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Business to Business (B2B) Commerce

As is obvious, B2C is highly visible, but it was not the first area of online commerce, nor is it the biggest. Forrester Research estimates the B2B market will cross $1 trillion by 2003, suggesting boundless opportunity for this segment over the next decade. As organizations in every industry see more and more end users picking up offerings through online commerce, it is only natural that they look for opportunities in their day-to-day operations to challenge conventional ways of doing business. If they don't, a competitor tuned into the same market dynamics will. Because of these insights and observations, B2B is being transformed. Such a transformation in B2B is rippling through the value chain and affecting every player at every point back through the continuum—from retail and its relationship with end-customers back into the supply chain. This view in Figure 1.1, a demand-based environment, is a continuous loop, facilitated by the Internet.

Interestingly, the same dynamics driving B2C noted above (convenience, selection, quality, content, and service) are powerful drivers in B2B as well. These dynamics happen on a broader scale, and the numbers can be much greater (in terms of transaction size, etc.).

In a supply-based view, the value chain consists of the complete spectrum of producers and their support communities from raw material origins to final consumption. It is a model that describes a series of value-adding activities encompassing the supply side (raw materials, logistics, production) through the demand side (outbound logistics, marketing, sales).

Figure 1.1 The Value Chain, Simplified

The B2B value chain is much more complex, but because of this complexity it lets us understand existing organizational structures and future possibilities for their transformation to eliminate costs and gain value. Typically, this involves identification and decisions about non-value-adding activities or highlighting gaps that exist between one group of activities and another.

Gaps occur when handoffs take place. These gaps are most often information-based. They occur where problems or inefficiencies arise and things simply "fall through the cracks;" as for example, when a customer query about a product return and credit results in an indifferent response or lack of accountability. Many people in the service sector are building complete businesses around the handoff of information between one player and another.

The Internet provides enormous opportunities for integration of functions and responsibilities all along the value chain, and this is referred to as disintermediation. Dis-intermediation occurs when entities in the supply chain that add little or no value are taken out. In the offline world, such intermediaries exist because they make possible relationships with suppliers or customers that an organization cannot reach by itself. With online connectivity, one-to-one relationships are more easily managed. The information flow is shortened to encompass only those with a need-to-know and a need-to-use!

It is natural for management to want to consolidate value chains and remove cost. Flattening steps through the value chain to foster faster and more accurate exchange of information, collaboration, and tighter integration are becoming a reality. "Partner integration" introduces the latest innovation in business strategy, breaching external boundaries.

When Dell accepts an order for a computer, it notifies its supplier for disk drives that a new unit has been ordered. This removes several handoff points in Dell's supply chain.

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