Over the past few months, we have seen numerous announcements from large companies such as General Motors and British Airways saying they are creating or backing B2B e-marketplaces. Clearly, these players believe they are going to derive benefits in supply chains from these exchanges.
But what about the small and medium-sized enterprises (SMEs) increasingly asked to trade through these mechanisms if they want to retain large customers? Are e-marketplaces good news?
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Vic Synott, managing director of online SME advice centre www.thebiz.co.uk, says there is a danger e-marketplaces will encourage purchasing decisions to be made entirely on price. That means smaller suppliers will be squeezed out by larger competitors which can leverage economies of scale. SMEs will be denied the chance to promote added value and service, often key competitive weapons.
In other words, rather than levelling the playing field, e-marketplaces could reinforce advantages of big companies. Jane Smith, marketing manager at office furniture supplier Corporate Express, points out e-marketplaces also threaten those suppliers which are not delivering much added value to their customers, since they could be replaced by a competitor in the e-marketplace.
SMEs may be missing out because they don't know opportunities exist. Research carried out by Liz Daniel, senior research fellow at Cranfield School of Management, found that most SMEs are still concentrating on developing their own Web sites and haven't looked at linking into e-marketplaces.
In some sectors, such as the automotive and aerospace industries, smaller companies have begun to think about opportunities and threats of e-marketplaces. But few have taken any steps.
Yet Patrick Lawton, CEO of Digital Union, which specialises in integrating SMEs into e-marketplaces, says getting involved in an e-marketplace at the behest of a major customer can help an SME become visible within that customer, so they are no longer reliant on one or two contacts for sales opportunities.
But he thinks big companies which want small suppliers to trade electronically have to put effort into helping them get online, perhaps by becoming hosts. "The big company could supply a small sales order system where it can e-mail orders. Small suppliers then go to the Web to check what orders have been placed," he suggests.
Susan Jakobek, director of Web platform provider Aduronet and chair of e-trading industry body Interforum's eMarkets Council, says, "An e-market driven by a single enterprise for the benefit of that company is not a true e-marketplace. Any e-marketplace with less than three buyers but many suppliers will favour the buyer. An e-market with only one buyer is an extreme example.
SMEs should be wary of e-marketplaces run by buyers for forcing down prices. In return for price competitiveness, SMEs should seek knowledge of buyers' inventory levels, demand fluctuations and trends and use this information to improve planning and forecasting."
Daniel agrees e-marketplaces have a reputation for driving down prices for benefits of customers. "Why would SMEs want to play if they're having margins cut?" she asks. "I don't think that can go much longer. E-marketplaces need ways to help SMEs get across they're offering service, rather than be compared only on price."
One example of an e-marketplace aiming to add value to the procurement process - rather than providing transaction processing - is tribon.com, an e-marketplace for the shipbuilding industry set up by computer-aided design (Cad) supplier Tribon. Its software is used by a third of shipbuilders, using an e-marketplace infrastructure based on software from Intentia.
Customers download detailed product data and Cad drawings provided by suppliers and these can be incorporated into their own Cad systems. This allows customers to evaluate components in detail and shortens design times. On top of that, tribon.com has established service centres in countries with skilled but low-cost labour, so SMEs without Cad systems can have product data digitised.
Mats Karsten, president of tribon. com, thinks B2B e-marketplaces will fail if they cannot demonstrate they add value to the process in this way.
Many e-marketplaces don't seem to have thought about how to make online trading attractive for smaller suppliers and big customers. Smith has been approached many times over the past three months by e-marketplaces but feels most have developed a business case for buyers only, while providing little help to suppliers to get information online or bringing orders into internal systems automatically. Both these elements need to be addressed if e-marketplaces are to work, she says.
These practical technical challenges can seem daunting to SMEs, which have limited budgets and IT skills or simply don't want additional hassle.
Corporate Express has solved the problem of providing online content by outsourcing production of its electronic catalogues to Cataloga. Corporate Express provides a single version of its product data and Cataloga handles cleaning and coding needed to meet formats of various e-marketplaces Corporate Express participates.
Once SMEs have developed data and systems to connect to one e-marketplace, they will find it easy to work with other exchanges, particularly with emergence and wider adoption of standards such as XML for coding product content and UDDI for registering companies with e-marketplaces.
Lawton concedes making that first step is hard. "SMEs not only have to make products or services available, but integrate internal processes," he says.
A key requirement is having a central point to manage product or service information, negotiations and fulfilment. Lawton suggests these can be met through basic business-to-consumer commerce engines which manage a catalogue, process orders and track them. However, he warns, technology is just one element in participating successfully in e-marketplaces. You need processes and people behind the scenes to deliver good customer service once an order is received.
SMEs are likely to participate in loosely-coupled e-marketplaces, where they have to check which orders have been placed through a Web site or actively participate in auctions. "That's very cheap, but involves manual effort," Lawton says.
A more sophisticated approach will be based on e-mails generated automatically by the site, which suppliers can respond to. SMEs are least likely to participate in tightly-coupled exchanges, which involve full integration with internal systems, because of high costs, or, at least, not until involvement in the marketplace has generated profits.
Lawton adds that a hosted or application service provider (ASP) solution allows smaller companies to develop the infrastructure needed to participate in e-marketplaces.
Medium-sized enterprises will require a significant level of integration with internal systems to provide real-time stock availability, which, he thinks, ASPs aren't ready to support. These types of enterprise will have to recruit the necessary skills to work with e-marketplaces, either directly or through consultancies.
Another headache for SMEs is deciding which competing marketplaces to participate in. Analysts at UBS Warburg estimate there could be more than 5,000 e-marketplaces within two years, but only a few dozen by the end of the decade. The expectation is that one or two will survive in each sector, accompanied by a small number of horizontal e-marketplaces.
How do you pick a survivor? Daniel thinks SMEs shouldn'tworry too much if they are backing the right marketplaces because successful ones will be keen to draw in buyers and suppliers from failures.
"It's about open and inclusive systems, not cutting people out," she suggests.
Jakobek says any market - traditional or not - needs liquidity to be successful. That means large volumes of trades. This only happens if both buyers and sellers favour the mechanism. "If the e-marketplace works for you and your customer, it works for other participants and that means it's likely to have liquidity in the long term," she says.
Lawton says, "A problem with exchanges is you don't have visibility of who's trading."
So joining five or six marketplaces and making yourself available and waiting isn't a good strategy.
Karsten says SMEs should also be wary of e-marketplaces which are not participant neutral. Those which allow suppliers to pay to be placed at the top of search results are putting smaller companies at a disadvantage.
Synott suggests SMEs couldbenefit from e-marketplaces by working with each other to determine the best way to tackle them as a group, allowing them to counteract the muscle of big customers. "They should talk and work out what is best for them as SMEs, rather than fitting into models foisted onto them by big customers," he argues. "And they should work out models that allow SMEs to supply each other and have their own hubs where economies of scale are less important."
Steve Johnson, a director of business systems provider Quantiv, says SMEs may find their business strategy indicates they shouldn't join e-marketplaces dominated by big companies in the first place, because they would prefer attracting "mid-sized customers who will pay for additional services, rather than low-margin, late-paying business from big firms".
Technology is now emerging that allows groups of SMEs to create their very own micro e-marketplaces. "These will be practical, pragmatic affairs. But they will have features some large players would kill for: nimbleness plus personalisation at every level," says Johnson.
The only difficulty is SMEs are so used to intense competition with each other that they will find it hard to lower their guard to get this dialogue going.
Case study: Truflo Marine reaches out to potential customers
Truflo Marine Valves FCx believes e-marketplaces will help generate extra sales by providing a way to reach new customers difficult to get to through traditional marketing methods.
The Birmingham-based company, which makes specialist valves primarily for naval vessels,is involved with two vertical sector e-markets, both aimed at the shipbuilding industry.
One of these, tribon.com, is backed by Cad supplier Tribon. It allows buyers to source detailed product information, including Cad drawings, from suppliers.
Truflo's sales director, Paul Adams says this fits well with Truflo's sales strategy. "It's about letting shipyards have information from our database, so they have a clear idea of different products, specifications and designs we can produce," he explains.
Adams says the move to e-marketplaces was a natural step for Truflo, which has already put work into using modern technologies to improve communication within the company and customers, transferring Cad drawings electronically.
The company also has its own corporate Web site and considered creating its own e-commerce facility, but decided against it because of the high level of consulting required for each sale.
This is also the reason why Truflo has declined to work with other e-marketplaces which have asked the company to join.
"Our customers need to talk to us before they order. There is discussion about technical variations, so we don't see customers going onto the Internet and ordering valves from a catalogue," Adams explains.
Truflo is working to provide details of its product to tribon.com, a process that is complicated by the fact its Cad drawings are in a variety of formats and must be mapped to Tribon system. However, Adams points out, one advantage of tribon.com is it can deal with product information at various levels of detail, allowing Truflo to extend the range of product data at its own pace.