A new survey reveals trust and security issues are hindering e-marketplace growth.
E-procurement, as the current IT buzzword, is not short of publicity. But although companies may be convinced about the benefits of business-to-business (B2B) electronic purchasing, industry leaders have voiced serious concerns about the process.
According to a survey published last week by accountancy firm PricewaterhouseCoopers, security concerns and a lack of faith in trading partners are the biggest factors holding back the growth e-procurement. The report, Trust... not built at e-speed: trust issues in European B2B e-procurement, is a study of attitudes towards e-procurement held by 400 senior business leaders in the UK, Germany, France and The Netherlands.
The business case for e-procurement is, in theory, solid. As a business process, implementing electronic purchasing can be a highly effective way of reducing transaction costs and improving process efficiency. And with the savings and cost benefits going straight to the bottom line, e-procurement can deliver a significant return on investment, although analysts are divided over how long this can take.
Given the commercial benefits of e-procurement, the outlook is positive, with analysts predicting that this method of purchasing will grow by more than 100% by the end of 2001. By then, 62% of respondents said they expected to spend 30% of their procurement budget with online suppliers. With most companies still in the early stages of e-procurement, the current spend is about 5%.
However, over a third of the business leaders interviewed admitted that security issues about online trading are undermining trust between trading partners, and holding them back from conducting more business online.
With traditional trading, solid business relationships are based on trust, but with the advent of trade in the virtual world, businesses are having to redefine the term.
Two-thirds of those interviewed said building a trusted relationship with suppliers is critical before dealing with them over the Internet, while 60% said they preferred to deal with bricks-and-mortar companies rather than Internet-only traders.
Chris Potter, report author and partner responsible for e-business risk management and security services at PricewaterhouseCoopers, believes issues of security and trust are inseparable. "Across the supply chain, people are demanding more and more exchange of current, pertinent information and they want to have confidence in their trading partners," he said.
According to Potter, authentication of identity is the main issue. "People need to be satisfied about who they're dealing with. They need to know that their messages have not been intercepted or corrupted on the way, and, most importantly, that they are legally non-repudiable - meaning that the other party can't walk away from it in a court of law."
Concerns about security are paramount, even among those with significant experience of trading online with suppliers. Of the advanced users interviewed, 9% said they had experienced security problems through e-procurement.
Potter said security fears are well-founded, with the study showing that remarkably few companies had implemented the latest technology to secure business transactions. Nearly two-thirds of companies said they rely solely on password protection when dealing with suppliers over the Internet.
The lack of a trusted third party to guarantee online transactions is a key factor in companies' limited security. Unlike the stock exchange, which underwrites transactions between traders, most online marketplaces merely facilitate the transaction between two parties. They simply warn businesses that they trade at their own risk.
Potter said confidence in online transactions would be dramatically increased by the use of public key infrastructure and encryption technologies to encrypt and seal messages. But while the use of digital certificate technology would certainly increase confidence, he agreed that the problem was finding a trusted third party to issue such a certificate.
When asked who would be suitable to guarantee the security of e-business transactions, most said they would rather rely on an accounting or telecoms firm than the Government.
Until issues of trust are addressed, growth of the e-procurement sector is likely to be limited, Potter said. "There is tremendous scope for increasing efficiencies through e-procurement, and the technology for providing that trust is there. What we need to see is the adoption of that technology," he said.
But until companies act on their fears and put in place the technology necessary to secure their online transactions, business may have to wait until they benefit from the efficiencies e-procurement can offer.