B2B News

B2B Moves from Procurement to Collaboration
B2B buyers look at private trading networks as a chance to build relationships, perhaps that's why more than 25 percent of B2B executives surveyed by Jupiter Media Metrix plan to add collaborative features within the next year. May 24, 2001

Companies Spending Big Bucks to Move Markets Online
Companies will spend between $5 million and $23 million to integrate into online markets, according to Forrester Research, which means e-marketplaces will be under pressure to deliver. April 10, 2001

Asian B2B E-Commerce Approaches Quarter of World's Total
B2B Internet commerce in the Asia/Pacific region reached $96.8 billion in 2000, which was 22 percent of the worldwide total of $433.3 billion, according to Gartner Group, Inc. April 5, 2001

B2B Moves from Procurement to Collaboration

B2B buyers look at private trading networks (PTNs) as a chance to build relationships, not just complete transactions, perhaps that's why more than 25 percent of B2B executives surveyed by Jupiter Media Metrix said they will add collaborative features to their PTNs within the next year.

The addition of collaborative applications, including inventory level monitoring and product design, to PTNs will outpace those of transaction-focused enhancements, as only 20 percent of B2B executives indicated that they will focus on procurement features. According to Jupiter analysts, the shift from transaction models to collaborative PTNs will offer companies the best short-term ROI by allowing buyers and sellers to improve the quality and efficiency of their products and manufacturing before meeting longer-term goals for cost effective B2B transactions.

"Private trading networks represent a new tool to link the interests of buyers, suppliers and distribution partners. Initially they promise cost savings, but their ultimate value will come through effective cooperation that benefits all three parties," said Tim Clark, Jupiter senior analyst. "Most B2B buyers view PTNs as an opportunity to gain closer relationships with suppliers, not to facilitate transactions. Closer relationships with suppliers will result in faster ramp-up to manufacturing for buyers and more efficient and predictable inventory levels for sellers."

A Jupiter B-to-B Executive Survey found that 17 percent of B2B leaders plan to use PTNs to monitor suppliers' inventory levels within the next 12 months. Other information-sharing uses included collaborative planning, forecasting and replenishment (15 percent) and product design (11 percent). Commodities buying (13 percent) and procurement management (13 percent) were the only transactional applications identified in the survey. According to Jupiter analysts, visibility of inventory is a key component to the success of original equipment manufacturers (OEMs) and contract manufacturers because it enables them to plan "just-in-time" manufacturing.

According to the Executive Survey, 61 percent of B2B executives cited closer supplier relationships as a key function of PTNs. Forty-six percent indicated that faster times to market and closer links to channel partners were top value propositions of PTNs.

The use of PTNs is not without its barriers. Jupiter's survey found that 36 percent of respondents indicated that concerns over sharing sensitive data with business partners was the main barrier to using PTNs, while 24 percent consider integrating existing technology investments a barrier. According to Jupiter analysts, industry-sponsored marketplaces, major customers of PTN software, should take leading roles in setting industry-specific standards that protect companies during the exchange of proprietary information.

"PTNs offer many great benefits to the buyers and sellers who use them, but they will not reach their long-term potential if they are used as standalone applications," Clark said. "The most strategic connection exists between supply-side PTNs that monitor inventory levels and demand-side PTNs that connect manufacturers to sellers or end users. When combined, they can create visibility along the entire chain between buyers and producers and also have the potential to allow for sellers to anticipate demand."

More than 80 percent of B2B buyers will be strongly influenced to trade online with suppliers who offer more comprehensive services, including collaborative product design and supply-chain inventory visibility. More than half (54 percent) of B2B buyers would treat suppliers as "preferred vendors" if they provided such value-added services.

Companies Spending Big Bucks to Move Markets Online

Companies will spend an estimated $5.4 million to $22.9 million each to integrate into online markets over the next five years, according to a report by Forrester Research. The result will be big business generation for e-marketplace vendors while putting cost performance pressures on Net markets themselves.

"E-marketplaces offer significant opportunities for buyers to lower prices and streamline buying processes, but those savings require a significant investment," said Matthew Sanders, analyst at Forrester. "Companies can make the most out of these outlays by documenting workflows, leveraging their integration efforts and pushing their purchases online."

The promise of lowering the cost of goods entices buyers, but in order to capture the benefits, purchasing organizations will need to invest heavily in four areas: 1) changing internal procurement processes; 2) integrating e-marketplaces within internal systems; 3) purchasing B2B applications; and 4) paying e-marketplace transaction fees. These costs, however, won't be the same for all implementations.

According to Forrester, buyers getting started with e-marketplace buying will seek to trim transaction costs associated with processing purchase orders for maintenance, repair and operations (MRO) goods. The price tag for these baseline buyers is around $5.6 million, and it will be driven by a combination of transaction fees, integration software and internal staffing.

Spot market dabblers, those purchasing executives who will use e-marketplaces to make spot purchases for their direct materials will spend $10.7 million in order to help manage costly inventories and avoid shortfalls. Forrester says these buyers will pay the most for new software installation and related consultant fees.

Enterprise enablers will spend $22.9 million. They will use e-marketplaces to manage all of their contracts for all of their indirect and direct materials purchases. For these aggressive buyers, significant costs will come from the large consulting teams needed to implement this complex approach.

Based on these online buying activities, Forrester also projects that e-procurement consulting projects for e-commerce integrators like PricewaterhouseCoopers will swell to $3.2 billion in five years.

"On average, firms expect their online buying efforts to save 4 percent this year, doubling to 8 percent by 2003. But these buyers aren't blindly enthusiastic," Sanders said. "More than half of the purchasing executives we interviewed acknowledge that in-house adoption hurdles like user-level resistance might delay their savings."

Research by International Data Corp. (IDC) found that worldwide e-marketplace services spending will increase at a compound annual growth rate of 27 percent, from $5.2 billion in 2000 to $17 billion in 2005.

"The demand for a full range of consulting, implementation and operation services has driven stunning growth for e-marketplace services," said Leo Lipis, senior analyst for IDC's eMarketplace Services program. "Moving forward, the greatest opportunities for e-marketplace service firms will be in integrating participants' internal systems with those of the e-marketplace."

By 2005, IDC found, more than 50 percent of the opportunity in the e-marketplace services market will come from participants in e-marketplaces, whereas nearly 85 percent of the revenue is currently coming from e-marketplaces.

"E-Marketplace service firms would be well served to develop preferred integrator relationships with e-marketplaces and to increase their marketing activities directed at e-marketplace participants," Lipis said.

According to IDC, the explosive growth in e-marketplace services in North America has reached its peak. However, other regions will compensate for this slowdown. Western Europe and Asia/Pacific, for example, represent the greatest growth opportunity for e-marketplace services spending during the forecast.

Asian B2B E-Commerce Approaches Quarter of World's Total


B2B Internet commerce in the Asia/Pacific region (including Japan) reached $96.8 billion in 2000, which was 22 percent of the worldwide total of $433.3 billion, according to Gartner Group, Inc., and in 2001 it is on pace to reach $220 billion, or 24 percent of the total.

By 2005, Asia/Pacific will account for 28 percent of the worldwide total, with B2B Internet commerce transactions of $2.4 trillion.

"Businesses in Asia/Pacific will use this opportunity to reduce exposure to overseas markets impacted by the economic downturn and focus on building private regional marketplaces with familiar partners," said Lane Leskela, research director covering Asia/Pacific Internet commerce for Gartner's e-Business group. "The first wave of e-marketplace development in Asia/Pacific was pushed by overseas buyers' e-procurement initiatives. The next cycle is characterized by private investment and consortia-funded supplier marketplaces working to shorten manufacturing and delivery time and aggregate total market demand on a global scale."

Gartner defines B2B Internet commerce as the sales of goods and services for which the order-taking process was completed via the Internet. This includes purchases via Internet EDI, e-marketplaces, extranets and other sell-side initiatives, but excludes activity over proprietary networks. Gartner's forecast is based on the value of B2B nonfinancial goods and services sold, resold and brokered over the Internet through establishments every time they are turned over.

A report by The Boston Consulting Group (BCG) warns Asian companies not to put e-commerce on the back burner just because the dot-com craze has subsided. According to the report, e-commerce is changing the basis of business competition around the world, and if Asian companies continue to lag their Western counterparts in adopting it, they put their fundamental competitive advantage at risk.

BCG's report estimates the value of B2B transactions in Asia by 2003 is expected to be as much as $430 billion.

"While we see a handful of Asian companies starting to think about e-commerce more strategically, the majority of those doing anything at all are simply implementing 'made in the U.S.' strategies. This won't work in Asia-Pacific, because the competitive landscape is emerging quite differently than in the U.S.," said BCG vice president Jim Hemerling.

The prospects for the region's e-marketplaces is far from rosy. BCG predicts that most of the more than 750 horizontal and vertical e-marketplaces that have sprung up in Asia-Pacific over the past year (compared with about 1,100 in the United States) will not survive.

"Our experience in the market tells us that companies are in two camps in Asia-Pacific," Hemerling said. "There are those that have put their e-commerce plans on hold because the opportunities they once saw for capital gains appear to have gone away -- which is concerning. There are others who have made major e-commerce investments that continue to struggle with the multiple challenges of implementation, in an environment where both internal and external support is often waning."

At greatest risk, according to BCG's report, are Asian companies serving global markets. E-commerce is shifting comparative economics globally, and although Western companies that have embraced B2B e-commerce are already driving down their costs (with average productivity gains of 6 percent estimated by 2010) Asian companies lag in implementation. At risk is Asia's fundamental basis of competitive advantage-cost.

The BCG report is based on 500 interviews and questionnaires conducted in 10 countries across the region.

back to top