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Business-to-Business Markets

Adding more dollars to the bottom line, increasing your company's revenue opportunities, and capturing and maintaining an edge over your competitors—these are what e-business and business-to-business (B2B) e-commerce are all about. If you make the most of technology and the Internet, you can gain a competitive advantage by improving the efficiency and effectiveness of your business communications. Many companies have found that the first essential step in this process is to add the power of "e" to the supply chain.

Supply chain management is the process of optimizing a company's internal procurement practices, as well as the company's interaction with suppliers and customers, to bring products to market more efficiently. B2B e-commerce uses Internet technology to implement supply chain management in new and very efficient ways. An efficient supply chain reduces total cost of operations by reducing product cost. That can have a much bigger impact on the bottom line than even getting fresh sources of revenues and earnings.

Although sometimes it seems that net profit isn't important to new economy companies, in the long run it still determines management's success or failure. Many business plans show escalating net profit driven by gross sales, but in the real world it's often more effective to cut overhead. Reducing the cost of acquiring, handling, and warehousing raw materials is a great way to build the bottom line.

Buzzwords

B2B—Business-to-business

Any industry that consumes mass quantities of raw materials, such as chemical products, medical supplies, electronic parts, or automotive parts, must give a lot of management attention to its procurement process. These companies typically build a tight group of trusted suppliers. It takes sharp procurement professionals to keep updating and building relationships in what becomes a trading community.

The Internet brings these procurement professionals new tools for buying and bartering. At the same time, these tools open new markets and trading communities to suppliers.

Buyers and suppliers can meet in many places on the Web. Auctions are popular and bartering is growing. For example, a site named Ubarter.com automates the barter process. But sophisticated trading communities typically gather at specialized trading Web site systems called B2B marketplaces. A marketplace is an automated bazaar that cuts the number of middlemen and acquisition costs while maintaining quality. Companies can operate their own marketplace sites, join existing constellations of sites, or use online services. The models are still emerging, but any company can be a seller, a buyer, or a B2B market maker.

Buzzwords

Marketplace—A specialized Web site containing catalogs, order forms, and other useful information provided by product suppliers. Like a real market, it's a place to buy, haggle over, and exchange goods and services.

Who Needs This?

Small supply companies can benefit from joining a B2B marketplace because they can reach a wide world of potential buyers. Similarly, large companies can efficiently deal with many small companies through a marketplace. In a recent PC Magazine interview with Dave Clementz, the Chief Information Officer of Chevron Oil, Mr. Clementz reported that suppliers using Chevron's supply-chain experience cost-of-sale reductions ranging from 5–30%. So in addition to reaching a bigger market, a B2B marketplace can enable suppliers to more efficiently reach their traditional markets.

Any company that consumes raw materials and makes them into finished products can benefit from automated supply chain management techniques. Of course, the bigger the operation, the bigger the potential benefit and also the bigger the initial cost.

The B2B marketplace is a new way to implement an old business practice called supply chain management. Fast companies beat slow companies, so two major goals of modern supply chain management are to reduce time and to pay for only what you need only when you need it. Of course, the supply chain is also about the quality of the raw materials. Today, a supply chain is a highly interactive process that can cover the entire cycle from product R&D, concept, and design through creation and delivery. The buzzword phrase "just-in-time delivery" describes supply chain management tied to a clock. If raw material arrives on your loading dock just in time to feed the manufacturing process then you reduce handling, storage, and cost. Knowing when all of the parts will come together for manufacturing allows you to budget people, facilities, and even consumables such as electricity and gas while you beat the competition.

Buzzwords

Supply chain management—The supply chain feeds raw material into the manufacturing process. It's concerned with quality, quantity, delivery, timing, and payment of goods and services that go directly into a finished product.

Buzzwords

Just-in-time delivery refers to the ability to deliver raw materials to the loading dock just before they're needed for production. This ability reduces the cost of inventory, warehouse space, and handling, so it significantly reduces production costs.

Supply chain management, depicted in Figure 3.1, focuses on the materials and goods that go directly into your product. Today, we often refer to it as e-procurement. It's usually done by a few procurement professionals. But companies need more than raw materials. The process of acquiring the supplies that you need to do business, from dust mops to office machines, is known as indirect purchasing, because the purchases don't go directly into the product. Today, we call it e-purchasing. We deal with e-purchasing in the next chapter, but the tools for e-procurement and e-purchasing are very similar. The major difference is that e-purchasing is done by many people throughout a company—often with a variety of job titles. e-Procurement and supply chain management are done by a few professionals.

Figure 3.1 Supply chain management focuses on the materials and goods that go directly into your product.

Buzzwords

e-Purchasing—Buying common products and services that a company needs to do business. Examples are light bulbs, computers, coffee service, and travel tickets. Many employees with different job titles placed throughout the organization often do this.

Buzzwords

e-Procurement—Buying specialized goods, materials, and services that go directly into a finished product. Typically done by procurement professionals.

In Chapter 2, "Vertical Portals for B2B," we discussed vertical portals. Although a marketplace and a vertical portal have different content, they can serve the same audience and closely link to each other. Vertical portals often serve as a gateway to a marketplace. In some cases, particularly in areas such as auctions and technical reference libraries, the portal and marketplace become one.

As with vertical portals, you can decide to participate in a marketplace to benefit from the efficiency, or you can decide to set up a marketplace to better market your services or even to grow and influence an industry. Small companies particularly can benefit from the access to big markets they receive through a marketplace. If you're a bigger company and you want to influence an industry, you become what is called a market maker.

REALITY CHECK: B2B can improve efficiency and provide competitive advantages, but it must be the right kind of B2B for your organization.

  • Many suppliers of equipment and consumable products—Cisco, Dell, and Grainger are good examples—have established customer relationship management systems. In many cases you're better off going to the suppliers rather than making the suppliers come to you.

  • Adopting e-purchasing brings corporate cultural changes for both consumers and suppliers. When computers change people's jobs you need to give as much attention to the people as you do to the systems or the systems will fail.

  • Small suppliers can benefit from joining trading groups, but they must keep listings up-to-date.

  • A corporate supply chain management system has its greatest value when it's integrated with accounting and manufacturing applications, but custom integration isn't cheap. Budgets in six and seven figures are common.

  • Money draws flies. You need both electronic safeguards, in terms of certificate servers and proper authentication, and strong administrative security practices.

The chemical industry, always big on bartering materials, provides good examples of the different roles available in a B2B market. CheMatch.com is an online marketplace dot-com company aimed specifically at the bulk chemical industry. Over 125 companies act as buyers, sellers, and traders on its marketplace. Eastman Chemical (http://www.eastman.com/), an established chemical firm in Tennessee, is becoming a B2B market maker. Eastman is working with SESAMI.com to create a marketplace for the chemical industry in Asia and it's involved in a project called Shipchem.com that drills down into ordering specialized shipping services for chemical products.

Although a B2B marketplace can be as busy as a bazaar, each buyer sees the equivalent of a private library of catalogs and product brochures from different companies combined with a bulletin board for posting messages, an auction, ordering systems, and delivery systems. Figure 3.2 gives you the idea. Suppliers enter their catalogs and brochures into the marketplace as a series of files, but companies such as Ariba and Grainger are collaborating on specialized features written in the Commerce XML (CXML) scripting language to automate the handling of supplier content. Sellers receive orders by email, fax, or electroic document exchange and settle accounts by electronic links through banks, or maybe by paper mail. In the most elementary form, buyers only need an Internet connection, a browser, and a password to browse and search the combined material.

Figure 3.2 Each buyer in the B2B marketplace sees the equivalent of a private library of catalogs and product brochures from different companies, as well as ordering and delivery systems.

Case Study

e-Chemicals

Headquarters: Ann Arbor, Michigan

http://www.e-chemicals.com/

Headquartered in Ann Arbor, Michigan, e-Chemicals provides end-to-end supply chain solutions for the chemical industry. Through machine-to-machine connectivity that links raw materials providers, chemical manufacturers, channel intermediaries, and chemical purchasers, e-Chemicals drives significant value by creating efficiencies and reducing costs. e-Chemicals is the first online company dedicated to meeting the comprehensive needs of the chemical industry including competitive pricing, methods of procurement, financial settlement, transportation, regulatory concerns, and inventory reduction.

e-Chemicals also provides a neutral online marketplace that enables its registered buyers to select a product, get a price, and order and track shipments online through its Web site, http://www.e-chemicals.com/. The company's goal is to be the supply chain backbone of the chemical industry worldwide. e-Chemicals is a partner company of Internet Capital Group, an Internet company of more than 60 partner organizations committed to being the world leader in each of its industry segments.

Good examples of similar industry marketplaces include http://www.networkoil.com/ and http://www.e-steel.com/home.shtml.

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