Although golf-equipment makers generally stage their competition in the public eye, with star-studded ads or with logos that are plastered on players as thickly as on Nascar cars, TaylorMade Golf Co. took a less glamorous approach. It spent the past two years moving its network of suppliers and distributors online.

The concept turned out to be as simple as a two-foot putt—and far more lucrative even than a championship-winning stroke. TaylorMade (www.taylormadegolf.com) can now automatically handle the administrative details of dealing with its suppliers and distributors and can easily share forecasts and inventory information with them. Mark Leposky, the vice president of global operations, says that TaylorMade may save $50 million in production costs in 2002—Tiger Woods-type money—based on just a $10 million investment in moving online.

TaylorMade has compressed its production schedules for a set of off-the-shelf golf clubs by more than half. The company can now make a set of custom clubs in less than seven days, down from six weeks. As a result, TaylorMade’s custom-club business has doubled in the past year.

“In a supply chain, how you execute creates competitive advantage,” Leposky says. “We definitely see ours as a competitive weapon.”

Manufacturers in a variety of industries are putting their supply chains online in hopes of achieving similar gains. Yankee Group, a research firm (www.yankeegroup.com), estimates companies in the U.S. can save $223 billion over the next five years in areas such as inventory control and production by adopting online supply-chain methods. Those savings fall straight to the bottom line.

Management guru Michael Hammer says that streamlining processes between companies is “the next great frontier” for finding efficiencies. “It’s where this decade’s productivity competitions will be fought.” [For an interview with Hammer, see “(Re)Made in the U.S.A.”]

A supply chain—a network of suppliers, manufacturers, wholesalers, distributors, and retailers that make, deliver, and sell a product—that goes online can eliminate considerable redundancy. At the moment, when a manufacturer generates a purchase order for a part, a supplier generates a matching invoice, then generates purchase orders for its suppliers, which generate invoices and more purchase orders for their suppliers, and so on until the process finally ends at the suppliers of raw materials. If all those companies in the chain can match up their computer systems, then a single purchase order from the final manufacturer can flow through the whole system with minimal human intervention. Errors that come from entering and re-entering information disappear.

Electronically linking every company in a supply chain can also greatly reduce the amount of inventory that companies carry because there is no longer a need for each company to build a buffer in case its buyer shows a surge in demand. Every company can build modest inventory based on the outlook for purchases by the final consumer.

Not surprisingly, initial moves to put supply chains online have come from those with the most to gain: companies with sprawling supply networks. Car manufacturers, for instance, set up parts exchange Covisint LLC (www.covisint.com) in the hopes of linking together more than 4,000 suppliers. Computer makers, such as Dell Computer Corp. (www.dell.com), have also been aggressively moving their suppliers online.

Hammer says computer maker Hewlett-Packard Co. (www.hp.com) began moving online in 1999 and has already seen significant benefits. To pick one small example: H-P linked together all the companies whose products go into making its computer monitors, reaching all the way back to the suppliers of the resins that are used to make the casings. In the process, H-P says, the price of the resins has dropped as much as 5% because H-P handles all the purchasing and gets a bulk rate; in the past, the numerous companies that H-P used to make casings placed their own, far smaller orders. H-P says the number of people required to manage the supply chain for its monitors has been cut in half. The time it takes to fill an order for a monitor has also been cut in half, because every company in the supply chain can communicate more easily and thus cooperate better. H-P says that moving the supply chain online has even increased monitor sales, by 2%. The reason is that the company is no longer losing orders because it couldn’t deliver the right product at the right time.

You don’t have to be a goliath like H-P to see the benefits, says Bernard Cheng, chief executive of Advanced International Multitech Co. (www.adgroup.com.tw), a Taiwan-based manufacturer of golf club heads and shafts with $70 million in annual revenue. He estimates that his company spent $3 million in the past five years digitizing its internal operations, as well as its links with buyers such as TaylorMade. “That’s a lot of money for a company our size,” Cheng says. “But we believe in the technology. It’s what an offshore company like ours needs to get involved with businesses in the West.”

Eastman Chemical Co. (www.eastman.com), which generates revenue of $5.3 billion a year and orders huge quantities of propane, ethane, and hundreds of other raw materials on a daily basis, believes so strongly in online procurement that it has bought stakes in a handful of software developers that specialize in the area, including Webango Inc. (www.webango.com), Moai Technologies Inc. (www.moai.com), and Yantra Corp. (www.yantra.com).

Eastman—which spent upward of $10 million on its own e-procurement system, launched two years ago—asks its software partners to make presentations to its suppliers pointing up the advantages of going digital. Eastman will sometimes even retrofit a supplier’s Web site so Eastman can send purchase orders to the supplier and handle other exchanges of data electronically. Eastman also has established a central, online hub to allow for at least minimal online contact with suppliers that may use nothing more sophisticated than spreadsheets, personal computers, and browsers.

“We bend over backward to bring someone into the loop,” says Peter Roueche, a senior procurement engineer at Eastman. “We can’t live in a vacuum.”

In 2000, Eastman forged direct connections into the procurement operations of 15 suppliers. The 2001 goal: 40.

W.W. Grainger Inc. (www.grainger.com) says a fast-growing piece of its business likely couldn’t exist without online connections. The unit, FindMRO.com, lets customers of the industrial-parts distributor locate even oddball items that they rarely use, such as bear repellent for workers on the Alaska pipeline. The company deals with 14,000 vendors hawking more than five million products. “We take the messy, random, and overwhelming tasks that you don’t want to do, and do them,” says Ron Paulson, the general manager of FindMRO.com.

If the benefits are so clear, does that mean that every company is rushing to link up with suppliers and distributors online? Hardly.

Leposky, at TaylorMade, says suppliers have been “under-interested” in doing anything technologically. “I’d say 50% of [prospective] vendors will walk away” from business with TaylorMade rather than go online, he adds. Paulson of FindMRO.com agrees that persuading suppliers to take the e-train is often easier said than done. “There is still some fighting and screaming,” Paulson says.

Suppliers—particularly the smaller ones, employing fewer than 500 people—say that the software and procedures prescribed by manufacturers can be confusing, often contradictory, and not necessarily sculpted to their needs. These smaller companies, which make up 95% of the 6.6 million businesses in the U.S., also say they are concerned about the cost of the new systems, a worry that has been magnified in a slack economy. Then there’s the often impenetrable technical jargon used to describe the online processes. A small enterprise in, say, the sheet-metal industry thinks about classic supply-chain issues in simple terms. Do you have the part? How many can I get? When can you deliver? How much will it cost? But the software companies and consultants that often help implement moves online dress those issues up in buzzwords like “transparency,” “visibility,” “tagging and flagging,” “exception management,” “CPFR,” and “XRM.”

“The smaller suppliers feel threatened by the whole thing,” says Bill Burke, the president of First Index USA (www.firstindex.com), which sets up online marketplaces for suppliers.

Several developments now coming into view could help buyers and suppliers overcome some of those obstacles. For one, Extensible Markup Language, commonly called XML, will create a more flexible standard for Web-based language. It will let different parts of Web pages be marked as, for instance, prices. That way, companies can tag important pieces of information that need to be shared, while maintaining their own internal approaches to handling data.

Still, progress will take time. After all, industry has been trying for decades to find ways to share purchase orders, invoices, and other standard forms online, mostly through what is called electronic data interchange, or EDI. XML still needs to solve what Peter Fingar, an electronic business consultant and author of several books, calls the “Tower of Babel” problem. Standardized XML-based vocabularies—the latest estimate is that there are some 400—are in the works for individual industries. Among them: Bank Internet Payment System’s language for the online payment industry; J.P Morgan Chase & Co. and PriceWaterhouseCoopers’ FpML for financial information (www.jpmorgan.com, www.pwcglobal.com); and RosettaNet for the PC-manufacturing community. But “the tasks of integrating, or in any way unifying, the rapidly growing list of XML vocabularies will be monumental,” Fingar says. “The many-tongues problem will need to be solved to create interconnected marketplaces.”

Leposky says: “We’re just in the first inning. In time, though, no one will be able to give excuses. Everyone will have to change. The pressures of the marketplace will mature their thinking.”

Suppliers will have little choice. If they don’t join the online supply chain, they’ll be out of the game.

Diddlebock is a senior writer with Context. He says his personal electronic supply chain is heavy on books and CDs. .