The next wave: Cyber-sites promise real savings

The race is under way as electronic marketplaces vie for the big customers they need to be successful. PAULA OLIVER reports.

Convincing employees not to be frightened of new technology was one of the hurdles health insurer Southern Cross faced when it moved into the world of e-marketplaces.

Lured by the promise of lower costs and more efficient service, the insurer has been using marketplace specialist e://volution to buy its office supplies and stationery online since October.

For e://volution, capturing a client the size of Southern Cross was a coup as it bought volume to the site, and with e-marketplaces, the liquidity that volume provides is vital.

Competition to snare the country's biggest buyers is immense. More than six local exchanges are already competing in the broad maintenance, repair and operations market.

These exchanges bring together suppliers with those who want to stock their offices with items ranging from coffee cups to clocks and computers.

Some exchanges are looking at introducing travel services, insurance and lighting. They say the one-stop-shop procurement saves users time and money on routine administration.

Southern Cross projects manager Jackie Pivach says she evaluated six opportunities before deciding to sign up with e://volution.

The project is still in an early stage, and Southern Cross is looking at buying more than paper and office products from its marketplace.

She says the benefits are beginning to come through.

"We used to have 19 print suppliers and now we have one.

"It's being stored by them, distributed by them and printed by them. We've reduced our costs around storage and freight, and we have better buying power."

Ms Pivach says the company may save as much as 20 per cent on its annual $2 million print and paper bill.

Other benefits include better reporting of who is buying what and when, and the opportunity to switch suppliers without losing the e://volution platform.

But she says the change has not been easy.

While the firm's accountants could calculate that the move to online buying would be financially viable, their numbers did not show how people would react to the new technology.

"It's been a whole behavioural change process, and we had to convince people not to be frightened of it," says Ms Pivach.

"Before this we had someone in each area who popped down with the order and got the products. Now these people are responsible for the whole thing themselves."

Another hurdle was the need for Southern Cross to introduce the new system slowly so that its computer system could cope.

She says that if the company had suddenly allowed a lot of people access to the marketplace that might have required it to buy more bandwidth, which is expensive.

Overall, the move is paying off. and within a year, Southern Cross' hospitals are also likely to be ordering from the marketplace, says Ms Pivach.

But Southern Cross' move to the new technology has not been matched by the country's largest companies.

Many of the big names that marketplace operators say are "interested" are in fact involved in pilot programmes that could amount to nothing.

Brewing giant DB is evaluating the idea and its communications manager, Jo Jalfon, says that may change in the new year. In the meantime, staff are looking at "technical aspects" of the transition.

An employee of another company assessing the idea, who prefers not to be named, says the marketplaces are surrounded by hype, but not many people are using them yet.

"It's so confused, it's difficult to get any sense out of it," he says.

"The cost benefits are not as great as some are claiming, and most of them seem to be gained through losing staff in the purchasing area."

Since launching in late October, marketplace operator Supplyzone has overcome a slow start to enjoy a good December, says director Neil Taylor.

His site is open to anyone, and he says that by bringing together distributors and manufacturers rather than resellers, he can offer cheaper prices.

A large manufacturer will join the marketplace next month, he says, preferring not to name his present clients.

Both Mr Taylor and his competitors agree that start-up costs for the marketplaces can spill into millions. Recouping that money is the biggest challenge, and they expect the number of marketplaces to reduce.

Mr Taylor says the market is so tight that failure in just one area, such as strategy, volume, customers or suppliers, can trigger an operator's downfall.

"Getting the right customers and suppliers, and obtaining the right volume is a key."

But marketplace operators claim they are doing very well.

E://volution's James Dale says as much as $47 million is expected to go through his company's sites this year.

He says revenue is coming in from companies who want to licence the software and create their own multi-vendor websites.

E://volution says that Southern Cross, DB, Sky TV, TNT, Clear Communications and NZ Dairy Foods are becoming involved with its marketplace.

Carter Holt Harvey and NZ Post are taking part in pilot programmes, it says.

In the race to secure big clients, marketplace operators still seem to have a lot of work to do.

As one prospective user says: "Suppliers are not likely to be fooled into offering decisively lower margins for the extra volume, so the cheaper prices are by no means guaranteed.

"Everyone seems to be looking at these things, but looking is not as good as using."