Flexible companies relating to each other via business-to-business
exchanges and hubs will be characteristic of the new economy, says
a recent report by Durlacher.
David Bicknell
A recent survey into business-to-business electronic commerce
has painted a new picture of the kind of infrastructure needed to
really compete in this rapidly emerging part of the economy.
Although first-mover advantage has become a prerequisite in the
business-to-consumer space, in the business-to-business arena it is
less important. Instead, scale, expertise, service quality,
valuable content, and industry understanding are likely to be the
key factors in determining winners.
According to the Durlacher report "Business-to-business
e-commerce" the likely winners will be those organisations that
are:
- Highly responsive - able to work in temporary partnerships with
others
- Focused - able to concentrate on areas of
specialisation
- Flexible - willing to participate in ventures, such as supply
chains, that are shared across a range of industries
- Transparent - information will become transparent, leading to a
decline in importance of areas such as accounts payable
- Lean and efficient - with minimal internal processes
- Real time - able to operate in areas such as
build-to-order.
The reasons for the growth in business-to-business exchanges is
that through ERP systems, much of the direct procurement of
products that feed into the production process has already been
streamlined. That is not the case with indirect procurement, which
covers the purchase of goods and services used in peripheral
maintenance, repair and operations. Such purchasing is less
streamlined, and so more inefficient. According to the Centre for
Advanced Purchasing Studies, indirect goods account for over a
third of all costs to a business, up to 60% in service companies.
So a small reduction in these costs can see some real improvement
in the company's bottom line.
Business-to-business e-commerce also has the potential to
streamline existing transactions by speeding up other parts of the
procurement chain, such as:
- An improved ability to find companies and products through
search engines
- Digital fulfilment of orders and digital tracking of
delivery.
The other area directly affected by business-to-business is
customer service. The Internet offers the prospect of improved
customer service at lower incremental cost. Cisco has become a
specialist at improving customer service, tying staff remuneration
packages to improved customer satisfaction.
Although an oft-quoted reasons for the success of Internet
commerce is the "disintermediation" of the buying process i.e.
cutting out the middle man, in the business-to-business space,
Durlacher predicts increasing use of intermediaries because:
- The rapid growth of Web sites and content means potential
buyers and sellers in trading communities will find it difficult to
locate suitable partners
- The cost of searching for such partners will exceed the likely
benefit in terms of lower prices
- Time is needed for familiarisation and due diligence costs for
a buyer considering a transaction with an unknown seller.
Intermediaries therefore will provide the following
functions:
- Bringing buyers and sellers together
- Providing a method for transactions to take place
- Qualifying buyers and sellers, i.e. giving assurance that
sellers have a track record and can deliver quality, and that
buyers can pay
- Aggregating third party content
- Creating original content
- Value-added service such as insurance, logistics, and
financing.
Such functions will therefore give rise to "online
intermediaries" that combine enabling business-to-business
technology together with market-specific or process specific
expertise to facilitate trade. It is these functions that have
begin to spring up in a series of sectors, such as automotive
(GM-Ford-Daimler-Chrysler) and retail (Sears- Carrefour).
Overtime, Durlacher suggests, many of the intermediaries are
likely to evolve in their own right. For example, functional or
horizontal hubs such as Commerce One, Ariba and Infobank are likely
to migrate to become service providers, while vertical trading
exchanges such as Band-X (telecoms), and Chemdex (chemicals) are
likely to link up to provide value-added services offering
procurement management, financial settlement and quality
assurances. Closed industry hubs may also spin off such offerings
into separate entities.
According to Durlacher, there are likely to be increasing levels
of interconnection between separate trading communities so that
organisations can source both indirect and increasingly direct
goods through a central entry point. For example, general hubs are
likely to link to industry specific hubs, which in turn will link
to smaller niche hubs to deliver specialised services.
Commerce One has already suggested that this increased blurring
of communities through interconnection is likely to herald the
creation of a series of new industries. Rather than thinking
vertically with sectors such as chemicals, retail and metals,
industry lines will become blurred in the future.
If you cannot even tell what the name of the industry you are
working in will be in five years time, you really are going to need
an organisation that is flexible, lean, adaptable. It will then
need IT systems to match, whether they are provided by a
traditional - but responsive - IT department, or by an application
service provision (ASP) model.