Aregon nears profitability

Hazem Malhas, CEO of the B2B marketplace provider, says its relentless focus on process improvement appeals to customers.

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By  David Ingham Published  November 25, 2002

Aregon, a regional provider of B2B marketplace services, is confident of breaking even early next year, after just over a year of operation. The company attributes what would, by all standards, be a B2B success story to an emphasis on helping clients improve their procurement processes.

“We do not think of ourselves as a technology or a piece of infrastructure,” says Hazem Malhas, chief executive officer of Aregon. “The client requires real solutions to real problems.”

The key problem that a company like Aregon helps clients overcome is how to bring discipline and order to corporate procurement. Malhas says that this is just as important for the small company as it is for the very largest operations. “We can help you create centralised purchasing, we can help you cut down on the number of steps you need to get a purchase order approved internally and we believe we can give visibility to the transactions taking place internally within an organisation,” says Malhas.

Malhas can give numerous general and specific examples of where companies’ procurement gets out of hand. Most companies he comes across tend to order piecemeal rather than ordering in bulk against negotiated volume discount rates. Compounding this problem is the fact that different offices of the same company frequently each do their own ordering, rather than ‘bulking up.'

Another common problems is employees ordering inventory and supplies outside approved supplier lists, if they exist that is, a phenomena known as ‘maverick buying.’ Other companies are also making the process of order approval too complicated; Malhas jokes that in one company he saw, it took 42 days to order a PC.

“We believe that depending on how organised the company is, we can help clients achieve potential cost savings of between five and 50%,” says Malhas.

He gives an example of one company he dealt with that could have saved $100,000 in annual procurement costs by investing $300,000 with Aregon. The same company, he adds, would have required an increase of $2.3 million in turnover to achieve an extra $100,000 in operation profit.

Aregon’s role, therefore, is that of both a management consultant and technology provider. Once it has helped a company map its procurement processes and come up with a strategy for improving them, Aregon then turns its hand to the technology implementation.

To help it with the management consultancy part of e-procurement, the company has a longstanding relationship with PwC. That arrangement has now been taken up by IBM’s regional services arm following its acquisition of PwC’s systems integration business.

“Great news,” is how Malhas describes the partnership. “The e-business team at IBM is going to support Aregon and we are going to strengthen the partnership, especially in the government segment,” he enthuses.

Aregon has segmented its offerings into three major product brands. AregonProcure is the company’s private marketplace offering, for larger players that want their own system open only to them and their suppliers. The cost of implementing it ranges from $70,000 to $250,000. Aregon aims in the longer term to have 20 construction companies, 20 banks and five to ten large holding companies using the solution.

Buyers Club aims to help what would probably be called ‘medium sized’ companies to benefit from aggregated purchasing. Buyers Club takes over, on behalf of its members, the full cycle of non-core material procurement and guarantees them cost savings.

Click ‘n’ Deliver is a solution for businesses’ small order needs. It provides access to an online catalogue of supplies such as MRO, furniture and computers. Users are provided with a single window interface for conducting a transaction online, where they can compare products and view prices inclusive of shipping and taxes. “On Click ‘n’ Deliver, we’re hoping to get 5000 clients — small companies,” says Malhas.

One noteworthy thing about Aregon is that it has selected Commerce One as the provider of its core e-marketplace technology. At the time of writing, this remains Commerce One’s only major success in the Middle East since it began operation two and a half years ago.

Aregon’s revenues are derived from two main sources: the project work involved in constructing and connecting companies to its marketplaces; and ongoing transaction based revenues. The company’s revenue stands at between $100,000-$200,000 per month.

Malhas says is Aregon is becoming, “leaner and meaner” as it streamlines costs and comes to the end of its initial business development cycle. Moving hosting to Dubai Internet City is helping in the cost reduction process.

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