E-Marketplaces: Deciding If They Are Right for You

In the final look at how technology can be utilised by Procurement to assist in delivering Value for Money for your organisation, we will look at e-marketplaces and the benefits they can bring an organisation.

What is an e-marketplace?

An online marketplace (or e-commerce marketplace) is a site where product or service information is provided by suppliers, purchases are made by buyers and the transactions are processed by the marketplace operator.

In an online marketplace, buyer transactions are processed by the marketplace operator and then delivered and fulfilled by the participating retailers or wholesalers. Other capabilities might include auctioning (forward or reverse), catalogues, ordering, wanted advertisement, trading exchange functionality and capabilities like Request for Quotes (RFQ) or Request for Proposals (RFP).

Some well known examples of e-marketplaces are Amazon, Alibaba, Tejari and e-bay.

Types of e-marketplace

There are many different types of e-marketplace based on a range of business models. They can be broadly divided into categories based on the way in which they are operated.

An independent e-marketplace is usually a business-to-business online platform operated by a third party which is open to buyers or sellers in a particular industry. By registering on an independent e-marketplace, you can access classified ads or requests for quotations or bids in your industry sector. There will typically be some form of payment required to participate.

A buyer-oriented e-marketplace is normally run by a consortium of buyers in order to establish an efficient purchasing environment. If you are looking to purchase, participating in this sort of e-marketplace can help you lower your administrative costs and achieve the best price from suppliers. As a supplier you can use a buyer-oriented e-marketplace to advertise your catalogue to a pool of relevant customers who are looking to buy.

A Supplier-oriented e-marketplace, or a supplier directory, is set up and operated by a number of suppliers who are seeking to establish an efficient sales channel via the internet to a large number of buyers. They are usually searchable by the product or service being offered. These benefit buyers by providing information about suppliers for markets and regions they may not be familiar with. Sellers can use these types of marketplace to increase their visibility to potential buyers and to get leads.

A vertical e-marketplaces provide online access to businesses vertically up and down every segment of a particular industry sector such as automotive, chemical, construction or textiles. Buying or selling using a vertical e-marketplace for your industry sector can increase your operating efficiency and help to decrease supply chain costs, inventories and procurement-cycle time.

A horizontal e-marketplace connects buyers and sellers across different industries or regions. You can use a horizontal e-marketplace to purchase indirect products such as office equipment or stationery.

Benefits of e-marketplaces

The potential advantages to be gained by joining an e-marketplace will vary between industries and businesses, and indeed between buyers and sellers. Some of the potential benefits are:

General business benefits

  • There are greater opportunities for suppliers and buyers to establish new trading partnerships, either within their supply chain or across supply chains.
  • E-marketplaces can provide greater transparency in the purchasing process since availability, prices and stock levels are all accessible in an open environment.
  • The use of e-invoicing within an e-marketplace can deliver significant savings for your accounts payable and internal business units; they will remove the requirement for offline invoice processing.
  • Time constraints and problems with different office hours for international trade are removed as it is possible to operate on a round-the-clock basis.

Benefits for the buyer

  • Updated information on price and availability makes it easier to secure the best deal.
  • E-marketplaces offer a convenient way to compare prices and products from a single source rather than spending time contacting each individual supplier.
  • Established e-marketplaces provide a level of trust for the buyer as they are dealing exclusively with suppliers who are members.

Benefits for the seller

  • Regular requests for quotations from both new and current customers are possible.
  • It provides an additional sales channel to market and sell products.
  • E-marketplaces can offer reduced marketing costs when compared with other sales channels.
  • The use of international e-marketplaces can provide opportunities for overseas sales that you would not otherwise be aware of.

Deciding if an e-marketplace is for you

The following issues need to be considered when assessing how appropriate it is for your business to participate in an e-marketplace.

Industry fit

What is the purpose of the e-marketplace and is it compatible with your business strategy? Ensure that you understand who buys from the e-marketplace and that your business is likely to fit the profile of the sellers and/or buyers on there.

Management of the e-marketplace

It is important to establish the ownership of the e-marketplace. Successful e-marketplaces require a sound financial backing to ensure their success and longevity. So, you need to know who shares the profits and the risks. Equally, you do not want to be involved in a marketplace if your competitor is the major owner.

Costs

What does it cost to participate in the e-marketplace? Possible charges include commissions for completed transactions, membership fees and listing fees. You should also establish if there are any costs associated with changing to another e-marketplace should your original choice not live up to expectations.

Marketing

Does the e-marketplace have a strong brand or image that will assist in marketing activities? What are the marketing plans, how aggressively will the marketplace be promoted and is it likely to attract the attention of the right types of customer for your own business?

E-marketplace design

Does the overall design and functionality of the e-marketplace make it easy for would-be purchasers to locate and buy products? Does it take account of good website design principles?

You should also establish how your presence will be displayed on the site. Will your logo and brand image be clearly displayed?

Technical issues

Is the e-marketplace adequately staffed to ensure that services are maintained on a round-the-clock basis, since any down time will impact directly upon your own business?

Also, establish if there are any costs associated with making your own IT systems compatible with the systems used by the e-marketplace.

DON BOWMAN.
Don Bowman (MCIPS) is the Head of Procurement at a leading UK University and has 25 years Public and Private Sector procurement management experience.

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