Letters

E-commerce potential held back by attitudes

Recent articles and letters published in SM have clearly demonstrated the emerging significance of e-commerce, and the fact that it is here now.

However, I believe there are some process barriers that limit the opportunities available. The first of these is failing to identify the problem that needs to be solved, rather than looking at e-commerce tools as a solution in search of a problem. Ideally, the use of e-commerce tools should be part of a broader strategy to improve procurement and add value, rather than just an opportunity to employ a different technique in the ongoing process of transaction cost-reduction.

The second problem is perceiving e-commerce as a technology, rather than a methodology. E-commerce covers a range of technologies, of which electronic data interchange (EDI), smart cards, the Internet and electronic catalogues are only a few. As with all evolving technologies, the ultimate version is never achieved. However, selective use of what is available, even in small applications, helps to prepare for subsequent breakthroughs.

The third problem is the failure to acknowledge the variety of material and service characteristics across an organisation's procurement profile. A technology that is appropriate in one area (for example, a low-value, low-risk material requirement) may be inappropriate elsewhere (for example, a high-value, high-risk outsourced service). One size does not necessarily fit all.

The fourth obstacle is overlooking, or not learning from, the application of e-commerce beyond procurement. E-commerce is being adopted widely across government and the private sector in many different ways.

Purchasers could well learn from the methods used to identify the problems behind, say, the use of direct debit, the joint logging of electronic customs entries and quarantine clearances, or the electronic and web-based logging of tax returns.

Laurie Le Fevre

Contracts manager

ACT Waste

Canberra, Australia

* consortia questions Consortia questions

Andy Hickmott (Letters, 6 January) is probably right that many purchasing professionals would have welcomed an article in SM that didn't mention the dreaded e-word. However, he is also right in arguing that e-commerce has a role to play in securing leveraged benefits.

Consortium buying is the logical step for organisations that are already pushing at their own territorial leverage boundaries. But, before any buyers out there get too excited, they should ask themselves two questions.

Is the consortium leverage buyer or seller led? It seems an obvious question to ask but, although the public sector has been the trendsetter with consortia buying (particularly in the health service and local government), some of these groups have evolved into suppliers.

They have essentially become wholesalers, taking the risk - and the profit - of aggregating participants' supply requirements. With an income stream derived from suppliers rather than buyers, who do they actually work for?

The second question is, do common-group supply arrangements meet my own company's needs? Many of the consortium groups emerging are based on extensive participation, with little sector or geographical synergy. As a result, participating companies lose too much control over the end result.

As with the public sector, I suspect that e-commerce based groups will rely on such scale, and could inevitably tend towards similar "wholesaler" solutions.

There is a role for e-commerce, along with other classic purchasing tools, as an efficient platform for consortium buying, but provided you observe three golden rules. Keep it small and simple, focus on the non-core and stay firmly on the buying side of the table. There is a sizeable prize out there to be won.

David Hewitt

Director, PSL

Learn from mistakes

Readers exchanging experiences in these columns is a good form of learning. However, contributors are naturally reluctant to spill the beans about the mistakes they have made and the awful consequences that ensued. Instead, they prefer to boast about their successes.

Much can be learnt by following the parliamentary discussions on the technical procurement mistakes perpetrated systematically by the UK's largest-spending government department, the Ministry of Defence.

As well as a running catalogue of procurement disasters reported every year by the National Audit Office, the ministry's procurement inadequacies are regularly scrutinised by the House of Commons public accounts committee. The latest instalment of this was due to take place this week, with the committee questioning Sir Robert Walmsley, the MoD's chief of defence procurement.

The procurement techniques under discussion this year could include the need for speedy transactions, which is secured in every MoD contract but seldom enforced, and the use of liquidated damages clauses. These are widely applied but mainly unenforceable under English law because they are intended to incentivise timely delivery and are not based on any genuine pre-estimate of possible damage - if effective, they would indemnify the contractor against its own failures.

These techniques, and many others, are abused by the MoD in the name of "smart procurement". Together, they provide an invaluable guide on how not to do it.

Tony Purton

MoD director of contracts 1988-93

Logistics of new airport

Almost five years ago, in one of SMs predecessors, Logistics, I wrote about the possibility of a new commercial airport being developed at the former RAF base at Finningley, near Doncaster. I am now pleased to report that a planning application is being considered by Doncaster Metropolitan Borough Council and a decision will hopefully be reached in the next few months.

If given the go-ahead, the airport, which would be owned by Peel Holdings, the company that runs Liverpool airport, could be operational as early as October 2001.

It would provide a huge economic boost for South Yorkshire and Nottinghamshire, an area that has been hit hard by the decline of traditional industries.

But the project also represents a real supply chain opportunity. From a logistical point of view, the airport, which as a former Vulcan air base has one of the longest runways in the UK, is ideally located.

As well as having easy access to motorways and Humberside's ports, Finningley is close to the east-coast main line and adjacent to the proposed eastern freight rail route. The project therefore offers a rare opportunity for the integration of air, road and rail transport.

Michael Carnall

Managing director, MCC, and chairman, CIPS supply chain group

Climate change levy

The estimates given of the amounts companies may have to pay for the climate change levy ("Global warning", 27 January) were incorrect.

According to the Electricity Association, a small business with an electricity bill of L1,200, charged at around 5.4p a unit, would have to pay about L95 before rebate, under the current proposed rate. The levy on a bill of L100,000, with a charge of 4p a unit, would be about L10,750. This does not take into account VAT.

SM welcomes contributions to the letters and viewpoint columns. Please note that these may be edited for reasons of space and clarity The next deadline for letters is 15 February. Write to: Letters to the editor, Supply Management, Personnel Publications, 17 Britton Street, London EC1M STP, fax on 0171 814 o981 or e-mail letters@supplymanagement.co.uk

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