HRM 370 2013 Spring Case C3 2 Hobart Corporation

5/21/2018 HRM 370 2013 Spring Case C3 2 Hobart Corporation

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Copyright 2001 Thunderbird, The American Graduate School of International Management. All rights reserved.This case was prepared by Professor John Zerio and Mr. Jeffery Olsen, MIM01, for the purpose of classroom discussiononly, and not to indicate either effective or ineffective management. The research assistance of Mr. Manoj Vallam is

gratefully acknowledged.

Hobart Corporation

Introduction

By 1996 the Internet revolution was well under way and Hobart Corporation, headquartered in Troy,Ohio, was ready to venture boldly into the virtual Internet world. As technology and software im-proved, companies started to go beyond creating home pages as marketing tools and into conductingtransactions and building entire businesses over the Internet. The high-tech experts predicted wide-spread adoption of Internet use as a transaction mediumit was to be the wave of the future and a sureway to simultaneously cut costs and grow sales revenue.

As Hobarts management explored how to go beyond having a nameplate on the Internet land-scape to conducting business over the Internet, they found the decision to be more complex than theindustry experts made it sound. How would e-commerce initiatives affect traditional channel relations?Would channel partners be as excited and see as much potential as other players? Could e-commerce bepossible without disintermediating distributors and dealers? And to what extent was the e-commercemodel appropriate for Hobarts segment of the food equipment and supply industry?

Answers to such questions were particularly important if Hobart was to sustain its growth mo-mentum and deliver the financial results expected by the parent company, Illinois Tool Works, Inc.(ITW). Hobart had spent considerable resources and energy reversing market share declines that hit thecompany in the late 1980s and early 1990s as a result of contentious relationships with their distribu-tors. As trust and loyalty were being injected back into the channel, how would the complexities oftechnological integration, information sharing, and industry trends affect Hobarts evolving customer

management culture?

Having spearheaded the transformation of the customer culture that started in the early 1990s,Mr. Richard Gleitsmann Jr., now President of Premark International (PMI) Food Equipment GroupNorth America, Mr. John McDonough, now President of Hobart Corporation Foodservice Division,and Mr. Dean Landeche, Director of E-Business, Training and Communications, were ready to supporta measured Internet initiative that would demonstrably strengthen and protect Hobarts relationshipwith its distributors. Dean Landeche, who over the years had become the companys leading Internetexperimenter and entrepreneur, knew very well, however, that Hobart had little room for error. Industryconsolidation and growing competition, coupled with ITWs demanding targets, required an electroniccommerce strategy that both leveraged Hobarts marketing leadership and assured Hobart prominencein new digital spaces and market forms yet to evolve in the food equipment and supplies industry.


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Company Background

History

Hobarts parent company, ITW, with year 2000 revenues of $9.984 billion and sales growth of 7%, wasa diverse company with more than 500 operating units. The breadth of the companys acquisitions and

operations put them in competition with companies like General Electric and Cooper Industries.1ITWhad over 500 operations in 40 countries and was organized in six business segments: engineered prod-ucts-NA, engineered products-International, specialty systems-NA, specialty systems-International, con-sumer products, and leasing and investments.

Hobarts long history began in 1897 when Hobart Electric Manufacturing Company was founded,and they made their first product, a coffee grinder. In 1913 Hobart reorganized as The Hobart Manu-facturing Company and celebrated sales of over $1 million. One year later Hobart introduced its firstkitchen mixer, marking the beginning of Hobart dominance in commercial mixers. In 1974 The HobartManufacturing Company became Hobart Corporation, which in 1981 became a wholly owned subsid-iary of Dart & Kraft, Inc. As consolidation and acquisition became industry trends in the early 1990s,Hobart was bought out by PMI. Then in 1999 PMI was acquired by ITW in a stock swap valued at US$3.4 billion. This sequence of organizational changes put a great deal of pressure on Hobarts bottom

line, also influencing sensitive dealer relationships.2

Illinois Tool Works Inc., the Chicago Company that bought Troys Hobart Brothers Co. in 1996,acquired Premark International Inc. in a stock swap valued at US $ 3.4 billion. Following the merger,Premark which makes Hobart brand commercial food equipment, became a wholly owned subsidiaryof ITW. The merged businesses include food equipment and decorative products that are marketed inmore than 100 countries under such brand names as Hobart, Vulcan. Traulsen and Wilsonart. Thefood-equipment products serve restaurants, hotels, hospitals, cafeterias, supermarkets, bakeries and dells.

As part of ITWs Food Equipment Group (FEG-NA), Hobart joined the ranks of several otherfood equipment brands like Baxter, Bakers Aid, Gaylord, Vulcan-Hart, Adamatic, Kairak, Stanley Knight,Traulsen, Wittco, Wolf, and Stero.3These companies fall under the Specialty SystemsNorth Americasegment of ITW, which accounted for 33.5% of the companys $9.3 billion revenues and 38.3% of thecompanys $1.4 billion operating revenues in 1999.4It is estimated that FEG-NA contributed 34% ofthe segments operating revenues, perhaps three-quarters of which was made up by Hobart.5(See Ex-hibit 1.)

Hobart: Year 2001

Over more than a hundred years of industry leadership, Hobart expanded its product lines to includeover 300 products and became recognized as one of the largest leading global food equipment manufac-turers. The company had manufacturing facilities in Ohio, Kansas, Georgia, Kentucky, and Canada.Hobart boasted of its 240 sales and service locations around the world, making it the largest aftermar-ket service organization in the industry.6 In the U.S., Hobart also offered customers a nationwideservice network. Hobarts industry leadership and product development and expansion helped to set the

company apart as an innovator in the food equipment industry. Hobarts leadership was manifest in themarket share it enjoyed for its core categories. John McDonough, President of Hobart Corporation

1Hoovers Online, http://www.hoovers.com/co/capsule/8/0,2163,10778,00.html2Interview, Dean Landeche, Director, E-Business, Training and Communications, 6 December 2000.3Ibid. http://www.hobartcorp.com/Hobart/aboutusnew.nsf/pages/c32cb5e9578bf22d852567590050e558?OpenDocument41999 Company Financial Statements.5ITW 1999 10-K405 report filed on 3/30/2000.6Company Web site.


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Foodservice Division, estimated that in core categories like warewashing, mixers, and slicers Hobartenjoyed share positions ranging from 35% to 70%.7

Products

Hobart supplied six different product lines, which included food machines, warewashing, weighing and

wrapping, cooking, refrigeration, and service (see Exhibit 2). Over the last century Hobart developed ahigh quality, service-oriented brand image. Hobart product dependability, length of product life, andservice offerings contributed to the premium price that customers were willing to pay for Hobart prod-ucts.

Yet, despite the breadth of Hobarts product offerings, the company could meet only a portion ofthe needs of a large commercial kitchen facility. John McDonough, President of Hobart CorporationFoodservice Division, explained:

End users in new construction and major remodeling, which is over half of the total industryvolume, are looking for a one stop shop. If you take everything that our food equipment groupwas able to provide to an end user, in an institutional kitchen we would be about 25% of thecontent, and in a full-menu kitchen we would be about 40% of the content if we sold every-

thing we make. There are all sorts of categories that even with our breadth we dont touch.

Customers complex product requirements and their need for technical support made channelmembers critical partners in getting Hobarts products to market.

Food Equipment Industry

General Information and Outlook

The food equipment or food products machinery industry supplies machinery for the several operationsof food processing, ranging from storage and refrigeration to cooking and cleaning. The demand forfood equipment has at its core the global populations demand for processed food, whether provided ina fast food restaurant, school cafeteria, or the section of the supermarket where home meal replacement

products are sold. According to the U.S. Industry & Trade Outlook 2000, For nearly three decades, theestimated value of world trade in processed foods has increased at an average annual rate exceeding10%.8In the U.S., the worlds largest food processor, food innovator, and machinery market, pro-cessed food is the largest manufacturing and distribution sector. . . accounting for more than one-sixthof the nations industrial activity.9

This demand for processed food, also linked to economic and social factors, contributed to indus-try-wide reorganization as companies, through merger and acquisition, broadened product lines andincreased capital investments. Manufacturers capable of providing quality equipment, in a turnkeyfashion across the wide range of the interdependent pieces of equipment are generally seen by foodprocessors as having an advantage over competitors.10

In 1999 the total value of shipped food products machinery was estimated to be $2.968 billion, anincrease of 3% from 1998. A strong U.S. economy, increased discretionary spending, and new construc-tion and remodeling at the food provider level led to a year 2000 growth forecast for food productsmachinery shipments of 1% above U.S. domestic economic growth.11(See Exhibit 3.)

7Interview, John McDonough, President of Hobart Corporation Foodservice Division, 4 December 2000.8U.S. Industry and Trade Outlook 2000, U.S. Department of Commerce and McGraw Hill Companies, Inc.9Ibid., 18-22, 25.10Ibid., 18-23.11Ibid., 18-24.


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Key Considerations

In addition to the industry-wide trend toward consolidation over the 1990s, the industry outlook wastempered by developments in the areas of food safety, materials prices, general economic trends, skilledlabor, and technology and e-commerce. According to the International Food Safety Council, 67% ofconsumers are more concerned about food safety than they were a year ago.12This trend was evidenced

in the U.S. Department of Agriculture Food Safety Inspection Services (FSIS) increasing investment inprograms designed to improve the health and food safety standards in the food processing industry.

Materials costs were also an important consideration for manufacturers in the industry. Infoodservice, up to 30% of final costs are tied up in steel, which makes steel price fluctuations, like thenear 17% price increase in the latter half of 1999, critical to industry profitability and growth.13Basedon a foodservice industry survey about the prospects for 2001, industry participants were also con-cerned about shortages in skilled labor and turnover.14Customers were looking for equipment thatwould be easier to use and reduce the amount of human labor required.

The increasing attention industry participants gave to technology and e-commerce capabilitieswas largely seen as a positive development, although some looked at it with measured optimism giventhe necessary industry investment and unproven returns.15Many industry leaders expressed expecta-

tions that continued cooperation at the industry level would add to positive industry forecasts for thefuture, despite an economic slowdown beginning in late 2000.

Major Players & Industry Organizations

Industry Composition

The food equipment industry has generally been seen as having two major market segments: foodretail and foodservice. Food retail is comprised of independent and chain supermarkets, bakeries, spe-cialty shops, and convenience stores. Business with these customers is generally conducted on a directbasis through a companys own sales force or representatives.

Foodservice is comprised of institutions, like schools, government facilities, hospitals, and univer-sities, large and small independent or chain restaurants, hotels, and organizational kitchens. Foodservicehas generally been differentiated from food retail by the type of service the customers provide. Custom-ers with both food preparation and meal service provided on site have generally been classified as a partof the foodservice segment. Customers performing food preparation functions, like a supermarket deli,or bakery, but not providing onsite meal consumption have been classified as a part of the food retailsegment.

Industry Organizations

There are several industry organizations and associations within the food equipment industry. Themission and membership of these organizations cut across both foodservice and food retail and includemanufacturers, consultants, dealers, service agents and technicians, sales agents and marketing profes-

sionals. A handful of these organizations have become key players in shaping and directing the industrysfuture. Four such organizations include: the Foodservice Equipment Distributors Association (FEDA),

12Tanyeri, Dana, Contributing Editor. Industry Voices: Leaders Speak Out, Foodservice and EquipmentMagazine(www.fesmag.com), January 2001.13Schechter, Mitchell.Industry Forecast 2000, Foodservice Equipment & Supplies, Jan 2000 v53 i1 p36,Copyright 2000, Cahners Publishing Company.14 Schechter, Mitchell. Industry Forecast 2001, Foodservice Equipment & Supplies, Jan 2001 (http://

www.fesmag.com/html/fea_0101.htm).15Tanyeri, Dana, Contributing Editor. Industry Voices: Leaders Speak Out, Foodservice and EquipmentMagazine(http://www.fesmag.com/html/ind_0101.htm), January 2001.


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Manufacturers Agents for the Food Service Industry (MAFSI), the Commercial Food Equipment Ser-vice Association (CFESA), and the North American Association of Food Equipment Manufacturers(NAFEM).

FEDA (Foodservice Equipment Distributors Association) is the primary association for foodserviceequipment and supplies dealers in the U.S. With membership of nearly 300 firms, FEDA provides a

voice for what has traditionally been a very fragmented group. For instance, roughly 75% of membershave less than $15 million in annual sales and only 4% have sales over $50 million.16(See Exhibit 4.)

MAFSI (Manufacturers Agents for the Food Service Industry) has more than 600 member com-panies with approximately 2,000 sales agents and marketing professionals, manufacturing executives,and allied foodservice representatives.17Agents make up three-quarters of the association and manufac-turers and allied foodservice associations make up the remaining quarter. MAFSI promotes the manu-facturer representatives function in the industry and provides services to enhance sales and marketingmethods.

CFESA (Commercial Food Equipment Service Association) represents the service segment of thefood equipment industry. CFESA is an organization of independent food service equipment agentsand parts distributors that has nearly 400 members representing all 50 states, Canada, Mexico, Austra-

lia, Puerto Rico and Northern Ireland.18CFESA provides services and training to help service agentsimprove customer satisfaction through increased profitability and productivity.

NAFEM (North American Association of Food Equipment Manufacturers)Nearly 700 manu-facturers of commercial foodservice equipment and supplies are members of NAFEM. These manufac-turers supply roughly 85% of all foodservice equipment and supplies sold in the United States. Througheducation, member committees, conferences, and exhibitions, NAFEM is striving to expand andstrengthen the foodservice equipment and supplies industry.19An example of this is their joining to-gether with CFESA, FEDA, and MAFSI to form the Foodservice E-Commerce Group (FEG) to de-velop a set of XML-based standards to standardize the industrys e-commerce transactions.20

Foodservice Market

State of the Market

The foodservice market of the food equipment industry has been a place of measured optimism over thepast couple of years. Industry participants surveyed by the Foodservice Equipment & Supplies magazinein the 2000 industry forecast projected that across a range of nine categories year 2000 sales wouldincrease versus 1999 results by 4.5% to 6.3%.21(See Exhibit 5.) In the 2001 industry forecast, NAFEMoperators aware of the growth of their own sales and throughout the industry as a whole were optimis-tic that remodeling and expansion of foodservice facilities will continue to be positive. 22Foodservice

16 http://www.feda.com/.17http://www.mafsi.org/about.shtml18http://www.cfesa.com/cfesa%20web%20site%20site/About%20CFESA.html19

http://www.nafem.org/about/20FEG Developing XML-Based Standards, Foodservice Equipment & Supplies, Oct 2000 v53 i11, p. 22.Definition:XML (Extensible Markup Language) is a flexible way to create common information formats andshare both the format and the data on the World Wide Web, intranets, and elsewhere. XML is similar to thelanguage of todays Web pages, the Hypertext Markup Language (HTML). Both XML and HTML containmarkup symbols to describe the contents of a page or file. XML is extensible because, unlike HTML, themarkup symbols are unlimited and self-defining. Visit www.whatis.com for more detailed information.21Schechter, Mitchell.Industry Forecast 2000, Foodservice Equipment & Supplies, Jan 2000 v53 i1, p. 36,Copyright 2000, Cahners Publishing Company.22 Schechter, Mitchell. Industry Forecast 2001, Foodservice Equipment & Supplies, Jan 2001 (http://

www.fesmag.com/html/fea_0101.htm).


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equipment and supplies sales for the year 2001 were forecasted to be roughly $18.9 billion. Of thisamount, NAFEM-category equipment was expected to make up $4.5 billion and supplies/chemicalsand disposables were expected to make up the remainder.23(See Exhibit 6.)

Major Players

The needs of customers in the foodservice market are varied, ranging from replacement of a standarditem (a mixer or toaster) to the full design, construction, equipment installation, and after-sales servicefor a new or remodeled kitchen. The major players working to satisfy those needs include architects,kitchen designers, kitchen equipment dealers, contractors, and equipment manufacturers.

At Hobart, a network of 350 authorized dealers sold to the foodservice side of the companysbusiness. A direct sales force, on the other hand, sold to the food retail side of the business. Hobartsservice business, which cuts across both foodservice and food retail, was also managed direct. Thiscomplex structure could also lead to conflict, especially in sales where, Mr. Landeche stated, dealers feelthat we are . . . . incursions into protected market segments. That the line separating foodservice andfood retail had blurred in recent years further complicated channel issues.

Manufacturers

Most manufacturers in the food equipment industry did not seek to provide a full range of prod-ucts to foodservice customers, but instead sought to build a strategically attractive portfolio of productlines. Though they are able to supply standard products, accessories, and replacement items to the broadmarket, their driving focus was to win the large project order. We would have to sell a lot of scales at$1,500, says Mr. Landeche, to make up for the one warewashing system that we sell that goes for aquarter of a million.24

The nature of the relationship with distributors and dealers and the range of services they provideto the end user also tend to deter manufacturers from selling even small items direct. Speaking forHobart, Mr. Landeche states, when you understand the economics of our business and realize thatdealers control 50% of the large projects market, both new and remodeling, I would be foolish as acompany to pick off small individual sales of replacement equipment and sell that direct and risk that50% of the large business.

For manufacturers to get their products into a major remodel or new project facility they must relyon a combination of relationships including architects, who usually act as coalition coordinators partneringwith several specialistsfoodservice consultants, dealers and facility operators.25Perhaps the most criti-cal player for Hobart was the dealer. John McDonough described the power of the dealer community,we found that 65% to 70% of the time the dealers had the opportunity to direct volume towards oraway from a given brand. . . . If you did not have the discretionary support of the dealer when they havethat much influence, you are not going to hold onto market share positions for very long.26

Dealers

The industrys foodservice distribution network was made up of an authorized dealer network,based on an annual dealer contract, with 350 dealers. Dealers sold a large number of products and werenot limited or necessarily loyal to any manufacturer. Dealers did, however, provide a high level of value-added services that a manufacturer alone could not provide. In the case of large construction or remodelwork (often involving up to 20 or 30 suppliers, including architects, consultants, plumbers, etc.), kitchen

23Ibid.24Landeche, Dean M. Personal Interview, 4 October 2000.25See Supplement A for general overview of the process.26McDonough, John. Personal Interview, 4 December 2000.


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equipment dealers performed design and specification work, manufacturer consolidation services, andinstallation support. A full-service dealer traditionally had the following capabilities and services:

Showroom Warehouse Resident sales force

Delivery Installation Facility design and specification (access to architectural and design services) After-sale services Consolidation of third-party service providers and participating manufacturers

The large construction and remodel projects represented about 50% of dealers revenues, as well as50% of Hobarts sales to the foodservice segment. Dealers make up the remaining 50% with sales of lowvolume new and refurbished equipment.

According to Mr. Landeche, historically, local market focus and small business practices contrib-ute to a fragmented market, which is very relationship oriented. Hobarts dealer network has tradition-ally been made up largely of smaller family run businesses, and like many family owned businesses, the

financial and lifestyle requirements of the family determined the business strategy, keeping the focusprimarily on local or regional markets.27Dealer business, therefore, tended to be transacted with peoplea dealer liked, more than with those that might give them the best financial deal. Mr. McDonoughfurther adds that Hobart, not a participant in buying groups, maintained a series of purposeful one-to-one relationships with its dealers. Additionally, the dealer community, including Hobart authorizeddealers were non-exclusive from both a branding standpoint and a geographic standpoint.28

Recent Trends

The economic and social advances in the world have not left the foodservice market untouched. Leadersin the foodservice industry pointed to important trends that shaped and would continue to shape thefuture of the business. Three areas were often referred to: industry-wide consolidation, the blurring ofmarket boundaries, and technology.

Consolidation

Industry consolidation at the manufacturing, distribution, and end-user levels changed the com-petitive landscape. For instance, although the distribution and dealer network had historically beenhighly fragmentedno customer had made up more than 4% of Hobarts annual volumedealerswere starting to find strength in numbers and learning the value of cooperation on issues of importanceto their industry. Speaking of consolidation at both the manufacturing and distribution levels, Mr.McDonough explained:

As they [dealers] become more sophisticated, because they are putting more critical mass together,theyre investing in systems; they are putting a lot of pressure on us now to start thinking abouthow to do business differently with them, and thats affecting supply chain relationships. Con-solidation at the factory level is affecting the competitive environment, and consolidation at thedistribution level is starting to affect the nature of the supply chain.

At the end-user level, what were finding is that there has for a long time been consolidationthe quick-serve chains, full-menu chains are becoming dominant. The independents are becom-

27Landeche, Dean M. Personal Interview, 6 December 2000.28McDonough, John. Personal Interview, 4 December 2000.


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ing fewer and farther between. The cost of getting to the end user has been climbing for a longtime.29

Richard Gleitsmann, President, PMI Food Equipment GroupNorth America, adds:

In both foodservice and food retail the consolidation at the customer level really begins to putextraordinary pressure on us on the pricing side. Weve always liked to say were the big gun(particularly the food equipment group), weve got all these wonderful brands and were going todo these wonderful things for you. Thats great, except theyve figured out that this teeter-totterworks the other way tooyou can push down on either end of it.30

Blurring of Market Divisions

Over several years the customer consolidation in both foodservice and food retail markets andchange in the services those customers provided had contributed to a blurring of the line that tradition-ally separated the two segments. As chains and supermarkets progressively offered more and more ser-vices and products, the criteria differentiating the foodservice and food retail customers increasinglyoverlapped. This changed the competitive environment for the industry and brought Hobarts salesforce and dealer network into occasional conflict.

This conflict became particularly evident in the late 1980s and early 1990s. The blurring of thedivision between the two markets challenged the organizational structure of Hobart and, in fact, led tosome missteps for the company. Following the purchase by Premark International and pressures createdby the need to integrate the business rapidly, Hobarts market share came under fire. Mr. Landecheexplained, In the foodservice market, anybody who had a big project, wed put them on as a dealerbecause we didnt want to lose the project. We didnt hesitate at all to take a project or customer direct ifwe wanted to. The dealers started voting with their dollars and saying, If youre not going to do businessthe way that weve done business, then I can do business with anybody. 31

Mr. McDonough added, We had an uncontrolled gray marketing issue that was creating artificialprice pressure on the brand and a whole host of issues that were, in effect, attacking the margins thedealer could make and were violating their sense of integrity. They thought we were stealing business

away from them, and in large measure we were. By 1991 Hobart had seen considerable market sharedeclines and determined that something had to be done about the deteriorating dealer relationships.Mr. McDonough continued, In 1992 we got all that back by taking a very high road position ofcommitting ourselves to the distribution base.

Technology

Though for many years the foodservice market, particularly at the equipment manufacturer level,had looked at the Internet and new technologies with some skepticism. In fact, referring to a NAFEMmeeting, Mr. Landeche recounted, if you sat in that room, youd swear that the Internet was going tohave no impact on our business. During 2000 and 2001, however, sentiment began to change. In thelatest foodservice industry forecast, Bill Clark, Product Marketing Manager, Manitowoc Ice Inc., stated,The recent globalization of companies, mergers and acquisitions will allow manufacturers to pool

R&D resources to bring new technologies to market in shorter time frames. Flexibility in equipmentdesign will be the key factor.32

John McDonough also explained, The dominant issue over the next five to ten years will be howrecent consolidation, along with the impact of evolving technologiesespecially e-commercewill

29Ibid.30Gleitsmann, Richard P. Personal Interview, 4 December 2000.31Landeche, Dean. Personal Interview, 6 December 2000.32Dominant Voices 2000. Foodservice Equipment & Supplies, Jan 2000 v53 i1, p. 43.


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enhance traditional E&S distribution models.33Industry participation in the advance of technologyhas been growing as seen by the formation of FEG (Foodservice E-Commerce Group) and the efforts toestablish an industry-wide electronic transaction protocol.

Increased attention to technology has also been leading to new opportunities for differentiationand effectiveness. At the same time, however, it has contributed to a series of complex decisions and

tradeoffs for market participants trying to manage opportunity in a constantly evolving environment.

Competition

Consolidation at all levels of the value chain changed how companies competed. At the manufacturerlevel, size and reach became more and more important, both in terms of fulfilling customers wide rangeof needs and in maximizing profits and productivity by spreading costs across more products and ser-vices. Manufacturers that were independent, stand-alone companies became few and far between. Thetrend was evident in ITWs acquisition of Hobart, Enodis plc taking control of Welbilt, and UnitedTechnologies taking over Specialty Equipment. For smaller manufacturers independence became a gameof survival. For larger companies like Hobart, market dominance simply by virtue of size was not suffi-cient.

At the dealer and end user levels consolidation was putting increasing pressure on manufacturerswho for the longest time were the ones dictating the terms of engagement. Good pricing, services, speedof delivery, dependability, etc. were customer management variables that were increasingly coming un-der the control of the distribution channels. As dealers began to merge or form buying groups, theirvoices started to command greater attention. On the other hand, big end users like hotel and restaurantchains were approaching manufacturers more frequently, requesting to be serviced direct and altogetherskipping the dealers. Manufacturers who tried to do business the way they had ten to fifteen years agowere not able to compete effectively in this environment.

End Users

Although the ones who ultimately used the equipment were people working in kitchens, restau-rants, and cafeterias as preparers of food, dishwashers, bakers, etc., the decision to build a facility andselect kitchen equipment was not generally theirs to make. Instead in this case end users could refer tothe entities either building or remodeling a facility, like a hotel or restaurant chain, or end users couldrefer to those who, though not funding the project, would be managing the facilitys use and upkeep.Traditionally, the dealer or a foodservice designer would work with the end users to plan a facilityslayout and the types and placement of equipment. In some cases the end users, because of previousexperience or preferences, would simply request a certain brand of mixer or slicer, and the dealer wouldtake care of the ordering and installation. In other cases the end users would simply explain what theywanted the piece of equipment to do, how long they wanted it to last and how much they had in thebudget, and the dealer would then find a brand of product that would more or less fulfill those needs.When a piece of equipment simply needed replacing and no remodeling was involved, the end usermight simply direct the dealer to order a replacement. When the project was a remodeling or newconstruction job, however, the dealer or designer generally had the power to select the equipment.

E-Commerce Vision

Developing the Strategy

Hobarts venture into the virtual world came on the heels of their successful reversal of market share anddealer relationship problems. In the beginning, however, the Internet was not necessarily intended to fit

33Ibid.


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into anything the company had done to reestablish trust with channel members. We got into e-com-merce, relates Mr. Landeche, not for the commerce part of it, but to extend our marketing program.. . . It was later on that we said, hey, wait a minute, theres a business opportunity here.

Knowing that aggressive direct sales through the Internet was neither an appropriate fit for all ofHobarts products nor a desirable approach considering the nature of foodservice business, Hobarts first

initiative was a proposal to create an Internet based partnership with its dealers.

The majority of Hobarts 400 dealers did not have e-commerce capable sites. Hobart assumed thatif they could help a dealer to increase sales through the Internet, but reduce costs in inventory, a dealerwould see a benefit in entering the click and mortar world. Hobart offered to set up transaction-capableInternet sites for dealers bearing the name of each individual dealer. In addition to saving dealers thecosts associated with creating such sites, Hobart would refer customers to dealers sites where theywould be able to select a product and initiate a transaction. Hobart would process the transaction, shipthe product from central or local warehouses and deliver it, all on behalf of the dealers. At the end ofeach month the dealer would receive from Hobart a check for its margin, including incentive pay for allproducts sold over the site. Dealers would then be in the e-commerce business and also see reductions ininventory without investing a penny.

Dealers, however, were not receptive. They were fearful of the power that such a system would giveHobart. They expressed the concern that after implementation, Hobart could at any moment tell themthat they had learned to sell and service the customer without the dealer and were no longer in need oftheir services. Because of the dealers discomfort Hobart backed away from this original concept.

Though the initial motivation to get into e-commerce was to extend the marketing program, thecompanys strategy continued to evolve. We are actively involved, states Mr. McDonough, in devel-oping an aggressive web based strategy for purposes of communication on the one side and also fortrying to attack supply chain issues. The path weve been on has been an iterative path where we arelearning everyday what we think this thing (e-commerce) is going to become. . . . There really are onlytwo things that were looking at with the whole e-commerce strategy and that is the creation and accessto market intelligence . . . and the issue of supply chain cost reduction. Appendix 7a-c.

Stakeholders

As Hobart has moved forward with its initiatives, management identified stakeholders who would bekey to the success of their efforts. Mr. Landeche describes some of the stakeholder groups:

The first stakeholder group that we identified when we determined there was something beyondjust having an Internet site was indeed the sales teamthe sales management team and ourinternal management team.

. . . . The next group of critical stakeholders was the dealers. The dealers started calling customerservice saying, Im seeing this on HobartLink (company extranet/EDI system). And customerservice would say, Whats HobartLink? We said, Wait a second, we skipped a step. So we wentback to customer service and spent a lot of time working with customer servicebefore develop-

ing a new capability we pilot it with them.

. . . . There were also some other people talking about infrastructure and technology investmentsthat you had to make. So at that point we switched over to a key stakeholder group being ourown corporate parent company.


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From Supplier to E-Supplier to the E-Partner of Choice

New Digital Initiatives for 2001-2003

A long history of product excellence, robust engineering, and unparalleled field service established theHobart name as one of the marquee brands of the food equipment industry. High business integrity and

unwavering commitment to the industry and its customers have been hallmarks of its long-standingsuccess and profitability. A glorious past of exceptional accomplishments was the banner that RichardGleitsmann and John McDonough marched behind as they considered what Dean Landeche defined astheir mission: to transform Hobart from a traditional bricks and mortar supplier to an eminent e-supplier organization and down the road into the e-partner of choice for the leading food equipmentcustomers.

The Hobart-Dealer Partnership

The Hobart network of 350 dealers serviced customers in 35 countries. In the United States, its majormarket, approximately 300 dealers carried Hobart products on a non-exclusive basis. Given the require-ments of a new kitchen facility, dealers sought to offer a broad portfolio of products, and service solu-tions. Dealers can be classified in two broad categories: (a) bid house: those who focused primarily onbids for new business in association with other contractors (kitchen, building, etc). They tracked con-struction permits granted by the city government and bid as supplier-partners with leading contractors;(b) negotiation house: those who served the customerrestaurants, hotels, and institutionsdirectly.They provided design and logistic services as well as equipment and equipment installation. They wereconsidered full-service houses. Overall, the United States market was divided equally between the twocategories.

Dealers attitudes with regard to business on the Internet varied from it will never be important,cant worry about,34to the other extreme it will be a gold mine, cannot be left out. However, almostall of them, from the most conservative to the most technology driven, were embracing the new ways ofthinking, not without fantasizing about the ghost of disintermediation. The Internet readiness of foodequipment dealers varies widely. They may be found at any one of five stages of online business develop-

ment described by Cisco Systems, Inc.35

and discussed in the article, E-volution Theory, by LesleyMeall.36

Stage 1use of the Internet as a supplemental communications medium. The use of e-mail as asubstitute for, or supplement to phone, mail, and fax. Meall describes companies staying at this stage aspaying lip service to the possibilities offered by automation, without making any real commitmentfinancial or otherwise.

Stage 2creating a Web site to serve as a window for customers to shop the business for informa-tion. At the same time, however, it is at this stage that dealers will potentially begin to see rapidlyincreasing complexity in their use of the Internet.

Stage 3dealer upgrades its Web site to take/send orders, process payments, and track basic

purchase information. At this stage back office/front office integration becomes increasingly importantin reducing exposure to errors and delays in the processing of transactions and fulfilling of orders.

34Interestingly, a Vice President for a large kitchen dealership, when asked about the impact of netmarketson the industry and his business, affirmed that presently their visibility and value is minimal, it is almost non-existent.35http://www.cisco.com/warp/public/3/uk/sme.36Meall, Lesley. E-volution Theory,Accountancy, November 2000. pp. 42, 44.


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12 A04-01-0017

Stage 4when the Internet begins to drive business processes. It is here that dealers advance intoelectronic management of inventory, procurement and supply relationships, human resources, and otherbusiness functions.

Stage 5The final stage of a companys Internet evolution is termed by Cisco as Ecosystemwhere Meall says, the Internet becomes the backbone of the business, a spine to integrate processes and

logistics across the business. It is at this stage where a dealer or manufacturer would need effectiveintegration not simply for competitive advantage, but for survival.

The important fact, however, is that this classification kept only a weak relationship with adistributors sales revenues, quality of market coverage, market position and reputation. Indeed, some ofthe smaller distributors produced some of the most innovative Internet initiatives. Naturally, this situa-tion begged the question of how much the company should invest in maintaining and/or building therelationship with channel partners who might not have interest in growing their digital business. Inaddition, one could argue that partners willing to embrace electronic integration should be more prof-itable, and show better growth prospects in the long run. If this were the case, shouldnt Hobart slowlydisintermediate the brick and mortar distributor? Might it even be feasible to reassign some of theircustomers to their new electronically enabled distributors, with only marginal loss of revenues? Butwhat would be the implications of such actions for the Hobart distribution network? Would such

actions irreparably mar the system? So far, no other industry had figured out an ideal recipe forreconfiguring the distribution platform without immense pain, anger, and distrust flaring up. How bestcould a company redesign the roles of channel members and the terms of their partnership in a way thatenhanced the companys goal to become a leading e-supplier? These were some of the thoughts thatworried Dean Landeche, as he pondered a new universe of marketing possibilities for Hobart.

From Supplier to e-Supplier

Superior efficiency and top operational effectiveness through digital integration with key direct ac-counts and channel partners were the means by which Hobart would retain its market leadership. Re-ducing the overall cost of processing transactionsboth customers and its ownand reducing prod-uct inventory in the system to minimum levels, while continuously improving customer service levelswould ensure even greater differentiation in the market spaces of the future.

If the concept of electronic procurement / supply were a matter of managing the interface betweenonly two playersa buyer and a sellerthe hurdles would be trivial, perhaps not extending beyond thecomplexities of an EDI system.37Hobart, however, would have to operate as a member of a variety ofsupply/procurement networks. Although change was to be expected at many levels, the company wouldhave to make some difficult choices in 2001 and yet look to the future with an unconditional willing-ness to correct their flight plan as circumstances dictate.

As Dean Landeche studied the digital landscape and sought for clues that might point to the killerapplication of the future, he had before him a number of intriguing models to consider. First, a sell-sidemodeldesigned to provide buyers across the industry easy access to product information, technicalspecifications, and sales information. Alternatively, he might consider a buy-side modelin which the goal

was to offer specialized catalog solutions to large, multi-site customers. As a last alternative, he mightchoose to join one or a few Market Hubs, becoming an active member of selected trading communities.

The sell-side model was the one employed by Hobart at the time. In this model, the vendor put upits catalog on an extranet and buyers were expected to take the initiative to access product and priceinformation, technical support, and to configure products and place orders all on their own. Hobartposted on its Website catalog information that corresponded to about 10% of its product line, primarily

37This discussion benefited from ideas presented by D. Geller in The Wheres of Electronic Procurement,September 6, 2000 (http:/www.technologyevaluation.com/research/researchhighlights).


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off-the-shelf components and supplies. A decision to continue with this model would require postingthe entire product catalog, investing in catalog management tools, and developing back-end integrationfunctionality, e.g., automated invoicing, pricing management, order tracking.

On the other hand, in a buy-side model the buying organization would build and maintain itsown catalog. A large hotel chain operator with 300 properties or more, for instance, would select the

products and the product configurations, and build a master catalog from which its employees, any-where in the world, could order. In addition to leveraging the chains volume for better contract termswith suppliers, the buy-side model would place solutions right on employees desktops and allow themto access a single, standard interface worldwide. Several very large hospitality chains (Hilton and theMirage) adopted this model in partnership with PurchasePro. PurchasePro provided catalog manage-ment software as well as catalog management services for its clients. Expectedly, buyers commanded atremendous amount of power in this environment. They were very large organizations, with vast pur-chasing budgets, and a large base of installed equipment requiring maintenance, parts, and replacement.Buy-side models can come in a variety of forms ranging from single operators, to partnerships (combi-nation of two or more), all the way to buying groups that consolidate the purchasing needs of mediumand small size operators. In 2001, the buy-side model presented some difficulties. Primary among themwas the difficulty of providing catalogs in formats compatible with the requirements of all the players.Although the industry was working feverishly to develop open standards around XML, we are a few

years away from a solution. In the meantime, the dialects continued to proliferateCIF, BME-Cat,cXML, CUP, OCI, xCELand the conversion between dialects became more, rather than less, diffi-cult. Hobarts catalog would have over 20,000 products when all the configurations were taken intoconsideration.

The Market Hubs, also known as electronic marketplaces, were in many regards an intermediatesolution between the sell-sideand buy-sidemodels. Hubs brought buyers and sellers together under onevirtual roof. They provided a single catalog and standard interfaces. Although Hubs everywhere loudlypreached their supply chain and back end systems integration capability, the fact was that they had a wayto go before they would be able to communicate smoothly with participants ERP systems.

Hubs came in two basic formshorizontal and vertical. Horizontal hubs focused on productsand services consumed by companies across a broad array of industries. Examples included MRO (Main-tenance, Repair and Operating) supplies, office products, capital equipment, and shipping services.

Vertical hubs developed to serve the needs of well-defined industrieschemicals, automotive,plastics, and food. Participants could have access to the product offerings of a broad range of manufac-turers, find suppliers for a complete bill of materials, establish relationships with consultants, find ser-vices providers, and buy and sell equipment. Hubs were marketplaces where a participant companycould find almost anything it needed, including parts, components, raw materials, services, as well asmarket and industry analyses, business and technical information, and access to a wealth of Internetbased resources.

The Food Equipment Industry saw several Exchanges come to life preceding 2001. Almost all ofthem were set up by independent operators, and were to be neutral market makers. In some industries a

new movement emerged where large buyers were setting up their own electronic marketplaces. In thefood equipment industry, some of the larger players, including Hobart, opted for joining and taking anequity position in fsXchange, a food equipment and supplies (FES) hub whose participants made up35% of the industrys trading volume (see Appendix 8).38The evolution of the virtual environmentcontinued, and fsXchange closed after being unable to attract additional venture capital. But DeanLandeche, in an effort to facilitate channel-focused transactions among trading partners, considered theopportunities presented by many other exchanges and potential e-commerce partnerships. The follow-ing were among some of the most representative in 2001:

38http://www.fsxchange.com/cgi-bin/fsx_insideaboutus.asp.


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www.restaurantpro.com: Restaurantpro was a Web-based application service platform that pro-vided support to foodservice trading partners. This exchange sought to improve the procurementprocess while still supporting existing business relationships (see Exhibit 9).

www.hotelsupplies.com: A hospitality industry exchange designed to aggregate buyers and sellersusing proprietary technology that allowed live auctions, advertising, RFQ (request for order) bid-

ding and purchasing, and electronic cataloging (see Exhibit 10).

www.purchasepro.com: PurchasePro is an ASP (application service provider) offering e-market-place capabilities that allowed a customer company to access a customized interface using thePurchasePro servers and software with an Internet connection, user ID and password (see Exhibit11).

www.gocoop.com: GoCo-op, also an ASP, offered customers the opportunity to establish a privatetrading community designed to incorporate their unique contracts, pricing, workflow and businessrules. Goco-op offered a three-tiered solutions package ranging from private systems to co-opera-tive e-communities based on the size and needs of customers (see Exhibit 12).

For Mr. Landeche it was clear that the company would prefer to deal with an exchange where the

benefits were shared, and not one where the supplier received little or no benefit. At the same time,Hobart would have preferred that its customers move their businesses to a marketplace that ran on anopen standard with XML access. While this would allow multiple marketplaces to emerge, increasingcompetition, it would sensibly reduce the costs of developing and maintaining complex product cata-logs, and allow the same code to run in different marketplaces.

Conclusion

Hobarts trek into the world of e-commerce was and continued to be a learning experience. Mr. Landechereiterated this point by saying:

Everyone talks about the e-commerce revolution, but Ill distinguish that with evolution. Evolu-tion is always slow, its obscure, and generations have to die before you realize what happened. Ithink we just saw the first generation die with the dotboms, and I think that theres anothergeneration that will die out, and youll see shake out in the portals. . . . Did we invest in the onethats going to survive? We dont know, but we think its important for that generation to beborn, so that the next generation we can be there.39

With each advancing step Hobart management needed to closely evaluate the effect of its effortson channel members that provided an essential lifeline to market demand. How beneficial would thesesteps be? Could the company continue its innovative ways in a very traditional segment of the foodindustry without upsetting important dealers and sales representatives? Would channel members andother industry players follow suit? Would exchanges and e-commerce trading partnerships be successful,and would they add sufficient value to manufacturers and dealers to sustain them? How should Hobartmanage organizational changes that would eventually be necessary to better meet changing marketsegment boundaries?

Time will reveal the answers, but into 2001, Hobart felt that it had already benefited from itsindustry leadership in e-commerce. Speaking of John McDonough, Mr. Landeche energetically stated,he recently stood up in front of a NAFEM Conference two weeks ago [in September of 2000] and saidin front of the entire industry that what we have done in e-commerce has probably brought more valueto our business than any singly thing that weve done in the last ten years.40

39 Landeche, Dean. Personal Interview, 4 December 2000.40Ibid.


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Exhibit 1 Illinois Tool Works Inc.

Segment Information for 1999, 1998 and 1997 (in thousands)

1999 1998 1997

Operating Revenues: Engineered ProductsNorth America $2,938,906 $2,538,749 $2,258,828 Engineered ProductsInternational 1,321,513 1,036,211 871,699 Specialty SystemsNorth America 3,130,347 2,876,812 2,787,929 Specialty SystemsInternational 1,592,855 1,575,290 1,414,324 Consumer Products 510,275 488,686 478,675 Leasing & Investments 157,385 149,748 101,110 Intersegment revenues (309,096) (278,525) (285,302)

$9,333,185 $8,386,971 $7,627,263

Operating Income: Engineered ProductsNorth America $561,742 $477,547 $402,395 Engineered ProductsInternational 132,808 127,260 124,821 Specialty SystemsNorth America 537,555 468,352 399,613

Specialty SystemsInternational 154,022 155,110 116,317 Consumer Products 15,326 12,925 25,053 Leasing & Investments 84,931 67,552 37,089 Premark merger-related costs _ (81,020) __ _ _

$1,405,364 $1,308,746 $1,105,288

Source: Illinois Tool Works, Inc. 1999 Financial Report, p. 43.

Principle Markets Served by ITWs Five Manufacturing Segments

Percent of 1999 Operating Revenues

Engineered Engineered Specialty Specialty Products Products Systems Systems Consumer

North Amer. Intl North Amer. Intl ProductsConstruction 48% 38% 9% 5% 33%

Automotive 27% 34% 6% 3% %General Industrial 11% 11% 19% 24% %Consumer Durables 6% 7% 3% 2% 67%Electronics 3% 7% 1% 2% %Food and Beverage 2% % 9% 9% %Industrial Capital Goods 2% 1% 6% 6% %Food Retail and Services % % 34% 32% %Paper Products % % 5% 5% %Other 1% 2% 8% 12% %

100% 100% 100% 100% 100%

Source: Illinois Tool Works, Inc. 1999 10-K405 filed on 3/30/2000.


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CookingBroilersElectric

BackshelfOver-fired

FryersElectricGas

GriddlesElectricGasMobile Filters

OvensBake & Roast, GasConvection, Electric & GasFull SizeConvection, Electric & GasHalf SizeMicrowavePizzaRotary

Ranges, ElectricToastersWarmers

WarewashDisposers

AccessoriesControl Groups

Gas Infrared Booster HeatersHot Water DispenserSelection Factors & Ordering DataWarewashers

Automatic Rack ConveyorBlower-Dryer

CondenserSide Loading

Door & HoodFastrackFlight TypeLow TemperatureTurbowashUndercounterUtensil Washer

Waste Equipment

Exhibit 2 Hobart Product Offerings by Category (from Hobarts Full Line Catalog)

ReceivingHanging ScalesReceiving ScalesService Scale

RefrigerationConvertible Frozen Food CabinetsFacility FeaturesFrozen Food CabinetModel DesignationOptional FeaturesQuick-ChillReach-In/Pass-Through Series NQ/SQReach-In/Pass-Through Series QReach-in Series DRoll-In/Roll-Through Series DERoll-In/Roll-Through Series QESafe-T-Thaw

Undercounter

BakeryBagel Former DividerDeck Ovens Series HBDOProofers

Roll-InSeries AHPRoll-In/Pass ThruRoll-In/Roll-Through Series PEQProofer/Retarders Series AHPR

Rack OvensSingle RackDouble RackRoll-In/Roll-Through Series EQE

Thaw-N-Proof Roll-ins

Food MachinesAttachments/AccessoriesFood Cutters/MixersBread SlicersChoppersCutter/MixersFat TesterFood CuttersFood ProcessorsKnife SharpenerMeat SawsMeat Tenderizer

Medalist ProductsMixers

BenchFloorSpiral

Power Drive UnitSlicersVacuum MarinatorVegetable Peelers


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Exhibit3

FoodProductsMachineryTrendsandForecasts

(millionsofdollarsexceptasnoted)

PercentChange

1992

1993

1994

1995

1996

1997

19981

199

92

20003

97-9

8

98-9

9

99-0

0

96-0

04

IndustryData

Valueofshipments5

2,4

17

2,6

30

2,67

4

2,8

19

2,7

98

2,7

98

2,8

82

2,968

3,0

87

3.0

3.0

4.0

2.5

Valueofshipments(1992$)

2,4

17

2,5

64

2,52

0

2,5

79

2,5

02

2,4

37

2,4

56

2,495

2,5

95

0.8

1.6

4.0

0.9

Totalemployment(thousands)

18.9

18.8

19.8

19.9

21.1

18.4

Productionwor

kers(thousands)

11.2

11.3

12.0

12.1

12.1

11.1

Averagehourly

earnings($)

13.0

8

13.2

3

13.05

13.4

6

13.6

6

15.6

3

Capitalexpenditures

46.8

48.8

48.5

43

67.0

77.6

ProductData

Valueofshipments5

2,1

02

2,3

11

2,26

6

2,3

47

2,4

90

2,5

13

2,5

94

2,672

2,7

78

3.2

3.0

4.0

2.8

Valueofshipments(1992$)

2,1

02

2,2

52

2,13

6

2,1

47

2,2

27

2,1

89

2,2

10

2,246

2,3

35

1.0

1.6

4.0

1.2

TradeData

Valueofimports

481

445

482

601

558

579

657

643

649

13.5

-2.1

0.9

3.8

Valueofexports

682

701

731

785

822

812

803

811

827

-1.1

1.0

2.0

0.2

1Estimateexceptimportsandexports

2Estimate

3Forecast

4Compoundannualrate

5Shipmentsfortheindustryaremadeupofallshipments

forplantsforwhichthemajorityofprodu

ctsareclassifiedinFoodProductsMachinery,

i.e.,

20%ofplan

toutputmayfallunderadifferentindust

ry.

Productshipmentsrepresentthetotalvalueofspecificproductsclassifiedwithin

the

industry.

Source:U.S.

Ind

ustry&TradeOutlook2000,

U.S.

DepartmentofCommerce:BureauoftheCensus;InternationalTradeAdministration.


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Exhibit 4 FEDA Membership

Source: http://www.feda.com/

Exhibit 5 Projected Equipment & Supplies Sales

SALES INCREASESE&S CATEGORIES 1999 vs. 2000*Maintenance & Cleaning Supplies 6.3%Serving Equipment 5.7Cook & Warming Equipment 5.4Permanent Tabletop Supplies 5.3Kitchenware & Cooking Supplies 5.1Storage & Handling Equipment 5.1

Food Preparation Equipment 5.0Custom Fabrication Equipment 4.6

Warewashing & Sanitation Equipment 4.5

*Foodservice Equipment & Suppliesforecast

Source: Schechter, Mitchell.Industry Forecast 2000, FoodserviceEquipment & Supplies, Jan 2000 v53 i1, p. 36, Copyright 2000,Cahners Publishing Company.


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Exhibit 6 Equipment and Supplies (E&S) Foodservice Market

Originally calculated by Technomic Inc., FE&S is adoptinga $18.9 billion figure for total E&S industry sales in 2000because it provides the most comprehensive account of thefull range of products sold by industry suppliers.

Source: Schechter, Mitchell. Industry Forecast 2001,Foodservice Equipment & Supplies, Jan 2001(http://www.fesmag.com/html/fea_0101.htm).


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Exhibit 7-a

January 2001

Exhibit 7-b

January 2001


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Exhibit 7-c


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Exhibit 8 fsXchangeServices to Member Companies (www.fsxchange.com, April 2001)

fsXchange is a solution for the entire foodservice industry. It provides an open and neutral marketplace where industrymembers can conduct transactions efficiently and cost-effectively. More than a simple procurement platform, the fsXchangee-marketplace offers a variety of services and support to foodservice manufacturers, distributors, customers/providers, andconsultants.

I. Procurement

Procurementof food, supplies, equipment and services via user-friendly interface lowers transaction costs and reduceslead times

Product cataloguesautomatically updated and made available online to expedite the process by which goods andservices are sourced

Auctionsprovides cost-savings to buyers and sellers and eliminates waste

II. Logistical Planning

Automated inventory managementmore efficient and cost effective, reduces waste Replenishment managementautomated inventory management makes replenishment processes more accurate, effi-

cient, and cost effective

III. Supply Chain Administration

The following processes are the primary beneficiaries of administrative integration and automation. Because they are auto-mated and integrated into one open and neutral platform for the entire industry, inefficiencies resulting from outmoded,paper-laden processes will be dramatically improved.

Order Fulfillment and Delivery Automated Order Tracking Returns Management Installation Coordination

IV. Financial Services

Automated Payment Services Online Credit Services

V. Technical Support

Many technical problems arising from incompatible databases, software, and processing systems will be alleviated throughindustry-wide participation in one shared platform. Proprietary software and databases will remain private and confidentialto each member company, yetfsXchangewill have the functionality to provide customized IT support to optimize compat-ibility between the member company and the exchange. Below are the major areas in whichfsXchangewill focus its TechnicalSupport services.

Custom Application Interfaces Reporting and Analysis 24X7 Telephone and Web-based Customer Support

VI. Related Industry Services

Global economic shifts toward integration and increased efficiency across vertical markets is driving the foodservice industryto enhance communication and cooperation between manufacturers, distributors, customers/providers, and consultants.

fsXchangesopen, neutral, and standards-based e-marketplace provides related services that promise to bring together thistraditionally fragmented industry. They include, but are not limited to, the following:

Product Consulting Product Search and Comparisons Configuration and Custom Design Content Industry News. FAQs and Knowledge Bases Industry Events Community Collaborative Forum


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Exhibit 9 RestaurantproServices and Offerings (April 2001)

Created as an online e-procurement tool for restaurants and foodservice distributors, Restaurantpro providesapplications to support trading partners within the foodservice industry. Restaurantpro is designed with a mis-sion to strengthen relationships with existing customers, reduce operating costs, and attract and retain newcustomers, while automating the various points in the commerce process. The system allows participants to:

publish prices and product availability online notify customers of changes in pricing, product availability and additional services use existing item codes and product descriptions confirm order receipt and delivery manage catalogs notify customers of promotions create a customized storefront.

Restaurantpro does not consider itself a bidding site, but rather positions itself as a business partner by teamingwith participants to:

Create their e-catalogs and online storefrontsRestaurantpro teams will help digitize catalogs and create com-pany storefronts using companies information and history

Connect customers to the Webprovide DSL connection to Restaurantpros private network Connect buyersif you have customers who are not already online with Restaurantpro, our sales team willhelp you bring them online through direct sales calls

Form an integration strategyour staff will work with you to understand your existing software and systemsto develop and integration strategy.

Source: http://www.restaurantpro.com

Exhibit 10 HotelsuppliesServices and Offerings (April 2001)

Hotelsupplies, a hospitality industry exchange founded in 1996, states that its mission is to connect Hospitalitybuyers and sellers in a secure and efficient marketplace, enabling them to conduct e-commerce without compro-mising their personal relationships or processes. This online portal uses proprietary technology to facilitate:

Product and service sourcing Live auctions Electronic cataloging RFQ bidding and purchasing Advertising

Hotelsupplies hosts 300+ independent suppliers/manufacturers and 1,100 individual purchasing entities. The

exchange also provides training and support, as well as co-op advertising materials for its members.

Source: http://www.hotelsupplies.com


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Exhibit 11 PurchaseProCustomer Services and Offerings (April 2001)

PurchasePro, founded in 1996, considers itself an e-commerce enabler. Acting as an application service pro-vider (ASP), PurchasePro offers companies of varying sizes solutions enabling e-procurement, online distribu-tion, and co-branded marketplaces. PurchasePro categorizes its e-commerce solutions into the following catego-ries:

Private Label e-ProcurementWeb-based solution streamlining corporate procurement procedures by con-necting companies with their various suppliers. Provides a custom-built, uniquely branded e-marketplace

where participants control the purchasing cycle, from internal purchasing requisitions through product ship-ment tracking. Participating companies can:

- take advantage of master contracts- establish a network of preferred vendors- eliminate maverick spending- automate the RFQ/PO process- establish and monitor the scalable corporate purchasing hierarchy- evaluate buyer and supplier performance by tracking the history of all purchases with automatic elec-

tronic archiving

Private Label v-Distributionlinks distributors with a large number of buyers. Customers establish custom-branded storefronts and can:

- increase sales- improve customer service- reduce costs by conducting secure, instant and track-able transactions- offer just-in-time delivery by integrating the supply chain from manufacturer directly to end-users,

saving time and money- automate the entire RFQ/PO process online- respond to changing markets in real-time- instantly update their product mix- change pricing or develop product discounts- streamline the billing process, while eliminating the cost of paper catalogs

Private Label e-MarketMakerestablishes a private online commerce community, allowing participants tobuy and sell within a custom-branded marketplace. Can provide members better pricing, simplified productsourcing, streamlined RFQ/PO processes and expanded product offerings. Suppliers can also realize reducedcatalog production costs, implementation of real-time inventory and just-in-time delivery, as well as 24/7/365-customer service transactions are conducted immediately and are automatically electronically documented

Global MarketplaceCreated in 1997. Companies of varying sizes can connect, communicate, and conductbusiness functioning either as a buyer or supplier. Buyers can use services like:

- electronic supplier management- contracts- order processing- bidding- electronic catalogs

Supplier services include:

- electronic, real-time sales, tracking, and invoicing- post electronic catalogs of their products- post contact information- post detailed company history, etc.

Source: http://www.purchasepro.com


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Exhibit 12 GoCo-opServices and Offerings (April 2001)

Founded in 1995 by a design and procurement firm specializing in the hotel, healthcare, and restaurant indus-tries, GoCo-opis an applications service provider (ASP) offering a multi-tiered solutions strategy depending ona clients size and needs. Private systems and marketplaces can be created for large organizations and member-ship communities can be created for mid-sized companies, associations and public communities.

As stated on the company Web site, GoCo-openables customers to establish a private trading community thatis customized to reflect their unique contracts, pricing, workflow and business rules. An organizations buyerscan log on to the Web-based system to search suppliers catalogs, prepare requisitions and purchase orders, andconsolidate purchases. Included as a part of GoCo-opssolutions are things such as online tracking and orderstatus, current industry news and trends, on-site training, and reporting to management and agents regardingall purchasing activities.

GoCo-op provides three types of solutions:

Private e-Procurement Systems

Called Procura, this system is designed for large companies with complex purchasing requirements based onthe number of locations and vendors. Procuraenables customers to do such things as follows:

Automatically distribute line-by-line item-level requisitions into purchase orders Provide real-time status of purchase orders Run customizable reports Perform comparison-shopping amongst many vendors offerings Facilitate purchasing contract and vendor compliance Facilitate purchasing contract rebate management

e-Marketplace Technology

Similar mid- to large-size companies can join in collaborative marketplaces to pool their purchasing activities.The technology and applications for these large, private e-marketplaces are managed by GoCo-op.

e-Communities

Smaller companies are provided the opportunity to join together in vertically integrated trading communities.Industry news and events are provided to buyers and sellers in these communities. Members have full accessto GoCo-op e-Communities and the full range of benefits, including volume discount pricing and basic track-ing and reporting features.

Source: http://www.gocoop.com


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Supplement A Major Project Foodservice Design Process (Architects View)

Architects Role

In very general terms, the role of the architect is to make sure that the project is delivered on time, on budget,and as flawlessly as possible. Architects, as generalists, perform a function somewhat like that of a general

contractor. The architect partners with specialists (foodservice designers/consultants, electrical engineers, etc.)and coordinates their efforts. More specifically the architect performs amongst other tasks the following services:

Selection of foodservice designer or consultant(not necessarily based solely on cost, but also on qualifications,dependability, and relationship)

Budgetinga client provides overall budget limits and the architect divides that into the categories of work tobe completed. The architect tries to balance the needs of the client, the costs that the client can afford, and thephysical requirements for how the project is to be completed.

- Mr. Wimmer explains, Lets say youve got a 60,000 sq. foot school and you have $200,000 to spend onkitchen equipment. It doesnt tell you how much your slicer is going to cost, but it tells you that thats thefield youve got to play in. Then you start putting in all the pieces that are going to go into that kitchen(ranges, ovens, mixers, . . .). You start a list of all those with the prices that are expected for those. Theprices come right out of the dealerships. If you know a certain slicer is going to put us over cost, were notgoing to buy that slicerthats how the decision gets made.

Link between Client and Designerthe architect makes sure that the consultant knows and is finding outwhat the client wants (the client may be the overseer or owner of the project or may be a contracted facilitiesoperator, like Aramark)

Coordination of like or related activitiesWe require the designer to provide us with dimensions and electricalrequirements of the equipment, e.g., a slicer. We then compare our drawings to make sure that its going to fiton the counter, then we give the electrical information on the voltage, amps, etc. so he can provide the outletexactly where it needs to be.

Foodservice Designer or Consultants Role

Prepares drawing and specifications for the foodservice or kitchen work Coordinates the provision of the equipment(this may mean procuring the equipment from in-house if the

designer represents a dealership, or it may mean that the designer turns the specifications/drawings over to athird party who bids those to other dealers to fulfill)

Find out what the client wantswork with the architect to determine how long the client wants the piece ofequipment to last, how durable it should be, how much it should cost, etc. Selects the product make and brandselect equipment that will meet performance expectations and be within

costs (the architect may have some say in the product selection particularly in a situation where the manufac-turer is not likely to deliver on time because the equipment may delay the clients ability to generate incomenecessary for rent on the constructed or remodeled facility)

Client & Facility Manager/Operator Roles

Clientfrom the architects perspective this is the party for whom the entire project (from construction, bricklaying, electrical, kitchen design, etc.) is being coordinated. This party may be a restaurant owner, chain,university leaders, etc.

Facility Manager/Operatorthis may by the client, or may be a hired or contracted provider of food servicesand facilities management; these are the people who may not have final say in the brand of equipment

selected, but they are the ones who have a lot to say about how the facility and equipment should work, howthe facility should be laid out, and how the equipment should perform.

Growing Importance of e-CapabilitiesMr. Wimmer expressed that designers/consultants who do not havetechnological capabilities (compatible CAD design, e-mail, etc.) are not generally considered for projects.

Source: Wimmer, Edward J., Architect, Deutsch Associates. Personal Interview, 13 February 2000

HRM 370 2013 Spring Case C3 2 Hobart Corporation

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