You cannot build trust through a trading exchange, and trust is
essential to business
Online trading exchanges, hubs, or e-marketplaces - there are many
names for them - have been in the news for all the wrong reasons
lately. It seems the wind has gone out of their sails.
One recent failure was the Jupiter exchange, which involved some of
the hospitality industry's leading companies, including Whitbread,
Bass and Compass. The main reason cited for its closure was that
the main protagonists decided to halt further investment in favour
of pursuing their own separate schemes.
So, should companies be taking a closer look at what e-procurement
strategy is best for them rather than immediately looking to a
trading exchange?
The hype surrounding e-marketplaces drove businesses to believe
that they were the route to low-cost procurement, with instant
savings for all purchasing spend. Businesses were tempted by the
ability to improve their buying power, without the need to form
close relationships with suppliers. It was seen as a quick-fix
solution, requiring minimal investment in technology but still
producing results.
What the market failed to realise is that automating procurement
does not necessarily mean going online and trading in an
e-marketplace. There is a lot more to e-procurement than taking
this road.
When a company considers e-procurement it should first consider
where internal efficiencies can be made. E-marketplaces and trading
hubs are concerned with commerce and trading, whereas the focus of
e-procurement should surely be procurement (the process that exists
within the organisation to source, purchase and contract).
E-marketplaces and trading hubs actually devalue the role of the
procurement professional by removing the close working relationship
between a company and its suppliers, letting the trading exchange
take over instead.
Trading exchanges not only remove the established relationships
but, as only a handful of suppliers are e-enabled, the potential of
such exchanges is limited. Many suppliers are either unwilling or
unable to subscribe to e-commerce initiatives.
But does that mean they are poor suppliers that should be abandoned
in favour of e-enabled rivals?
Of course not. Many of the organisations I have spoken to do not
want to abandon trusted relationships with proven suppliers simply
because those suppliers cannot trade over the Web. In fact, for
many organisations, such as in the public sector and charities, the
political implications of doing so would be serious.
It is evident that trading exchanges cannot replace existing
systems. They just add to the already complicated processes that
e-procurement hoped to alleviate. Indeed, trading exchanges are
proving unpopular because people do not see them as a viable way of
controlling procurement. They effectively take purchasing
responsibility away from the buying organisation, outsourcing it to
the trading exchange host.
This is a problem when a company needs to maintain tight control
over procurement, especially when trying to cut costs. Many
financial directors need procurement solutions that implement true
cost-control procedures and rigidly enforce budgets and approval
processes.
It is important to be able to access - at any moment - valuable
sales and purchasing data that e-procurement systems generate. The
inability of many marketplaces to provide back-office integration
with mission-critical systems such as accounting and finance
packages is a major hindrance to tighter budgetary control.
It seems that companies simply need to get the basics right when it
comes to managing procurement. The best option may yet prove to be
getting your own house in order before leaping in to the
unknown.
Mark McCarthy is marketing director at Get Real Systems