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GLOBAL e-MARKETPLACE PRACTICES

Paul Hawking [HREF1], School of Information Systems,Faculty of Business, Victoria University[HREF2] , PO Box 14428, MC8001, Melbourne, Australia [HREF3], Victoria, 3800. [email protected]

Andrew Stein [HREF1], School of Information Systems,Faculty of Business, Victoria University[HREF2] , PO Box 14428, MC8001, Melbourne, Australia [HREF3], Victoria, 3800. [email protected]

Abstract

Businesses are now looking at the extended supply chain, procurement and e-marketplaces to provide additional business efficiencies and business leverage to maintain their competitive positions. Strategically a superior supply chain (Cooper et al, 1997) will increase a business's responsiveness and competitive advantage. This paper looks at the role that the e-marketplace plays in the Australian business environment with a case study of the global resource company BHPBilliton and its adoption of e-marketplaces. The results of a survey are presented together with an analysis of the current and future procurement practices of 38 Australian organisations together with their intentions of moving to the e-marketplace model for procurement.

Introduction

Organisations spend (Aberdeen, 2001) over US$ 20 trillion on external goods, services and procurement. Many research organisations (Bakos, 1999) predict massive growth in the B2B market. Forrester (Metcalf, 2002) sees the global B2B market growing to US$3500 billion in 2004 whilst the European B2B market will exceed 900 Billion Euros with 6% of European B2B trade residing in e-marketplaces by 2005. England and Germany will host 50% of these e-marketplaces with strong growth predicted in Ireland and the Benelux regions. This e-marketplace growth will occur in the automotive, transportation and electronics industries. The virtual supply chain promises to give organisations financial and business advantages. A crucial cog in the virtual supply chain is e-procurement. The role of e-procurement and the emerging business model of the e-marketplace is the focus of this research paper. The primary research question of this paper was to ascertain how organisations are undertaking the role of direct and indirect procurement and the role that e-marketplaces will take in the procurement process. E-marketplaces are evolving as value drivers in e-business and this paper presents the results of a research survey of Australian organisations and their experiences as they grapple with the technical, process and people issues of e-marketplace driven procurement. A leading e-marketplace adopter BHPBilliton, will be analysed together with its e-marketplace partners. The main outcomes of the survey show that the respondent organisations were very low users of the Internet for direct procurement, slightly higher for indirect procurement, but were signalling a move to the e-marketplace model within the next twelve months.

e-MARKETPLACE LANDSCAPE

TA McKinsey report as reported in Raczkowski (2001), identified five categories of e-marketplace models; project/specification managers, supply consolidators, liquidity creators, aggregators and transaction facilitators. Raisch (Raisch, 2001) tracks this

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evolution of e-marketplaces and sees three key e-marketplace models emerging; firstly the direct e-marketplace (Dell Computers) where the marketplace is set up to support buyers and sellers, secondly the consortium e-marketplace (Boeing and Global Areospace) where major enterprises develop an e-marketplace based around an industry supply chain, and finally the independent e-marketplace (Freemarkets) where a neutral intermediary will either provide buy-side or sell-side services in an attempt to provide a win/win situation for both parties. The B2B landscape (Raisch, 2001) is presented in Figure 1. One application of B2B electronic commerce that is gaining importance in organisations is e-procurement. The growth in B2B e-procurement is predicted to match the general growth in the wider B2B field. Gartner predicts that the value of online purchasing will grow to 3.17 trillion by 2003 (Gartner, 2002). The growth in online procurement is understandable as organisations are starting to shift the focus from reducing the cost of transactions to reducing the cost of materials and services for production. E-procurement is defined as any application of information and communication technology to enable the procurement business function. Len Prokopets, senior manager at Deloitte Consulting, portrayed a vibrant future for e-procurement when he reported: "e-procurement will fundamentally change the dynamics between companies and their suppliers. The traditional 'purchasing' department will cease to exist. Its focus, instead, will be on understanding the requirements of the business and therefore being able to drive the business forward, coordinating information exchanges and improving relationships with suppliers by managing them more efficiently and developing negotiation and sourcing strategies." (Roche, 2001: p. 58) Many organisations will commence their e-procurement practices with indirect products or services (Verespej, 2002). The vibrant nature of the procurement and the sourcing market is recognised by systems vendors developing Supplier Relationship Management (SRM) (Konicki, 2002) suites to push e-procurement. Major software vendors SAP, Oracle, Peoplesoft, Commerce One and Ariba Inc. have all released SRM tools to facilitate the procurement process. Choudrey and Hartzel (1998) depicted the service offerings that private and public e-marketplaces can offer enterprises.



They show that marketplaces can perform identification, selection and transaction based services between trading partners. E-marketplaces can range from catalogue sites to auction, exchange, storefront and negotiation sites. Standing & Stockdale (2001) developed a set of critical success factors (See Table 1.) for the e-marketplace adoption. To take advantage of these success factors and obtain these potential benefits organisations will have to overcome technical, process and change management issues.



How do Australian organisations perform procurement now? How do Australian organisations compare with European and U.S. organisations in moving to adopt marketplaces? Where do they see themselves in 12 months time? These and other questions form the basis for the survey section of this paper. More specifically the research questions of the paper are:

RQ1. What are the current and intended direct and indirect procurement practices of the sample organisations?

RQ2. What is the current and intended usage of e-marketplaces by the sample organisations?

RQ3. How does a "best practice" organisation, BHPBilliton, utilise e-marketplaces?

METHODOLOGY

Survey Research

Research questions 1&2 were studied by gathering data in a survey of those information system professionals listed as working within a cross-section of the Australian marketplace. A leading Multi-national software vendor (SAP AG) user group provided access to a member contact database of about 166 information systems professionals. The initial survey instrument was developed based on the fields that were identified in the literature, email prompt with Web based survey was used as the delivery platform. A recent study (Stanton & Rogelberg, 2001) compared email and Web based survey methods versus mail information collection methods and proposed that email surveys compared favourably with the postal methods in the areas of cost, speed, quality and response rate.

Case Study Research

Research question 3 was analysed by a case study of an organisation that has adopted "best practices" in the utilisation of the e-marketplace model. The following are the immediate objectives of the case study: · Identify the different e-marketplaces that BHPBilliton has utilised; · Determine the role of BHPBilliton in the e-marketplace; · Classify the e-marketplace within Raisch's lansdsacpe; and · Finally, discuss the people, process, technology and success factors of the move to e-marketplaces. A single case study approach is used to explore an "exemplary" organisation in an emerging field. Data collection consists of internal and external documentation together with email based interviews. Multiple sources of evidence were analysed and this alleviated bias by providing triangulation of data sources. Yin(1994, p. 35) emphasises the importance of asking "what" when analysing information systems and goes further and emphasises the need to study contemporary phenomena within real life contexts. Walsham (2000, p.204) supports case study methodology and sees a need for a move away from traditional information systems research methods, such as survey, toward more interpretative case studies, ethnographies and action research projects.

RESULTS

Survey Instrument



The survey instrument had 30 questions covering three areas; demographics, e-procurement practices and e-marketplace practices and intentions. Closed questions were used with Yes/No and five point Likert scale responses. Open-ended questions sought responses from the cohort allowing for qualitative data to be collected. The overall response rate after two email prompts and after removing the undeliverable addresses was (38/147) 26%.

Responses were analysed (See Table 2.) to present position, organisation type, organisation size and procurement spend. Respondents were predominantly at the managerial level, came from a wide spread of Australian business organisations and were mainly from the large-medium co-hort as determined by organisation and procurement spend.

Procurement Practices

Organisations reported their current (See Table 3.) and intended direct procurement practices with fax dominating both direct and indirect procurement. Paper/mail based was the second most utilised form of direct and indirect procurement. EDI, email and Internet showed low results with the exception of Internet based indirect procurement. There was a definite trend towards Internet enabled indirect procurement over the next 12 months with an increase from 10% to 15%.



To obtain a better picture of procurement practices the results were then classified (See Table 4) into three groups, low-level where the tool is used less than 20%, medium-level where the tool is used between 20% and 40% and high-level usage where the tool is used greater than 40%. These categories were developed from the ISM report (ISM, 2002) that reported on the procurement practices of 350 U.S. organisations. There was a 13% jump in medium-level Internet enabled direct procurement and 5% increase in medium-level email enabled procurement. Fax and paper were still dominating direct procurement 12 months out but there was a small move towards high level EDI enabled direct procurement. On the indirect side, there was a trend from high to medium level usage of the fax and a overall trend away from both high-level and medium-level usage of paper/mail and telephone for indirect procurement. Conversely, EDI showed a slight trend to more use in 12 months but Internet enabled indirect procurement showed a massive 10% and 8% increase in medium and high-level usage. There was also a significant decrease in all categories for paper/mail based indirect procurement. It is proposed that the increase in Internet indirect procurement is by new entrants to the market possible via the e-marketplace.

E-Marketplace Practices

Respondents were then asked to indicate their current and intended usage of marketplaces. There was a significant trend (See Table 5.) in the number of organisations intending to explore the e-marketplace channel within the next 12 months.



CASE STUDY

BHPbilliton

Broken Hill Proprietary (BHP) is the "Big Australian". For decades BHP was the largest Australian company and mirrored the resource nature of Australia's economy in the 20th century. In 2001 BHP merged with the UK based Billiton Corporation to form BHPBilliton, one of the largest resources enterprises in the world. In Australia BHP had commenced a global consolidation of its ERP systems. In October 2000 BHP policy committee (Morgan, 2002) approved a US$7million project implementing e-procurement over the 2001/2002 period.

BHPBilliton & e-Marketplaces

Currently BHPBilltion use multiple marketplaces (See Table 6.) on both the buy side and the sell side. On the buy side Quadrem, Elemica and LevelSeas for direct procurement, with CorProcure and Corporate Express for indirect procurement. On the sell side, eSteel, iConnectTrade, and Global Coal trading handle the steel and coal resources that BHPBilliton sell into the world market. Many BHPBilliton sites have implemented e-marketplaces solutions including Corporate Headquarters, Queensland Coal, Escondida and New Zealand Steel. The BHPBilliton Company Escondida, based in Chile, commenced operating with 20% of total orders being placed through the Quadrem marketplace.

Quadrem

Quadrem is a public e-marketplace (Quadrem Profile, 2001), providing supply chain processes for both buyers and sellers in the mining, minerals and metals industries. It is



backed by 21 major mining organisations with the major shareholders being Alcan, Alcoa, BHPBilliton, De Beers and Codeelco among others. The market for procurement in this industry is about $US200 Billion with Quadrem buyers representing about $US80 Billion. Recently Quadrem and Elemica (chemical industry e-marketplace) announced a hub-to-hub linkage to take the e-marketplace evolution one step further. Instantly, the mining/metals industry was linked with the chemical industry with two-way e-procurement now possible. Whilst the benefits of the e-marketplace have been documented there are further developments in the e-procurement cycle. Full integration through Quadrem including payment will allow more strategic sourcing to be made within BHPBilliton. Loading of OCI catalogues into the e-marketplace will allow more refined vendor and part selection by the maintenance department. Allowing Vendors to enter their own service entry sheets will allow for more efficient invoice matching and the removal of a time consuming process from BHPBilliton to the Vendor. Technical, process and change management issues seem to be paramount when proposing to extend this functionality from Escondida to other Global R/3 BHPBilliton customers. Technical issues included the hardware intensity of MySAP applications, the use of different versions of XML and the interoperability of service orders. Process issues include the need to have an excellent procurement process in place before conversion to the e-marketplace model and the inability of SAP R/3 processes to handle marketplace transactions. Change management include the standard range of "internal" change management practices but the inherent external nature of inter-organisational systems means that many change management practices must be applied outside the company boundary to non-company personnel. This factor is crucial when developing systems that link organisations.

Elmica

Elemica is an e-marketplace that services the worldwide chemical industry and services industry like BASF, Bayer, Dow and DuPont. Mining Industries are very heavy users of chemicals for mining operations and processing and the interaction between BHPBilliton and Ciba led to the connection of Elemica with Quadrem. This hub-to-hub connection of the two e-marketplaces signifies a "next generation" super e-marketplace. It is expected that $US70 million (Kaneshige, 2002) will flow between the hubs with no additional fees being charged for the inter-connection. Issues like the level of privacy, security and transaction operability will be monitored to ensure no degradation of services for the e-marketplaces.

eSteel (NewView)

In 2000 BHP commissioned e-Steel Connect to (Bruder, 2000) develop an e-marketplace for the BHP customers and suppliers. The marketplace will allow customers access to direct value added services such as transportation, logistics, order tracking, order status and mill test certificates. The underlying technology will enable B2B flexibility with channels, suppliers and customers engaged in end-to-end e-commerce.

Corporate Express

Corporate Express is an Australian publicly listed company (Ellis, 2002) and part of the worldwide Buhrman group of companies. It operates in 23 locations in Australia and New Zealand and employs about 1500 people. It has annual sales of about $AUD633 million with $AUD 200 million transacted electronically. It is Australia's most transacted B2B site. There are 50,000 users turning in 3,500 orders per day. BHPBilliton use Corporate Express for some of its indirect procurement and has developed direct connection between the R/3



system and the Corporate Express System.

Global Coal Trading

GlobalCoal Trading is the premier e-marketplace for trading coal and coal related services information and products. BHPBilliton is one of (GlobalCoal, 2002) the founding companies that helped formed the Standard Coal Trading Agreement and this forms the basis for transactions in GlobalCoal Trading.

Discussion

The results show that the Internet is currently used for only 4% of direct procurement and 10% for indirect procurement. Looking at the "High Level Users" (See Table 4.) we see 8% of the organisations indicated heavy (>40%) usage of the Internet for direct procurement and 3% for indirect. A recent survey of 350 organisations by the Institute of Supply Management and Forrester (2002) in the USA, showed similar results in that they indicated that only 8.9% of the organisations were using the Internet for more than 40% of direct procurement. It would seem that the Australian organisations in the survey group were "in the ballpark" with U.S. organisations in the adoption of e-procurement. The future intention to use the Internet for direct procurement showed a small (4% to 6%) increase and a larger (10% to 15%) for indirect procurement. These figures are indicative that organisations are planning for increased take-up of Internet e-procurement and the indirect figures are quite significant. These results also replicate the trends from the ISM (2002) report where organisations reported increased uptake of the Internet for indirect procurement. The ISM (2002) report showed that 20.2% of the sample U.S. organisations purchased using e-marketplaces. This trend was down from previous surveys. The survey results (See Table 6.) show that 13% of the sample organisations had used e-marketplaces. This would seem to again indicate the immaturity of the Australian organisations in using e-marketplaces as a procurement channel. This slow adoption of the e-marketplace channel is extolled in a recent PriceWaterhouseCoopers report (PWC, 2002) where the difficulty of locating real benefits from participating in e-marketplace business model was described. Buyers were fearful that price and cost advantage will be lost whilst suppliers are being forced into the e-marketplace to remain "in the game". The PriceWaterhouseCoopers report makes a case for e-marketplaces that have added value for both suppliers and buyers. It could be argued that the results maybe indicating a degree of experimentation of our sample in trying the e-marketplace model. This is supported by the massive increase in organisations signalling the use of the Internet for indirect procurement. There is no doubt that the surveyed organisations not only showed a disposition towards adopting the marketplace model in the next 12 months but that the second movers in the surveyed group signalled a desire to at least consider the marketplace model. This move mirrors the latest research by IDC (2002), where the IDC eWorld survey of 2000 businesses in 10 countries, have signalled a doubling of e-business spending in the forecast period. The Survey showed that many companies are being driven into e-business by their customers wanting them to participate in e-marketplaces. The initial rush to e-marketplaces in the U.S. led to the dot.com crash, Europe is now learning from the U.S. experience (eMarketer, 2001) and has a predicted growth of e-marketplaces from 12% (2000) to 30% (2004) compared to the U.S. figures of 72% (2000) to 56% (2004). In the Australian business environment the U.S. and Europe are providing pathways of adoption for many Australian organisations. One global organisation BHPBilliton has been aggressive in its uptake of the e-marketplace model. Grewal et al. (2001) pointed to the motivations of organisations using electronic markets. They saw globalisation, international diversification, international



marketing strategies and the exploitation of technological innovation as being at the forefront of organisations adopting e-marketplaces. In an interview with the strategic sourcing manager, (Davis, 2002), it was emphasised that BHPBilliton's e-marketplace strategy has changed from early adopter to value proposition. BHPBilliton have entered a "comfort Zone" where active measures are in place to extract value from e-marketplace solutions that are technically sound. Further evidence of this is seen when implementation and adoption of e-marketplace solutions now residing in the functional units rather than a stand-alone e-commerce unit. On the Australian front however there was still a reluctance of suppliers to adopt the e-marketplace model, technical integration, change management and process issues are thought to be inhibiting a more full scale take up of the Quadrem e-marketplace. When BHPBilliton joined with NewView to develop eSteel the value proposition included; strengthened customer loyalty, cost-efficient integrated solutions, rapid implementation and customer adoption, enhanced company brand and reduced cost structures. In adopting both buy-side and sell-side roles in a variety of e-marketplaces BHPBilliton has made its intention clear: "..develop tailored, new models that provide greater value and customer service throughout an entire supply chain." M.S. Levin. CEO NewView (Partner with BHPBilliton on eSteel)

CONCLUSION

Kaplan & Norton (2000) envisioned the impact of e-procurement: "Information technology enables today's organisation to integrate supply, production, and delivery processes so that operations are triggered by customer orders, not by product plans that push products and services through the value chain. An integrated system, from customer order upstream to raw materials suppliers, enables all organisational units along the value chain to realise enormous improvement in cost, quality and response times." There is no doubt that the survey showed procurement practices changing slowly in the Australian marketplace but that the respondent organisations signalled strongly an intention to move to e-marketplaces. BHPBilliton is a bright beacon in e-procurement and e-marketplace practices, and they are endeavouring to achieve the benefits portrayed by Kaplan & Norton above. Their example of conquering the technical, process and change management barriers to e-marketplaces should serve as a "best practice" for other organisations to follow.

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Copyright

Paul Hawking & Andrew Stein assign to Southern Cross University and other educational and non-profit institutions a non-exclusive licence to use this document for personal use and in courses of instruction provided that the article is used in full and this copyright statement is reproduced. The authors also grant a non-exclusive licence to Southern Cross University to publish this document in full on the World Wide Web and on CD-ROM and in printed form with the conference papers and for the document to be published on mirrors on the World Wide Web.



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