The Old economy Strikes Back

By Staff -- Purchasing, 3/22/2001

If there is one overriding message in this issue of Purchasing.com, it's that the idea of networked, automated procurement is beginning to win broad favor among purchasers at all levels of the profession, but it's not moving as swiftly, nor is it taking the same path as many had expected just one year ago. The year 2000 promised a New Economy where electronic marketplaces and other Internet start-ups would dethrone traditional sales and distribution channels; where companies would shed competitive animosities, adopt universal standards, share information freely and aggregate demand; and where price discovery would become so effective that formerly imperfect markets for goods and services would approach the perfect, collective rationality imagined by Adam Smith.

But, while a PURCHASING benchmark survey on B2B e-commerce finds plenty of companies automating purchasing processes and taking their buys to the Internet, it finds few joining public Net markets or deploying dynamic trading tools to any great degree (story on page S1). OEMs are showing a distinct emerging preference for automating their existing supply relationships through "private" technology platforms (page S9). And looks at markets such as computers and metals find plenty of online selling-but by Old Economy-style distributors and OEMs (pages S18 and S27). That said, case studies appearing on pages S35-S46 show how a few trail-blazing companies are putting some of the New Economy technologies to work.

Access & Usage

PURCHASING Magazine's exclusive benchmark reader study on B2B e-commerce finds most purchasing professionals feeling hopeful that their own work and workaday lives will be vastly improved by the growing array of Internet-based technology tools that are being created for them. But technology developers and their financial backers may see their patience tried this year as the survey finds most purchasing organizations still wrestling with such questions as how to organize for e-commerce, how to relinquish their traditional tasks, and how to acquire the correct skills for extracting the greatest competitive value from New Economy tools.

E-Markets

The headlines in 2000 screamed of a New Economy that would usher in dynamic, Internet-based trading tools for electronic auctions, stock-market style matching of buy and sell orders, and dynamically aggregating supply and demand to create big economies of scale. But PURCHASING 's benchmark survey finds few purchasing groups ready to play in the perfect markets these tools promise to deliver-certainly too few to support the vast numbers of Net markets born over the past two years. Asked if they might use these tools in the future, a slight majority of buyers continues to reply in the negative. The good news for New Economy technology developers: Compared to previous PURCHASING polls, their approval numbers appear to be rising. The message: Continue to fine tune the solutions and to educate the market.

E-Skills

Experts agree that purchasing professionals will need different skill sets to deploy the new technology tools now being developed for them. For example, to run fair and ethical electronic auctions-ones in which suppliers will want to participate-purchasing pros will need to be very good at developing comprehensive, highly specific RFQs, creating realistic price expectations, and assigning real values to their own priorities to ensure the fair awarding of business. But fewer than half of buyers surveyed by PURCHASING feel they currently have the right skills to make best use of the technology tools now becoming available to them. And the survey finds only a handful of companies actively trying to bring their purchasing pros up to speed by dedicating resources specifically to training for e-buying.

E-Procurement

Dividing B2B e-commerce into three segments-e-procurement (first wave), e-sourcing (second wave), and dynamic trading and e-markets (third wave)-then most companies, according to PURCHASING 's poll, are just now throwing themselves into the first wave, which is adoption of software solutions for reengineering, networking and automating their basic buying processes. And this is proving more difficult than it looks. For example, many have encountered problems in scaling their enterprise e-procurement systems from a few people using a few buyer-managed e-catalogs and to large numbers of people using great numbers of e-catalogs. PURCHASING 's poll results suggest also that too many companies may be neglecting the process reengineering piece of the e-procurement puzzle.

E-Ordering

E-Sourcing

The technology tools buyers like best are those designed to support--rather than change-their existing methods of sourcing and buying goods and services. For example, eight in 10 buyers say they'll gladly place orders through suppliers' Web storefronts. And three in four are now sold on the efficiency merits of electronically requesting both information and standardized, easily comparable quotes from suppliers.

But far fewer buyers are sold on e-sourcing tools designed to automate their negotiation, supplier collaboration and decision-making activities.

To some extent, the suggestion that these activities can be automated represents a threat-and, in many cases, an insult-to the people who've dedicated their careers to the nuanced arts of both supplier relationship management and negotiation. The challenge for creators of these tools will be to win buyers' trust that the tools are meant to supplement, rather than replace, the work they do with suppliers.

And to the software companies claiming they can generate optimal sourcing decisions by simply running relevant information through sophisticated "black box" algorithms, buyers are saying, "Prove it first!"