E-marketplaces uncovered

The number of e-marketplaces in existence has mushroomed over the course of that year, and the market has grown even more in 2001. The trend is a global one, with marketplaces springing up on every continent, servicing almost every major industry and forecasting cost savings that have analysts foaming at the mouth.

Simply put, an e-marketplace is a Web site supported by a commerce platform, bringing companies together to conduct transactions. There are a number of factors to be considered when setting out on a venture such as this - choosing the right business and technology partners, for example.

If you don`t have very large brick-and-mortar companies creating momentum in the exchange, it won`t be a success.

Bernie van Niekerk, COO, Izodia

Businesses aiming at starting their own marketplaces need to understand the importance of anchor tenants, and the critical need for strong supplier uptake. Those seeking to join an exchange need to be able to determine the type of marketplace that best suits their business. But all other factors aside, local industry players agree that the South African market is wasting precious time in getting their marketplace strategies up and running.

The initial question facing businesses is to understand the various types of marketplace currently running. For example, a number of e-marketplaces find their users tending more strongly towards the buyer or supplier side, and in the case of industry vertical marketplaces, the products and services on offer tend to be more specialised.

There are private marketplaces, where a company will bring only its suppliers on board to simplify its own procurement processes. The next evolution of that is the public marketplace, where the driving force is that of collaborative commerce. In this instance, a central marketplace will service an entire industry. An example of this is Covisint, the global automotive industry marketplace, which supplies its users with procurement solutions, and the option for collaborative design.

[VIDEO]Whatever the business model, most marketplaces start out on the strength of a technology platform, and an anchor tenant, whose own suppliers form the initial user base. Miraculum, Commerce One SA, Izodia and Rainbow Software lead the pack in the South African context, with industry heavyweights such as Nedcor, Dimension Data, PricewaterhouseCoopers, Sasol, Iscor and Johnnic providing their backing in these ventures.

These in turn launch the actual marketplaces - Miraculum Xchange, MarketsiteAfrica, ProcureTrade, TradeWorld - to name just a few. The applications are used to power a number of other, smaller and more industry-specific marketplaces.

In making use of the trade exchanges, larger companies purchase the applications in their entirety, whereas small to medium enterprises (SMEs) generally choose the cheaper alternative - accessing the marketplace in a hosted environment. This application service provider (ASP) model is proving popular and successful.

Bernie van Niekerk, COO of Izodia (formerly Infobank), stresses the need for what`s come to be known as a gorilla to galvanise the marketplace.

"A while ago, the mere announcement of an industry-specific exchange would have a lot of clout, and people would tend to migrate towards that. But with the Nasdaq crash, and the realism that has set in to the whole B2B [business-to-business] industry, if you don`t have very large brick-and-mortar companies creating momentum in the exchange, it won`t be a success."

A lot of the time, says Van Niekerk, venture capital funding is dependent on who a marketplace`s gorilla is. While technology was the underpinning factor last year, now, the financial liquidity and supplier traction provided by the gorilla`s existing database is what`s needed.

Typically you only learn once you`re doing. People hate to admit it, but it was the same with ERP.

Tim Frost, director business development, Commerce One SA

Commerce One SA`s MarketsiteAfrica is a prime example of that. Tim Frost, director of business development at the distributor operation, comments: "The reality is it`s been an evolution of the business - it started out with Sasol and a bit of buying and e-procurement that they wanted to do. As a first mover they wanted to get e-procurement up and get the advantage."

Janice Kallmeyer, director of new business development and ASP services at Commerce One SA, agrees: "In having an anchor tenant like Sasol, it was an environment where we hit the ground running and they very quickly had to go through the process of implementation and learning from that on the job."

Frost adds that working with anchor tenants is a learning experience on its own.

"Typically you only learn once you`re doing. People hate to admit it, but it was the same with ERP. You could spend six months planning a SAP implementation but it would still take you two years to get it done if it was your first."

The message is strong - South African businesses can`t dawdle, and while a sound strategy is vital, Kallmeyer advocates implementing the changes in a single area of the business while developing the broader strategy.

Van Niekerk concurs. "People moved too fast in the past because of the hype, and now, they`re too cautious. No one can argue the value proposition - it does work and there are benefits to be gained. The trick is to figure out how to gain those benefits fast with the minimum of risk. My advice is that people should start today; they should start immediately, and do it bit by bit. They should be getting their hands dirty, learning about it."

The importance of supplier support of various marketplaces can`t be underestimated. After all, says Kallmeyer, supplier uptake provides the base for ongoing success.

In practice, it`s an aim that is much easier said than done.

"On a more practical level, there has been a realisation on our side about how much help suppliers need to get their catalogues uploaded, to the extent that we brought on [a supplier adoption team] that goes out to suppliers and presents summits and seminars explaining how they should categorise their data.

The Internet will give [SMEs] the ability to trade with corporates.

Bernie van Niekerk, COO, Izodia

"In some instances, we`ve assisted them in getting their catalogues into those structures. So, basically a hand-holding process which has been a learning curve for us, compared to last year when we placed trust in the suppliers to provide data in the required format."

Van Niekerk estimates that of the 150 000 suppliers in SA, only 200 are actively trading on exchanges. Encouraging the number of SME users of marketplace functionality can only benefit larger companies.

"In SA specifically, there`s a lot of emphasis on buying from black economically empowered businesses. The red tape involved is quite extensive. If you consider that purchase orders cost on average R450, the Internet will give these small guys the ability to trade with corporates."

Corporates are under pressure to use up to 30% of their purchasing spend with previously disadvantaged suppliers. But finding these suppliers is difficult. Van Niekerk notes that most large corporates normally have entire departments devoted to tracking down SMEs with which they can trade. Marketplaces will allow these SMEs a higher visibility profile, and Van Niekerk believes, will help sort the wheat from the chaff in the SME market.

Cataloguing suppliers` inventory databases is a critical factor in ensuring a successful marketplace.

Log-Tek, a company specialising in the creation, acquisition and maintenance of general and specialised data content, has operated in the industry for more than 30 years. As such, it was perfectly poised to market its services to the trade exchanges when they began making an appearance.

Today, Log-Tek provides a cataloguing service for almost every major player in the South African e-marketplace industry - from Standard Bank`s thetradestandard, and Bidvest`s MyMarket.com to Miraculum`s Xchange and a slew of others.

Max Batinti, marketing director of Log-Tek, comments: "An e-procurement solution is one thing but the fuel that powers this is the information. If the information is incorrect, buyers will buy the wrong items, and vendors will supply wrong items and in some cases it will only be picked up at the very end of the purchase process."

[VIDEO]Key to Log-Tek`s service is the need to understand how the various e-marketplace solutions can utilise information, and to determine the download format of that information.

The process is lengthy. Raw data provided to the company by its clients is scanned, if unavailable in an electronic format. The characteristics of each line item are mapped, and any shortages of data are sourced from the supplier or even the manufacturer of the product.

The information then goes through a standardisation process, making sure that spelling is correct and consistent, that units of measurement are in lower case, spaces in the same places, and other such considerations. Export files are created from the clean database, and moved to the marketplace, where vendors and the marketplace owners double- and triple-check that the information and pricing is correct, before trading commences.

Log-Tek`s production process manages anything from 1 000 to 2 500 items per day, based on the quality and quantity of information received.

The reason behind this intensive workflow stems from the scarceness of global standards. The UN SPSC standard is often used as a base from which to begin the cataloguing process, but there is no strict adherence to this.

"Suppliers have created their own hybrid of information to suit their own basic needs and it`s not clean information that can be re-used time and time again," says Batinti.

It`s generally agreed that the transactional functionality of e-marketplaces is just the beginning. Ultimately, the value to be gained will lie more in the information that can be generated from involvement in a marketplace.

Batinti elaborates: "You can purchase a bearing, but you need to understand where that bearing fits into your organisation. The more specific your product information, the easier it is to determine support information - such as, what pieces of equipment does it actually get used on?"

From there, says Batinti, one can determine the technical, support and people skills required in running the equipment that uses that single bearing.

An underlying success factor in this goal is open architecture, says Kallmeyer. "It means you`re creating a central environment that has the right kind of technology core to it, that allows you to put in adaptors that talk to different back ends. The companies in the South African context over the last couple of years have spent hundreds of thousands of rand investing in what we now refer to as legacy systems. But they`re still systems that work for them, and that perform a function and assist in the running of the business.

Van Niekerk agrees that the exchanges that aggregate these suppliers will need to interconnect with one another. "The term is X2X and it`s going to be a very important thing going forward."

The birth of the e-marketplace paves the way for other, different service providers to step in and perform another critical function - such as logistics and fulfilment management.

eFreight, a local player in the freight industry, has taken steps to establish FreightMatrix Africa, a joint venture between it, Accenture and the US-based technology partner, FreightMatrix Inc.

[With a freight exchange] you can finance and manage working capital in the supply chain more effectively.

Richard Stevens, sales and marketing director, eFreight

FreightMatrix Africa aims to be a neutral freight exchange for shippers and logistics service providers within the SADC region, interacting with similar exchanges set up across the world and spanning the various trade shipping routes.

Richard Stevens, marketing director of eFreight, says it is redefining the business. "FreightMatrix facilitates intelligent freighting. We`ve redefined the business not as a technology business, but as a risk management business. It becomes a mechanism for aggregating logistics spend onto an exchange; you can then finance the supply chain differently, and manage working capital in the supply chain more effectively."

Also included in the eFreight stable are health and usage management of supply chain assets, freight merchant banking services, logistics content for e-marketplaces, and participation in various fourth-party logistics (4PL) initiatives.

[VIDEO]Third-party logistics providers, such as Imperial, Supergroup and Transnet tend to own their own asset bases. As such, their business imperatives are to optimise the asset bases, and drive use of a certain rail or road carrier.

As Stevens explains, the first rationale behind 4PLs is based on intellectual capital, and understanding of the freight industry. The second component of a successful 4PL is the technology platform.

"You no longer need an asset base in order to be a player in the logistics arena. You can source service providers and develop relationships with the shippers using the technology."

People are fearful, says Van Niekerk, because they have been misinformed, and they often end up disillusioned because they want to do too much too soon. Despite that, Van Niekerk is of the opinion that while the generic e-marketplace space is taken, there is still room for growth in terms of smaller marketplaces catering specifically to suppliers.

"Right now you need a number of exchanges because there`s hundreds of thousands of suppliers out there, and they won`t all be catered for by the existing exchanges."

There`s a lot of confusion around what the future holds and what the best option is going to be.

Tim Frost, director business development, Commerce One SA

A key consideration, as with all major investments, is return on investment (ROI). Kallmeyer says: "ROI has not yet been swept under the carpet, and certainly not in SA. A lot of the processes we go through aim at understanding the value attached to our clients` current processes, and what the future predicted value is through the marketplaces and return on investment will be. It`s certainly not something to be glossed over."

Frost comments: "I don`t think the answers are all there yet. It`s yet to be determined how a marketplace will relate to the various CRM applications currently in use, for example. There`s a lot of confusion around what the future holds and what the best option is going to be."

Related stories: