How e-markets affect the supply chain

E-markets have been established in many industries as a sourcing option for buyers. Research  has implied that the e-markets have substitutional effect on the traditional supply chain, yet in many situations, e-markets are used by buyers as a benchmarking tool in negotiations with traditional suppliers.  The late 1990s and early 2000s have seen the rise and fall of many e‑marketplaces. Despite being hyped for their ability to benefit firms through dynamic pricing as well as lower transaction costs, most e‑markets failed, never reaching their expected potential.

Many suppliers long-term relationships with buyers, were reluctant to participate in e‑markets fearing that their products may be standardised and they may have to compete on price. On the buyer’s side, e‑markets introduced new suppliers, which for buyers created a greater risk of acquiring defective or inferior goods but prices would become cheaper also. Moreover, the decision of buying into a business-to-business (B2B) e‑market is often made by the procurement department, the functionality of being threatened by the e‑market. The decreasing bargaining power of sellers and increasing power of buyers led to a shift in dynamics. Those products were identified which have a strategic value to the firm, were directly sourced from suppliers, and the new mantra is focus on non-contractable investments in such relationships. All standardised products are now preferably sourced through e-markets (indirect sourcing).

E-markets have also affected the buyer supplier relationships. The firms should focus on building long term relationships (partnerships) and mutual value creation through investments of non-contractable nature, to be made by both the partners. But these partnerships should be dependent mostly on items having high volume and for those with high criticality. The firms today should focus on vendor development programs also. The rest of the requirements should be indirectly sourced through e-markets.

Harnessing the power of e-markets is the mantra of the day. No firm can survive without it. The problem is joining without understanding the dynamics of e-markets, the firm may be exposed to a high risk.

Author: Kar

Dr. Kar works in the interface of digital transformation and data science for business management domains. Professionally a professor (IIT, IIM) and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a Regular Contributor of Business Fundas and a blogging addict. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.