Emarkets aren't yet off the ground

Sanjiv Sidhu claims that business was easier in the pre-internet age, when companies flew at 30,000 feet and could see changes coming. Today, he says, companies must fly at one foot above the ground, and rely on technology to see the mountains ahead if they are to avoid crashing and burning.

Speaking at the Planet 2000 conference in Vienna, Sidhu, the founder and chief executive of electronic marketplace software vendor i2, showed that he has good ideas on how to navigate the plane. But he doesn't actually have that many passengers prepared to fly with him.

Despite recently announcing an $8bn merger with Aspect, i2, which supplies the technology to enable customers to develop emarketplaces, is struggling to link up with many high-profile customers.

So-called emarketplaces can potentially offer huge savings by bypassing the traditional supply chain management systems, and replacing them with a virtual marketplace where suppliers and retailers can swap prices and goods online. Although the savings that can allegedly be made are attractive, users are understandably wary of problems integrating them with existing systems and projects awaiting completion.

A case in point is BMW, a prime example of a company for which membership of a business-to-business (B2B) marketplace would appear to be obvious. BMW generates 130,000 orders annually and has to process 50,000 invoices that amount to DM1bn per year.

This is done through fax or telephone orders to a supplier who inputs the order manually. The order is dispatched and sent back to BMW, where the invoice is received and approved manually before payment is sent out.

This typical order process runs across disparate systems. While BMW is trialling an electronic procurement system for office supplies, it has only just started automating its factory supply procurement. It operates two separate SAP enterprise resource planning (ERP) systems and an in-house developed ERP system.

The factory procurement system - implemented at the company's Munich-based headquarters by Ariba and KPMG before being rolled out to the UK and US - is due to go live on 30 September. Once this is completed, BMW expects to save around one per cent of its procurement costs.

This system took a year to develop, so any idea of the company pushing its procurement out to a completely open emarketplace is two or three years away.

Robert Baver, BMW's head of procurement, says he cannot see the German car manufacturer joining one of the giant car parts marketplaces set up by motor giants such as GM, Ford, DaimlerChrysler or German rival Volkswagen.

Apart from the fear of getting too close to its rivals, Baver says: "I can't imagine any decision for BMW to be fixed to any one marketplace. For example, BMW buys chemicals for its painting and other applications, but the volume is not so high that we want to join a chemicals marketplace."

The implication here is that BMW's suppliers trade across horizontal rather than vertical markets, and BMW isn't ready to trade in these markets. The company wants to stick with its established suppliers for the moment.

Working with existing systems
The reality of electronic markets is that any marketplace would have to be integrated with existing corporate systems. It is here that the electronic market suppliers tend to become less vocal. i2, for example, claims to be "working closely" with established application integration vendors such as BEA and STC, but it has yet to sign a definitive agreement to provide the services expertise to make B2B marketplaces run smoothly with existing ERP, financial or customer relationship management applications.

Jim McKay, chief technology officer at i2, also warns against marketplaces that try to be too big too quickly. He doesn't expect the Ford/GM/DaimlerChrysler marketplace to start trading because suppliers and regulators fear it would constitute a cartel. And trying to get CommerceOne, Oracle and SAP to operate in the same marketplace will prove to be impossible, he says.

McKay cites Sun Microelectronics as an i2 customer already making money through running a B2B marketplace. But Sun is a technology supplier with existing factory planning systems, and found setting up an emarketplace a relatively straightforward proposition.

Consultants may be enthusiastic about i2's technology, but until there are some concrete customer success stories to talk about, Sidhu's flying metaphors may be put down to him having his head in the clouds.