Supporting SMEsthrough

Jay Bal and Mark Swift introduce the West Midlands Collaborative Com m e rce M a rke t place

he emergence of the Inter- net, and the World Wide Web cwww) in particular, has initiated further rapid

change in business organisations and processes. Though the dot-coni boom may have died, it has left some lasting changes in business thinking.

Bringing SMEs into the e-conierce arena is essential if the savings from transaction costs identified and predict- ed by B2B e-commerce proponents are to be actually realised. Without the SMEs onboard in e-supply chains, we are likely to get no further than what

in the automotive industry, has successfully applied it to the market for body-piercing jewellery. They have the majority of the UK market and margins several hundred times greater than in the automotive industry.

Defined by the UK Department of Trade and Industry (DTI, 2000) e-business ‘describes how businesses are using information gathered electronic- ally to improve their business processes and relationships with suppliers and consumers. This potentially covers all business areas, such as design, produc- tion, operations, customer service, as

is the main facilitator of e-business. Although the definition indicates a wide scope for potential implementations, the majority of current applications focus on facditation for businesses that produce high volume and rela- tively narrow, in terms of product design, variety products. Measuring e-conmerce adoption in SME’s, the DTI acknowledges that a company does online marketing when it has a website which publishes ‘marketing informa- tion, prices, and stock levels’ (DTI, 2000). This refers to the information usually found on electronic product

can already be provided by EDI. The well as buying and selling’. The Internet catalogues. main problem for engineering SMEs is that existing e-commerce models are very product orientated, whereas the engineering industry is very process orientated. It could be argued that engineering SMEs in particular do not have products as such-what they have is a design and process capability to make what you require. For example, a capability for fornling and bending wire precisely could be uthsed

discrete manufactur

In many market5 and many products. A company wlth precisely t h s capabdity, developed Fig. I : Level of trade expected to flow through e-marketplaces by 2004.

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Fig. 2: From initial efforts to establish private e-marketplaces, the major players in most industries move to a consortia model.

automotive supply e-marketplace structures April 2000

Fiat Suzuki

@ Toyota

n 6h

buyer controlled

I I 1 BMW

Fig. 3: The consortia model often does not totally dominate, some major players decide to go their own way. Recently consortia members have begun to focus back on their private exchanges because of the difficulties of making rapid progress whilst in a consortia.

Many engineering SMEs provide highly customised products or ‘one-off jobs and thus, standard information such as prices or stock levels hardly exist. In addition, although comparisons of mass production standard products can be made electronically, based on informa- tion such as price, quality, and design, the same is not feasible in engineering

Table I

business supplying ‘one-off jobs. Engineering SME’s meet customer requirements based on the abilities of their jobbing processes.

The focal point of an engineering company is then the key technical engineering abilities and not the actual end products. Competence is the key term that could describe these abilities

total number of customer

and Internet is the mema that could make them available to the public with minimal costs.

Overview of the UK West Midlands Region

The UK Midlands comprises an area of 5000 square miles with a work- ing population of 2.45 million people. Direct employment in the automotive sector is 57 000.

For SMEs operating in the auto- motive sector the figures in Table 1 provide a median descriptive pro6le. An SME is defined as a company having less than 250 employees.

Based on their experience in the West Midlands region in the UK, the authors see a clear need for regional e-market- places to support SMEs. Furthermore, such regional marketplaces can comple- ment the role of the multi-national industry specific e-marketplaces.

Often SMEs supply to several indus- tries. Our research shows that for West Midlands SMEs supplying the automotive sector, on the average just under 50% of their turnover is derived from that sector. A plastic injection moulder can supply automotive, furniture and electronics industries. Does such a firm need to sign up to three vertical marketplaces, each with its own unique protocols, procedures and practices? We submit that for a 25 employee plastic injec- tion moulder located in a large industrial region, membership in a single regional marketplace with gate- way links to the industry specific e-marketplaces might be more attractive. Whilst international marketplaces open new export opportunities, the fact is the vast majority of business done by SMEs is within their region and this will continue to be the case. The average level of exports for automotive related SMEs in the West Midlands is 3.5%. If participation in multinational marketplaces could boost this figure by a factor of 5 (a stunning achievement) thls would still leave 80% within the UK and most of this would be still be within the West Midlands Region. Whilst the international opportunities

220 MANUFACTURING ENGINEER OCTOBER 2002

afforded by the Internet make for compelling reading, the Internet can be just as useful for conducting busi- ness in the 5000 square n d e area that is the West Midlands. Finding tlze guy just up the motovway can be just as important as finding the guy 011 the other side of the world. To participate in e-commerce via the many electronic niarketplaces that exist is not viable for SMEs with limited fhnds and technical capability. However if you look at Fig. 1, which predicts the amount of trade in manufacturing, expected to flow through e-marketplaces. Companies cannot afford NOT to participate. In the same way that a region with- out good transport links faces becoming an economic backwater, if the majority of the SMEs in a region do not/cannot participate then the region faces becoming an electronic backwater.

An analogy used to illustrate the effect is ‘It’s like having a motorway running through the region, but having no junctions to access it’.

It is our view that a compelhng case can be made for the regional e-marketplace approach to bring SMEs into the world of operational e-commerce. Furthermore such a regional marketplace that is rich in content and functionality will attract

automotive supply e-marketplace structures

Fiat Suzuki

@ Toyotam

n

plasti

metals ? tier 4 raw materials

Fig. 4: For the smaller tier 2,3,4 etc companies the problems mount, as they have to work with a whole range of marketplaces. For example, a plastic moulder would buy plastic from the plastic exchange, source tooling from a tooling exchange, manufacture the products and supply t o a customer via an automotive industry exchange.

global interest the grass roots, tapping into regional loyalties and local social dynamics that

e-marketplace model that gives invest- are more &fficult to reach for the ors confidence in their long-term multinational B2B operators. financial viability as independent busi- In the manufacturing supply chain, nesses. A regional model introduces the value of engineered products new financing options. It is also closer to exceeds that of ‘off the shelf‘ catalogue

Fig. 5: A regional ’

marketplace could allow the regions SMEs t o connect t o other exchanges and major companies in the region. The SME would not have t o worry about technical standards, data translation or process variations when working with many different sectors, suppliers and customers.

To date there is no accepted B2B

MANUFACTURING. ENGINEER OCTOBER 2002 22 I

Fig. 6: The regional marketplace would support clusters, with a common look and feel and functionality, from within the region. For example a motor racing industry cluster, or a sub-regional cluster, such as a particular trading estate.

items by a significant degree. Trade in support on-line collaboration between engineered products requires closer supplier and customer. Such a market- relationships of a technical nature. Thus place becomes more a network of marketplaces serving the manufacturing co-operative relationships operating in sector need to provide robust facilities to private behind firewalls rather than a

Fig. 7: Eventually we would see exchanges from different regions connecting together t o mutually support SMEs. For example we have recently helped an automotive injection moulder from South Africa, where there is l i t t le automotive support infrastructure, link with a specialist tooling provider in the West Midlands, where the infrastructure exists, but with much reduced OEM and f i rst t ier manufacturing. Another region that this example would apply t o i s the Monterey region of Mexico.

highly competitive public e-trading post.

The positioning of the regional marketplace model in relation to the events that have and perhaps will occur is shown in the sequence of Figs 2-7.

West Midlands collaborative commerce marketplace (WMCCM)

Interviews with a number of auto- motive SMEs has revealed that their key objectives are to obtain ‘higher quality’ work, to be more closely linked with customers in the design of products and be able to provide flexible supply without the burden of large stocks. These requirements can be interpreted as:

1. To win ‘better’ orders and access new markets. To achieves this there is a need to show competence as well as a capabdity, and to be able to link up with others to provide systems rather than components.

2. To be able to do collaborative design -there is a need for a collaborative teaming capabdity (virtual teaming).

3. To improve efficiency and lower costs. Companies need to focus on core competencies, and be able to leverage better terms from suppliers and partners.

automotive supply e-marketplace structures

buyer controlled

\

seller controlled

independent brokers

plasti

122 MANUFACTURING ENGINEER OCTOBER 2002

regional SME hub n n

virtual teamworking cap

catalogue creation and mainte

This project adapts the ideas and concept of e-marketplaces to the needs of SMEs in the core West Midlands region. It will provide an electronic collaborative InarketpIace for the West Midlands objective 2 region for over 500 SMEs. This will allow them to participate in regional, national and international e-trade under better conditions than if they did so alone. Links to industry vertical marketplaces and local buying organisations will allow s m s to:

Bid for a greater variety of business. Better qualitji for business in their traditional markets. Reduce the cost of non direct purchases through marketplace aggre- gation of voluiiie Lower transaction costs through Internet-enabled communication and collaboration. Form virtual organisation to tackle new products or markets.

The business model proposed is that, the development of an infrastructure for electronic trading by a region’s SMEs is the responsibdity of local government. The ‘local’ element can build a sense of conmunity and belonging that is

hub

Fig. a: ~n overview of the architecture.

essential to the success of such marketplaces. Charging third party business service and product suppliers for access to the marketplace of over 500 SMEs can fund the running costs. The average West Midlands SME has a turnover of around Llnilhon, so the size of the prospective marketplace is over &%)Oin&on. This is an attractive target for many sellers and buyers, especially as many large blue chip organisations to not have appropriate

sales channels into this type of market. Thus the e-marketplace will only have a nominal joining fee and no transaction fees.

The key objective is to increase the sales by SMEs in the West Midlands generated by e-conimerce. A CISCO study found that 104000 fast tracker European SMEs are effectively using online activities to increase business, reduce operating costs and interact with customers while adding value. These

MANUFACTURING ENGINEER OCTOBER 2002 223

‘functionality is to be built around the portal www.go4gain.co.u k’

SMEs are seeing their margins grow &om 5-20% to 20-40% over a twelve- month period. The average automotive SME in this region has margins of around 5%-10%.

The project will achieve this sales growth by providing a B2B trading pladorm for the region that will:

Lower transaction costs through elec-

Provide improved access to existing

Enhance collaboration to generate

tronic communication

and new market opportunities.

new opportunities.

It will increase sales by providing eased access to the competences and capa- bilities of regions SMEs for both customers within the region, nationally and internationally

Key functional elements The hnctionality is to built around

that of our existing SME regional portal www.go4gain.co.uk which has over 1100 companies already registered.

Competence proJling and search capability This capability is based around

understanding the processes and skills of individual engineering SMEs (their competence) and being able to search for appropriate s k d s and competencies to form virtual organisations in response to enquiries.

Project collaboration capability The system will allow companies

to collaborate on engineering design projects and provide functionality to enable this collaboration.

Marketplace capability The abihty to generate and respond

to RFI’s, RFQ’s and to run simple auctions with associated management tools.

Purchasing aggregation Provide links to the catalogues of

approved suppliers and service providers to the WMCCM. These will allow SMEs registered on the marketplace to directly order goods and services.

Clustering capability Will allow companies registered on

the marketplace to be clustered (i.e have a common look and feel and set of information services) based on their location, expertise or market. For example all companies involved in the motor racing sector can be clustered.

Bazzar A section where surplus goods and

requirements can be posted and traded.

External links Links to a number of external rele-

vant marketplaces wdl be required. These will be chosen to support the requirements of companies hosted on

the regional exchange. Three links are specified-these could be to market- places such as Covisint, Exostar or TradeIslands.

Catalogue capability A limited catalogue capability will be

needed for SMEs wishing to ‘showcase’ their products, and for small suppliers wishing to make their products avail- able.

Summary Engineering and Manufacturing

SMEs must embrace e-commerce to survive and prosper. Existing e-commerce models tend to be ‘product’ orientated, hence the large number of catalogues that exist on the wWW We believe that engineering companies are defined by their compe- tencies, not by their existing products. Also existing models are biased towards the needs, resources and skills of larger companies.

The West Midlands collaborative commerce marketplace builds on the strengths of the existing models and limits their weaknesses by leveraging regional resources and loyalties.

Jay Bal is Director ofthe 1nterL.ean Centre and Mark S w i j is with Wawick Manu-

facturing Group.

0 IEE 2002

224 MANUFACTURING ENGINEER OCTOBER 2002