Using the Internet, a whole host of small and remote vendors is tapping into the supply chain of large corporations.

By Vinod Mahanta

On a recent February morning, a bunch of 12 transporters sat huddled in two separate rooms in Delhi's Taj Mansingh hotel. The truckers, who had gathered from far off places like Jaipur, Meerut, and Agra, seemed positively out of place sitting in front of a small computer screen. Most of them knew little English, had seen a pc, but never worked on one. Just the same, this was a determined bunch, staring hard at the screen, and getting initiated into the secrets of-no less-the reverse auction process. Holding their attention was an instructor from freemarkets.com, a B2B exchange, and at stake was a huge, upcoming freight contract from Carrier Aircon. Eventually, when the actual bidding takes place online, two of the transporters will walk away with lucrative orders.

Open Sesame

For small-time vendors, B2B platforms are proving to be a ray of hope. Traditionally, such suppliers have been confined to the bottom of the food chain, constrained by their meagre manufacturing and financial muscle. Moving up into a bigger pool of buyers meant expensive offline activities such as visits to the buyer office, shipment of samples, returns, and delays in approval and commercial production. Unable to build up volumes, they had no choice but to sacrifice margins. But now the equation is changing. Says Dinesh Aggarwal, CEO, Indiamart.com, ''Thanks to third-party markets, costs of buyer acquisition, transaction, and fulfillment are all down significantly.''

S.K. Gupta of Homefit Exports in Aligarh will vouch for it. The door-handle and brass-fittings manufacturer started using electronic exchanges three years ago, doing 95 per cent of his communication with potential buyers via e-mail. Today, he rakes in more than

"For small vendors, the opportunities will only get bigger and bigger" SUBROTO BANERJEE, President, Trade2gain.com

Rs 3 crore a year in orders from buyers in countries as far as South Korea and Uruguay. Emboldened, he has invested Rs 50,000 crore in building his own website. ''The returns far outweigh the investment,'' says Gupta.

It was a B2B site that saved the day for P.K. Mishra, too. The owner of a small linen unit in Kanpur, Mishra was tired of being held to ransom by local suppliers. Then, trade2gain.com urged him to vend his ware online, and he did, winning a contract from Maruti Udyog for Rs 40 lakh worth of linen. Having tasted blood, Mishra is now targeting multinationals in Delhi.

What's interesting is that the small vendors are willing to pay a price to hit big time. Ergo, when Maruti Udyog reverse auctioned for 57 conversion kits for its forklifts, Sheetal Singh, owner of a modest engineering firm, Rare Fuel, decided to grab the order at any cost. Outbidding two other contestants, Singh quoted a price of less than Rs 75,000 per kit. He would lose money hand over fist (Rs 26 lakh), but he wasn't about to let a customer like Maruti walk away. Says Singh: "Look at the opportunity the internet has given me. I am looking at the world, and not just India, as my market."

Global Gateway

Indeed, it isn't just Indian companies that these hole-in-the-wall suppliers are tapping. Geneva Fine Punch, a Bangalore-based exporter of high-precision sheet metal components, has grown sales from Rs 2 lakh four years ago to Rs 6.2 crore last year by scouring the Net for contracts. Its biggest order to date (worth Rs 1.60 crore) came from GE Transportation Systems. Amar Singh, director of Geneva Fine Punch, put his bid through GE's global supplier network and, he says, spent the entire 24 hours during which the bid was alive in front of his pc. Today, he also supplies to other GE companies such as GE Medical and GE Power, and claims to have on hand 15 purchase orders worth Rs 18 crore. ''I want to grow 100 times every year, and the Net will help me achieve that,'' says Singh without batting an eyelid. Adds Subroto Banerjee, President, trade2gain.com: "For small vendors, the opportunities will only get bigger and bigger."

Where vendors are hard to find, the web helps, too. When Lucas TVS wanted to import assembly parts from China, it turned to Sify Webex-a B2B exchange-which has a tie up with meetchina.com, a Beijing-based site for vendors. In a matter of 12 days, Lucas found a vendor and a viable price for the item. Although international transactions are complicated-there are foreign exchange, logistics, and duty rates to keep in mind-online ones, especially when mediated by a credible intermediary, come with oodles of transparency.

"Thanks to Internet, I am looking at the world, and not just India, as my market" SHEETAL P.SINGH Director, Rare Fuel

Therefore, it comes as no surprise that some 800-odd small and medium enterprises in India are registered with Societe Generale de Surveillance (SGS), a Geneva-based verification and testing body. What SGS does is to build ''trust between e-commerce suppliers and buyers''. That apart, payment methods like Escrow ensure that payment risk is minimal. ''Suppliers are also happy because their capacities get blocked with multinational companies,'' says Jayant Diwedy, General Manager (Sourcing), Glaxo Smithkline.

The incentive for big companies to look outside their traditional supply chain is, of course, cost savings. Take GE Motors, for example. Five months ago, it started online purchases in India with fasteners (it wanted some 13 different types) and quickly expanded the buy-list to include lead-free solder wire, and even diesel generator sets. The company reckons that it managed to save between 7 and 48 per cent by letting vendors bid for supplies.

The More The Merrier

There are others making bigger savings. Visteon saved in double digits when it reverse auctioned for aluminum pressure castings. ''For every one dollar invested in us, the customer saves at least $10,'' claims Amit Bhatia, Country Manager, Freemarkets.com.

That may be an exaggeration, but the fact remains that online sourcing works. When a large fast-moving consumer goods company was setting up a personal care products factory in Doom Dooma in upper Assam, it decided to auction the electrical contract for the facility. To the company's surprise, it not only managed to find a contractor, but also ended up saving Rs 44 lakh on an estimated bill of Rs 1.57 crore.

There are, however, limits to how far this virtual road will go in the case of small suppliers. When companies start finding substitute suppliers, they usually begin with inexpensive and non-critical items such as stationery, consumables (nuts, bolts, and grease), and accessories such as gloves, safety goggles, and hard hats. Moving into higher value-added items involves not only dislocation of the existing supplier base, but also rapid replication of a new one-not an easy thing to do. For example, an ostensibly minor item like a piston ring carries with it strict design and performance specifications, all of which cannot be met in a spot market.

Manufacturing capacity is another big constraint for most small suppliers. Sometime recently, a large US-based superstore needed to source 5 lakh tiffin boxes. It posted a purchase offer on Indiamart, and got 14 bids: two from India and 12 from China. The Indian bidders lost out because they could not deliver the required quantity within the timeframe set by the American retailer. Notes A.V. Ram Mohan, President (B2B), Sify: ''Price realisation is not the only thing that matters. There are issues of long-standing relationship between a supplier and the buyer, which the web exchanges must factor in.' Probably, it is exactly that kind of relationship that small-time vendors are hoping to build-using the Net.
  

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