by Kathleen Davis
The statistics are staggering. Cap Gemini Ernst & Young estimate that e-commerce in the energy industry will explode from an $11 billion launching pad in 1999 to a $170 billion estimate for 2003. With such bold numbers being batted around, the future of power-related e-procurement, e-commerce and e-markets seems boundless.
Cap Gemini obviously thought so as well. They saw energy’s e-commerce fortune reflected in industry-specific Internet marketplaces like Pantellos and Enporion. In fact, Cap Gemini is a self-proclaimed “active partner” of Enporion, an e-procurement consortium.
However, the luster of energy-based e-markets is starting to tarnish.
Laura Powell, senior manager at Cap Gemini Ernst & Young, stated, “Marketplaces in general aren’t taking off as fast as people had expected initially.”
“From a connections perspective, the marketplaces are having difficulty,” she added. “It’s much slower to get the suppliers on board.”
According to Powell, a lot of suppliers are waiting to get a good overview of the public marketplace: who has money to spend, who is willing to spend it, whether it’s worth the money to invest in an electronic catalog, what the process of interaction is. And while the marketplaces are pushing supplier adoption programs-even going so far as to waive membership or transaction fees in some cases-the suppliers have not been so willing to take a nip at the bait.
Don Dutoit, vice president for North American sales and marketing for Cooper Power Systems, a supplier who works with both Pantellos and Enporion, agreed.
“I think everyone involved with [e-markets] underestimated the issue of content,” he said. “A lot of suppliers had electronic catalogs, but they were not in the format required for the exchanges’ search engines.
“The other problem revolves around custom issues, which we are primarily involved in,” he added. “Doing general information for the entire market is not an easy task.”
Bill Martino, president of Cooper Power Systems, inserted, “The question remains: How do you build a massive database for an industry that has been independent and decentralized forever? You’re working multiple operating voltages, operating issues and technical specifications not only between companies, but even within their own companies.
“I think that’s where e-marketplaces are struggling.”
But, make no mistake. This lag time for suppliers certainly doesn’t mean a screeching halt to e-marketplaces. While the fray may have had some causalities (SourceAlliance.com, which Cooper participated in, folded just last month) and a handful of wounded (Selectrica, a request-for-proposal-based e-marketplace announced last summer has yet to open), business is still business. And it’s still being done.
Enporion conducted its first international auction in February, teaming with Electricite de France (EDF). Enporion hosted the single-day auction for EDF to produce bids for 4,000 kilometers of cable, and bids came-from seven suppliers in four European countries. Enporion stated that EDF realized a 10 percent saving below the previous price as a result of the auction, and EDF representatives did have positive responses to the day.
“E-marketplaces like Enporion represent the future in supply chain process improvements for our industry,” said Paul Mazares, executive vice president for the purchasing division of EDF.
And e-marketplaces are working quite hard to shift their image from e-procurement-based exchanges (“akin to an online energy Wal-Mart” as one representative put it) to developers of the Internet supply chain.
“We’re not an e-procurement company,” Graham Collins, CEO of Pantellos, stated firmly in his interview with EL&P. “We’re really a supply chain solutions company.”
Citing the definition of e-procurement as a mere technology, Collins clearly believes that Pantellos-which, unlike Enporion, is not a consortium but an incorporated company-has moved beyond such basics.
“Our perspective on e-procurement is that it is nothing but an onramp to a digital marketplace,” he added.
Of the $130 billion that utilities spend annually, 60 percent are service related, leaving 40 percent for materials. Collins pointed out that limiting your transaction or marketplace to materials-in essence, limiting yourself to e-procurement alone-would cut out a significant chunk of possible revenue for the e-marketplace. With that in mind, a service-minded, supply-chain-focused e-marketplace like Pantellos seems the next step in the evolution of e-procurement.
“We do everything but trade in power,” Collins stated.
Explaining that Pantellos and similar e-marketplaces are striving to rid themselves of the e-procurement stigma, Collins commented, “We’re built by the industry for the industry to solve some pretty complex challenges. That’s what’s really driven us away from that conventional exchange model. We just don’t see it tackling the major issues that this industry is confronting.”
Tackling the issue of supplier vacillation, Collins reiterated that the Pantellos structure consists of members rather than simply buyers and sellers, meaning that a company could act as either or both in a given day. According to Collins, this change in structure eliminates the scramble for suppliers.
“[Members] make the determination of how they participate and how they are represented in the marketplace,” Collins said. “And because less than 10 percent of our revenue is derived from transactions, it’s not a particularly important arena.”
“Their strategies are a bit different,” stated Dutoit. While Dutoit agrees that Pantellos is focusing on supply chain issues-which veers away from Enporion’s more auction-minded intent-he admits that Cooper may still be skeptical about the company’s ability to produce results.
“Our issue with [Pantellos] is not the strategy, it’s demonstrating the value they can bring to the process,” he stated.
Pointing out that both Pantellos and Enporion are “in their infancy,” Cooper Power Systems is hoping that both e-marketplaces will help expand their e-commerce strategy, but Martino also admits that it’s an uphill battle.
“Building that database of common information is a huge task. Very expensive. Very complicated,” he said.
“And no one’s been able to do it efficiently yet-to be able to leverage it as a tool to simplify the procurement process for the end-user,” he added.
Collins admitted that a number of their members who happen to be suppliers do see the existing content standards eroding their individuality, effectively erasing their brand. According to Collins, Pantellos agrees with that assessment and is working toward developing deeply enriched content standards.
“There are many different ways to facilitate a transaction-beyond simple e-procurement,” he added.
If e-marketplaces like Pantellos and Enporion represent the current state of evolution for e-procurement, it only stands that the issue will continue to grow and change with the shifting focus of the energy industry. Cap Gemini has noticed a trend that calls back to the old-fashioned alliance system.
“[Companies] really are turning inwardly, saying to themselves, ‘What’s my business driver behind [e-procurement], period?” Powell said, pointing out that the shiny future of e-markets may be more private than public, if the slowdown continues.
Following up on the idea of alliances, private marketplaces would put a twist on that old-school business philosophy, adding Internet speed and flexibility within a company or small network. Sister companies and suppliers could also be included within an exclusive, private marketplace, rather like a VIP lounge with very limited membership.
Taking the point of view of a company reluctant to participate in a public marketplace, Powell pointed out the reasoning behind such an evolution, stating, “Maybe a private exchange where I can collaborate with my own suppliers and build my own internal network makes more sense [than a public marketplace].”
But the CEO of Pantellos sees neither a slowdown in member accumulation for public marketplaces nor a shift in future e-procurement focus.
“Many times, we’re not moving fast enough for the industry, which is revealing,” he stated. “They’ve been so often painted as the poster child for the old economy, and that’s simply not been our experience.”
Bill Martino disagrees. His vision of an evolved e-marketplace would simply be one that makes good on the promises.
“Frankly, we haven’t seen a value proposition from any of these portals that makes sense yet-for either the end-user or the supplier,” he stated.
“Right now, they are simply another cost in the procurement process,” he added.
Laura Powell, senior manager at Cap Gemini Ernst & Young can be reached at 412-804-7508.
Graham Collins, CEO of Pantellos, can be reached at 281-863-6305.
For more information on Cooper Power Systems’ e-commerce strategy, interested parties can e-mail firstname.lastname@example.org.