e-Negotiations Are In, Price-only e-Auctions Are Out

Just as online dating services allow companion-seeking singles to screen potential mates, enabling companies also churn out e-negotiation tools that enable buyers and suppliers to unite based on RFQ pre-selected criteria, such as technical specification, delivery date and financing options.

[From iSource Business, June 2001] Jagadish Turimella is a man of many titles: co-founder, chief technology officer and chief operating officer. He fills all of these positions at NutraBid, a B2B e-commerce service provider boasting an e-marketplace focused on nutraceuticals. But the New Jersey-based company's head honchos would be wise to add the moniker matchmaker to Turimella's roster of corporate titles. After all, it's Turimella who oversees the operation of a company committed to uniting buyers and sellers, not just for straightforward buying and selling, but for sophisticated online negotiations.

Launched in April of 2000 and owned by NB Ventures Inc., NutraBid has experienced astounding success. In recent months, the company's customer base has blossomed, revenues have doubled and tens of millions of dollars' worth of nutritional ingredients have traded hands on the online outfit.

But, it was the introduction of e-negotiation tools that truly contributed to NutraBid's exponential growth. In September of 2000, NutraBid introduced Moai Technologies Inc.'s LiveExchange online negotiation solutions, enabling buyers and sellers to negotiate transactions online and in real-time. A San Francisco-based e-commerce infrastructure provider, Moai offers online negotiation solutions that promise to lower supply costs and raise profit margins. And it's precisely this cutting-edge technology that has rendered Turimella a modern-day matchmaker.

[e-Negotiation tools] are beneficial to both sellers and buyers. In the short term, immediately after the auction is completed, the buyer sees the tangible savings& But if you look at the long-term savings, sellers can eliminate the large sales forces that have to knock on the doors of these buyers and take them to golf tournaments, laughs Turimella.

New Day Dawnin'

Long gone are the days when e-marketplaces simply served as a place for buyers and suppliers to meet-and-greet. While these Net exchanges excelled at making introductions, participants were left to screen potential partners, draft requests for quotes (RFQs) and negotiate contracts using such archaic devices as fax machines and cell phones. Greater functionality and deeper collaboration between online participants was clearly needed in order to move beyond traditional purchasing and sales channels and improve what is often a time-consuming and frustrating process.

The proof is in the numbers. According to InternetWeek's third annual Transformation Of The Enterprise survey of 1,000 information technology (IT) and business managers, 26 percent of the 520 businesses in the survey that are purchasing goods over the Internet are doing so through trading exchanges. However, a whopping 86 percent are buying online from traditional trading partners. Although the number of e-marketplaces has grown from fewer than 100 a year ago to more than 600 B2B exchanges today, many users demand access to more than the basic transaction-processing technology of online auctions.

Enter e-negotiation tools. Companies such as Moai Technologies Inc., B2eMarkets Inc., BayBuilder and eBreviate are creating e-negotiation tools that enable buyers and suppliers to unite based on pre-selected criteria. Warranty, technical specifications, volume discount, delivery dates, shipment methods, quality, customer support, legal conditions, financing options -- they are all specifications that buyers can electronically build into RFQs and present to an unlimited number of suppliers over the Internet.

The Benefits of Online Bartering

The benefits are outstanding. Although e-negotiation tools differ from supplier to supplier, they typically allow buyers to negotiate with any number of suppliers simultaneously, rather than sequentially, representing significant time savings. In fact, according to Turimella of NutraBid, buyers participating in the site's bidding events have been able to whittle negotiation periods down from two months to a mere two weeks, enabling e-procurement managers to focus their attention on core competencies rather than mind-numbing paperwork.

Additionally, e-procurement managers no longer have to spend countless hours in face-to-face meetings with potential suppliers haggling over the most mundane details. Instead, a buyer simply fills out an RFQ (many e-negotiation platforms include ready-made templates) and delivers the document electronically. In turn, suppliers can electronically respond to such requests with online proposals detailing specifics such as delivery dates, shipment methods and price advantages. What's more, e-marketplaces featuring  e-negotiation capabilities can create a neutral playing field, which is an appealing prospect for companies that have recently merged yet still lay claim to completely disparate experiences with the same group of suppliers.

Not to mention the cost-savings presented by today's  e-negotiation tools. Increased competition for a particular buyer's business naturally drives down costs. In fact, Turimella of NutraBid estimates that the site's buyers have experienced a 15 to 20 percent reduction in overall price, thanks in large part to the transparency of process and pricing.

Are Online Auctions on the Outs?

Significant cost-savings is not the only factor driving the demand for e-negotiation solutions. Unlike online auctions, where the lowest bid wins, e-marketplaces featuring e-negotiation tools mark a significant step toward broader buyer-seller online collaborations. And it's precisely this shift in focus from bargain-basement prices to increased quality and improved performance that many experts say is threatening the very existence of online auctions.

Price-only auctions are actually dead, says Sarah Pfaff, co-founder and executive vice president of eBreviate, an e-sourcing solutions provider. In the B2B world, companies don't buy on price alone. Businesses can't afford to rely solely on the lowest price. There are a zillion other parameters that are extraordinarily important and that are typically negotiation points.

A California-based company, eBreviate provides e-sourcing solutions to global businesses, governments and Net markets that include Internet negotiation tools, electronic survey tools and sourcing management technologies. These solutions automate the procurement cycle, bringing greater cost and time savings to the purchasing process, while optimizing the way buyers and suppliers qualify, negotiate and evaluate their business relationships.

Suppliers are also becoming increasingly frustrated with the price competition presented by online auctions. According to a Boston Consulting Group study, while online purchasing will represent 40 percent of total purchasing by 2004, only 11 percent of all purchases will involve online price negotiations. However, as the B2B market matures, sellers are expecting price pressure to increase. And while only 25 percent of sellers have experienced price pressure to date, the study does indicate that an additional 50 percent expect to experience it in the near future.

Yet, the question remains: If suppliers have plenty to lose from participating in online auctions, do they have anything at all to gain from e-negotiation tools? After all, such tools wrest control from suppliers and, in turn, enable buyers to call the shots on all kinds of parameters, conditions and specifications.

Says Richard Waugh, co-founder and executive vice president of B2eMarkets: By giving [e-negotiation] tools to buyers, we've shifted the balance of power to the buyer side.

B2EMarkets is a Rockville, Md.-based company that boasts a suite of e-sourcing solutions, dubbed Strategic eSourcing Management, that enables users to negotiate costs and institutionalize sourcing best practices throughout the procurement process.

A Win-Win Situation

Still, experts say that there are plenty of benefits suppliers can reap from today's e-negotiation tools. Just ask John Stevens, director of global services and procurement for Praxair Technology Inc.'s global procurement and materials management division. Praxair, the largest industrial gases company in North and South America, and the largest carbon dioxide and helium supplier in the world, called upon B2eMarkets to provide the company's online procurement initiative with e-negotiation capabilities. The company has held more than a dozen online bidding events since June of 2000, and Stevens says that cost-savings have been considerable. It's not uncommon for bidding events to draw 60 to 90 proposals in less than two hours, representing significant time savings.

But, while e-negotiation tools have enabled Praxair to save both time and money, Stevens believes suppliers also have plenty of reasons to rejoice. Although typically buyer-centric, e-negotiation technology has proven to improve suppliers' supply chains by expediting the purchasing process.

Says Stevens: Suppliers either win or lose, but [with e-negotiations] they do it quicker so they're not wasting their time. In some of my past sales experience, I've made calls on companies for a year or more, engaging in multi-round proposal processes. With scarce resources and with everybody wanting to get more out of every sales rep, we think that, ultimately, this will make it more efficient for selling forces during the RFQ and proposal stage.

But that's not all. e-Negotiation solutions level the playing field, enabling mom-and-pop suppliers to compete for business. What's more, just as buyers can electronically deliver RFQs using ready-made templates, suppliers can electronically deliver proposals with any number of attachments, ranging from certification documents to product drawings and specifications.

Been There, Done That

So do e-negotiation tools herald a modern-day revolution? Not so, according to many of today's leading experts. While it's true that such solutions promise to provide buyers with unprecedented power and render sellers' supply chains more efficient, e-negotiation is really nothing more than a means to automate the age-old practice of haggling over a product in a marketplace. 

The question is, has the barter system of [trading] three cows for three goats ever gone away? asks Raymond Letulle, chief technology officer and vice president of product management for Moai. If you really look at the purchasing organizations of most large companies& there's always been an element of negotiating around terms. We're not really changing that. What we're doing is making it quicker, and we're allowing you to do it with more people simultaneously.

The Bidding Blues

That's not to suggest, however, that differences don't exist between yesteryear's bartering system and today's online bidding events. For one, it's far more difficult to foster strong relationships predicated on trust between e-marketplace participants.

It's harder to build trust electronically than it is face-to-face. One way to build trust is simply by asking questions and getting answers that are responsive to your questions. & Trust gets built through that information exchange, which is much faster face-to-face, warns Jeanne Brett, a professor of dispute resolution and organization at Illinois' Kellogg Graduate School of Management.

Secondly, unlike face-to-face interactions with a single supplier, the online negotiation process is extremely demanding, involving a multitude of players and requiring buyers and suppliers alike to spell out demands and expectations in the clearest of terms.

You have to be good at writing RFQs and that's one thing that, as a process, we've had to learn to do better. We have to teach people that the things you assume, you have to spell out [electronically], says John Gellatly, vice president of business development at BayBuilder. BayBuilder is a Boca Raton, Fla.-based company whose negotiation solutions aim to help users negotiate lowered pricing on the purchase of direct and indirect goods and services, as well as conduct RFQ notification, communication, bidding and document exchange over the Internet.

What's more, many suppliers who have added e-negotiation capabilities to their e-marketplaces lack the decision-support mechanisms necessary to evaluate the copious amounts of information that can be gleaned from suppliers' electronically delivered proposals. There's no denying the benefits of being able to select a supplier based on detailed criteria. But the question of what happens when a supplier's stellar shipping methods are equally matched, in terms of importance, by another supplier's promise of ongoing customer support often remains unanswered in the minds of today's buyers.

And then there's the issue of whether or not an online marketplace boasting e-negotiation tools is truly superior to any given online auction. After all, buyers need not always engage in complex negotiations, especially when purchasing from a fixed-price catalog or peddling goods on an online auction can offer the same rewards.

Beyond Matchmaking

Still, there's no denying the impact e-negotiation technology is having, and will continue to have, on the e-procurement industry. No longer are buyers and sellers banking on  e-marketplaces to simply play matchmaker. Rather, these days, expectations of bottom-basement prices, time savings, top-notch quality, deeper collaboration, greater functionality, self-empowerment and improved supply chains abound. It's a tall order given that, centuries ago, the negotiation process amounted to little more than marketplace haggling. But as technology advances, as buyers gain control and suppliers revolt against crippling price pressure, e-negotiation solutions stand to forever change the face of the procurement process.

Gellatly of BayBuilder says: In the end, purchasing organizations are going to develop professionals that are not saying, Hand me a requisition and I'll call Joe's Hardware.' They're going to develop professionals who are highly efficient data managers that will work their desktops just like the traders at NASDAQ work their desktops.