- In Case You Hadn't Noticed, Doing Business Is Different Now
- Business Isn't So Simple Anymore
- From Just-in-Case to Just-in-Time Inventories
- Investors Want to See Your Internet Strategy
- Higher Volumes, Larger Scale, Bigger Numbers
- Can Your Company's Systems Keep Pace?
- Electronic Data Interchange _(EDI): E-Business as We (Used to) Know It
Higher Volumes, Larger Scale, Bigger Numbers
Not only is business getting more complicated, but the scale is increasing, due in large part to the worldwide markets made possible by modern technologies in the aftermath of the Cold War. This large scale of business results from the sheer scale of intra-business goods and services, one that continues to grow significantly.
The Boston Consulting Group (BCG) estimates that in the U.S., electronic procurements between businesses will grow from $1.2 trillion in the year 2000 to $4.8 trillion in 2004. By 2004, electronic procurements should account for fully 40% of total purchasing; but only 11% of all purchases will involve online price negotiations. These findings, based on survey responses from more than 260 buyers, sellers, and e-marketplaces, as well as in-depth interviews, show that despite a high level of online penetration, the vast majority of transactions will be ordering and replenishment, and not price negotiations.
BCG's research shows that the size of the B2B e-commerce market is far greater than is commonly reported, in part because it recognizes the established base of Electronic Data Interchange (EDI) over private networks and its extensions to the Internet.25
Compaq Computers alone is running an average of $50 million worth of business weekly through its combined EDI and Internet systems, or about $2.5 billion annually in 2000.26
Last year, Forrester Research predicted that B2B e-commerce in the United States alone would total $2.7 trillion in 2004.27 Forrester wasn't alone in its bullish outlook; the Gartner Group forecasted that U.S. B2B e-commerce will total $3.7 trillion in 2004,28 while the Boston Consulting Group predicted an even greater upside, with B2B transactions totaling up to $4.8 trillion by 2004.29
But more recently, continued weakness in the U.S. economy as well as the collapse of thousands of dot-com businesses appear to have dampened such enthusiasm.30
By contrast, the Boston Consulting Group expects the more visible business-to-consumer purchasing in North America to total $65 billion in the year 2001. While that number represents a 44% increase over 2000 ($45 billion that year),31 it pales in comparison to the $1.2 trillion for electronic trade among businesses in the year 2000.
The market research company Jupiter Communications anticipates the volume of online business-to-business trade to grow to $6.3 trillion by 2005, representing 42% of non-service spending by that time. For the year 2000, Jupiter found online business exchanges accounted for only 3% of non-service spending. Jupiter predicted the computer and telecommunications market alone will account for over $1 trillion in volume by 2005.
But as important as the pure volume is the mix of trading venues. For 2000, Jupiter estimated the traditional direct sales model with products going from one supplier to many customers would account for 92% of the business-to-business volume. By 2005, according to Jupiter's research, the proportion will drop to 65% as what Jupiter calls "net and coalition markets," such as digital exchanges that have multiple suppliers and customers, grow to about 35% of the total online volume.32
The importance of electronic business-to-business transactions is also growing overseas. IDC estimates the volume of Internet commerce between businesses in Europe to grow by 87% to over 400 billion Euros by 2003.33
A good reflection of the increased financial volume is found in the sheer overall quantity of customers and transactions facing businesses today. Here are several examples of this larger scale that businesses need to support:34
A power company needs to rely on 20 other providers in the power grid to maintain service during peak loads, where before the company generated all of its own power.
A manufacturer of PCs distributes product through 27,000 resellers over the web, and the number is growing.
A market aggregator runs a web portal with no physical inventory of its own, but uses its branding to sell other distributors' products and attract customers to that overall branding.
A car manufacturer has some 5,000 second-tier suppliers of parts, yet still needs to track the flow of product, keep inventory levels to a minimum, and maintain quality.
A web-based travel service aggregates offerings from 500 vacation package providers.
An insurance company works through 20,000 field agents who need to operate one-on-one with clients.
An office supply company has a customer list of 50,000 small businesses, ordering product over the web, from printed catalogs, and over the telephone, and still demanding next-day delivery.