Copyright 1998 EDUCAUSE. From CAUSE/EFFECT Volume 21, Number 2, 1998, pp.51-52, 58. Permission to copy or disseminate all or part of this material is granted provided that the copies are not made or distributed for commercial advantage, the EDUCAUSE copyright and its date appear, and notice is given that copying is by permission of EDUCAUSE. To disseminate otherwise, or to republish, requires written permission. For further information, contact Jim Roche at EDUCAUSE, 4840 Pearl East Circle, Suite 302E, Boulder, CO 80301 USA; 303-939-0308; e-mail: [email protected]
Riding the Crest of the E-Commerce Wave: Transforming MIT�s Campus Computer Resale Operation
by Joanne HalliseyReengineering efforts, vendor consolidation, and rising costs prompted MIT to convert its computer resale store to an online catalog operation that will enable students, faculty, and staff to purchase computers, peripherals, and software through a World Wide Web interface. The next phase of the project will generate requisitions through MIT�s financial system and process orders and invoices via the Internet through electronic data interchange with the project�s local vendor partner.
A key recommendation from MIT�s pro- cess reengineering efforts several years ago was to decrease the cost of doing business at the Institute through vendor consolidation, and the MIT Computer Connection (MCC) -- the campus computer resale operation -- was targeted for study. Increased customer demands, rapidly changing technology, and diminishing margins were making it difficult to continue the operation of the MCC on a cost-recovery basis. Initial study results recognized this and recommended that MIT consider closing the resale store and replacing it with an online service. A Web-based catalog, MCC/Online, was developed in a preferred partnership with NECX, a local vendor, to enable the online purchase of computers, peripherals, and software. Like the original MCC, the new purchasing model continues to provide the ability for students, faculty, and staff to purchase at education prices.
Goals
The MCC/Online and the partnership with NECX were developed to provide more direct access to computers and related products for the MIT community. Goals of the project are reflected in the comments of Diane Shea, acting director of purchasing at MIT: �Partnerships are essential if MIT is to reduce its vendor base and achieve lowered costs for acquiring goods and services. Partnerships also allow us to take advantage of technologies like electronic commerce, order fulfillment systems, and �just-in-time� capabilities. By employing electronic commerce, MIT can reduce the costs of paperwork to process requisitions and invoices; by reducing the number of vendors, the purchasing volume with a vendor increases, providing greater leverage in reducing prices.�
How we got here
The initial project team was charged with choosing a vendor partner. In February of 1997, a Request For Solution was sent to thirteen potential partners across the United States. We received seven responses and, after careful vendor analysis, narrowed the selection down to three finalists. Selection criteria included cost of products, support, delivery, ability to inventory, product breadth (especially with the key education vendors), shipping, and Internet capabilities. It was critical that the selected vendor establish relationships with our key educational vendors and that the company have expertise in Web-based commerce. All of the respondents agreed that their company was willing to work with MIT toward continuous improvement in the process. The final three vendors were interviewed, and the team made site visits.
We chose NECX of Peabody, Massachusetts, for a number of reasons, the most important of which was their strong willingness to work with us on the project. Their base cost was one of the lowest, and shipping was to be charged on actual shipping costs, without a markup to MIT. Their Internet solution was extremely robust. NECX also had an existing online catalog with 30,000 products, and they were experienced in Web commerce and electronic data interchange (EDI).
Where we are
As the MIT Computer Connection nears the end of its first year of electronic commerce, MIT/Online purchases from NECX have grown to more than $6 million and the sales volume at the end of FY 1998 exceeded $1 million per month. The original staff of nineteen has been reduced to five. Staffing decreases were accomplished over a period of several months, and all but two of the positions were vacated by attrition. When the project is completed, we anticipate that the head count will be three consultants and one manager.
The MCC retail store is currently being renovated into a showroom displaying products that have been tested on the MIT network by Information Systems and that are listed on an IS Recommended Products Web page. Customers visiting the showroom can try out the recommended machines and discuss their specific needs with an onsite consultant. Personal purchases may be made from the machines in the showroom or elsewhere.
Individuals use credit cards to place personal orders. Because access to the catalog is limited to the MIT community through the use of digital certificates, individuals can access the catalog from any Athena workstation1 or, using the Netscape browser, they can access the catalog from their dorm room or from home. Orders are shipped to the U.S. address indicated by the customer.
NECX has contracted special pricing for MIT and has created an MIT-specific products page on the Web featuring the recommended equipment and software for use on the MIT network. NECX works cooperatively with MIT to keep this information up to date. In addition, this Web page serves as a doorway to the NECX catalog of more than 30,000 products. While not all products are eligible for education discounts, a recent market basket study shows that NECX is competitive in all product lines.
This means that MIT customers have easy access and searching capability for product information, availability, and pricing for thousands of products in one catalog location. The catalog offers detailed specification sheets, links to manufacturers� Web pages, and tools like PowerSearch and Memory Express to help customers find the right products. For now, departments can browse the catalog, identify products, and send orders through MIT requisitions to the MCC or the purchasing department for processing. In the next release of the catalog, the items in a customer�s �shopping cart� will automatically be entered into an electronic requisition for processing by SAP, MIT�s financial system. Once the order is approved, it will be sent to NECX via the Internet using electronic data interchange (EDI). Invoices for these orders will be sent to the Institute via EDI and automatically entered into SAP for approval prior to payment.
Initial results
Our early evaluation indicates that the partnership has pluses and minuses. On the plus side are the long-term savings. Although it is difficult at this stage of the project to estimate the total savings, some very tangible savings are already apparent. Savings from cost of goods from the partnership are estimated at $350,000 for the 1998 fiscal year. The initial transition eliminated the existing MCC inventory, which averaged $2.5 million. This has reduced carrying costs and the risk of inventory obsolescence for MIT. As mentioned above, we have realized a significant reduction in staffing (thirteen positions eliminated, with one more expected by project end). Savings from the reduction in processing of requisitions, purchase orders, and invoices will be realized over the long-term, and we anticipate that with an annual volume of 6,000 requisitions, this amount will be significant. The catalog provides increased visibility for the products recommended by IS; if more customers purchase these products, IS should experience reduced support costs.
There are many other benefits that have accrued from the project. The Internet catalog access is easy, and the partnership has brought prompt delivery of in-stock products. MIT has been able to keep the value-added services of pre-sales consulting and the demonstration showroom. End users take more responsibility in the purchasing process and in resolving post-sales issues like returns and order tracking. The vendor maintains the online catalog and, in our case, is in close proximity to MIT. Students, faculty, and staff are able to purchase from home or office, making it more convenient for them.
On the minus side, there is some loss of control that occurs in a vendor partnership. The face-to-face, post-sales service that existed with the resale storefront has been replaced by a telephone and e-mail customer interface. �Immediate gratification� inventory is no longer available to the MIT community; last-minute or emergency purchases are referred to resale locations in the local community. There were some short-term costs associated with the initial learning curve, the inventory clearance, and some layoffs. We have found that NECX is new to the higher education market and requires some adjustment. Delivery to the customer�s desktop is not always realized, because many products ship via UPS ground service as a default. This leaves products at a receiving location for final delivery by MIT staff. We are considering using an alternative shipper as a default for all MIT purchases to guarantee desktop delivery. Sales were not as high as NECX had expected initially, although the volume has increased steadily each month.
As with most dramatic changes, the transition to an online catalog has been met with mixed reactions. Key to our success will be communicating the wider Institute goals of the project to the MIT community. Excellent training in pre-sales support and customer service are also important in winning broad acceptance, and MIT and NECX will continue to work on improving the partnership.
Joanne Hallisey ([email protected]) is manager of the MIT Computer Connection.
