SMEs and digital marketplaces: Overcoming obstacles

Small- and medium-size enterprises hoping to participate in an online marketplace face several obstacles, such as fewer IT resources and less buying power. In this interview, Gartner Analyst David Hope offers advice on overcoming these challenges.

Small- and medium-size enterprises (SMEs) looking to take advantage of electronic procurement can face seemingly overwhelming obstacles—from a smaller IT infrastructure to the uncertain future of electronic data interchange (EDI). Gartner Senior Analyst David Hope offers some insight on these challenges, as well as the direction that the market is heading over the next 18 months.

TR: How do smaller to midsize companies take advantage of online purchasing?
Hope: Well, one of the first things that I would suggest that small to midsize companies do in response to the advent of online purchasing is to look for opportunities that present themselves not in the role of a buying organization but in the role as a supplier. This means that if many big companies are moving toward electronic procurement, to the degree that suppliers of every size can support those initiatives, they are in a position to forge longer term agreements, to increase the amount of spend that goes through those accounts, and so on and so forth.

TR: What technical or infrastructure-based obstacles should smaller companies looking to engage in e-procurement be aware of?
Hope: Let me first address the obstacles for smaller buying organizations. Some of the costs of implementing and licensing these applications versus the benefits that smaller companies can derive make the purchase of fully functional e-procurement applications from some of the more prominent vendors very questionable investments. This means that you won’t be able to get your money back out of it just because of the smaller volumes of indirect spending that some of the companies have.

In terms of technical barriers that companies face, one of the primary ones for both suppliers, as well as buyers, is the whole series of problems that surround building and maintaining catalogs of product data. In order to build an information repository of goods or services, which your employees need to buy, you have to resolve some of the semantic and contextual differences in the product data description. There are no uniform standards that govern how products should be described or what the units of measure should be, etc. Companies find themselves having to spend considerable amounts of money to get these problems straightened out. So again, as a supplier, to the degree that you can stop cleaning up your product data and provision to your customers in lots of different forms, that could be very advantageous. In instances where supplies are managing the content, one of the key obstacles is a proliferation of standards for exchange of procurement documents, such as Commerce XML (cXML) from Ariba.

TR: Given the potential difficulties, how will digital marketplaces approach smaller organizations?
Hope: The smaller marketplaces represent some of the most critical challenges in today’s marketplaces in that they are typically not as able to engage in electronic interchange. They are less able to respond to demands for support from electronic commerce standards, for example. What we see today is a real Band-Aid as all of these marketplace centers and these procurement vendors try to articulate the means through which smaller, less technically able companies will participate.

TR: What strategy will they implement to attract smaller firms?
Hope: I would be surprised if over the next six, 12, and 18 months we don’t see lots of companies popping up with a supply enablement message. We have already seen some repositioning by e-commerce companies to fulfill that role. The answer to your question is that today they say they have a story. It is probably not good enough to solve the problem of manual interchange between the marketplace and the huge number of smaller companies they do business with, especially those with which they do business fairly infrequently. I would imagine that this would continue to represent a pain point and, in fact, it is one of the key inhibitors to marketplace development.

TR: What do you think will be the fate of EDI?
Hope: I think it will linger around for some time. Exactly when the final nail is driven into its coffin I cannot say, but it is certainly not today. In fact, if you look at what is actually happening on the ground right now in terms of the way that orders are submitted, if it is not purchase cards, in many, many instances customers of e-procurement applications are in fact using EDI. When we talk to marketplaces and marketplace infrastructure providers, EDI is actually one of the things on the list of things to do next. The install base is huge. It actually works, which is nice. I do not anticipate that EDI is quite ready to fade into the sunset. It will serve a lower profile, subservient role going forward.

Editor's Picks

Free Newsletters, In your Inbox