South African corporates are known for their reluctance to divulge information regarding their information technology initiatives, so it was with a certain amount of trepidation that ITWeb launched its Corporate User B2B Survey in an attempt to establish how local companies had approached the whole electronic trading issue.
Earlier this year, mymarket.com already had 140 registered users placing orders daily with over 200 suppliers
Tina Piccione, GM, Bidvest`s mymarket.com
However, the survey was well received as 33 of the Top 50 local corporates indicated they would participate. Of these, 33% submitted complete responses to the comprehensive questionnaire.
Almost all the respondents saw procurement as a strategic cost driver, with the exception of a mining group that has no immediate plans to implement an e-procurement solution, and Medscheme. Says Zeeman van der Merwe, group data warehouse manager at this integrated health fund manager: "Medscheme doesn`t have a traditional procurement environment, as it focuses on how to get the most information in from all its various stakeholders at the lowest possible processing cost and then delivers on all its action requirements as quickly as possible."
[CHART]Half of the respondents have already kicked off their e-procurement initiatives and among those that haven`t yet done so were several corporates that indicated they would implement solutions next year.
Stumbling blocks
The biggest inhibitors to introducing e-procurement were scepticism regarding e-procurement technology and the lack of technology adoption by their suppliers. Other main inhibitors included internal resistance to change and a lack of knowledge about potential benefits. One issue that somewhat surprisingly wasn`t mentioned by many respondents as an inhibitor was the cost of the technology involved in installing an e-procurement solution. Some respondents indicated that a return on investment was achievable in the long-term rather than in the near future, and this may be one of the reasons behind the apparent lack of concern regarding this issue.
[CHART]The primary drivers for introducing an e-procurement solution were given as the ability to reduce spend through increased control, better customer service, being able to leverage purchase volumes and get bigger discounts, building a preferred supplier base.
Tina Piccione, GM of Bidvest`s e-marketplace initiative, had a slightly different take on the primary drivers behind the organisation`s online trading initiative. Bidvest is an investment holding company listed on the JSE Securities Exchange in the industrial services sector. Piccione maintains that the most important factor for this corporate is the opportunity to build and maintain relationships between suppliers and buyers through the fact that it manages its own marketplace. Known as mymarket.com, this international e-marketplace was launched last year and is hosted in SA. It`s a closed environment to the extent that it may only be used by the roughly 750 operating companies within Bidvest, many of which are both buyers and sellers. Earlier this year, mymarket.com already had 140 registered users placing orders daily with over 200 suppliers.
Looking at what the respondents source through their e-procurement solutions shows that most use them for production-specific material and equipment, as well as components not directly related to their core business. Among the most commonly electronically-sourced items were computer equipment, office supplies, IT services and/or consulting, travel-related purchases and printing supplies.
About 30% of respondents said their e-procurement purchases made up less than 10% of their overall procurement spend. While the majority believe the number and scope of items bought through their e-procurement solutions will continue growing, few think that electronic transactions will dominate their overall spend. One notable exception is the First Rand Group. Inthiaz Cassimjee, executive with the group`s incubator division Scion, says that a year ago, purchases through its e-procurement solution amounted to "a fraction of 1%" of its overall procurement budget. "Now we`re into double figures and in about a year`s time we should be nearing the 80% mark."
Asked to rate the importance of specific e-procurement elements, the survey participants ranked cost reduction and the ability to exercise greater control over purchase processes as the highest. Next were the opportunity afforded by these solutions to address black economic empowerment procurement issues, the ease and accuracy of tracking and report generation, and being able to decrease the number of suppliers. Technology issues received the lowest score - a clear indication that e-procurement is being approached from a business rather than an infrastructure perspective.
[CHART]This correlates with the survey`s findings that none of the respondents` e-procurement solutions had been driven by their IT departments. In fact, while each organisation`s procurement departments had been significantly involved in the decision-making process, many companies had chosen to include their marketing and sales departments as well as their executive management team before approaching IT representatives.
According to Nolo Letele, CEO at MultiChoice, the company`s entry into the electronic trading environment was a result of an "an executive decision that touched all departments. No specific department drove the initiative."
MultiChoice is another of the few companies that spends more than 10% of its overall procurement budget on purchases sourced and bought electronically. Letele says this is due to the fact that its online spend is heavily weighted by decoders, an expensive budget item. He estimates that 31% to 40% of MultiChoice`s budget is spent online. His other big-ticket items are channels - which are paid for in dollars - and satellite capacity, both of which are not sourced or purchased online.
Expecting benefits
Shifting focus to e-marketplaces, the survey reveals that about a third of the respondents are currently trading in an e-marketplace, with roughly the same number planning to do so in 2003. The major anticipated business benefits named by these respondents were supply chain integration, the ability to move faster, do direct comparisons when procuring, save costs and build more efficient procurement processes, and achieve a greater degree of control over their procurement processes. There was an even split between those using public marketplaces and those who had opted for a "closed" or private solution. IT products and services and travel-related purchases were the two most commonly sourced in these marketplaces.
[CHART]Here the highest rated inhibitor was the cost of the technology integration process, with internal change management, suppliers not being online, and unreliable Internet connectivity also receiving high scores. Among the most commonly stated primary business drivers were improving customer service while reducing operational costs, leveraging business intelligence, generating demand for their products and services, and building customer-centric infrastructures.
An example of a closed e-marketplace that has been up and running effectively for almost a year-and-a-half is the one belonging to CTP Packaging. This corporate produces folding cartons, labels, blister and skin pack cards particularly for the food, health, cosmetics, soft drink and cigarette industries. According to Willie Zerff, purchasing manager and training officer at the company, it also supplies some of the food chains with packaging.
"We have between 30 and 50 clients on board, all of whom were regular clients before we decided to go the e-marketplace route," says Zerff, who is reluctant to name his solution provider. He believes the main business benefits his customers would expect to receive include faster transaction times, cost reductions and increased control over purchasing processes and spend. He expects his company to only look at entering an e-marketplace in 2003 or later.
Whatever the reasons the respondents gave for getting involved in either buying or selling goods online, many of them made it clear doing so had given rise to a considerable amount of frustration that stretched from the decision-making process right through to the inevitable implementation hiccups and the challenges faced in maintaining their electronic presences from both a buyer and a seller perspective. While trading electronically has its advantages as far as processes, procedures and profits are concerned, it`s an easier decision to make than to implement.
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