What is
business-to-business e-commerce?
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?/b>
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.
卆nd 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.
What are the benefits?
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 is a B2B exchange?
At its most basic, a B2B exchange (also
called a marketplace or hub) is a website where many companies can buy from and
sell to each other using a common technology platform. Many exchanges also offer
additional services, such as payment or logistics services that help members
complete a transaction. Exchanges may also support community activities, like
distributing industry news, sponsoring online discussions and providing research
on customer demand or industry forecasts for components and raw materials.
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.
What's the first step I should take?
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.
What's collaborative B2B e-commerce?
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.
Senior Editor Elana Varon can be
reached at evaron@cio.com.
Source: www.cio.com
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