It's companies buying from and selling
to each other online. But there's more to it than purchasing. It's
evolved to encompass supply chain management as more companies
outsource parts of their supply chain to their trading partners.
I use electronic
data interchange. Am I already doing it?
Yes. And if
you're getting value from your EDI investments, there's no reason to
abandon them now. But it's a good idea to think about whether any
other data exchange methods have a role in your future B2B efforts.
EDI has limitations, including an inflexible format that makes it
difficult to use for any but the most straightforward transactions.
Many small companies never adopted it because it was expensive. Much
of the newer e-commerce software uses XML — grammatical rules for
describing data on the Web — as its standard for data exchange.
Though the software may also handle EDI transactions, XML allows for
more variety in the information companies exchange and was designed
for open networks.
Predictions that XML will become the
dominant standard for data exchange are mostly hype. It's too early
to say how quickly—or how widely—it will be adopted. A few companies
have concluded it's worth it to plunge ahead anyway. Some analysts
think the two standards will coexist for the foreseeable future,
with companies using EDI where it works and adopting XML where it
doesn't. Then, of course, you'll have to decide if, and how, your
EDI and XML systems should communicate.
What are the
differences between B2B and business-to-consumer e-commerce?.
There's the
obvious difference in who the customers are — companies or
individuals. Beyond that, there are two big distinctions:
B2B efforts
require negotiation… Selling to
another business involves haggling over prices, delivery and product
specifications. Not so with most consumer sales. That makes it easier
for retailers to put a catalog online, and it's why the first B2B
applications were for buying finished goods or commodities that are
simple to describe and price.
…and integration.
Retailers don't have to integrate with their consumer customers'
systems. Most companies selling to businesses do integrate because their
systems have to be able to communicate with those of their customers
without human intervention.
B2B e-commerce
can save or make your company money. Some ways companies
have benefited from B2B e-commerce include:
Managing inventory more efficiently
Adjusting more quickly to customer demand
Getting products to market faster
Cutting the cost of paperwork
Reigning in rogue purchases
Obtaining lower prices on some supplies
What's the difference
between a public B2B exchange and a private one? Which one should my
company use?.
Public exchanges
are owned by industry consortia or independent investors and have
their own boards of directors. Though each exchange sets its own
rules, they are generally open, for a fee, to any company that wants
to use them. Private exchanges are run by a single company for doing
business exclusively with established suppliers and customers
(although the systems that support it may be outsourced).
Which one your company uses depends on what you want to do. If you
are buying and selling commodity products, public exchanges can be a
good venue in which to find low prices or identify new customers.
They're also becoming a popular way for a company to unload excess
inventory. In some industries, however, suppliers have been
reluctant to use public exchanges because they fear buyers will
aggregate their purchases and force prices too low, squeezing their
profit margins. Common types of transactions on public exchanges
include purchasing through requests for quotations, buying through
catalogs and auctions.
Companies that use private exchanges
prefer them for the closer online relationships they can have with
preferred customers and suppliers. They also think private exchanges
are more secure, because data about their trades are at less risk of
being exposed to competitors if there's a security breach. Companies
use private exchanges to trade proprietary information like supplier
performance metrics and sales forecasts in addition to orders and
invoices. Companies also use private exchanges to establish central
control over purchasing through contracts with established
suppliers.
Start with buying
so-called indirect supplies like pencils, chairs and copy paper.
Most companies start here because it's easier to set up an online
catalog of approved office supplies than it is to automate
procurement of specially engineered parts and materials. Plus,
you're not affecting day-to-day operations while you get your feet
wet. While the payoff won't be as big as for more mission-critical
purchases (so-called direct materials used to produce the goods or
services you sell), it can be significant. The Burlington Northern
Santa Fe railroad company lopped an estimated 3 percent to 28
percent off its indirect purchases and saved money internally by
automating a manual process for approving purchase orders.
On
the sales side, take your cues from your customers. Start with a
project that makes it easier for them to do business with you or one
that reduces your cost of sales and service. Greensboro, N.C.-based
clothing manufacturer Vanity Fair and Delray Beach, Fla.-based
office supply vendor Office Depot each built their online purchasing
sites because customers asked for
them.
It's marketing speak for integrating your
supply chain, and it's a vision of e-commerce nirvana. You're not
just sharing blueprints or your latest sales forecasts; you and your
trading partners are giving each other real-time access to your ERP,
product design, inventory and other systems. Companies that are
doing it say it helps them get new products to market faster, reduce
manufacturing time, keep inventory low and adjust more quickly to
changes in customer demand.
To collaborate successfully, you
and your partners each need up-to-date, functioning systems to serve
up whatever data you plan to share, and a way to deliver that
information electronically. That can be a big hurdle when many
companies still do a lot of business by phone and fax. The Goldman
Industrial Group, a Boston-based manufacturer of machine tools for
the automobile industry, has found it tough to convince its partners
to invest in system upgrades needed for collaboration. There's
cultural resistance as well. Not every company sees the value of
sharing what has been confidential information or trusts its
partners with it. Some also fear online collaboration might result
in layoffs.
Which business units should be
involved in a B2B project?.
Definitely the units that
do purchasing. B2B e-commerce can drastically change how buyers do
their jobs, especially if your company is one that still places
orders the old fashioned way. Sales and customer service departments
will need to be involved with projects that affect how you receive
and process orders from customers. And don't forget the folks who
manage your inventory. You may need to get other departments
involved, too, depending on the functionality you're building.
Also involve your suppliers, distributors and customers, and make
sure there's something in the project for them. B2B e-commerce
doesn't only change how you do business internally, your partners
have to change too. And unless you're the 900-pound gorilla in your
industry-and sometimes even if you are-you can't force everyone to
do things your way.
What kind of software do I need?
Is it expensive?.
Exactly what
you need depends on whether you're a buyer or seller, whether you're
dealing in indirect or direct materials and the extent to which
you're integrating your supply chain. Elements of a B2B system may
include software for generating purchase orders or requests for
quotations (RFQs), processing invoices, building and managing
catalogs, responding to RFQs and processing orders. Depending on
what you're trading and how, you'll want to look for specific
features that support your needs. Some of these are online
negotiation capabilities, dynamic pricing software, support for
international transactions and the ability to generate and process
bills of materials. To get the full benefits of B2B e-commerce,
you'll need integration tools to connect these systems with
forecasting and planning systems, inventory management, CRM, ERP,
logistics and other applications you use for supply chain management
and customer service.
Cost is also relative. In general, the
more elements of your business you want to integrate with trading
partners, the more you have to spend. Office Depot, with $11.6
billion in sales in 2000, put its catalog on the Web for $500,000,
and pays $5 million a year to maintain the system. A March 2001
Forrester Research report pegged the cost for buyers to join an
online marketplace at between $5.6 million and $22.9 million,
including operating costs.
How long will it take to put B2B
systems in place?.
You can set up an online catalog
for your customers in a few months. Starting from scratch to build a
portal for your suppliers that integrates with your back-end systems
may take you more than a year. The most time-consuming aspect of
building B2B systems is mapping your business processes to those of
your trading partners.
What if my trading partners
aren't ready to do business online?.
Build your B2B application and
your partners will probably come to use it. Some companies have
built Web portals that allow partners to place orders, input data
and access information from their ERP or other back-end systems
without any more investment than Internet access. If your partners
have to do some of their own software development to use the
application, be sure you offer them a big enough carrot (like the
promise of additional business) to make the investment pay off for
them.
