Whitepaper B2B E-Commerce Comes of Age and Drives Shareholder Value
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The Path Supply Chain Industry Making whitepaperwritten by: 1.0 3.0 4.0 Forward 2.0 Innovations Perspectives It Happen Christopher Sprague Bret Kinsella Andersen Consulting http://sprague.ASCET.com B2B E-Commerce Comes of Age and Drives Shareholder Value The refrain is now common. Business-to-business (B2B) e-commerce is exploding. Trillion-dollar market estimates by 2003 and 90% compound annual growth rates are causing the bright spotlight that used to shine on business-to-consumer (B2C) companies to shift to B2B opportunities. Three years ago the story was AOL and Yahoo. Two years ago, it was Amazon. Last year it was eToys and eBay. This year it is Ariba, Chemdex, Commerce One, and VerticalNet that have broken through the mindshare clutter. While the B2C milestones have helped define technology standards, trans- action capabilities, buying experiences and business models, we believe that B2B e-commerce will be the vehicle that truly delivers on the promise of the Internet. Awakening of the B2B Economy, which are focused on solving supply Christopher Sprague is an associate Slumbering Giant? chain and fulfillment complexity, are only now partner in the Andersen Consulting The emergence of B2B e-commerce is similar in emerging. Supply Chain Practice. He is a leader magnitude to the industrial revolution that So what? What’s in it for me? Plenty. spawned new manufacturing methods, distribu- Electronic commerce presents opportunities to in the development of e-commerce tion channels, and buyer-supplier relationships. increase revenues and decrease supply chain and strategies that focus on using Similarly, B2B e-commerce represents another customer relationship costs, translating into procurement to deliver operational and revolution that is fundamentally reshaping busi- higher margins that deliver higher shareholder strategic benefits. He has recently ness relationships and is causing dramatic shifts value – key drivers of the CEO agenda. For in channel power as information and communi- visionary entrepreneurs, e-commerce presents assumed leadership responsibility for cation imbalances disappear. Moreover, just as an opportunity to create new businesses, new Andersen Consulting’s e-procurement B2C e-commerce empowered consumers and industries, and enormous value for their market offering. several nimble retailers with more commerce investors and customers. options and lower costs, B2B e-commerce is In our conversations with executives and Bret Kinsella is a manager in the presenting buyers and suppliers with com- entrepreneurs we cover a common set of ques- Andersen Consulting strategy pelling value propositions to both lower trans- tions. What does the e-commerce solution and competency.His work focuses on action costs and increase the value captured in competitive landscape look like today? What business relationships. These value propositions trends are driving e-commerce adoption and strategiesy for building new are opening the door to a new set of players that marketplace evolution? How can I leverage the e-commerce marketplaces. Mr. focus on facilitating buyer and supplier adop- Internet and e-commerce opportunities to cre- Kinsella’s professional experience tion of e-commerce capabilities. ate value? This article explains how the diverse, includes e-commerce strategy,business To be clear, businesses are in the very early competitive, and complex landscape is being stages of e-commerce adoption. The underlying driven by the rate of buyer and supplier adop- plan development, market and customer technology is still being refined. Businesses tion of e-commerce practices in different sec- segmentation, alliance building, predicated on new models are being introduced tors. Moreover, we discuss the paths, pitfalls, and procurement solutions, and project daily, hoping to deliver innovative value propo- benefits associated with embracing e-commerce management. sitions. Companies such as Celarix and Electron opportunities. http://sprague.ASCET.com 1 whitepaper The Path Supply Chain Industry Making 1.0 3.0 4.0 Forward 2.0 Innovations Perspectives It Happen Section I – A Snapshot pliers. This translates directly into better meet buyer needs. Electronic procurement of B2B E-Commerce in the commodity pricing and lower transaction software packages were developed by com- New Millennium costs. Additionally, new channel intermedi- panies such as Ariba and Commerce One to aries are providing buyers large and small create process, demand management, B2B E-Commerce Today – with access to these value propositions as information, and transaction efficiencies New Economics well as providing significant value to sup- for large buying organizations. British and New Channel Powers pliers such as increased access to qualified Telecom, CIBC, Citigroup, Chevron, Since the advent of the Industrial customers, lower transaction, and cus- Eastman Chemical, FedEx, and Revolution, one paradigm has reigned tomer service costs. The result of these Transamerica are a few of the Fortune 500 supreme in business-to-business com- changes? Channel power is shifting to companies with the resources and buying merce – supplier power. In recent years, Internet-enabled buyers and the new inter- power to deploy enterprise-level e-pro- some very large corporate buyers such as mediaries, B2B marketplaces. curement systems. While implementation AT&T, Compaq, and General Motors rec- of these systems combined with the ognized that their buying volume granted E-Commerce Value Propositions Are required process and organizational them certain channel powers that allowed Spreading Rapidly – First Suppliers, then changes can often cost millions of dollars, them to dictate pricing and service levels Buyers, then B2B Marketplaces these changes can translate into consider- for some commodities. However, strategic able benefits. And despite initial concerns, sourcing luxuries are reserved for only the Supplier-Centric Developments suppliers found that they to were able to largest buyers and only for a limited num- First suppliers published information on achieve broad benefits as well by conduct- ber of commodities.The time and expense the Web. A simple value proposition: pub- ing business online. These benefits includ- associated with gathering expenditure lish brochure-ware on the Internet and ed: lowers sales costs combined with data, negotiating new pricing with suppli- make it easier for customers and potential broader reach, accurate electronic orders, ers, and then managing contracts have customers to access and less expensive to better customer service, the potential to been undertaken by many large corpora- update. Then suppliers such as W.W. plan production around demand, and tions only to find that the benefits don’t Grainger, the nation’s leading business-to- more. stick. Although they may have negotiated business distributor of maintenance, repair, lower prices, the true benefits can be elu- and operating supplies and related informa- B2B Marketplace Developments sive if they are unable to deliver the enter- tion, recognized an opportunity to expand B2B marketplaces are the frontier that prise’s demand. sales volume by providing transaction capa- promises to extend buyer benefits beyond The Internet is inverting the econom- bilities on their Web site. About the same the Fortune 500 and offer new value ics of procurement. Electronic commerce time, companies such as Dell and Cisco propositions to Fortune 500 buyers.These technologies are not only extending tradi- turned to e-commerce to reduce sales and new supply chain or channel intermedi- tional value propositions to new classes of service support costs by transferring sales to aries are also positioned to provide bene- buyers and suppliers, they are also pre- the Web and away from costly call centers fits to suppliers, large and small. Smaller senting entirely new value propositions. and field sales representatives. Other suppli- buyers benefit from lower published pric- Buyers have access to more information, ers, such as Ingram Micro, a wholesale dis- ing and product search costs. Buyers of all buying tools, and electronic access to sup- tributor of computer-based technology sizes are benefiting from better pricing by products and services, adopted electronic employing reverse auction tools and elec- auctions to achieve better excess inventory tronic requests-for-quotes facilitated by W2 Weblink disposition pricing. As in the past, benefits such companies as BizBuyer, Commerce accrued to the suppliers. However, as more One, and Moai.These solutions allow buy- For more on channel inventory, see: suppliers came online, pricing differences ers to access far more suppliers than ever wayman.ASCET.com became easier for buyers to access due to before and use e-commerce tools, data, bruce.ASCET.com lower search costs. With this buying came and strategic sourcing to rationalize their anthony.ASCET.com the often tedious need to surf multiple sup- supplier base. Suppliers win also by gain- For more on revenues, see: plier Web sites to compare pricing, service ing access to new classes of buyers and are peters.ASCET.com level, and quality, and it presented new experiencing lower transaction costs For more on customer relationships: challenges in controlling off-contract buy- through intermediaries such as srivastava.ASCET.com ing. Could there be a better way? Chemconnect and PlasticsNet. For more on shareholder value, see: With that said, B2B e-commerce is in srivastava.ASCET.com Buyer-Centric Developments its infancy.