Everyone Knows

When we set up our e-marketplace about three years ago, we found out the hard way that a crucial step in making this business work was to first educate the business community on electronic procurement in general. During the countless presentations I attended (and given), my team and I found ourselves having to answer questions like What is an e-marketplace? What is e-procurement?

The Philippine business community, and the general public, has learned much since those days. The many articles written on the subject, as well as the government’s much-publicized pronouncement toward adopting e-procurement, certainly helped spread the word. Now, the questions most asked are, How do we implement e-procurement? and most importantly, Are the savings real?

Admittedly, a primary "hook" for potential clients is savings since they are definitely something all businesses understand. For trading partners who sign up as "buyers," the savings are easily quantifiable through lower purchase prices. For "suppliers" – less obvious, albeit just as important – lower marketing costs and increased market reach. That being said, we still encounter skepticism when we present actual savings figures from our members. Sixty-three percent savings on purchase price seem to good to be true! Nineteen percent increase in sales is unbelievable! Have my suppliers been overcharging all this time? Are the products and/or services inferior? Has my sales force been slacking off? What’s the catch?

So, how exactly are savings generated? Savings or cost reduction comes in two forms: qualitative and quantitative. By qualitative, benefits are reaped in the form of improved productivity through lower administrative and selling costs. E-procurement allows suppliers to enhance their relationship with their customers through improved marketing reach, and buyers, by objectively rating the suppliers’ performance.

On the quantitative side, volume discount via aggregation is part of the push. It is important for purchasers to review their historical transactions to determine an appropriate contract for their specific requirement – whether short- or long-term, fixed-price or cost-based. Meantime, the critical aspect rests in enabling suppliers to bid for the buyer’s requirement simultaneously online. Settlement need not be one-time. By attaching conditions to your purchase, you can schedule staggered delivery and payment to suppliers, so you don’t have to strain your business with high inventory costs and drain working capital altogether.

It is important to note that once a company pursues a direction toward e-procurement, acceptance of parallel quotes must be abolished to give equal opportunity for all suppliers concerned. Like all projects, success hinges on a company’s commitment to a certain initiative, thereby creating a clear direction to all involved. Transparency is compromised if there are still suppliers that provide offline quotes, against those providing quotes online.

Competition. An e-marketplace lists hundreds of suppliers, which deliver benefits for the buyer. For one, it becomes much easier to find several suppliers and comparative quotes for your requirement. And with more suppliers vying for your order, you should be able to generate competitive prices and achieve the best savings for your company.

So, how can suppliers afford to offer better deals online? Your suppliers have not been overcharging. Their margins may very well be the same, but the use of an e-marketplace tests suppliers’ ability to effectively hedge subsequent ordering requirement and map out production run as early as possible. Effective shipment scheduling likewise helps bring down suppliers’ administrative and operational costs, and consequently selling price.

Lower marketing costs. Membership in an e-marketplace helps suppliers lower marketing costs. An e-marketplace has a built-in roster of members, thus finding new clients becomes faster and cheaper. Your current sales and marketing complement should be able to acquire and service more clients than in the past: less time is spent on the field, less costs spent on transportation. And customers are serviced better and faster online.

In addition, suppliers get to feature their products in an online catalogue available in most e-marketplaces, making it more convenient for potential buyers to search, locate and view required products and/or services. This gives suppliers immediate exposure to a community of buyers and should greatly reduce costs of marketing collateral.

Customer intelligence. Often, transactions put through an e-marketplace are term or period contracts, or for bulk volume. Such contracts allow suppliers to better plan better future inventories and limit stock in their warehouses to more practical volumes. Briefly, suppliers can acquire more accurate information on buying patterns, including size, volumes and seasonality to produce realistic inventory forecasts. This results in a more efficient cash management and savings in the long run.

Are the savings real? Yes, the savings are real and quantifiable for both buyers and suppliers. Through an e-marketplace, buyers are able to lower purchase price resulting from suppliers’ capability to reduce overhead costs. It’s clearly a win-win situation. Given more time and use, e-marketplaces would be appreciated for their other real benefits: streamlining processes, promoting transparency, minimizing inefficiencies and accessing information.

Christine Yap-Tan is the COO of SourcePilipinas.com Inc., the e-marketplace under Yapster e-Conglomerate Inc. You may e-mail her at [email protected].