E-marketplaces: Exhausting but still evolving

Although "a lot of confusion and hype" still surrounds e-marketplaces and there are "lots of lessons to be taken away", there is "still much to look forward to".

This is according to Andreas Bertoldi, independent IT and e-business analyst and keynote speaker at the recent ITWeb E-marketplace Executive Forum 2002.

While what he termed the promise of e-marketplaces - ie the ability to dramatically reduce transaction fees - had yet to be fully realised, he remained optimistic that much had already been achieved towards attaining this goal.

Delivering his presentation to close to 100 delegates at the forum in Johannesburg, he said he would characterise most remaining e-marketplace players as private exchanges. He said this model would prosper in the years ahead and predicted that a key growth area would involve extranets being extended into private exchanges. The two major business benefits and drivers here, said Bertoldi, would be the level of security offered and the opportunity to strengthen existing supplier relationships.

The catalogue should be seen as a marketing tool and not just as a list of items for sale.

Rikus Matthyser, executive, Telkom Business Integration Services

ProcureTrade MD Dennis McCarthy concurred that industry-specific exchanges seemed "to have been more durable" than their public counterparts.

However, not all the speakers at the conference agreed that private exchanges alone would have the support required from suppliers and buyers to reach critical mass. There was definitely room in the market for sustainable public exchanges, said Rikus Matthyser, executive at Telkom Business Integration Services. These would serve smaller companies that would still attain significant reductions in transaction costs by procuring and selling goods in e-marketplaces, he said.

Commenting on the demise of various local e-marketplace initiatives during the past two years, Bertoldi said that the global IT downturn had definitely played a role.

However, some players, like Quadrem, appeared to have used the global reach afforded by electronic trading spaces to both their and their customers` advantage. Quadrem is a global Internet-based procurement marketplace that services the mining industry. Brandon Spear, regional VP at Quadrem, said that where industry-specific exchanges were concerned, a global approach helped drive the economies of scale required for critical mass. In addition, linking buyers and suppliers worldwide meant that Quadrem could help local and international procurement teams to consolidate global catalogue content so that useful comparisons could be made.

In their current form, B2B marketplaces are yesterday`s news.

Dennis McCarthy, MD, ProcureTrade

Janice Kallmeyer, director of new business at MarketSite Africa, said payback expectations across the world on marketplace investments had now shifted from two years to four years. Business models had changed a number of times in the past few months, she said. Participants worldwide continued to struggle with integration issues around enterprise resource planning systems and business-to-business (B2B) marketplaces. Progress was also being hampered through inaccessible supplier catalogues and incompatible data exchange formats.

There was general agreement at the forum that the apparent inability to date to reach agreement on standards for supplier catalogues was a significant stumbling block. McCarthy stressed the need for marketplace operators to address this issue. Quadrem`s Spear pointed out that his initiative supplied a common electronic environment for the mining industry that supported standardised catalogues. This, he said, was a "big part of the value levers" offered by Quadrem.

Ian Rademeyer, e-procurement development leader at Sasol, said one of his major concerns was the incompatibilities found between catalogues. The key commodity groups in Sasol`s e-marketplace include office equipment and stationery; tools and general machinery; maintenance, repairs and operations; computers; food and beverages; and cleaning materials and chemicals. With almost 3 000 users and just over 70 trading suppliers, it processes over 3 000 transactions a week.

Integration was the biggest challenge in the past and will remain the biggest focus in the future.

Janice Kallmeyer, director of new business, MarketSite Africa

Rademeyer said that suppliers wanting to trade through more than one e-marketplace faced having to publish a separate catalogue for each. Matthyser agreed, but brought a different perspective to the discussion by saying he felt the catalogue should be seen as a marketing tool and not just as a list of items for sale.

The need for standardised business processes was another issue creating difficulties among e-marketplace buyers and sellers. Spear maintained that business process standardisation was crucial and that Quadrem devoted a considerable amount of time and effort discussing and reviewing with and on behalf of its buyers and sellers.

While Inthiaz Cassimjee, e-procurement executive at FirstRand`s Scion, said that he saw non-standardisation in the e-commerce industry as a worrisome issue, mymarket.com MD Philip Katz was of the opinion that e-procurement systems should fit the business and not vice versa. Owned and managed by the Bidvest Group, mymarket.com is an independent marketplace operator that uses its own infrastructure and best-of-breed technology to provide B2B solutions to buyers and sellers, based on an application service provider model. This "vanilla" versus customised debate has dogged the enterprise resource planning arena for years. Other comments from a number of the speakers at the forum made it clear that e-marketplace players will probably remain divided on this issue for some time to come yet.

As with most new technology initiatives, B2B marketplaces will, no doubt, continue to struggle with integration and interoperability issues. McCarthy maintained at the forum that in their current form, B2B marketplaces are "yesterday`s news". He noted that in order to offer real and sustainable value, they must go beyond simple order matching and instead facilitate the integration of a complete range of business processes. Integration, he added, must also occur over the entire transaction and product lifecycles and accommodate the diverse needs of trading participants. As Kallmeyer put it: "Integration was the biggest challenge in the past and will remain the biggest focus in the future."

That some industry players are beginning to see value in tackling integration issues together was evident from TradeWorld MD Sean Emery`s suggestion during his presentation that a Section 21 company be established as a discussion forum. He believes the only way B2B turnkey solutions can be offered is by operators and service providers working hand-in-hand to combine their various core competencies for maximum benefit for all stakeholders.

The only way B2B turnkey solutions can be offered is by operators and service providers working hand-in-hand to combine their various core competencies for maximum benefit for all stakeholders.

Sean Emery, MD, TradeWorld

Another speaker, AngloCoal purchasing manager Thys de Villiers, pointed out that a key success factor when integrating an e-marketplace initiative in any company was to ensure commitment to the new purchasing system from all users. "Integration is costly and complex and needs to be planned and executed very carefully," he cautioned. Non-commitment means these costs will spiral out of control rather rapidly.

De Villiers said the first generation of AngloCoal`s e-procurement initiatives "started more than 10 years ago on a very low cost base. Our teams and our supplier community were allowed to adopt technology at a manageable pace."

The critical success factor of giving staff enough time to come to terms with procuring items electronically was also underlined by McCarthy, who believes what he termed the "change challenge" should be measured in years rather than months "which is bad news for those vendors out there promising an ROI [return on investment] in six months".

He also advised the delegates that it was a myth that customers based their purchasing decisions primary on pricing. Using a research report released by JP Morgan, entitled "E-business and the five Cs", he showed that the most pressing requirement was customer support, followed by on-time delivery, product shipping and handling, product content, privacy policies and ease of ordering. Other factors that came in ahead of pricing as customer priorities were product information, Web site navigation and locks, and product selection. The JP Morgan findings substantiated his belief that those e-marketplaces that managed to seamlessly integrate the entire e-procurement process would emerge clear winners in the B2B arena.

Integration is costly and complex and needs to be planned and executed very carefully.

Thys de Villiers, purchasing manager, AngloCoal

Bertoldi was among several of the speakers at the forum who also pointed out the need for a comprehensive offering, highlighting the provision of services and recognition of the importance of change management as being critical success factors for the future. In addition, he advised management teams not to assume that "good, old-fashioned" procurement managers had little to no relevance in the electronic era, and said they would become even more important than ever before.

Andreij Horn, GM of M-Web CommerceZone, said it was imperative that companies "get procurement people to see the solution as a tool to empower and not as a measure of their historical success".

Yet another piece of the e-procurement puzzle that required attention, said many speakers, was the development of value-added relationships between buyers and sellers. As McCarthy put it, "there are e-procurement managers still out there saying 'go our way or go away`."

Spear stated that in as far as Quadrem was concerned, the value propositions to the buyer and supplier communities around e-marketplaces, e-procurement and e-sourcing are strong and growing daily. He said it was essential to also provide solutions to suppliers who were not technology-literate. Matthyser concurred, stating that successful electronic marketplaces were not places where "buyers beat up sellers".

Bertoldi said he believed the "next big critical component is electronic billing and invoicing". There needed, he said, to be a realisation that B2B commerce was a long-term venture and that there would be few quick wins.

CommerceZone appeared to be among those select e-marketplace participants that have found a sustainable business model. Said Horn: "Our business model is still the same. We serviced our first customer on 4 June 2001 and have just passed the R5 billion in transactions mark."

His success criteria included accepting that the "chief financial officer is central in the decision process. Getting the financial guys onboard means you`ve got half the battle won." He advised quantifying the benefits for potential customers upfront and delivering ongoing regular progress reports and urged players to make sure that "every single business unit that wants to participate, pays for the solution". This, he said, would get each unit to seriously commit to the overall success of an electronic market venture.

There are e-procurement managers still out there saying 'go our way or go away`.

Dennis McCarthy, MD, ProcureTrade

"Technical disruptions are going to happen, so be ready for them. Push for a single ordering system on the buy-side as this will get all the buyers into the system and provide maximum benefit to everyone," said Horn.

Among Rademeyer`s top criteria for a successful e-marketplace were that the business model should contain a definite value proposition for all participants; it should facilitate guaranteed and single source delivery; and off-line tools to accommodate bandwidth restrictions should be available.

De Villiers advised against trying to achieve too much at once and ensuring that the tools provided to users supported each in his or her daily activities.

Katz believes that "any company correctly implementing an e-procurement solution will save money. The tried and tested tools are in place to quickly deploy an e-procurement solution. Reference cases exist both locally and internationally."

Be that as it may, there still seems to be some intensive debate as to the meaning of the word "correctly".