Business to Business (B2B) E-Commerce: the Silent Giant
Understand the Dynamics, Rationale, and Challenges
There are many types of e-commerce. But the most popular is business to business e-commerce.
When both parties involved in an e-commerce transaction are businesses, we call it business to business ecommerce, or B2B ecommerce for short. While mainstream media finds it more exciting to report about developments in business to consumer (B2C) ecommerce, the bulk of transactions, as measured by dollars transacted, take place in the B2B space.
The Drivers of Business to Business Ecommerce
The primary drivers responsible for the popularity of B2B ecommerce are:
If you are a manufacturer and need a steady supply of raw material, you need to maintain large, and expensive, inventories to ensure that you do not run out of raw material. This is because if you order at the last minute, your raw material supplier might not have enough stocks to supply you in time.
Also, you will need to maintain a large procurement team so that they can interact with multiple suppliers to procure the right quantity, quality, and price. And to account for all this, you will need a strong accounting team that can reconcile data with your vendors.
But that was the old style of working. Enter the world of B2B ecommerce. If you are electronically connected to your suppliers, you can:
- Lower inventories
- Get the best prices
- Reconcile accounts in real time
For instance, your system could constantly monitor the inventory level of your raw material as well as the inventory level of your supplier. At the right time, your system could automatically trigger an order to the best supplier. This alone is such a great benefit that it justifies investing in business to business ecommerce infrastructure.
Sales Channel Partners Management
If you use agents, affiliates, distributors or other channel partners to help you sell, you know that managing the sales channel can be a nightmare. But online B2B transactions have helped streamline the process.
By integrating your accounting system with that of your channel partners, you can make sure that there will not be any large scale reconciling process later. In addition, you can monitor the sales and inventory levels in real time to make appropriate channel decisions.
If your third party logistics provider did not provide you with a platform to place orders and monitor delivery, you would lose control over your logistics. As customers demand faster and more accurate delivery cycles, your ability to manage logistics can be a key differentiator and competitive advantage. Hence B2B systems that enable and monitor order fulfillment are indispensable.
How Does B2B E-commerce Yield Benefits?
At its core, business to business ecommerce helps because of two primary processes:
It Enables Data Exchange
As a faculty member of Information Systems at the University of Texas at Austin in 1992-93, I would teach about EDI (Electronic Data Interchange).
At that point of time, no one had heard of the term ecommerce. Indeed EDI was one of the earliest types of ecommerce.
Being able to transmit and synchronize data electronically is at the heart of all the benefits that B2B e-commerce provides.
It Reduces Cycle Time
As a consequence of real-time data exchange, comparison and monitoring algorithms, and auto-triggered business processes, cycle times have been reduced substantially. In turn, this has led to higher productivity, lowered costs, improved quality, and faster delivery.
Who Sets Up B2B Ecommerce Websites?
Any business can set up a B2B e-commerce website. And if the business is not big enough to have their own online B2B setup, they can participate as vendors in online marketplaces.
If you are a buyer, you can set up a website where you post your requirements, and sellers send in proposals.
This would make sense for large buyers.
As a large seller, you can set up a B2B e-commerce website where buyers browse through your offerings and place orders. This sort of e-commerce has many similarities with B2C (business to consumer) e-commerce.
Marketplaces are intermediaries that attempt to match buyers and sellers. Unlike a handful of large buyers and sellers, most businesses find it easier to transact at marketplaces.