How e-markets fail suppliers
Less than 20 percent of U.S. suppliers have the ability to conduct business online, according to Hurwitz Group. Without a rich variety of suppliers, e-markets aren't as useful to buyers because buyers are limited in their ability to find and compare needed products. For e-markets to succeed, they must do a better job of understanding and addressing the problems confronting suppliers.
E-markets have failed to attract suppliers because the markets have been constructed from the buyer's perspective. The assumption is that if a marketplace can attract buyers, sellers would simply line up for the opportunity to sell their goods. It's true that some suppliers feel compelled to join certain markets to sell their wares, especially when a powerful customer demands it. But many suppliers still aren't convinced that there's anything in e-markets for them.
Suppliers are afraid that e-markets will lead to margin erosion. They know that one of the reasons buyers participate in e-markets is that it helps them shop for the best price among competing suppliers. E-markets that operate reverse auctions are particularly worrisome to suppliers because these markets pit suppliers against each other to drive down prices. Why should suppliers lend momentum to a sales channel that only reduces their profits?
The difficulties and cost of going online is another impediment for suppliers. Suppliers must create electronic catalogs so buyers can find the products that they are looking for and that meet their buying requirements. Creating and maintaining online catalogs is an expensive and time-consuming proposition that can employ scores of technicians and cost hundreds of thousands of dollars. This is especially true for suppliers that offer thousands of products with multiple attributes.
Suppliers may also be faced with the burden of supporting multiple e-markets. Each market may have different catalog and integration requirements. The need for standardization in catalogs used across multiple markets may also limit suppliers' ability to differentiate their products for specific applications. Suppliers are reluctant to pay the costs of supporting multiple markets given the high number of market failures and the potential for change among the survivors. Markets and large buyers can help bring more suppliers online by providing content management systems and training.
It's important to recognize that many suppliers don't compete solely on the basis of price. The price-driven nature of many e-markets often fails to recognize the full value of relationships between strategic suppliers and buyers. Suppliers may provide products and services with special features. Some products require extensive sales support, configuration, and complex negotiations. Buyers should not underestimate the value of stable and reliable suppliers that can meet deadlines and fulfill contracts that may span years. A missed deadline or the inability to meet a sudden surge in demand can have much greater cost implications than the cost of goods.
Collaborating with suppliers can also help improve product design and processes to help buyers offer more value to their customers and improve their competitiveness. E-markets undermine value-added suppliers by forcing them to compete on a lowest-common denominator basis.
It will be many years before most suppliers regularly participate in e-markets. The going will be very slow indeed until market operators and large buyers recognize and address the concerns of suppliers. They will need to assure suppliers that participating is more likely to result in increased sales and that their key relationships and proprietary information won't be endangered.
If your organization is considering an e-market, carefully evaluate how the market supports suppliers. Find out which suppliers are participating-and which are not. Otherwise, you may find that you've just joined a party that doesn't have much to offer.