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| Achieving
Competitive Advantage E-Business
WITH A B2B FOCUS
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N Chandrasekaran |
The
writer is E-business Practice Head,
Tata Consultancy Services |
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E-commerce
is rapidly transforming business as enterprises of all sizes
join the Internet economy. Companies are using the Internet
to:
. Enter new markets
. Increase supply chain efficiency
. Create new value chains
. Meet the challenges of increased competition
and global markets
In fact, many Global 2000 businesses are now viewing Business-to-Business
(B2B) e-commerce as critical to their economic survival. The
global e-commerce revolution is entering a new phase. While
the first stage was fuelled by the vision and innovation of
Business-to-Consumer (B2C) companies, the leadership and market
success of B2B companies will power the next phase, and it
is the B2B companies that will help realize the full potential
of the new Internet economy.
B2B e-commerce is the fastest growth area in the new economy
and carries immense potential, as can be seen from B2B revenue
estimates by leading research firms such as Gartner ($7.2
trillion by 2003), BCG ($2.8 trillion by 2003), and Goldman
Sachs ($1.5 trillion by 2004)
What is a B2B marketplace?
Simplistically, a B2B marketplace is just a website where
goods and services can be exchanged between a wide range of
suppliers and buyers. It is a many-to-many web-based trading
and collaboration solution that enables companies to more
efficiently buy, sell and collaborate on a global scale.
B2B marketplaces can be categorised along the following lines:
a) ‘Vertical’ industry-specific marketplaces revolve
around and satisfy the needs of a particular industry or sector.
b) ‘Horizontal’ product-specific marketplaces based
on specific products form around a supply market that cuts
across several industries.
c) Function-specific marketplaces focus on specific functions
when there is value in concentrating functional skills.
What
are the benefits?
For Buyers
E-marketplaces can help buyers reduce purchasing costs and
achieve faster time-to-market. By aggregating purchasing across
divisions and companies, buyers can achieve better, higher-volume
commercial terms with preferred suppliers. By aggregating
multiple suppliers, selection costs are low. Also, e-marketplaces
reduce time-to-market through more efficient supply-chain
processes. Buyers can aggregate multiple vendor and product
details and compare them. Because of this market transparency,
companies can enhance their reach and can source material
from the best suppliers (in terms of cost, quality, and any
number of other relevant parameters) available on a global
scale.
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Analysts
estimate that process costs comprise between 30 and 50 per cent
of the total costs of intermediate goods. Also, purchasing staff
spend nearly three-fourths of their time on administration tasks
and very little time on developing strategic outsourcing partners.
Thus, an estimated 65-70 per cent of the contracts are NOT centrally
negotiated, and a high percentage of purchases are made from
unauthorized suppliers. Analysts estimate that B2B implementations
will save the process costs by 10-25 per cent.In addition to
process-related savings, B2B solutions also offer potential |
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savings on the product side of procurement also. The typical
purchasing manager is not an effective researcher. Due to poor
research, an estimated 90 per cent of the purchases are awarded
to 20 per cent of the suppliers. One of the key weaknesses of
procurement is poor information flow. B2B solutions automate
the information process, maximizing the cost efficiencies. For
example, some B2B exchanges have introduced buyer-driven auctions
through which suppliers compete with each other to fulfill publicized
RFQs. Thus, the product side of costs can be reduced
by more than 20 per cent, adding to the already gained savings
on the process side. |
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E-marketplaces
enable companies to
overcome geographical barriers, and expand globally
to reach markets that were beyond reach earlier. Besides,
they
help optimise internal buying processes, improve selling
processes and eliminate most of the administrative
costs of traditional processing
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For
Sellers
E-marketplaces can help sellers increase sales with existing
customers, expand sales channels and reduce selling costs. Sellers
can improve customer service and get more business from customers
who use e-procurement to channel corporate spending across company
divisions. Also, suppliers can anonymously post and liquidate
excess inventory without jeopardising established pricing norms.
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They
can reach out to new geographies, and reduce selling costs
through lower inventory requirements, improved order accuracy
and streamlined electronic processes. Sellers can also receive
faster through electronic payments.
For Everyone
Every business benefits from an e-marketplace. An e-marketplace
effectively brings players together in real time, using the
Internet to streamline complex business processes and gain
efficiencies. As a result, buyers and sellers enjoy greater
economies of scale and liquidity and so, can buy or sell anything—easily,
quickly and cost-effectively. E-marketplaces enable companies
to overcome geographical barriers, and expand globally to
reach markets that were beyond reach earlier. Besides, they
help optimise internal buying processes, improve selling processes
and eliminate most of the administrative costs of the traditional
or paper-based processing.
Faster, more seamless collaboration and communications reduce
turn-around times, improve speed-of-delivery and strengthen
relationships across the supply chain. E-marketplaces enable
businesses to react faster to changing market conditions through
market intelligence, greater planning time and reduced volatility.
How
does an e-marketplace do all this?
An e-marketplace provides a shared Internet-based infrastructure
for:
a) Commerce transactions that automate and streamline the
entire requisition-to-payment process online, including
procurement, selling, and customer management.
b) A collaborative network for product-design, supply-chain
planning, optimisation and fulfilment processes.
c) Industry-wide product information that is aggregated
into a common classification and catalog structure.
d) An environment where sourcing, negotiations, and other
trading processes such as auctions can take place online,
and in real time.
e) An online community for publishing and exchanging industry
news, information and events.
Critical Success Factors for B2B
Exchanges Liquidity
The more buyers trade on a marketplace, the more sellers
will be tempted or forced to join the marketplace.
Right
Owners
The marketplace will have to be owned by partners who have
the best chance of capturing the value it creates in the
form of reduced cost. These typically are mostly buyers,
and in quite a few cases, sellers. In cases where the buying
and selling sides are fragmented, the right owner might
well be a Web-based intermediary that steps in to roll up
volumes on behalf of buyers and sellers.
Right
Governance
Right governance is essential to ensure that the parties
honour commitments and also to resolve disputes/conflicts.
The governing team will not only have to be neutral to buyers
and sellers, but also empowered to act, since this management
team will also have to take critical decisions on technology,
payment mechanisms, enforcement of policies etc.
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While
one of the primary drivers of B2B
is cost efficiency, simply pushing down prices
will not suffice in the long term
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Openness
In order to attract as many buyers and sellers as possible,
B2B marketplaces have to operate under open standards. Marketplace
architects such as Ariba and CommerceOne are committed to
open standards, but are yet to agree on those standards. Startups
such as WebMethods are building bridges to enable open communication
between buyers and sellers and also between marketplaces.
Full
Range of Services
While one of the primary drivers of B2B is cost efficiency,
simply pushing down prices will not suffice in the long
term. Companies that already use purchasing as a source
of competitive advantage will want to cut their Total Cost
of Ownership. So, marketplace architects will have to think
about how to provide other services related to the supply
chain, such as fulfillment logistics, CRM, and tracking
the performance of suppliers.
Future
Trends of B2B Marketplaces
Order-matching is inherently a very low-margin business
and it takes enormous transaction volumes to make it a viable
business. Marketplaces will find it extremely difficult
to survive on transaction commissions alone, since pure
trading commission rates are anyway heading downwards.
So, B2B marketplaces will evolve to provide higher value-added
services, and the following are possible avenues:
Content: B2B marketplaces will
be centralized repositories of important industry-specific
or product-specific content. Aggregating catalogs from multiple
vendors to publish to all buyers is a clear value proposition
for buyers in terms of content centralization and ease of
searching. Exchanges will also collect transaction data,
analyse industry trends and come up with benchmarks for
performance, which is value-added data and can be resold
in many ways. Additionally, industry news, relevant regulatory
information and analysis help make the exchange a community.
Third-party Services: Add-on
services to a B2B marketplace are a huge market. Such horizontal
services as contract administration, insurance, financing,
credit rating, shipment validation etc., will be offered
by the exchanges as add-ons to the participants.
Collaborations: Almost every
business process between business partners can be improved
or completely restructured by taking it online. Exchanges
thus have the great opportunity to integrate themselves
seamlessly into the existing chain of commerce and provide
customers with the best of both worlds—an integrated
demand/supply chain that spans all relevant workflows while
still delivering the benefit of market transparency.
B2B exchanges will automate more and more relationships
(between partners) and not just transactions, and thus become
e-hubs representing the full range of business processes
and interactions between trading partners.
Federated Net Markets: As mentioned earlier in this article,
the e-marketplace architects have not yet agreed on common
standards. So currently, buyers and sellers who participate
in multiple exchanges will have to develop and maintain
interfaces to each of the exchanges. This is not a sustainable
trend and so, sooner or later, exchanges will have to integrate
and offer common gateways to participants and become federated
net markets—much like the ATM networks which were forced
to integrate for the convenience of the consumer.
Conclusion
B2B marketplaces will fundamentally change how buyers and
sellers interact. It is only a question of when, and not
if, such marketplaces will develop. Problems of standards,
security, costs, and incentives will have to be resolved
to realise the full potential of B2B marketplaces.
Significant cost savings offer a demonstrable return-on-investment
that compels managements to embrace B2B as a means to gain
competitive advantage.
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