The Year of the Supplier

February 2002, By Steve Butler, Senior Analyst, eMarketer

The common complaint among large companies in late 2000 was
that although they were ready to go online to do their purchasing, none of their suppliers
were prepared for internet-based sales.

Instead, suppliers spent the year ducking and covering from
what they feared would be the commoditization of their businesses. By the beginning of
2001, researchers estimated that fewer than 15% of suppliers were capable of selling online.

But in early 2002, business-to-business exchanges and the buyers they represent have honed
their pitch, and it now appears that suppliers are starting to sign up in droves.

Rolls-Royce recently reported that over the past three
months, it had succeeded in connecting to 180 of its suppliers through aerospace industry
exchange Exostar. In the coming months, the manufacturer expects the sign-up process to
accelerate, anticipating that an additional 150 suppliers will be connected by the end of February alone.

Exchange Profile

GE Global Exchange Services has been adding trading
partners to its web-based EDI portal, TradeWeb, at a rate of 400 to 500 per month, while
other internet-based EDI enablers such as Advanced Data Exchange have reported in early
2002 that the number of small and mid-size businesses signing up on its network is growing
at a rate of more than 24%, month-over-month.

So what is driving these suppliers online? As mentioned
above, much of it has to do with the new pitch that they’re getting.

Back in 2000, many suppliers were right to perceive that
the greater share of the gains from e-commerce would accrue to the buyers. But their fears
were only partly correct – rather than using the internet to hammer suppliers on prices,
buyers today are placing a greater emphasis upon the efficiency gains that they expect to
achieve through the consolidation of their small and mid-size trading partners on electronic networks.

Nonetheless, big buyers are now using a carrot and stick
approach to bring their suppliers online. On the positive side, large purchasers have
taken care of the up-front costs of the infrastructure that is behind these e-commerce
networks, and they have streamlined the process to help their suppliers get connected. But
suppliers are expected to pay monthly fees in order to have access to their trading
partners — and big buyers have become increasingly insistent that their suppliers change
the way they do business with them.

So far though, the calculation does make a lot of sense.
For example, if a supplier does $1.5 million in annual business with its larger trading
partner, a small monthly fee of between $50 and $100 does not seem excessive at all.

Many suppliers have also found that in their effort to
become e-business ready, they have also benefited by becoming better organized and more
efficient themselves. Furthermore, when a supplier signs up with one e-commerce network,
it often gains access to several of its other trading partners who are also members of
that same community.

There is a potential downside however, as many suppliers
may still be faced with the need to connect to multiple trading networks — which can add
up to a lot of monthly fees and different software platforms that they will need to learn how to use.

If this is the year of the supplier, it will be interesting
to see how things look in 11 months’ time. We will either be hearing more about the need
for network interoperability, or we will be listening to suppliers singing the praises of e-commerce.

eMarketer Senior Analyst Steve Butler wrote the IT Spending
Report, the eCommerce: B2B Report and The CRM Report. E-mail him at
sbutler@emarketer.com with
comments, suggestions and questions.