Punchouts Drive eCommerce in the Industrial Channel

eCommerce is more than, in the words of an Amazon and MRO analyst, “click and ship”.  eCommerce is about a methodology and a mindset to do business more electronically.  In fact, the commerce element can be very diversified, especially for medium to large MRO buyers.

Consider Amazon Business, Grainger and MSC.  Companies such as Grainger and MSC report that over 30% of their business is handled electronically through direct connections … typically what is called “punchouts” and via EDI.  Amazon Business, recognizing the need to integrate with corporate America procurement systems  wrote the translations necessary to integrate with 50+ eProcurement systems.

What companies are considered eProcurement systems?

Amazon Business integrates with Adelpo, Acquiire-Vinimaya, Ariba, Ariett, Bellwether-BPM, Bellwether-ePMX, BirshStreet, Bookbyte, 8-Pack, BuyerQUest, catalog360, Coupa, Elcom, Epicor, ePlus, epaxios, EqualLevel, eRequester, ESM Solutions, ExpenseWatch, Hubwoo, Infor, ISS-iPurchase, Ivalua, JAGGAER, OpusCapita, MikroFax, Oncare, Onventis TradeCore, Oracle Fusion, Oracle iProcure, Oracle Supplier Network, Payback, PeopleSoft, Perfect Commerce, Pint Systems, Pool4Tool, Proactis, ReQlogic, SAP-SRM, SDI, Skyward, SMARTbyGEP, Sollod Technologies, Spectrum, SpendBoss, SpendBridge, SpendMap, Tyler-Munis, Unimarket, Verian, VITG Global, Vroozi and Workday … and many more.

Some cover any industry, others are vertical specific, but these are names that your sales organization should listen for … and maybe ask your industrial and institutional customers “what procurement system does your company use?”

What is a Punchout?

To simply describe it, it is a process where customers order directly through their procurement system, gain the product information they need and then get their internal approvals so the order can be completed. It’s as close to a direct connection with you that an industrial or institutional account can get AND it’s the preferred way for large companies to conduct business.

Additionally, when companies are electronically integrated / linked it is

• More difficult for them to disconnect from you
• Makes it easier for their people to conduct
  business with you … for all of their needs
• Shows joint commitment to doing business, which
  results in increased business.

Consider, this is one of Grainger’s biggest strengths and one of the reasons they have better margins than most distributors and one of the reasons they’ve been able to fend off Amazon Business.

Many industrially-oriented distributors have used punchouts for many years albeit most only have a few connections.  The reason for the limited usage is:

• Few customers have asked; hence distributors implement this reluctantly and only as a defensive move.
• They may implement in-house, so it is a burden on IT, or use an outside consultant recommended by their ERP company, hence it’s expensive.
• Salespeople don’t understand the terminology, nor can they see the order, so they don’t promote the capability.

And it’s not just for industrial accounts.  Institutional accounts (colleges / universities, hospitals, potentially government agencies) can use punchouts.  Remember, a procurement system helps a company manage its purchasing processes … so many companies are prospects.

With a cost-effective punchout resource, distributors can be proactive in their efforts to tighten relationships with key industrials as well as pursue the MRO business at institutional accounts.  The key is the right relationship.

For this reason, we reached out to Greenwing Technology, who shared more insights on punchouts:

“A punchout catalog is a B2B eCommerce website that allows an organization to buyer from a vendor directly from their e-Procurement system.  Larger organizations such as corporations, hospitals and colleges/universities use e-Procurement software to control their organization’s spending.  They need to know what departments are buying from which vendors and at what cost to help control costs and understand where all the organization’s spend happens.

The majority of the communication of punchout catalogs is a standard XML-based language called Commerce Extensible Markup Language or cXML.  cXML and the related Punchout Catalog protocol was originated and is maintained by the industry group cxml.org and SAP Ariba.  Ariba was one of the originators of e-Procurement and cXML and continues to be very prevalent in the industry – these days there are over 100 e-Procurement systems worldwide.

The easiest way to think about a punchout catalog is a B2B ecommerce system that is directly tied into your customers’ e-Procurement platform.  They can shop, add items to their cart, retrieve quotes and checkout.

Let’s step through the process of how the punchout mechanism works.

The first step when a customer wants to purchase an item from your punchout catalog, they first must login to their e-Procurement system.  From there, they may click a link or a button that says your organization’s name, let’s assume Acme Supplies.  Once they do that, the e-Procurement system sends a request to your punchout catalog which is interpreted and if the user has the correct information, they are automatically logged into the punchout catalog.

Now that the user is in the punchout catalog, they can shop as normal, adding items to their cart, retrieving a quote or adding an item to a favorites list.  Let’s assume they add 3 different items to their cart and they’re now ready to check out and pay for their items.  This is where punchout catalogs differ from traditional B2B ecommerce.

The user is ready to check out, normally there would be shipping, billing and payment to deal with, but in the punchout world, all of that takes place after.  Remember back at the beginning when the user first logged into their procurement system, we’ll now we need to get them back into that procurement system that has all the controls, such as budgets, payment, addresses, etc.  So instead of prompting the user for billing, shipping and payment in the punchout, we simply send those three items in their shopping cart back to the procurement system.

Now the user is back in the procurement system, but they have those 3 items.  Now he/she can submit those three items in the cart so they can be approved and turned into a purchase order.  If this user is a plant manager, they can probably approve their order in the e-Procurement.  They just click approve and the purchase order arrives to your organization and now you have a new order.  If the user wasn’t allowed to approve the order, they might have to submit it to be approve by their supervisor.  Either way, once the order is approved your organization will receive it electronically and your organization can release the order.”

Punchouts still represent a growth opportunity for distributors even as technology changes. They can:

• Help you capture increased MRO and other category spend from your customers … to proactively pursue this business with the same functionality, cost-effectively, that large MRO distributors have.
• Provide an additional eCommerce solution to discuss with customers
• Enable you to compete versus large companies
• Potentially broaden your product offering by adding non-industrial items, possibly in partnership with another distributor in your marketplace that serves the same customer? 

System to system is still a big part of the future for much of eCommerce for purchases with your larger customers (but yes, you still need an electronic catalog and one with as many SKUs as possible).

As always, we appreciate your comments and support.