Two to Tango

The promise of reduced costs and increased efficiencies have made online purchasing a hot topic. However, the Middle East lags behind in its adoption rates as only Dubai and larger, pan-Gulf organisations, have taken to the e-procurement floor so far.

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By  Matthew Southwell Published  February 3, 2002

I|~||~||~|Although e-procurement has always been a key part in the growth of business-to-business (B2B) e-commerce it's importance is increasing as, in the current economic downturn, organisations look to their IT departments to implement increased efficiencies and cut costs across the enterprise. At the same time, technology teams are being asked to show exactly where the return on investment (ROI) for their capital outlay lies, and procurement applications, which can potentially shave percentiles off business transactions, are becoming a winner with expenditure conscious boards.

This increased focus on B2B e-commerce and procurement in particular has led to a period of analysis as users identify the pros and cons of online purchasing. Only recently, surveys conducted by a number of analyst houses and research groups showed that attitudes to the forerunner of the all-encompassing procurement strategy, e-marketplaces, have changed. A Giga Information Group and Booz Allen Hamilton report suggests that attitudes towards e-marketplaces are changing as many organisations find the reality has failed to live up to the hype. IDC reports that private marketplaces are superseding public ones.

Such assessment is also happening within the Middle East, but only on a limited scale as few companies have been committed to e-procurement for any length of time. This means that there is currently an elite group of early adopters spread across the region. At the same time, the economic downturn that has affected other markets has had a much lesser impact locally.

Bashar Kilani, manager of business transformation & integration software, IBM Middle East and Africa, believes that e-procurement adoption is a question of mass. "The bigger the organisation the more money it can save by automating its procurement process. [Adoption] is cross industry — the bigger the company, the more they are investing in e-procurement," he says.

Abdulla Hussain, CEO, Commerce One Middle East, concurs. He explains that "many large organisations are getting very serious about the potential of e-procurement and they see it as a strategic initiative that they have to take on. Many other companies have completed studies and are in the implementation stage while, others are seriously considering the implications of e-procurement for their organisation. They have the plans and the budget to implement solutions," he says.

Another clue to the domination of large orgaisations with e-procurement comes from Simon McIver, sales & marketing manager at Commerce One Middle East. He says that it is a question of IT penetration.

"There are a couple of key industries and those are the ones where they have very sophisticated IT… such as oil & gas, aviation and financial services," he explains.

A recent spot poll further emphasises the market's fragmentation. 30% of respondents are already using e-procurement while 29% of respondents stated that their company had no intention of getting involved in purchasing online at all.

||**||II|~||~||~|Outside of the large organisations that have both the resources and need to adopt e-procurement there is the question of government influence. As such, Dubai is leading the way with its own e-government initiative continuing to streak ahead of regional counterparts.

Ayman Abouseif, marketing director for Oracle Middle East, believes that "outside of the UAE it [e-procurement] is less progressive and not at the same level."

"Everyone will get there but it will take some time. Obviously Dubai government had a clear vision of how they wanted all of this to work together — Tejari is government run so it is obvious that they will use their own marketplace," he adds.

Tejari and Oracle user, Ramesh Cidambi, senior manager of systems & information technology at Dubai Duty Free concurs. He suggests that the combination of Dubai's e-government initiative, the launch of Tejari, and a greater awareness of Internet technologies have created a surge in e-procurement.

"These factors have really contributed to a need for greater automation in the procurement area and a greater use of the Internet. They have all contributed to a growing momentum in e-procurement in the last 12-18 months," he says.

Such pre-eminence in the procurement field means that many of Dubai's electronic purchasing proponents are, like their aforementioned global counterparts, reassessing just what transacting business online means.

Perhaps the best example of this is the government’s electronic marketplace, To begin with, the company was happy to highlight the growing number of companies that had signed up for the service. More recently it has been keener to talk about those companies that are integrating the marketplace into procurement strategies and the benefits such meshing brings.

"The customers that we come across are getting into e-procurement and are more interested in integrating their procurement systems with Tejari. We see a lot of growth in this area," says Saqib Iqbal, chief technology officer,

"In the last three months or so we have been talking to around ten companies about integrating their procurement and order management systems with Tejari. We are actually aiming to do this with 30-odd companies in the next 3-6 months," he adds.

According to Dominique Raviart, senior research analyst for IDC's European supply chain management programme, this trend reflects what is happening elsewhere in the world.

"Organisations are now integrating their applications, not only within one enterprise but also among several enterprises and trading partners. By integrating applications, organisations can maximise the value of their e-procurement and e-marketplace investments," he says.

||**||III|~||~||~|One of the portal's leading lights, Dubai Duty Free, is one of a number of organisations that have taken the integration option. Cidambi explains that it is key to the overall working of an effective e-procurement strategy.

"You need to have increasing degrees of automation in terms of the in-house procurement process, but this has to flow into the interfaces within external marketplaces too," he says.
Such integration is also taking place in procurement initiatives away from Tejari. Al Futtaim Logistics has recently given customers the ability to interact directly with its SAP supply chain in order to place and track deliveries. Baking equipment and ingredient supplier, Masterbaker, has plans to integrate its systems with leading online customers, such as Jumeirah International, as it seeks to compliment its existing B2B initiative.

Perhaps the most impressive example is MMI, which, in addition to its and B2B web sites, has used direct integration with customer systems to rack up US$2 million in online sales.

Through Microsoft's BizTalk offering customers have the ability to link their own business software into MMI's ERP system. BizTalk Server completes the mapping translation between the customer sales orders and the MMI order processing system. This saves users from having to enter order information into both the web site and their own back end applications.

"Hotels that predominantly use software called Fidelio have come back to us and said that they do not want to use our system, and would rather place their orders on Fidelio and them be passed straight in to our system," explained Ajay Mathur, manager of information systems at MMI, late last year.

Whether it is through a public marketplace, a private exchange or internal application, integration between the buyer and supplier is key. However, perhaps more important is the linking of procurement systems with an organisation’s back office systems and applications. After all, one of the key benefits of e-procurement is the removal of duel data entry, which saves time, reduces human error and increases the amount of information available to the enterprise.

DDF's Cidambi says that its procurement processes could not work without its procurement and back office applications being integrated. Masterbaker's group chief financial officer & chief information officer, Noshir Chinwalla, says that the level of integration was perhaps the defining factor in its choice of procurement solution.
Integration is one of the key battlefields when it comes to selecting an e-procurement vendor. However, despite the protestations of the big players, such as Oracle and SAP, that only they can offer a fully integrated solution, each vendor is able to integrate its products through middleware API's.

For example, the company that provided Masterbaker's B2B solution, Xmediaries, has a tool called Crossroads integrator, which allows its application to be independent of an organisation’s ERP system.

"It is a middleware API that is proprietary to Crossroads that allows us to plug into any database at the backend, extract information and pump information back into the ERP. For instance, if an order gets booked into Masterbaker, we would actually place that in the first point of order workflow within the ERP system," explains Kalpesh Desai, CEO, Xmediaries.

||**||IV|~||~||~|What is more interesting for the purchasing enterprise is the changing landscape of the procurement vendor market. During the initial spurt of B2B activity it was niche vendors that dominated discussions on the topic. Since the dot-com bubble exploded, however, the traditional enterprise resource planning vendors have taken a keener interest and developed product sets to address the market.

"The larger organisations, such as SAP and Oracle, see [e-procurement] as a major opportunity and they obviously want to have access to this market and be able to offer services and products in it," says Hussain.

"If you look at a company like Oracle, for example, they have got their act together in terms of the complete suite of offerings… They have realised that they have to bring the whole process together and the traditional way of using ERP has changed from just the core functions," adds Desai.

As for the smaller, niche players, the main vendors appear to be unconcerned about the threat that they pose to their ongoing success in the region's e-procurement market. Oracle's Abouseif explains that during the dot-com boom companies such as Commerce One and Ariba had large market capitalisations but, as their share prices have dropped, they have been more focused on staying afloat than dominating the market.

"In tough times people go back to what they know and to companies that they can rely on to deliver," he says.

"There are different solutions for different markets but the companies with an e-business infrastructure have, in the past few months, been taking procurement solutions from larger vendors," adds IBM's Kilani.

Local market activity backs this up. While Commerce One Middle East says that the market "has momentum and is learning about the benefits of e-procurement" it has no public reference sites. Ariba, which announced a local partnership with Gulf Business Machines last year, seems to have disappeared from the market altogether. Oracle, on the other hand, can point to the likes of DDF and Tejari as active case studies.

The analyst community has also come to doubt the niche vendors. Gartner Group recommends that companies delay any decision regarding the purchase of Ariba's products until the company has made the necessary integration of its recently announced value chain management (VCM) platform while it appears suspicious of Commerce One full stop, believing that its much touted relationship with SAP is not quite what it appears.

"Although the SAP relationship remains officially intact — through joint development and sales, revenue sharing, and SAP's 20% investment in Commerce One — Gartner believes it has, in effect, become defunct," says a recent report from the analyst house.

While such market activity obviously affect potential customers to a certain extent, the demands of the end user community remain the same — they are focused on getting maximum functionality, effective customisation and the highest level of integration that will allow them to leverage their legacy systems for the smallest amount of capital outlay.

Chinwalla explains that when Masterbaker was looking for a procurement solution it needed a product that offered the operation back end integration and a certain amount of customisation. "I think that almost any company that chooses a B2B solution will be unique because each business is different and they want to achieve different things with their customers," he comments.

However businesses go about implementing e-procurement solutions and no matter how the battle for vendor dominance pans out, it is inevitable that organisations will, eventually, deploy online purchasing applications and take their transactions online as a combination of its inherent advantages and market pressures make it unavoidable.||**||

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