Dec. 12, 2000The recent publicity surrounding e-business has seen firms scrambling to take advantage of the apparent qualities of electronic marketplace trading.
Peter Kennedy, Director at B2Bi software solution specialists Formfill, however, believes that companies should examine the benefits of hierarchical relationships before jumping on the e-marketplace bandwagon.
“The vision of the e-marketplace is to bring multiple buyers and suppliers together to reduce costs and streamline efficiencies. The problem, however, lies with cost control within the medium. On-line trading hubs create fierce competition between suppliers, which force down the price of goods and demand an increased level of service. Good news for buyers perhaps, but for suppliers, particularly the smaller ones, it can be a bitter pill to swallow as they struggle to compete with larger manufacturers.” claims Kennedy.
“The situation is not one sided either. Buyers can incur considerable expense because they probably have to pay “click charges” for each action conducted across the trading system. A single transaction may not be much, but if there are a number of dealings conducted every day, you can imagine that the costs associated with trading could potentially be quite substantial.”
“In addition, if an organisation finds a new supplier through the e-marketplace, and is paying a “click charge” for every transaction, who is going to stop the two parties from circumnavigating the e-market to prevent payment of the click charge?”
‘One to many’, hierarchical B2B solutions, on the other hand, enable an organisation to trade with its business partners using the Internet as the transport mechanism. The key benefits of this form of communication are that businesses retain their current exclusive business partner relationships and market intelligence, while suppliers are not placed under as much pressure from competition.
Overall, the underlying rationale of this one-to-many relationship is to cut the costs of trading with your partners and to encourage trust through a mutually beneficial arrangement.
Kennedy argues that e-marketplaces have perpetuated the myth that they are the panacea to 21st century trading, but, he points out, the lack of regulation and governance across e-marketplaces could make them prone to unethical business practices or anti-competitive behaviour.
This belief is evidenced by the findings of Cranfield University and Mori who concluded that of the 400 IT Managers surveyed, 80% believed that there should be more Government involvement in on-line regulation.
Add to this the fact that many companies have invested a lot of time and effort in developing strong relations with their suppliers.
Sharing your customers and suppliers with firms competing in the same market sector is essentially what an e-marketplace facilitates, therefore it is easy to understand why businesses are pulling out of e-trading hubs altogether.
Although current figures place UK business use of on-line trading at around 2-3%, it is expected to rise to 20% over the next two years. As the momentum gathers pace companies need to seriously address their e-business strategies. This is where Kennedy believes that hierarchical relationships come to the fore.
Compared to other mediums, such as its predecessor EDI and e-marketplaces, hierarchical relationships based on B2Bi technology are flexible, safer, easier to control and far less expensive than their contemporaries. It is also worth noting that the return on investment is usually months as opposed to years.
Kennedy concluded, “In a commodity trading environment e-marketplaces may offer an increased level of choice and sales, but in a relationship where quality and co-operation are required to achieve reduced order cycles and partnerships, it is the hierarchical relationship supported by B2Bi technology that really reduces the fixed costs of trading and achieves strategic benefits. ”