March 2001 | Commentary | IT Matters

Unlocking the True Value of e-Marketplaces

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E-marketplaces have earned tremendous interest and participation in almost every industry, from chemicals to office supplies. However, e-marketplaces are only now reaching a level mature enough to evaluate the benefits.

Surprise! The main reasons used to lure participation—such as lower product prices for buyers and increased access to new customers and markets for suppliers—are not the most important benefits at all. Fortunately, the real benefits offer greater promise than reduced prices, and are compelling enough to gain favor from buyers and suppliers alike.

The most dramatic benefit of B2B e-marketplaces for both buyers and suppliers lies in automating the supply chain and the efficiencies gained by streamlining the procurement process, which translates into significant bottom-line cost savings. Automating the supply chain process allows companies to focus more on product and service improvements, sales efforts and other value-added activities. By driving costs out of the supply chain through improved procurement processes, online marketplaces are creating more efficient B2B transactions and ultimately saving money for all parties involved.

Standardizing procurement practices through a B2B e-marketplace gives buyers the advantage of reducing processing and transaction costs. The cost of processing a purchase order manually ranges from $125 to $175, according to Morgan Stanley Dean Witter. Online procurement can reduce that cost to $10 to $15 per order as a result of faster approvals and less error-prone electronic communication with suppliers.

E-marketplaces also allow buyers to quickly and easily find products and consolidate orders from different suppliers through a single source, helping eliminate a fragmented supplier network. The B2B transaction market will expand at an 86-percent compound annual rate to $3.2 trillion worldwide by 2003, predicts Forrester Research.

Business Intelligence

Buyers also gain additional business intelligence into how and where they are spending their dollars, along with quantifying supplier performance. This information offers buyers the ability to better manage their budgets, monitor supply quality, and reduce maverick buying.

Participating in e-marketplaces gives buyers real-time access to current product and service information. It reduces the time required to contact multiple distributors and manufacturers using paper or telephone approaches.

The value to suppliers is equally substantial. Automating the supply chain process allows suppliers to receive more accurate orders, which translates into faster response and cycle times and less time spent on customer service issues. Improving order accuracy will ultimately reduce costs.

In an e-marketplace, suppliers are able to update and add product information electronically and instantaneously, reducing the delays associated with printed catalog distribution and eliminating outdated information being used by buyers. It also reduces expenses such as printing and distributing paper catalogs, and administrative time processing orders manually.

In addition, an e-marketplace allows visibility into inventory levels and placement. Suppliers are provided with a mechanism to access real-time buyer data and purchase history. This analysis of buyer spending offers suppliers a gauge to identify inefficiencies, forecast demand, and measure improvements in the supply chain.

The advent of B2B marketplaces puts more information in the hands of both buyers and sellers. This allows for better planning and operational efficiencies. For example, in industries such as real estate, strategic procurement of maintenance, repair and operations (MRO) supplies is critical to maintaining efficiency and productivity. Property management companies and retailers find that detailed purchasing information helps them better manage budgets and identify areas for bottom-line improvement.

The key to unlocking e-marketplace value for buyers and suppliers lies in making strategic choices when selecting an e-marketplace. Reducing costs or expanding sales channels are secondary benefits of e-marketplace participation. The true benefits are streamlining processes, minimizing inefficiencies and accessing information. Now is the time to take advantage of the opportunities the Internet makes possible for procurement.

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