--- To enhance the value and performance of procurement and SCM practitioners and their organizations worldwide ---



Unleashing the Power of Online Markets

Author(s):

Tom L. Dammer
Tom L. Dammer, Vice President of Sales, FreeMarkets, Inc., www.freemarkets.com, Pittsburgh, PA 15222, 412/434-0500, tdammer@freemarkets.com

85th Annual International Conference Proceedings - 2000 

Abstract. Markets for direct materials are fragmented and characterized by inefficient sales channels that rely largely on face-to-face negotiations between buyers and sales people. In addition, because many direct materials must be custom-made to buyer specifications, there are no catalogs to simplify price comparisons.

Opportunity. Electronic commerce has exploded, and changed the way business is done. Every company is looking for perspectives on the transformation of business in the wired world. The use of online market making can lead to better purchasing decisions and significant savings.

  • Online markets are fundamentally changing the game in industrial markets
  • To be effective, online markets must be used as part of an overall "market making" process
  • The goals of the market making process are to deliver real bottom line results -- true market prices, supplier consolidation, and quality savings.

Better Purchasing Decisions. Online market making provides procurement professionals with in-depth knowledge of supply markets, introductions to new suppliers and comparative information on supplier capabilities. This access to robust, flexible, interactive technology helps reduce purchasing cycle times. Many global 1000 organizations use online markets to enhance supply chain management initiatives such as supplier consolidation or to increase their global supply base.

Significant Savings. Online markets make it possible for an organization to achieve true market prices, reduced length of negotiation cycles and improved quality.

Process.

  • Identify potential savings
  • Prepare total cost RFQ (Request for Quote)
  • Select suppliers and distribute RFQ
  • Conduct online bid
  • Implement savings

Strategic Sourcing Alternatives. Strategic sourcing purchasing decisions can be placed into a 2x2 matrix with dollars per decision on the vertical axis and supply industry competitiveness on the horizontal axis. The four bullets below describe each quadrant.

  • Reduce Risk (bottom left) - Low dollars per decision - Low supply industry competitiveness
  • Manage Transactions (bottom right) - Low dollars per decision - High supply industry competitiveness
  • Partnership/Measurement (upper left) - High dollars per decision - Low supply industry competitiveness
  • Manage Competition - (upper right) High dollars per decision - High supply industry competitiveness

Manage Competition Success Factors. Online markets have most often been utilized where the organization is managing competition. Success factors include the ability to specify requirements, the presence of enough suppliers to create competition, and attractive and sizeable spend and buyer commitment.

Supplier Benefits. Suppliers also benefit from online markets and online bidding. Suppliers utilize this low cost sales channel to be introduced to new business opportunities. Suppliers enjoy the fair competition through a level playing field and the ease of quoting through world-class RFQ. Purchasing professionals can make quicker buying decisions, allowing the supplier to implement the new business or pursue other opportunities. Supplier gets market information and access to market pricing that wasn't available before.


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