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Seizing the Value of eMarkets
Eric van Heck
Bled 2003, Business Panel
June 10, 2003
[email protected]
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Topics

Using B2B Markets in the Supply Chain


Using Markets Creatively
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
Potentials of reverse auctions for sellers, auctioneer,
buyers
Potentials of multidimensional reverse auctions
Making Markets Work

A Framework for Action
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Using B2B Markets in the Supply
Chain

How can companies use auctions and B2B markets
to realize value in the supply chain?
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Models of eMarkets/Exchanges
Sellers
Bilateral negotiations
Sales Auctions
(1)
(2)
One
Reverse Auctions
(3)
Double Auctions
(4)
Many
One
Many
Buyers
2
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Case study #2 (indirect materials): Global Airline (cont’d).
Scenario: One hour reverse auction for PC Consumables
Competitive Reaction During Auction
Cost Savings
Millions
Millions
$3.0 -
$3
Supplier 1
$2.6
Supplier 2
$2.5 -
37%
Savings
Supplier 3
Supplier 4
$2
Supplier 5
$2.0 -
$1.6
Supplier 6
Supplier 7
Supplier 8
$1.5 -
60
0
$1
Supplier 9
50
40
30
20
10
10
20
30
40
50
Bid Time Remaining (minutes)
0
60
$0
Historic Cost
Winning Cost
 9 suppliers, 46 total bids
 Winner bid 10 times with an
average price drop of $106k per
bid
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© Accenture 2001
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Auction evaluation

For the Host/Buyer
–
Operational: price savings,
time savings
–
Tactical:
risk management tool
importance of exact specifications
–
Strategic:
incentives for collaboration like
joint process improvements
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Auction evaluation

For the Bidder/Seller
–
Operational: selling,
time savings
–
Tactical:
level playing field
benchmarking tool
–
Strategic:
business reorientation
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Auction evaluation

For the Intermediary/Auctioneer
–
Operational: host satisfaction
bidder satisfaction
–
Tactical:
number of sellers/buyers/auctions
lowering transition risks
–
Strategic:
long term revenue generation
new sources of value creation
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Using Markets Creatively

How to avoid the fact that sellers will get frustrated
by ‘price-only’ auctions?

How to negotiate about the value-added dimensions
of products and services in reverse auctions?
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This is off course
what makes
sellers
uncomfortable
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Using Markets Creatively



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Example: Market Maker NegoMetrix – www.negometrix.com –
in the Netherlands
Meticulously determine and quantify ALL non-price decision
factors BEFORE the auction.
An intelligent internet-based multi-attribute decision support
software analyses the competing offers.
Each tender procedure must outline exact and discriminative
decision factors that must be weighted / prioritized.
Competitive offers are evaluated within this decision model.
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77 (!) criteria in 10 dimensions
90%
80%
70%
nutritional aspect
taste
60%
presentation
Brandname
50%
quality demands
product demands
40%
packaging
30%
logistics
20%
certificates
reputation and reliability
10%
Offer D
offer B
offer E
offer A
offer X
offer F
offer G
offer C
0%
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14
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Key for sellers and buyers


Combine the speed, transparency, and accuracy introduced by means of internet auctions - with
negotiations about the non-price dimensions of
products or services.
Suppliers prefer a ‘fair’ auction; fairness in
preparation, fairness in bidding, and fairness in
evaluating the winner - the winning rules during
the auction are the winning rules after the auction.
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Making Markets Work

How can managers systematically identify
compelling opportunities for value creation?

How can they find winning strategies that drive to
critical mass quickly and reduce transition risks?

We suggest the process/stakeholder benefit
framework that managers can use to systematically
evaluate market-making initiatives.
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A Framework for Action
Processes

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

Buyers
Market Maker
Sellers
Search
Pricing
Logistics
Payment &
Settlement
Authentication
Product representation
Regulation
Risk management
Influence
Dispute resolution
Communications &
Computing
Net Benefits
Positive or
Negative ?
Positive or
Negative ?
Positive or
Negative ?
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For each process, conduct the five
step analysis
1.
Map the current structure of market processes
2.
Identify how new technologies may be used to
reengineer major market processes
3.
Consider how required process changes will affect
each stakeholder
4.
Develop strategies for attracting important
stakeholders
5.
Develop an action plan for introducing new trading
processes
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The Ultimate Market
“One that captures the feel and trust
of a physical community,
but leverages the power and efficiency
of new technologies
for the benefit of sellers and buyers”
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More info: www.makingmarkets.org
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And more info:
Otto Koppius,
Information Architecture
and Electronic Market Performance,
PhD thesis, ERIM nr.13, May 2002. (www.erim.eur.nl)
Best PhD Dissertation of 2002 at ICIS 2002 Barcelona