The argument over trading portals

While the prospects of government e-procurement are now uncertain, with few if any agencies committing to it, the reality will be even harder to gauge - the e-government unit and state services minister Trevor Mallard have imposed a media blackout on direct discussion of the project.

While the prospects of government e-procurement are now uncertain, with few if any agencies committing to it, the reality will be even harder to gauge — the e-government unit and state services minister Trevor Mallard have imposed a media blackout on direct discussion of the project.

Meanwhile, two of the largest government agencies on the procurement spectrum, police and the NZ Defence Force, are forging ahead with their solutions, both based extensively on SAP software.

Prospects look mixed for New Zealand’s electronic procurement scene in general, with the failure of the SouthFresh fish-buying portal (see Supermarket eyes Southfresh bid), the School Trustees’ Association’s STAbuy “teetering on the brink of closure” (Last-minute deal rescues STAbuy) and uncertainty surrounding government’s GoProcure system.

Specialist “e-marketplace” companies here and overseas failed in the dot-com dip.

Even trading-portal sceptics like Logistics Association co-chairman Tim Munro had faith in the fish portal as having adopted a more robust auction-like business model than some of the more traditional e-procurement efforts like GoProcure. Despite his optimism, SouthFresh is now defunct.

Munro’s comments on the unpromising prospects, as he saw it, of portal-based e-procurement aroused a reaction from Marty Verry, managing director of the istart e-business portal.

Munro, who works for Auckland City Council, but emphasises he is not speaking in that capacity, casts doubt on the value of portals for facilitating “bulk-buying” savings through the concerted buying power of several agencies. In the current economic environment, individual organisations can strike just as good deals, he says, with the additional advantage of a direct relationship with the vendor.

Verry disputes this. “Relationships can be enhanced by making the transaction process less expensive for [buyer and seller],” he says, “By lowering processing costs, trading parties have more time and resources to spend building relationships through site visits, product demos and training.”

Verry says automating purchasing is the route to cost savings. “This is important as eliminating the cost of re-keying purchase orders is now proving to be the tangible driver behind most online B2B initiatives.”

Noting the “crossroads” state of Go-Procure, and its potential role as a model for New Zealand e-procurement, Verry says “[government] agency heads should disregard most of Munro’s comments”.

Munro argues that the internet might be all the technology that’s needed to reap those savings.

“The accepted thinking is that investments in e-commerce are rewarded in reduced process savings and benefits resulting from time compression in the supply chain. Total cost of ownership principles determine that price is only one factor in the relationship, and e-commerce is useful in identifying and managing some of the other costs. It is also important to note that TCO looks at the extended enterprise, that is, your supplier and customer and their suppliers and customers, and to me there is no doubt that e-commerce will make its mark in that space.

“My argument is that e-commerce-generated process savings are not the sole domain of procurement portals and because of that there is no longer a business case to be built on this principle as web based solutions in particular have rendered it neutral at the least. Most significant suppliers of non-strategic goods and services have developed tools to manage the online channel to support their marketing efforts over all channels.”

Regarding relationships, Munro says again his comments are in the context that e-commerce tools are not limited to portals.

“On this basis I agree totally with Verry in that automating the transaction gives higher organisation-wide views on buying behaviour and the time to respond to those patterns.

“We also have to recognise that purchase to pay is just one process among many and relationship value often grows out of a better understanding of what an organisation is trying to achieve with its customers as well as its suppliers. I would argue that while managed relationships are possible through a portal, partnering is not.”

Munro admits he got Southfresh wrong, but says he knows of secret successes.

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