E-Commerce Poses Huge Challenge, Says Eaton's Cutler
November 29, 1999
Just-in-time inventory management has been a boon for the truck industry, and e-commerce may be its greatest future challenge, according to Eaton president and COO Sandy Cutler.
In his keynote address at the NationaLease annual convention, Cutler noted that JIT has helped smooth economic cycles, because there’s no big inventory buildups and fewer spikes in demand. But JIT also means that almost a third of America’s inventory is on trucks. “The trucking industry is part and parcel to the whole manufacturing cycle,” he said. “The other modes of transportation are not quick enough, they’re not nimble enough, and their logistical costs are not low enough to give us competition in this area.”
As a result, trucking has captured an increasing share of US freight dollars. In 1987 it was 81%, up from 70% 15 years earlier. Cutler said they estimate the share is now closer to 85%. That has resulted in the need for more trucks.
Cutler recalled that a decade ago, many people thought Eaton was “absolutely crazy” when it predicted that the NAFTA heavy-duty truck market would someday reach 330,000 units a year. At that time there was a concern that heavy industry was moving abroad. But Eaton figured correctly on heavy domestic reinvestment, which is currently running at about 230%. The heavy truck market today is roughly 330,000 units, and Cutler said they don’t expect any dramatic slowdown in the next couple of years.
“We actually think that we’re going to see over 300,000 again next year and the year after,” he said. New standards for diesel emissions could spur some pre-buying in 2002, if there’s enough capacity in the marketplace to support it.
Growth in the years ahead will require “extraordinary adaptability and extraordinary flexibility,” particularly in the area of e-commerce. “Electronic commerce is pretty friendly when you think of buying a book on Amazon.com,” he said. “But it’s a lot more threatening when you see a competitor take tremendous advantage of an e-commerce approach to totally dis-intermediate the traditional means of moving product and services.”
When Amazon.com first started, many people thought it was a joke, he recalled. Two years later it had cut deeply into the profitability of the major booksellers. The same thing will likely happen in other industries as e-businesses target portions of the economy with big fixed cost structures then "figure out how to rip a hole in them with a very low cost structure," he said. "It may not bring all of the service, but it will get you 90% of the service at 40% of the cost."