We’ve all transacted on a digital marketplace, whether we know the term or not. After all, who hasn’t bought something on Amazon or a similar cloud-hosting marketplace (eBay)? A digital marketplace like Amazon sells almost everything under the sun from smartphones to garbage disposals. But other marketplaces may specialise in a single sector, like Airbnb and travel accommodation.
Online marketplaces are becoming more common, as many businesses opt to create sales platforms (product hosting services) on their websites. These independent marketplaces cut out the middleman and save costs with no listing fees or commissions.
Essentially, digital marketplaces are transforming the way products are bought and sold in the private and public sectors. In the public sector, public bodies include local and central government departments, government agencies, and government-related companies that work with local communities on physical empowerment and digital projects.
In this article, we’re going to discover how digital marketplaces are transforming government procurement.
Digital or eCommerce Marketplace?
The terms are often used interchangeably, with eCommerce marketplaces often broken into four primary categories.
1) Product-based marketplaces
The name says it all, transactions involve the sale of physical products, for example, Amazon.
2) Service-based marketplaces
These are intangible “goods” like digital marketing, consultancy, and infrastructure services.
Another service-based option is the G-Cloud digital marketplace. G-Cloud (a Crown Commercial Service framework) directly targets public sector organisations, including central government, local authorities, education, and overseas territories. G-Cloud 13 (the current version of G-Cloud software) serves as an online catalogue for cloud-based services.
A G-Cloud framework provides public sector organisations with access to over 5000 suppliers in UK government procurement.
3) Peer-to-peer marketplaces
There is no middleman in P2P marketplaces. Parties interact directly, for example, eBay.
4) Business-to-business marketplaces
B2B is like P2P but on a much larger scale. Business procurement specialists usually purchase stock wholesale from suppliers.
The business-to-government (B2G) market is similar, except that there aren’t many direct purchases. Instead, contracts go out to tender and whoever submits the winning bid transacts with the buyer.
How Digital Marketplaces Benefit Public Procurement Buyers
An established digital marketplace provides many benefits to public buyers.
- Established marketplaces have refined their operations, so buyers and sellers benefit from streamlined purchasing and delivery systems.
- No worrying about payment collection systems and logistics because the cloud hosting platform has them under control.
- Marketplaces have big customer bases, which increases competition and drives innovation so that buyers have access to ever more sophisticated products.
- A global digital marketplace gives buyers more options when it comes to sourcing suppliers. International suppliers could provide higher-quality products with more favourable pricing models.
- Well-known digital marketplaces are reliable and stable, ensuring (mostly) continuous service 24/7/365. Public bodies can buy services or products whenever convenient regardless of time zone.
- Marketplaces have features for suppliers to gauge their performance on the cloud-based framework, like analytics. Information collected and analysed can improve customer-centric services and ensure customers have a better buying experience.
- They may use AI technology and run software to increase the efficiency and accuracy of time-consuming tasks. Brands can then focus on high-level requirements for buyers’ benefit.
Benefits of Automation in the Digital Marketplace
Much of the procurement process can be automated, especially those related to specifications, requests for proposals (RFP) and quotes (RFQ), evaluation based on preset criteria, and payment administration.
Automation software increases the benefits of cloud services to UK government buyers.
1) Supplier management, including performance, contract compliance, and collaboration.
2) Streamline digital services to increase efficiency and lower costs.
4) Data analysis and management for real-time observation of the procurement lifecycle, and an enhanced decision-making process.
4) Regulatory compliance, especially regarding transparency in the procurement process.
5) Cost saving by spend tracking (identifying maverick spending) and risk management.
Taking Back Control
Established marketplaces like Amazon provide a range of services, features, and functions that remove pressure from suppliers. However, there is a downside. They give up a lot of control over the procurement process and don’t always have a say in framework changes.
Now, many online service providers are perfectly happy with the situation. But, many aren’t.
Fortunately, there is an alternative for those who want to take back control over their procurement process.
Declare Independence
Suppliers can create an independent digital marketplace for their services, goods, and works only.
Right off the bat, there are a few challenges.
1) It takes time to establish credibility, reliability, and a good reputation in the wider public sector.
2) Suppliers must have the technical know-how to manage the complexities of an independent digital marketplace. This includes back-end development and cloud technology management.
3) Suppliers must have the business sense to manage stock and inventory efficiently using systems integrated with their digital marketplace.
No need for doom and gloom
The great news is that digital marketplace software simplifies the process for suppliers.
Cloud software has features that take care of creating, hosting, and managing online marketplaces, including data security and the logistical nightmare that is shipping.
Cloud technology and software can be purchased as standalone products or integrated into an existing web content management system.
However, technical professionals who understand the framework system in all its glory are needed to successfully manage day-to-day (and emergency) operations.
Fill a Niche
Suppliers don’t sell services in everything. Those in construction, for instance, don’t build bridges, tunnels, residential homes, mining plants, and skyscrapers. They might build residential homes, but that’s still pretty broad. Narrow it some more and they might specialise in barn conversions. Bingo! A niche.
It’s possible to go even narrower, for example, plumbing, solar power water systems, and bespoke doors and windows.
Niche marketplaces have two primary benefits.
1) Less competition for suppliers.
2) Access to eminently suitable suppliers for buyers.
There are disadvantages to this type of framework agreement: Suppliers could almost niche themselves out of the digital market.
There are two possible solutions to these marketplace procurement risks.
1) Stick with established digital marketplaces (Amazon).
2) Open independent marketplaces to related physical and digital services, products, or works.
Solution one
It benefits niche suppliers because they appear among other niche suppliers in top-level categories during the buying process.
Let’s look for plumbing on Amazon.
The Tools and Home Improvement department leads to Rough Plumbing, which then includes an array of niche products; sump pumps, garbage disposals, and toilet fill valves.
There’s plenty of visibility and plenty of qualified interest from UK government procurers.
Solution two
It benefits niche suppliers because they control who shares their marketplace. They don’t have to host competitors’ products, which would be the case on Amazon. They can choose reputable brands with complementary products and a similar customer base.
The broader scope helps them show up in more searches, which can attract greater interest from public sector organisations.
The UK and Global Procurement for Digital Marketplaces
COVID-19 might have triggered a transformation in public procurement, but online marketplaces needed attention way before that. The UK government was among the first to directly address the challenges in the global procurement marketplace.
It created the Government Digital Service (GDS) to make the Global Digital Marketplace more user-centric and data-driven, especially regarding buying services, contracting, and service delivery.
In 2014, the UK Digital Marketplace was launched to simplify, clarify, accelerate, and improve the cost efficiency for the wider public sector to break into the technology market, which was dominated by the central government.
The digital marketplace did its job because when October 2018 rolled around the UK digital, data, and technology sector (DDaT) had opened up to over 5000 suppliers, with 92% of them being SMEs.
From being a largely sequestered market, thousands of businesses have won government contracts and benefited from the resulting growth, credibility, and income opportunities.
Is global better than local?
It rather depends on the preferences of the B2G buyers and suppliers, but generally, global is better.
What are the benefits of global online marketplaces?
The global procurement market benefits businesses of all sizes, but more than that, it boosts national economies and can even, depending on the size and nature of the contract, improve international relations.
Let’s look at four of the biggest benefits for government contracting authorities.
- 1) Local procurement marketplaces are competitive and even some niche areas can become saturated. Global digital procurement strategies open a wider market with more access to suppliers that might be more innovative or provide more value for money than local services.
- 2) Diversification of risk is huge in global digital marketplace sourcing. Some government departments rely on a single source to provide products or services. This is incredibly risky because changes in the national economy and local disruptions can leave them high and dry.
The problem is that most businesses in the local supplier pool will be affected – they’re in the same field, after all.
Global diversification is the perfect solution because suppliers from other countries won’t be affected by the conditions in the UK.
- 3) The more choices available, the more power contracting authorities have. This is handy when large suppliers, whose expenses are spread over a large number of goods, can provide more value at lower costs. The circumstances enable public bodies to negotiate quotes to lower the overall cost and increase overall revenue.
- 4) Brands with a strong global presence often have a reputation for quality, reliability, and creditability. Public procurers can be confident that the contracts are in safe, experienced hands.
We’d be remiss not to include what is possibly the biggest challenge to the global procurement marketplace.
Regulatory Compliance
Every country has regulations and laws specific to its public procurement procedures. Every buyer and supplier must comply with the regulations.
Going global means that all parties must navigate a sea of laws to ensure they are 100% compliant with the regulations in their countries of operation.
Failure to comply can result in severe penalties, like exorbitant fines or being banned from future contracts.
Buyers and suppliers must research their target countries and develop a procurement strategy that complies with relevant legislation. It’s possible to outsource user research services and/or consult with specialists in international trade.
Some of the laws and regulations to watch out for include:
- Consumer protection
- Employee safety
- Taxes
- Labelling
- Protecting and storing data
- Privacy
- Intellectual property
- Export-important
- Customs
Navigating Digital Marketplaces
Successfully negotiating online marketplaces has valuable benefits for contracting authorities and public service suppliers. For instance, global buying and selling provides opportunities to tap into a fresh market for cost savings and innovations.
However, it can be difficult for single entities to manage the entire procurement process.
Delta eSourcing offers a range of public procurement services that save the day. For instance, Delta Market Analytics gathers data on buyers and suppliers that help tailor digital marketplace procurement strategies to a specific audience.
Delta eSourcing also takes on publishing contract notices, conducting collaborative procurements, and supplier engagement and management. Book a demo and discover how Delta eSourcing’s services simplify local and global procurement processes, paving the way for success in the digital marketplace.