Case Study 99

The role of e-marketplaces in supply chain management Teck-Yong Eng* Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET, UK Received 1 October 2002; received in revised form 1 December 2002; accepted 1 January 2003 Abstract Electronic marketplaces (e-marketplaces) have a profound influence on the way in which organizations manage their supply chains.

Proponents of the e-marketplace concept suggest that web-based trading systems, such as World Wide Retail Exchange (WWRE) and GlobalNetXchange (GNX), would enable companies to more efficiently buy, sell, and manage their supply chain processes on a global scale.

This study investigates the extent to which e-business tools of the e-marketplace are used by channel members in the retail sector for business-to-business supply chain management (SCM). The study is based on a survey involving food service companies, retailers, and wholesalers in the UK. It is shown that the e-marketplace supply chain applications enable the majority of companies to automate transaction- based activities and procurement-related processes rather than strategic supply chain activities. The results also indicate that full participation in e-marketplaces requires companies to integrate their internal and external supply chain activities and share strategic information.

Keywords:E-marketplace; Supply chain management; Business-to-business 1. Introduction The economic impact of electronic commerce in the business-to-business sector has been estimated to be approx- imately six times larger than the business-to-consumer sector, and to reach US$1.3 trillion by 2003(Business Week, 2000). The total market size of the Internet’s commercial potential in business-to-business markets is expected to grow and rival well-established sectors such as energy, car man- ufacturing, and telecommunications(Internet Indicators, 1999). In particular, business-to-business electronic market- places (e-marketplace) that use Internet protocols as com- munication standards have gained widespread application in supply chain management (SCM). For example, World Wide Retail Exchange (WWRE) attracts more than 50 retailers (including Kmart, Gap, Jusco Japan, and Marks and Spen- cer) to improve efficiency of supply chain activities; and the alliance of GlobalNetXchange (GNX) and Transora in the retail sector created a megahub for members to share value chain services through a single connection point. In addition, electronic markets are emerging in various fragmentedindustries and more than 750 were in existence at the beginning of the year 2000(The Economist, 2000).

Despite the growth in application of e-marketplaces (Boston Consulting Group, 1999), little research attention has been devoted to understand the role of these markets in supply chain management. Prior research mainly focused on the effect of new technologies on organizational processes (Glazer, 1991; Heidi & Weiss, 1995), but did not examine the contribution of e-marketplaces to strategic supply chain activities such as efficient consumer response and collab- orative planning, forecasting, and replenishment. The advantages of using the Internet for exchange and com- munication purposes, such as the ability to source for supplies on a global scale, would need to be considered in light of the potential to automate supply chain processes.

It remains unclear whether participant organizations derive strategic benefits of supply chain management by interact- ing with other participant organizations in the market.

Moreover, the recent collapse of many exchanges (e.g., Efdex, Fyffes, and Just2Clicks) begins to question the long- term existence of existing e-marketplaces. The success of electronic markets, however, depends not only on the critical mass and active participation but also on the functionality and practicality of the applications for busi- ness-to-business trading especially for managing supply chain processes.

doi:10.1016/S0019-8501(03)00032-4 * Tel.: +44-121-359-3011; fax: +44-121-333-4313.

E-mail address:[email protected] (T.-Y. Eng).Industrial Marketing Management 33 (2004) 97 – 105 The main purpose of this research is to investigate the extent to which e-business tools of the e-marketplace are used by channel members in the retail sector for business-to- business supply chain management. In doing so, the use- fulness of the e-business tools and the perceived benefits of e-marketplace are identified. Also, research on the particip- ant organizations’ perspective could help Internet exchanges to reconcile technological innovations with functional requirements of businesses. The context of the study com- prised channel members of retail companies based in the UK (e.g., food service companies, retailers, and whole- salers). This is because they constantly source, buy, and sell in the marketplace, and there are many e-marketplaces (Internet exchanges) that represent retailers and food service companies(Counsell, 2001).

These objectives are accomplished by, first, defining the concept of e-marketplace and identifying the main proposi- tions put forward by Internet exchanges. This is followed by an overview of the literature on supply chain activities related to the use of Internet or participation in e-market- places. The methodology section describes the survey method used in the research. Data were collected from companies in the retail industry and then analyzed by using cross-tabulation to examine the extent of the application of e-business tools or problems concerning the role of an e- marketplace in supply chain management. The findings are presented and discussed in relation to theoretical devel- opment and managerial implications.

2. Supply chain management and e-marketplaces: an overview The literature is replete with various terms such as integrated purchasing strategy, integrated logistics, supplier integration, buyer – supplier partnerships, supply chain syn- chronization, and supply chain management(La Londe & Masters, 1994; New, 1997; Tan, Handfield, & Krause, 1998), all of which are addressed under the study of supply chain management. While there is no explicit description of supply chain management or its activities(New, 1997),it can be described as the chain linking each element of the manufacturing and supply process from raw materials to the end user, encompassing several organizational boundaries (New & Payne, 1995; Scott & Westbrook, 1991). This broad definition includes the entire value chain, and addresses materials and supply chain management from the extraction of raw materials to its end of useful life.

Ballou, Gilbert, and Mukherjee (2000)divide supply chain activities into three main areas: (1) intrafunctional coordination (administration of the activities and processes within the logistics function of a firm); (2) coordination of interfunctional activities, such as between logistics and finance, logistics and production, and logistics and market- ing, as they take place among the functional areas of the firm; and (3) coordination of interorganizational supplychain activities that take place between legally separate firms and its suppliers. This perspective reflects the concept of e-marketplace, in that supply chain activities span organ- izational boundary through upstream and downstream link- ages, and the integration of supply chain activities extends beyond the product flow function within the same firm to external functional areas.Christopher (1998)also notes that the goal of supply chain management is to link the market- place, the distribution network, the manufacturing process, and the procurement activity in such a way that customers are serviced at higher levels and yet at a lower total cost.

The Internet technology has enabled companies to create a new marketspace that facilitates electronic interactions among multiple buyers and sellers(Bakos, 1991; Choud- hury, Hartzel, & Konsynski, 1998). At a basic level, e- marketplaces can be viewed as information technology (IT)- facilitated markets(Bakos, 1998). In a whitepaper published byIBM, i2, and Ariba (2000), an e-marketplace is defined as a many-to-many, web-based trading and collaboration solution that enables companies to more efficiently buy, sell, and collaborate on a global scale. An e-marketplace effec- tively brings players together in a real-time marketspace to perform basic exchange transactions, such as price and production specifications, and strategic supply chain collab- oration, such as forecasting demand and new product development. The primary objectives are to streamline complex business processes and gain efficiencies. It is based on the notion of aggregating buyers and sellers in a single contact point to allow participant organizations to enjoy greater economies of scale and liquidity; and to buy or sell anything easily, quickly and cost effectively. E-marketplaces also enable companies to eliminate geographical barriers, and expand globally to reap profits in new markets that were once out of reach.

E-marketplaces can be categorized as hierarchical (biased) or market-driven (third party)(Malone, Yates, & Benjamin, 1994). In a hierarchical e-marketplace, the market maker is also a buyer or seller (e.g., Sabre, initially sponsored by American Airlines) and biased toward the sponsor or market maker because of the advantages over competitors that conduct business in that market. In contrast, a third party (neither a buyer nor a seller) sponsors an unbiased market- driven electronic market and the market marker does not carry out transactions in the market. Examples include WWRE, PaperExchange, and SportsNet. They are fore- casted to dominate fragmented industries and help consol- idate the fragmented supply base(Business Week, 1999; Krantz, 1999). The present study focuses on third-party sponsors that support supply chain applications in the retail industry.

Although the e-marketplace concept seems to provide the opportunity for firms to coordinate complex and multifunc- tional activities of supply chain processes through web- based applications, there is little research on the role of e- marketplaces in supply chain management except studies on online reverse auctions ofEmiliani (2000)andEmiliani and T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–105 98 Stec (2001, 2002a, 2002b). The latter have shown that the downward pricing of online reverse auction process will likely delay the adoption of modern supply chain manage- ment. AsLeenders and Fearon (1997)note, the new challenges for supply chain managers are: (1) the ability of the product flow manager to handle a job encompassing multiple enterprises and crossing many traditional lines of organizational authority and responsibility; and (2) the state of computer software systems to support the system-wide approach. Technically, e-marketplaces are more strategic by enabling firms to interact with other firms in a market setting than Electronic Data Interchange (EDI) systems in a relational setting(Grewal, Comer, & Mehta, 2001). The EDI systems have been used in the exchange of purchase orders and invoices electronically for better inventory man- agement and demand forecasting.

2.1. Functions in supply chains Although the functions of an e-marketplace may vary depending on individual market makers (or Internet exchanges), e-marketplaces built upon a shared Internet- based infrastructure could provide firms with a platform for (IBM et al., 2000):

1. Core commerce transactions that automate and stream- line the entire requisition-to-payment process online, including procurement, customer management, and sell- ing; 2. A collaborative network for product design, supply chain planning, optimization, and fulfillment processes; 3. Industry-wide product information that is aggregated into a common classification and catalogue structure; 4. An environment where sourcing, negotiations, and other trading processes such as auctions can take place online and in real time; and 5. An online community for publishing and exchanging industry news, information, and events.

These capabilities seem to change traditional supply chain management processes by lowering costs and increas- ing speed to respond to supply and demand needs. Specif- ically, buyers can reduce purchasing costs and achieve higher volume contract terms with preferred suppliers by aggregating purchasing across divisions and companies. It provides a single point of contact and minimizes off- contract buying and lowering selection costs through access to multiple suppliers.

E-marketplaces may, under certain circumstances, be beneficial to suppliers; for example, they can increase sales channels to geographies at lower selling costs through lower inventory requirements, improved order accuracy, and streamlined electronic processes(IBM et al., 2000). Suppli- ers can also anonymously post and liquidate excess invent- ory without jeopardizing price and terms, and they can receive payments faster through electronic payments. Ingeneral, the benefits to buyers usually exceed those to suppliers—particularly when it comes to reverse auctions.

AsEmiliani and Stec (2001)noted, the purchasing contracts of online reverse auction are written to ensure that all of the benefits accrue to the buyer and virtually none of the benefits accrues to the supplier.

2.2. Change in managing supply chain processes Conceptually, the e-marketplace concept offers many advantages compared to traditional supply chain processes with real-time access to data, and reaches global markets.

The self-reliant model of maximizing one’s ownership of supply chain activities is becoming increasingly untenable, not only because faster decisions and information can be made available, but also because firms are increasingly embedded in networks of relationships in a global business environment.Lancioni, Smith, and Oliva (2000)point out that the new view of supply chain management in the 21st century is the interorganizational approach. In this view, supply chain activities involve the coordination of product flows that span multiple enterprises(Ballou et al., 2000).

Ideally, the benefit of the entire supply chain should flow to all members of the supply chain, including customers who will be the driving force. Although this is conceptually appealing, there is little research evidence on the application of various e-business tools to supply chain management. In a study byEmiliani and Stec (2002a), they found that online reverse auctions are simply a new and more effective means of operationalizing a zero-sum purchasing game, where the gains of the buyer are derived from the losses of the seller.

The function of e-marketplaces based on the Internet has the advantage over enterprise resource planning (ERP) systems on the communication links across geographical boundaries and with external enterprises. Unlike the EDI and ERP systems, which typically run proprietary software, and many organizations that are not totally committed to the technology because of high operating costs(Chaston, 2001), an e-marketplace is usually sponsored by a third party with nonproprietary software enabling every business to use and share data. This creates a more level playing field as small and large firms are able to participate in electronic markets.

As a result of this, many firms using EDI or traditional systems for managing supply chain processes are gradually transferring to Internet-based e-marketplace systems.

However, the initial reaction among firms with well- developed EDI systems was that the Internet was unreliable and open to risk as databases could be accessed by hackers.

They argued against the move to an Internet-based supply chain system because of their belief that the technology was totally unsuitable for commercial operations and, even if the Internet was accepted, it will be a possible communications system; the core of the supply chain management would continue to be based around EDI(Dyck, 1997).The development of virtual private networks (VPNs), which only permit access to approved users on the Internet, can T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–10599 be seen as an improvement in security measures.Chaston (2001)notes that the advent of web-based trading and the move away from EDI to more open systems become increasingly apparent as small firms are challenging tra- ditional systems and as security issues are improving. Also, the standards-setting body of Internet exchange members, known as Global Commerce Initiative (GCI), provides a common technical infrastructure shared by many Internet exchanges(Progressive Grocer, 2002).

In addition, few businesses know the actual costs of operating their business, let alone the cost of supply chain management(Emiliani & Stec, 2002a, 2002b). Although there is significant short-term potential of reducing unit cost from online reverse auctions and search costs, the total costs to the business are likely to be higher due to qualification and maintenance of a large number of suppliers, and indirect losses (e.g., overproduction and recurring defects)(Emi- liani, 2000; Reekers & Smithson, 1994). In this instance, the cost of goods sold will be maintained or may even increase.

Added to this, fragmented purchasing volumes can contrib- ute to a higher unit cost. In practice, the savings advertised by all market makers are the gross savings rather than net savings(Emiliani & Stec, 2002b). By and large, this is due to the short-term focus on financial performance and impli- cit integration among stakeholders—without a comprehens- ive analysis of system-wide performance. This means that the savings from unit cost do not account for the total costs of participating in e-marketplaces.2.3. Application of e-marketplaces in supply chain manage- ment As the above descriptions of an e-marketplace indicate, there are three operational components that determine the functionality of an e-marketplace: (1) a platform of software applications for trading on the Internet; (2) a firewall for handling security and connectivity management; and (3) a framework for user interfaces and business services. The main interest of the present study is the third operational component dealing with application of e-business tools that would render supply chain efficiencies. The framework of user interfaces and business services can be divided into two types of supply chain services: transaction-based and strategic supply chain services (seeFig. 1). A transaction- type service includes transactions that do not rely on relationship and technical development such as catalogues, auctions, reverse auctions, and exchange of information on public domain. In contrast, strategic services are character- ized by long-term orientation and exchange of strategic information among participant organizations (e.g., collab- oration between firms on demand and inventory manage- ment to achieve efficient consumer response). As noted earlier, an efficient supply chain does not only help com- panies to reduce costs but also to deliver better services to consumers. Thus, the functionality of an e-marketplace would be expected to deliver a strategic type of supply chain services. Fig. 1. Schematic representation of e-marketplace services. T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–105 100 The use of e-marketplaces in business practice has mostly been based on anecdotal descriptions rather than empirical studies.Roberts and Mackay (1998)point out that most of the initiatives on using the Internet in supply chain have not undergone a formal cost – benefit analysis. While it can be argued that the benefits are largely self-evident, the costs of setting up systems for full participation in e-market- places should be balanced by benefits from both commodity and strategic services. A study byLancioni et al. (2000) noted that Internet usage in supply chains is mainly confined to internal supply chain processes such as ordering, process- ing of customer, and tracking of shipments, which contrib- ute to cost reductions. While the impact on profitability is not guaranteed(Emiliani & Stec, 2002b), the application of Internet to supply chain activities enables firms to exploit opportunities beyond traditional ownership of supply chains and maintains a constant flow of corporate and customer information. In this respect, the concept of e-marketplace could facilitate the collaboration with external firms to reach new markets and synchronize product planning and pro- motional activities. Also, costs and revenues of business-to- business transaction could appear in different time periods (Johanson & Wootz, 1986).

The primary benefits that could be derived from a transaction-based type of supply chain services concentrate on automation of processing orders, payments and deliv- eries, reverse auctions, inventory clearance, scheduling, online catalogues, negotiations, and 24-hours availability.

The main components of strategic services focus on collab- orative planning, forecasting, and replenishment (CPFR) for efficient consumer response. A recent survey by grocery manufacturers of America shows that an e-marketplace would be expected to derive the benefits of CPFR, which include improved relationship with trading partners, increased service levels, reduced stock outages, increased sales, decreased inventory, forecast accuracy, improved internal communications, and better asset utilization(Sliwa, 2002). These benefits that relate to the function of an e- marketplace set the agenda for the empirical survey.

3. Methodology The sample of this study was drawn from the Dun and Bradstreet’s Key British Enterprises (2000) based on sector standard industrial classification (SIC) codes of principal business activities. The sample was restricted to one indus- try to avoid any potential interindustry differences or idiosyncrasies that might confound the results. A prelim- inary telephone screening of respondents was performed randomly. This is to ensure that the organizations selected in the sample are members of an e-marketplace or particip- ate in e-marketplaces, and relevant individuals can be identified for the mail survey. The final sample for the survey consists of 500 organizations that operate in the retail sector.The research questionnaire was pretested in a small pilot study involving supply chain managers of 12 companies, and modifications were made accordingly. The issues cov- ered in the questionnaire are shown in the tables. The final questionnaire was sent to the supply chain director or manager of the sample population, together with a cover letter explaining the purpose of the study and assurance of anonymity, and a prepaid return envelope. The resulting sample consisted of 104 usable questionnaires or about 21% response rate, after sending a reminder letter and question- naire to late or nonrespondents.

All items were measured on a five-point semantic dif- ferential scale (e.g., 1 =disagree or not very important; 5=agree or very important). The questionnaire also includes an open-ended question to address further com- ments on the implementation of the e-marketplace. The items were derived from propositions put forward by sponsors of e-marketplaces(IBM et al., 2000)and previous studies on supply chains and electronic markets(Eng & Spickett-Jones, 2002; Grewal et al., 2001; Lancioni et al., 2000), which emphasized efficiency, unit cost reduction, and streamlined supply chain processes. Since the study attempts to examine the extent of the application of e- business tools or problems concerning the implementation and functionality of an e-marketplace, the data collected were analyzed using multiple response and cross-tabulation analyses. In addition, the answers from the open-ended question provided some insights about application of e- marketplaces to supply chain management. However, read- ers should exercise caution in interpreting the results due to the selection bias inherent in this type of survey.

4. Findings 4.1. Functions of e-marketplace in SCM As shown inTable 1, the most popular use of the e- marketplace for SCM is in auctions and reverse auctions (52%), followed next by processing as regards online order- ing, payment, nontechnical negotiations, and customer or supplier information management (47%). The e-marketplace aggregates sellers and buyers in a single location or contact Table 1 Functionality of e-marketplace ranked on degree of usage Functions Percent using Rate of usage Auctions/reverse auctions 51.6 2.85 Processing 47.3 2.68 Catalogues 35.0 2.43 Buyers/sellers search 32.5 2.31 Communication and exchanges 24.8 1.81 Demand and inventory management 21.7 1.57 Forecasting and replenishment 17.2 2.15 Interfirm relationship management 14.1 1.46 Collaborative project 13.9 1.31 Technical exchange and development 11.3 1.87 T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–105101 point, where sourcing and negotiations such as online bidding and auctions can take place in real time. The Internet-based infrastructure of an e-marketplace provides constant communication line regardless of different time zones; particularly, retailers sell and buy products from all over the world. The amount of processing performed through online trading has been noted as the second most popular function used by the participant organizations in e- marketplace. This enables the reduction of paper work flows and order cycle times between buyers and sellers. For example, negotiations on price and term agreements can be conducted through the e-marketplace.

The e-marketplace has also been used for listing products or making purchases from catalogues (35%), searching for buyers or sellers (33%), and an improved online communi- cations and exchanges of information (25%). These func- tions are procurement-related activities such as checking product availability and exchanging information on product specification. However, technical exchange and devel- opment (11%) is the least subscribed function of the e- marketplace. Similarly, interfirm relationship management (14%), ranked in terms of developing long-term relationship with other participant organizations through the e-market- place, has a low percentage of usage. This reflects the result of the extent to which the e-marketplace is used for collaborative project (14%). It seems rather clear that the e-marketplace is more popular for transaction-based exchange than the strategic type of exchange.

4.2. Perceived benefits—transaction-based supply chain services The most notable perceived benefit from participating in the e-marketplace is lower unit cost of procurement (see Table 2). As mentioned above, a reduction in the unit cost can be destructive in the long run and focuses on short-term gross savings(Emiliani & Stec, 2002b). The savings do not account for indirect costs and the bids may not include other factors of pricing such as quality and delivery. As a result of this, there may be an increase in total costs.An important function to the e-marketplace participants in the survey is the benefit of dynamic and global sourcing (60%). The main factor underlying the benefit of dynamic and global sourcing is the opportunity to unload excess inventories, as well as to source for competitive bargains.

The e-marketplace seemed to be contributing to greater efficiency in SCM; for example, the research showed that e-marketplaces lead to reduced time between billing and payment (48%) and efficient exchange of information (44%). While the results indicate that there are process and communication improvements, the short-term orienta- tion of online reverse auctions would need to integrate strategic issues, such as creating new value-added capabil- ities and reducing total costs.

However, it is surprising that the benefit of improving consumer information received the lowest ranking (8%). It is also surprising to note that the benefit of improving service levels (12%) has not been highly placed. Perhaps, this is partly due to the focus of e-marketplaces on business- to-business rather than business-to-consumer activities. This implies that the e-marketplace is mostly concerned with the benefits for organizations rather than consumers, although the present research focused on business-to-business appli- cations.

4.3. Perceived benefits—strategic supply chain services The research revealed that the benefits of strategic supply chain services are primarily centred on communications and efficient exchange processes (seeTable 3). Specifically, the most beneficial strategic supply chain services are improved internal and external communications (57%). The e-market- place provides a shared Internet-based infrastructure that enables participant organizations to communicate with one another effortlessly. Another notable benefit is efficient product introduction (54%), where it is possible for organ- izations to work together with different partners and cus- tomers simultaneously to reduce the time and cost of developing and introducing new products. There is also the advantage of gaining faster product acceptance in the market because of the initial involvement of various external participants. As noted inTable 3, this is likely to lead to Table 2 Perceived benefits of transaction-based supply chain services in e- marketplaces Percent times selectedRank Lower procurement costs 62.4 1 Dynamic and global sourcing 59.7 2 Reduced time between billing and payment 47.8 3 Efficient exchange of information 44.0 4 Improved order accuracy 30.1 5 Unloading excess inventory 23.6 6 Faster time to market 21.4 7 Reducing stockouts 13.6 8 Improving service levels 12.0 9 Improving consumer information 8.3 10 Table 3 Perceived benefits of strategic supply chain services in e-marketplaces Percent times selectedRank Improved internal and external communications 56.7 1 Efficient product introduction 53.9 2 Streamlined electronic processes 43.5 3 Increased customer satisfaction 38.4 4 Forecast accuracy 32.9 5 Increased profitability 30.6 6 Improved store assortment 23.8 7 Improved replenishment 20.8 8 Efficient promotion 16.9 9 Improved relationship with trading partners 16.2 10 T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–105 102 streamlined electronic processes (44%) and increased cus- tomer satisfaction (38%).

The ability to improve relationship with trading partners (16%) has not been noted as one of the key benefits of strategic supply chain services in e-marketplaces. Equally low is the ranking for the benefit of efficient promotion (17%). It seems that the benefits of interactive aspects of the relationship (e.g., coordination and management of joint promotion) among participant organizations are less appar- ent than benefits based on operational efficiency. The absence of the benefit of an improved relationship manage- ment in e-marketplaces may add to the difficulty of bal- ancing the marketing mix and of integrating supply chain processes for activities such as synchronized productions and joint promotion assortments.

4.4. Contributions of e-marketplace to SCM The perceived contributions of e-marketplace to SCM are examined in three dimensions: unit cost reduction, increased efficiency, and streamlined operations (seeTable 4). The auctions facility of the e-marketplace has the most signific- ant contribution to unit cost reduction (48%). By compar- ison, the most significant contribution of e-marketplace to streamlined operations is improved communications and exchanges (44%). In a sense, the e-marketplace facilitates the procurement process of SCM by using the Internet as a platform for communications. The e-marketplace provides the basis for one – off transaction such as auctions and reverse auctions without requiring long-term commitment, or affecting supply chain processes in a significant manner.

Although there is significant impact of auctions facility on increased efficiency (45%), the time it takes to execute the entire online auction process can be similar to the time ittakes to perform face-to-face negotiations for certain types of components(Emiliani, 2000). The latter is more acute in fragmented buying, which involves numerous suppliers.

The dynamic process of auctions conducted in real time over the Internet provides the flexibility of dealing with multiple suppliers compared to traditional static and closed bidding process. The main concerns as noted earlier are that suppliers rarely benefit from the process and gross savings from the cost of goods sold may be significantly higher than net savings. A short-term view of supplier relationship management not only increases the likelihood of opportun- istic actions by buyers and sellers(Goodman, 2001; Green, 2001), but also compromises the opportunity to integrate supply chain activities with exchange partners (e.g., new product development, quality control, and logistics).

The use of the e-marketplace for catalogues and process- ing transactions is noted to contribute quite significantly to SCM based on the facility for efficient communications and exchange of information. There is also notable contribution to streamlined operations from demand and inventory man- agement (33%). This reflects the constant flow of timely information and ease of ordering products via the e-market- place. It enables participant organizations to source and purchase online from multiple suppliers compared to tra- ditional systems. This could result in shorter response time to market demand. For instance, lead times can be reduced by process improvements(Emiliani & Stec, 2001).

The e-marketplace provides a mechanism for companies to control, coordinate, and economise on transaction costs, as it improves information flows and helps reduce uncer- tainty(Reekers & Smithson, 1994). For instance, the Inter- net can reach large number of buyers and suppliers with a minimum cost. Buyers are able to browse online catalogues, solicit bids, place orders, and make electronic payments.

Suppliers will be able to respond to bids, schedule produc- tion, and coordinate deliveries(Roberts & Mackay, 1998).

The network forms of the e-marketplace may increase firms’ capabilities to coordinate their strategies and compete effec- tively against competitors. At the strategic level of SCM, such capabilities have not been identified and could be under development.D’Cruz and Rugman (1994)have noted that coordination of strategic capabilities depends upon achieving mutually beneficial relationships, which embraces the dimensions of trust, relationship stability, relationship longevity, and shared interorganizational purpose. As indi- cated inTables 2 and 3, these dimensions are likely to involve longer-term strategic SCM activities than trans- action-based types of SCM activities. The lack of strategic involvement could lead to delay in processing purchasing requirements and, in turn, reduce the timeliness of an exchange(Emiliani, 2000).

Interestingly, the overall contribution of strategic supply chain services to SCM has not been rated highly. There seemed to be a consensus from the research that the opportunities for streamlining strategic supply chain serv- ices had not been fully exploited, or the focus tends to be on Table 4 Perceived contributions of e-marketplace to supply chain management Functions Unit cost reduction a Increased efficiencyStreamlined operations Processing 2.11 (27.4) 2.96 (31.6) 2.81 (37.5) Auctions/reverse auctions3.21 (48.2) 3.04 (44.7) 2.75 (27.1) Communications and exchanges2.89 (36.1) 2.86 (32.2) 3.18 (44.1) Catalogues 2.21 (31.0) 3.13 (40.5) 2.70 (28.8) Buyers/sellers search 1.90 (21.5) 2.41 (18.2) 1.63 (15.3) Interfirm relationship management1.88 (18.9) 2.72 (23.6) 2.64 (21.5) Collaborative project management1.71 (16.3) 2.19 (17.0) 2.75 (25.4) Demand and inventory management1.65 (15.2) 1.74 (14.9) 3.04 (32.6) Forecasting and replenishment1.59 (11.7) 1.56 (15.4) 2.83 (28.4) Technical exchange and development1.48 (9.6) 1.31 (13.7) 1.43 (14.9) aNote: Ranked on a five-point scale: 1 =disagreeand 5 =agree.

Number in parentheses indicates percent selected.T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–105103 the transaction type of supply chain services. As noted in Table 4, the contribution of technical exchange and devel- opment to SCM is low across the three dimensions used to examine the functions of the e-marketplace.

4.5. Implementation of the e-marketplace systems This subsection summarizes the comments made by respondents on the implementation of the e-marketplace systems. The findings highlight specific issues related to participant organizations in the retail sector. The study has noted two main barriers to implementing strategic collab- orative supply chain processes, which involve various functional areas within a company and with various external firms. They include: (1) technical uncertainty on reliability of e-marketplaces in that migration from EDI to an e- marketplace system requires technical support and integ- ration of various supply chain activities in a company; and (2) sharing of strategic information with other participant organizations is not a common practice. This hinders the extent of the types of collaborative and strategic SCM activities that can be carried out in the e-marketplace.

In addition, the study identified several common ob- stacles that contribute to the difficulty to implementing online relationship management and technical exchange.

The first is the differing communication standards between the technologies of the e-marketplace, and internal systems and processes of the participant organizations. For example, the e-marketplace focused on front – end technology rather than internal business processes. Another concern is the notion of creating a transparent supply chain for efficient collaboration and forecasting demand through the e-market- place. This obstacle is related to the first in that differing technologies limit the potential for creating a transparent supply chain. Also, there are risks of exchanging strategic information with other companies where most of the e- marketplace activities are driven by short-term gains. Fi- nally, the security and reliability of the Internet are two of the major concerns expressed by participant organiza- tions.

4.6. Managerial implications Firms that intend to reap the strategic advantage of their participation in e-marketplaces should be aware that their interaction with other firms requires an integration of various functional areas within an organization and coor- dination with external participant organizations. If manag- ers play a proactive role in engaging market makers to develop technologies that are compatible with internal business processes, they are more likely to succeed in implementing strategic supply chain processes in the e- marketplace. In this instance, firms would need to expend resources on changing and integrating internal business systems with a common platform used in the e-market- place.While the e-marketplace provides many benefits for supply chain management, firms must not overlook the time-consuming process of relationship development. As noted in this study, activities that involve technical exchange and relationship development have not yet been fully developed in the e-marketplace. For instance, it takes time to develop trust for sharing strategic information, which is more likely to occur through face-to-face contact. Since the supply chain is a network of multiple businesses and relationships, the ultimate success of firms will depend on management’s ability to integrate the company’s intricate network of business relationships(Lambert & Cooper, 2000).

Although the e-marketplace has clear benefits for ex- change of transaction-based supply chain services, firms must weigh the costs and benefits associated with the implementation of an e-marketplace system. A distinction between gross and net savings must be made from using various e-business tools for SCM. There are strategic implications for integrating different supply chain processes within and outside the firm. For example, strategic initia- tives such as efficient consumer response rely on seamless coordination and integration of supply chain activities. This can be particularly crucial for large firms as the findings in this study show that the obstacles of implementation are not only related to the need to invest in technologies but also to train people and acquire the know-how of online collabora- tion with multiple firms. The latter would depend on the degree of participation in e-marketplaces.

As shown in this study, the proportion of strategic supply chain services conducted on e-marketplace is rather small compared to transaction-based supply chain activities. It seems reasonable to argue that firms would gradually adopt the strategic capabilities of the e-marketplace such as the ability to synchronize supply chain activities simultaneously with different participants all at the same time. As such, managers must account for the actual costs and benefits involved vis-a` -vis the extent of participation in an e-market- place. In addition, managers would need to find ways to measure and report costs and other performance data as more trading activities are conducted on the e-marketplace.

This includes measurement of the costs and benefits across functional areas within an organization and beyond organ- izational boundaries.

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Teck-Yong Eng is a Lecturer in Marketing at Aston Business School, Aston University, Birmingham, UK. He obtained a PhD in Business-to-Business Marketing from the Manchester School of Management, UMIST. His teaching and research interests include business-to-business marketing, Internet marketing, and supply chain management. He has served as a Consultant for various retail and food service organizations on issues in supply chain management. T.-Y. Eng / Industrial Marketing Management 33 (2004) 97–105105