Trials and Errors

Electronic marketplaces were once poised to revolutionise the way companies bought and sold everything from paper clips to aeroplanes. Things have changed.

It’s been an uphill struggle. Amid great fanfare in 2000, Covisint wowed the procurement world when it launched its ambitious global online B2B marketplace for the car industry, supported by the likes of DaimlerChrysler, Ford Motor Company and General Motors. At the time, the project’s backers crowed that Covisint would soon generate billions of dollars of business annually as buyers and sellers flocked to its site. But they were in for a rude awakening.

Business on the big auction site never boomed, and by December 2003, Covisint announced that it was time for a rethink. Agreeing to sell its electronic auction business to rival FreeMarkets, an auction site turned electronic supply chain service provider, it’s now been left to focus on a virtual messaging hub that passes information between car-parts buyers and sellers.

Covisint provides yet more evidence that procurement in cyberspace is not easy. For a host of reasons, companies — both buyers and sellers — haven’t flocked to the exchanges as procurement experts had once predicted. “It was the triumph of hope over reality,” comments David Rich-Jones, CEO of Xchanging Procurement Services, an outsourcing firm in London. And the reality today is that the majority of B2B procurement processes still take place “off-line,” rather than via online auctions, catalogues, purchase orders and the like.

One explanation for the low take-up is that companies quickly discovered that online procurement was more complicated than they’d initially thought. “Many companies actually saw connecting to the internet exchanges as a way to solve their internal problems,” says Bastiaan Soeteman, a principal at ATKearney in Amsterdam. “But in effect the exchanges are really just enablers, a set of tools. You have to already be pretty well structured internally to do this sort of thing.”

Many exchanges that opened in the dotcom heyday aren’t around today. A Wharton Business School study found that of the 1,500 independent B2B exchanges in April 2000, only 43% were still in business by July 2002. The researchers predicted that the number would continue to dwindle in 2003.

Yet there’s reason for optimism. As G. Bruce Friesen, an independent organisation development consultant in Vancouver, puts it, “The B2B revolution isn’t over. It’s just out for retooling.” He adds, “Online B2B exchanges have struggled to displace their offline counterparts in many ways, but corporate marketing and buying departments, and the online B2B exchanges that are still around, are finding ways to adapt themselves to each other’s needs.”

Not All That Bad

Indeed, many of the original benefits that e-marketplace experts touted are still enticing companies today. Both neutral and independent, sector-specific exchanges (such as GNX for retail, and ChemConnect and Transor for chemicals) or their in-house, corporate counterparts promise to make transactions more transparent and more efficient. Better still, they can generate big cost savings for buyers.

Granted, expectations aren’t what they used to be. Today, companies are reckoning on savings of between 10% and 20%, instead of between the 40% and 50% touted a few years ago, says Soren Ohm, managing director of IBX, a Nordic platform owned by regional companies, such as Ericsson of Sweden and Novo Nordisk of Denmark.


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