It's time to develop an e-commerce strategy
Staff -- Purchasing, 4/19/2001 6:00:00 AM
Manufacturers stand at the B2B e-commerce crossroads. In the next few years, they must assume some risk, find the right partners, and put online public trading places to use.
That's the message delivered by Kerry Lamson, senior vice president of marketplace solutions for PeopleSoft, to corporate buyers attending the National Association of Procurement Professionals annual conference "The Digital Marketplace," held recently in Marco Island, Fla. NAPP is an organization dedicated to providing procurement professionals with an annual forum for the exchange of new and innovative ideas for improving the procurement function.
"The goal is a trusted environment," says Lamson, who was one of the keynote speakers at the event. "But to achieve that, corporate buyers have to understand that the technology is still evolving. You need a good business model in order to be successful."
Lamson says that in assessing B2B readiness, manufacturers this year must lay down the basics and develop an overall e-commerce strategy. They must understand the various B2B e-marketplace models, capabilities and value-add services, and develop their company's "path of value" using multiple B2B techniques. Likewise they must formulate an integration plan for internal and external B2B initiatives, bringing in customers, suppliers and employees.
In this next year, if they want to become e-enabled, Lamson says companies must:
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Deal with price pressure on transactions and assess their business venue,
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Focus on a unique segment of an audience and service it well to develop a loyal niche market,
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Overcome the problem of a lack of supply-side integration, and
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Understand that digital content is critical for online collaboration.
Digital marketplaces
Lamson says the good news is that the Internet is providing a universal platform that is leveling the playing field for suppliers, both big and small. E-marketplaces in 2000 were emerging at the rate of hundreds a month, all claiming to offer buyers and sellers a variety of choices. The potential of these marketplaces: A Boston Consulting Group 2000 study says U.S. e-marketplace revenues can reach up to $9 billion by 2005, helping manufacturers see productivity gains of 1% to 6% and savings of $1 trillion.
"There is a variety of exchanges that are now determining whether to charge for services or per transaction," says Lamson. "The value-added services these communities can connect you to will be critical."
Manufacturers are definitely interested. At the conference, NAPP showcased a 2000 report from AMR Research, Boston, Mass., which states that manufacturers are serious about reaching out through exchanges. The survey reveals that only 16% are conducting business today on the exchanges. But 43% more have plans to join an exchange. Of these, 52% say an exchange is critical to their business success. They see benefits as sharing information, streamlining buying and selling, reducing costs and supporting new business processes.
Referring to a 2000 study from Arthur Andersen, Lamson says 50% of executives see digital marketplaces as a critical means of competitive positioning in the next 12 months. Meanwhile, two-thirds are planning to implement an e-procurement system. And 45% of the firms participating in the survey offer products or services in one or more independent digital marketplaces.
But skepticism goes hand in hand with the interest. Of those polled by the Boston Consulting Group, 41% say their suppliers are not online. Twenty-seven percent say they see inadequate product standards, and 25% say they face uncertainty about which e-marketplace to choose.
Lamson says one reason for the skepticism is that there may be too many public e-marketplaces. "These marketplaces promise that they can increase shareholder value, maximize liquidity, increase investor confidence and improve market efficiency. But he says reality can be quite different from these claims, and the economic value of pure exchanges remains unclear.
"You still need a valid business model," says Lamson. "So you need to take the opportunity to sort out the hype."
Lamson says both buyers and sellers must choose carefully before they try to implement electronic sourcing solutions or participate in an e-marketplace. And this direction, of course, represents a major change for companies. In the past 20 years, he argues companies have focused on their internal systems, trying to take the best path to secure goods and services. But he argues that value is lost when processes stop at company boundaries. And this approach won't work in the new economy.
"This is not a technical problem, but a human problem," says Lamson. "It is the willingness to open ourselves to customers."
As they head into 2001, companies must automate processes across company boundaries, Lamson says. This requires using new software that runs between organizations and sets up the groundwork for B2B e-commerce. "You need to take these processes that you have in your four walls and point them outward," says Lamson. "You need to collaborate with your customers."
But he warns that this won't be easy. And the steps forward continue to be small ones. He notes that most companies are using e-commerce to procure MRO goods. Such buys are safe, while spending on direct goods with trusted suppliers is handled in person or through private online exchanges.
Companies are not willingly increasing this spend, and for good reason. Lamson refers to a number of research studies that indicate the rewards for B2B e-commerce are slow in coming. A 2000 report from Gartner Group suggests it will be 18 to 24 months before electronic markets begin to truly deliver the value-added services that they are promising to deliver. AMR Research, meanwhile, states that of 600 exchanges that were tracked in 2000, only two or three had strong supply chain integration.
Lamson says there are indeed some powerful deterrents for selling over the Internet. Some companies believe that their customers are not ready. "From the buyer's side, the incentive is identical to that of the sellers. Are the suppliers capable? Can we get them online?" Others believe that the service is not available, or that there is a risk involved with online buying.
But Lamson says these deterrents must be overcome. He says there is good reason for manufacturers to now begin to use the present generation of B2B services. One is that they can connect manufacturers to a wide group of smaller suppliers.
Integration is key, and content must be administrable. But Lamson says manufacturers face a challenge here: Content is not easy. Organizations are unprepared for the level of effort required to develop, standardize, validate and maintain catalog data. This is a major stumbling block, he says, since content remains critical to solution acceptance. "If you can't find it, you can't buy it," he says.
This is the year that manufacturers can start to make a difference. In this next year, companies must focus on the audience they want to reach, strive toward overcoming the problem of supplier integration, and build up their online content.
Speakers at the NAPP conference again and again emphasized that the biggest bottleneck to widespread adoption of B2B e-commerce is manual enablement, or the process of preparing a company. This means preparing its internal systems and helping its trading partners begin conducting business transactions over all of its trading networks.
And the speakers agree that this bottleneck won't be easily overcome. It takes an average of three months to set up just one electronic process with a single trading partner. Meanwhile, B2B preparation groundwork has taken an average of 188 workdays to complete.
"How do you shorten that cycle?" Lamson asks. "How do you get ready? Companies need to formulate an integration plan both internally and externally. And they should start small."
For information on the organization and its 2002 conference, visit the group's Web site at www.nappconference.com or contact Barbara Kuryea, one of the conference officers, at (609) 391-1352.
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