In my previous article "Rethinking EPC Business Model" virtual business consolidation (VBC) is claimed to be a synonym of digitization.
But the difference does exist. While digitization is associated with the true-north direction on the business map, VBC is with the precise route. What points does it pass?
VBC substantially differs from the conventional one. The latter is normally associated with mergers and acquisitions (M&A).
In the water industry, M&A is indisputably epitomized by the USFilter company (now Evoqua). It was once a regional business with less than 500 employees and annual revenues of less than $30 million. Since 1991, it acquired and integrated more than 100 companies worldwide. In 1999 USFilter, with over 10,000 employees and annual revenues of $1.36B, was acquired by Vivendi (now Veolia) for $6.2B.
M&A goes hardly noticed by customers, it does not add any new elements to existing business structures.
On the contrary, VBC introduces new technology serving both sides - the consumer and the producer. This is a primary criterion of any VBC platform. So engineering calculators may not evolve into the VBC platform if the consumer - the engineering/construction company - cannot contribute anything to it.
On the other hand, procurement of equipment and services is ideal for VBC implementation. Procurement features multiple interactions between consumers and producers, packed into the product/service lifecycle.
The VBC technology development shall focus on procurement.
It should start with a narrative revealing the business bottlenecks. Let's consider purchasing an equipment piece for a process project.
The process engineer prepares an RFQ package (specification, datasheet, drawings) and sends it to previously pre-selected companies. This step requires knowledge of design and engineering, as well as the pros and cons of companies and products on the market. Insufficient knowledge makes this step iterative and lengthy.
Upon receiving the RFQ, the sales department of a company prepares a quotation and sends it back to the engineer. The quotation quality and completeness depend upon the RFQ request, the budget-type one being of the lowest quality.
If 10 companies participate in the same tender, the sales department may prepare 10 similar quotations, and only one may lead to purchasing (at best). To cope with the RFQ loads OEMs shall monitor the seriousness of the RFQ issuers. Not seldom do OEMs disregard RFQs even from well-established companies as OEMs are inundated with the budget-type RFQs.
After getting the best and final offer, the process engineer prepares a Purchase Order (P0) package containing the same type of documents now tailored to a specific product. Once the PO package has been prepared, the commercial process is initiated.
Based on the above-mentioned narrative we may define the roles of VBC as follows.
- VBC shall guide the engineer through the preparation of the RFQ package (engineering consultancy)
- VBC shall select companies best matching the RFQ requirements (monitoring and analyzing businesses)
- VBC shall collect and compare the quotations and selects the best one (criteria-based comparison of products and services)
- VBC shall analyze RFQ to decide whether to send it to OEMs or re-use the quotations obtained in the past (VBC as pseudo-OEM)
- VBC shall consult OEM on the price of the product or service to raise the chances of success (commercial consultancy)
- VBC shall guide OEM on demand-supply alignment and the relevancy of the product or service (quotations success/failure analysis)
The first three points are already implemented in the Desaler and PlantDesigner applications.