with security of Internet transactions.

Current e-commerce strategy

IBP's website serves two main purposes, advertising and sales. The site is a cost effective marketing vehicle, as it is available 24 hours a day from any country and for a relatively low cost to the company.   In addition to product research and online ordering, visitors are provided with a means to submit enquiries and comments to the company.  IBP currently receives 10 online enquiries per week.  The website is promoted via company vehicles, stationery, brochures, YellowPages Online and links from other company sites.

Through the Virtual Private Network, the company directors and accountant are enabled a secure private connection to the company's network from other locations. As a result, the company accountant is able to complete a third of the accounting work at home and staff in the reseller's office in Hobart have access to the internal system in Breadalbane. This system flexibility has eliminated problems regarding information access and communication between distributed staff locations. 

The system also maintains a database to record customer details and sales information. The company retains information on customers and potential clients, including designers, engineers and architects. This is used to send regular newsletters via email advising customers of product updates and technical news.  The database has become a powerful marketing tool from which management can gain insight into purchasing trends, customer demand and inventory control.

Many of the company's administrative functions are now automated.  The Internet is now used for product research, online banking, supplier payments and payroll.  Inventory management is also conducted online with new stock being entered into the system as it arrives. When sales are made, the system automatically updates stock levels and generates and distributes an invoice.  In addition, reporting functions allow IBP to print reports on available stock and electronically manage the production schedule.

IBP recognises the importance of protecting the Internet system and has implemented several security mechanisms.  These measures include physical security, antivirus software and stringent password protection procedures.  System backups are performed on a regular basis with tapes stored offsite.

Revenue and Costs

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

Financial Analysis

The e-commerce initiative contributed $60,000 to gross profit in 2001 as a result of online product sales and marketing. The net operating benefit for 2001 incorporating incremental gross profit and cost savings as well as deducting ongoing costs was $153,366.

Total cost savings of $119,200 were achieved in 2001. Automated stock management has reduced inventory overheads and costs by $50,000.  Use of email instead of phone and fax correspondence has further improved staff productivity, reducing communication time by $15,000 and telecommunication charges by $6,000.

The prevalence of web-enabled transactions has improved staff efficiency in general administration $30,000 and staff time spent correcting administrative errors by $5,000.  Electronic banking saved the company $2,500 in bank charges and $1,000 in staff time.  In addition, online marketing through the website and through email distribution has reduced marketing costs by $3,000.

The initial establishment cost of the e-commerce system totalled $56,655.  Prior to implementation, staff time spent investigating various e-commerce options incurred $5,000.  Web development and staff training expenditure amounted to $5,000 and $2,000 respectively. Consultants charged $15,000 to develop the inventory management system while purchase of the network software was $3,000. Hardware requirements to support the system accounted for $25,000 including a server, several computers, printers and a digital camera.

To encourage the implementation of e-commerce, IBP was also awarded a government grant of $32,000.

Ongoing costs associated with the e-commerce system totalled $25,834 in 2001.  Much of this expenditure is attributed to staff time spent maintaining the system ($10,000).  Use of an electronic payment system incurred fees of $360 while related bank charges amounted to $150.   In addition, $14,164 was allocated to the amortisation of capital expenditure over a four-year period.

Non-financial Benefits

Bill believes improved customer satisfaction has been the greatest achievement of the e-commerce system.  Designers and architects have made effective use of the website for detailed research into new and innovative products.  This value-add resource allows visitors to download required information and encourages contact with the company through the email inquiry function.  Use of email to notify customers of website updates, company news and products has been well received and has contributed to the company reputation for excellent customer service.

The online ordering function also provides staff with a means of collating product and customer statistics.  Staff are now equipped with a database of sales information from which analysis of customer demand and purchasing trends can be generated.

Challenges

Initially the main challenge IBP faced was the reluctance of customers to fully utilise the online facilities, predominately because some of the smaller builders were unfamiliar with online ordering.  However, Bill reports that user acceptance has increased and that confidence in the system is continuing to grow.

Future

The company is already witnessing increased usage of its website, particularly from designers, architects and engineers who use the site to research and order products.  IBP intend to expand website functionality to include a downloadable file from which engineered design on a retaining wall system can be generated.

Bill's advice to those who wish to adopt e-commerce is that they should plan ahead and be sure to understand how e-commerce would affect their business and how it could provide them with a competitive edge. He believes a properly developed e-commerce initiative could enable a small business to compete with large companies by improving efficiency, productivity and market accessibility.