Online marketplaces will revolutionise business-to-business

Bidding online is as much about industrial equipment as second-hand bric-a-brac, and IT directors are at the heart of making it...

Bidding online is as much about industrial equipment as second-hand bric-a-brac, and IT directors are at the heart of making it happen

Much has been said about how online marketplaces will revolutionise business to business e-commerce.

Unfortunately, the specifics of how these markets will work, and therefore, how IT managers will satisfy the onus on them to deliver has been lacking.

In too many cases, there is a market in theory - but too few demonstrations of how they work in practice.

But one US company, which has just set up in London, has put some much-needed flesh on the bones of the process.

Backed by clients including corporate giants such as BP Amoco, General Electric and SmithKline Beecham, FreeMarkets has become one of the leading players in the delivery of business to business online auctions for industrial parts, raw materials and services.

Imagine a corporate giant like Microsoft taking part in a bidding process for thousands of hotel rooms for employees on business over the next two years.

Or it could be something more industrial, such as parts for air conditioning equipment. A manufacturer could take online bids from say, 12 companies for up to $2.5m worth of precision-machined parts, which ultimately could save the manufacturer $400,000 from its usual spending.

There is nothing glamorous in this bidding process. The FreeMarkets process is all about bidding with attitude, for industrial parts, not objects of fine art.

Because of the cost involved in many bids, and the "grittiness" of some of the lots, getting the online market functioning effectively is not straightforward.

For example, buying those air conditioning parts in fine, but what about questions of quality, delivery, payment terms, suppliers' facilities, and which suppliers will be allowed to bid.

All this has to be put together in a complete Request for Quotation (RFQ) on which the bids can take place. Doing the legwork on this could take up to two and a half months, but this is a fraction of the time that would be spent getting an RFQ together and dealing with a series of paper-intensive bids.

This is the making of FreeMarkets' business. Companies sign up to the process by committing to buy a certain volume of products, for which it pays FreeMarkets 1.5% of the volume. So if, say, General Electric agrees to buy $100m worth of volumes over the course of the year, FreeMarkets picks up $125,000 a month for giving GE access to that market.

Because of this buy-in process, FreeMarkets' chief information officer Jane Kirkland has to ensure that it can integrate with customers' own key IT systems, especially ERP and MPP developments. And that means talking to the chief information officers of blue chip giants.

For IT directors trying to understand if and how their companies can develop or fit into a marketplace strategy, Kirkland suggests they ask the following questions of their companies:

  • What is the business value of what we want to achieve?

  • What is going to reduce cycle time, and speed time to market?

  • What should the exchange/marketplace do?

  • Who is going to make the exchange happen?

  • If we have to consider consultancy or new systems, what is going to integrate well with our systems and policies?

    Answer those questions, and you may be somewhere near being able to provide the answers to how to deliver a marketplace.

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