The business environment nowadays can be characterized as one of unlimited competition, where companies have to make extreme efforts to streamline their businesses (lean procurement) in an ever-changing business environment. Under such circumstances, cost-cutting is gaining attention as a core factor behind the success of leading companies. In particular, it is widely recognized by companies that lean procurement via the e-marketplace is to way to achieve lean management.

In case of manufacturing companies, procurement accounts for more than 60% of total revenue. As it accounts for 25% of total revenue in the service sector, including financial firms, procurement can be seen as the core function that determines the success or failure of a company. Cost-cutting through lean procurement is more than 5 times more effective in terms of improving profits than increasing revenue, making lean procurement a more important activity than any other area of business.

Procurement underwent a transformation after the 1990s. A confluence of events, including the dramatic increase of Internet e-commerce, led by the development of IT and infrastructure, along with efforts of the companies to achieve lean management, led companies to gradually begin to outsource procurement work to specialized companies.

In the millennium age, with the initiation of MRO (Maintenance, Repair & Operation) material outsourcing for B2B procurement transaction, in particular, for commercial products that are relatively more standardized, MRO companies engaged in procurement started to increase. While invisible to the public at large, MRO e-marketplace firms supplied millions of consumable products at low cost, tailored to each company's needs, through e-commerce.

The establishment of the MRO business is important, considering the characteristics of domestic market. This is because there exists a considerable gap between the buyer and the seller. While the major buyers, mainly conglomerates, are equipped with sufficient systems and processes, thousands of smaller-sized suppliers are not equipped with the same.

The business model of MRO companies is to narrow such gap and assist both buyers and sellers to achieve a win-win situation. In other words, the role of MRO companies is to supplement the shortcomings of suppliers while at the same time, link buyers with sellers through a streamlined system and service, creating business.

Statistics show that the cost-cutting effects of buyers and the revenue of suppliers have grown by 25% annually, and iMarketKorea will continue to assist the growth of suppliers through quality management and process management.

MRO companies started out with the aim of providing better quality items at lower costs, but now rather than simply enabling buyers to cut costs, MRO companies are providing various additional services such as logistics, product standardization, procurement consulting, technology seminars, and strict & transparent management. If the early business model of MRO companies was like getting a group discount by collecting 30 people to visit the Gyeongbokgung palace, the current business model is about offering a tailored guide that meets the needs and demands of the group visiting the Palace.

In the past few years, the client base has expanded as corporate procurement managers have raised awareness of the e-marketplace. In the early stages of MRO, the main clients were conglomerates, but recently the client base is gradually expanding to the government and medium-sized enterprises, and MRO companies are stretching their boundaries to encompass the world, in line with the globalization movement. In the future, plans are being reviewed to establish an e-marketplace network that links Korea , China , and Japan with Southeast Asia, and then penetrating into the U.S. and European markets.

Recent forecasts made by economic institutions indicate that the business environment will further deteriorate this year. As circumstances become more difficult, there will be greater efforts made to cut costs, and a stronger demand for lean procurement. Right now, when there is a desperate demand by companies for the benefits brought about by the procurement services MRO companies offer, the time is right for MRO companies to take on the challenge for further advancement and the expansion of business.

At the dawn of this New Year, I would like to remind you of the proverb ýf it is good for the buyer and good for the seller, the world is good'.
<iMarketKorea CEO's contribution published in the ETnews on Feb. 2, 2007>