Dot-Com Surprise

May 19, 2003
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I'll try not to make this one of those smug, "told-you-so," kinds of columns seen in various industry publications since the dot-com boom turned to dot-com gloom. After all, things haven't been so rosy around the manufacturing sector lately either, what with sagging industrial output and widespread factory layoffs.

But here's the good news. New evidence suggests that manufacturers were never the technology laggards they were once made out to be by some financial analysts. Less than two years ago, stock prices were soaring for Internet retailers--and for any company with dot-com in its name, for that matter--even though most weren't even close to profitability. Traditional manufacturing stocks, meanwhile, were in the dumper.

But guess what. It turns out that in 1999, despite all the dot-com hype at the time, manufacturers were actually the leading practitioners of electronic commerce--and by an overwhelming margin.

According to U.S. Census Bureau reports, factory shipments from orders received online amounted to $485 billion in 1999, or 12% of total manufacturing shipments. Internet retailers, by contrast, which got all of the press, shipped just $15 billion in online orders, or only 0.5% of total 1999 retail shipments.

Those numbers are actually not surprising. Manufacturers have long conducted business through private electronic data interchange networks. In fact, EDI orders accounted for 59% of manufacturers' $485 billion 1999 e-commerce shipments total.

But manufacturers' use of the Internet is also on the rise. In 1999, 52% of plants that accepted online orders cited the Internet as the network most frequently used to take those orders. And in mid-2000, fully 84% of more than 38,000 plants responding to a Census Bureau survey had Internet access at their plants.

Manufacturers, in fact, are using the Internet for a variety of activities beyond e-commerce, including customer service, supply chain coordination and collaborative product design. These trends bode well for manufacturing's future.

As pointed out recently by Business Week magazine, manufacturing sector output since 1992 has grown 60% faster than the overall economy. A large part of that performance was made possible by industry adoption of new fac-tory technologies.

After the current downturn is over, manufacturers appear poised to launch a new era of growth, thanks to emerging online technologies. A few companies are already using the Internet to remotely monitor and analyze the output of machines at multiple factories, for example, as a way to minimize downtime and optimize production processes. If the experts quoted in Business Week are right, wide adoption of this kind of technology over the next few years will bring vast improvements to all facets of manufacturing--including product quality.

The dot-com darlings may have grabbed the early press. But based on current trends, it's clear that traditional manufacturers are a pretty Web-savvy bunch themselves.

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