21 June 2007
The chicken and egg dilemma for e-commerce development
How does e-commerce rate in the marine industry right now? Recent dialogue between two IMPA Council members highlights some current concerns among buyers and suppliers.
Coinciding with its spring meeting in Athens, the IMPA Council hosted a reception for Greek ship owners with the aim of promoting membership benefits.
The event included a presentation on the current state of ecommerce and the association’s prime role in helping to develop the use of e-platforms.
In preparing the presentation content, IMPA secretariat head Stephen Alexander invited Council members to submit their views on the major issues that still need to be addressed. Buyingside concerns were reflected in the following response from Liam Herbert, purchasing and systems manager at the UK’s Meridian Marine Management:
1. Part of the drive for e-commerce was to have full back office integrations with major suppliers. Cost benefits to owners/managers were supposedly to be passed down by suppliers as they strived to become more cost efficient. Is this now a myth? Most suppliers actually comment on double handling and hence probably becoming less efficient. What do they think are the barriers?
2. What immediate future developments are in the pipeline with regard to supplier reminders, delivery/warehousing information and electronic invoicing?
3. Has the average volume of RFQs to POs as a ratio (being a possible measure for competitiveness) increased?
4. More of a ShipServ specific question: within a small organisation with minimal resources, it is hard to keep a track of all transactions. The higher priority area that now requires extra monitoring is often with receipts of orders and requests for quotes. Previously you sent a fax and took the delivery notification as a receipt. Now we are advised if it is unopened, opened etc. but all of a sudden that doesn’t seem to be enough. Now we have to factor in extra time each day to effectively question suppliers as to why they haven’t bothered to even look at the document. Could a preset time limit be imposed whereby the e-mail is automatically re-sent after a short time?
Liam was unable to attend the Athens meeting but his questions prompted a detailed reply from ShipServ’s chief operating officer Kim Skaarup as summarised below:
1. The barriers are and have always been the number of buyers committing to e-commerce and sending a clear signal to the suppliers that this is the future. Before a supplier is confident that enough of his customers will be sending electronic orders, he will not spend money on integrations.
Fortunately this chicken and egg situation is rapidly changing. At ShipServ we have analysed when a supplier starts finding it worthwhile to go the full length. It is very clear that there are two criteria - if ten or more of their customers are connected; and if they receive 500 or more orders per year electronically.
When a supplier reaches 2000 POs or more annually they are all connected or if they have 15 or more customers they are all also integrated. So there is a clear path. These suppliers are among the ones that could be willing to offer reduced prices during negotiations (if data quality is OK).
What is delaying the adoption is the time it takes for a supplier to integrate. In contrast to the buyers, who can almost all connect from their standard purchasing systems in very short time, adapters have to be individually developed for the supplier’s myriad of systems. Many suppliers have little time for IT projects and tend to take a very long time to finalise an integration. However, with Microsoft breaking into this niche with standard marine supplier systems like ShipCentric and Cabus, standard adapters are built in and considerably reduce the integration time.
Another area that tends to disappoint suppliers is the quality of the data they receive from their customers. Once they have invested in an integration, they should be spending a lot of effort in making sure their customers have good quality data available but this is not always their priority. Fortunately solutions for data and catalogue management in the special marine environment are rapidly developing - the IMPA data initiative is an example.
Despite every purchasing manager stating that it is the total cost in the supply chain that matters, it is still only a few companies that really see this and work to reduce RFQ’s and clean up data. But there is certainly a growing trend in companies that take this seriously.
On the double handling side, it is questionable if it is really more time consuming for those suppliers that are not yet integrated compared with old methods like spreadsheet attachments and HTML files. I doubt it. The way ShipServ systems are built, there is a solution for each level of transactions the supplier is engaged in, leading him in a controlled way to an integration without risk, because he knows the volume is there to justify it.
Interestingly most buyers on TradeNet have stated that cycle time in the order process has improved by up to 30% after introducing electronic trading - and that supplier response times have gone down as a part of this improvement.
2. Future developments include all the mentioned solutions. After the initial order management flow has been automated, we actually expected a drive for catalogue and data tools, but it seems that logistics is the hot subject these days. Freight Forwarders are now approaching us to be able to hook in to TradeNet and receive PO details and order confirmation updates automatically in their logistics systems. This is not the least triggered by the ISPS demands for correct and detailed packing lists with each shipment, requiring a lot of retyping by the forwarder to create the necessary documents. For a forwarder to start hooking into 16 different purchasing systems it is an overwhelming task. With TradeNet they can get away with one integration, so this again is triggered by volume - by the number of buyers on a trading platform.
Supplier reminders and supplier thank you notes have been suggested but it seems there are as many views on this as there are buyers. Some let their forwarder do the chasing. The more information the forwarder can get, and the earlier, the more he will move into this role.
There is a clear trend to outsource this to the forwarder. Also many purchasing systems already have this feature and it is hard to see what a trading platform can contribute here.
Electronic invoicing is definitely on its way but this again requires volume. And you also have the chicken and egg situation here - who will start when no one can receive or who will want to receive when no one sends electronic invoices?
This is more complicated than in any other industry because of the fragmented and international nature of the business. At ShipServ we have partnered with companies that deliver invoice scanning and workflow solutions. These companies can also receive electronic invoices into their workflow solution. This solution is typically decided upon by the finance department of a company and not by the purchasing department and must cover other invoicing sources. The system must be integrated to current ERP systems and all departments in a company must be involved.
It’s more complicated than installing an e-commerce solution on your purchasing system but it seems more and more companies are heading in this direction.
This means we are close to critical mass - at least in Norway - so it is expected that e-invoices can start being distributed from a number of suppliers by the end of this year. From then it will pick up quickly, the big advantage being that all suppliers and buyers are already connected to a common platform.
3. Yes, but it has stabilised around 1.9 on TradeNet today. In reality we should soon expect this to drop again as more and more buyers get control over their data by subscribing to catalogue solutions and stop sending RFQs to their contract suppliers just for the sake of easier invoice approval.
4. I think everything can be developed and this is an idea that we can take up. However, if you didn’t bother if the supplier actually read your fax before, why do you bother now just because you have the possibility to check if he has opened the document? Most buyers use this for exceptions - for example, especially important orders where they would have called the supplier on the phone to ensure action, or orders where there is a dispute such as the supplier claiming he hasn’t received the order.
This article was featured in the IMPA Marine Trader, Issue 2 2007.