Business to Business eCommerce in the Amazon era

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The impact of B2C e-commerce of the Amazon.com era in the B2B environment. …

The impact of B2C e-commerce of the Amazon.com era in the B2B environment.
Differences, products suited for B2B eCommerce, strategies and limitations of B2B eCommerce.

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  • In the era of Amazon and eBay, hope there will be more in future, the B2B is growing so far and mobile and social will going to play a significant role in the years to come.
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  • In the era of Amazon and eBay, hope there will be more in future, the B2B is growing so far and mobile and social will going to play a significant role in the years to come.
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  • 1. Business to Business (B2B) e-commerce and e- procurement B2B in the Amazon.com era RAFEL MAYOL Master of Industrial Technologies and Operations November 2012“This paper studies and serves as a first approach on how the changes in the Business to Consumer(B2C) e-commerce marketplace in the Amazon.com era have started to replicate in the Business to Business (B2B) e-commerce marketplace and e-procurement systems”
  • 2. Rafel Mayol B2B e-commerce and e-procurementIndexIntroduction .................................................................................................................................................. 3E-procurement overview .............................................................................................................................. 4B2B Marketplace Overview .......................................................................................................................... 5Differences between B2C and B2B e-commerce .......................................................................................... 9Product Categories...................................................................................................................................... 11Impact on the Supply Chain ........................................................................................................................ 11 IT Infrastructure Impact .......................................................................................................................... 11 Supply Chain Network Impact................................................................................................................. 12 Best in Class Operating Modes ........................................................................................................... 13 Best in Class Network Design .............................................................................................................. 14 Picking ................................................................................................................................................. 15Conclusions ................................................................................................................................................. 15 2
  • 3. Rafel Mayol B2B e-commerce and e-procurementIntroduction Nowadays internet and e-commerce are changing the way consumers and buyers knoweach other, exchange information and complete transactions; the consumer habits are beingchanged and the marketplace is evolving to satisfy their needs. Customers are gaining powerboth because they have more information at their disposal and because of the cost savingopportunities that ecommerce is giving. It is normal to see people, inorder to make an assessed decision,searching the internet before visiting acar dealer, a specialized shoes store oran electronics retailer to have completeinformation. It is also significant thegrowth that Amazon, eBay and otherinternet marketplaces are experimenting as can be seen in the following Amazon.com’sRevenue Figure. This is no surprise as the customer is rewarding the wide product catalogoffering, convenience and price competitiveness; which mean low prices on millions ofproducts 24 hours a day, 7 days a week, at one click distance. This paper studies and serves as a basic approach on how the changes in the Business toConsumer (B2C) e-commerce marketplace in the Amazon.com era have started to replicate inthe Business to Business (B2B) e-commerce marketplace and e-procurement systems. Topaffected product categories, game changing companies, buying habits and benefits both tosellers and buyers will be covered. From a Supply Chain perspective, the difference logistic 3
  • 4. Rafel Mayol B2B e-commerce and e-procurementrequirements will be analyzed. The author hopes that the reader finds this informationinteresting and wants to share his passion for this evolving subject, which he believes is going todetermine which companies succeed and which die in the next decade.E-procurement overview Procurement is the activity by which companies obtain the goods and services theyneed to carry out their activities, whatever those goods are indirect supplies like office suppliesor direct supplies like manufacturing components. E-procurement occurs when this activityinvolves an IT technology and infrastructure that allows a more automated and efficientprocess, less paperwork and less errors. Historically, people involved in purchasing usedphones, faxes or mail1; but beginning in the 1970s, organizations installed systems such asMaterial Requirements Planning (MRP), Distribution Requirements Planning (DRP) andElectronic Data Interchange (EDI) to electronically transfer customer and supplier information. Nowadays EDI systems are still utilized normally under web-based platforms; butEnterprise Resource Planning (ERP) systems, that became popular in the 1990s until today,represent the effort to increase productivity and reduce costs in an intense competitionenvironment. Those systems integrate all business functions to share and exchange data tomake better business decisions, but they are rigid, expensive to upgrade or add functions,require training and lack sharing of information with suppliers and customers. The internet isproviding new cloud solutions such as Supplier Relationship Manager (SRM) or CustomerRelationship Management (CRM) on the marketing side.1 E-Procurement - Procurement Methods, Pros and Cons. Free Encyclopedia of E-commerce. 4
  • 5. Rafel Mayol B2B e-commerce and e-procurement According to P. Philips and W Piotrowicz2, six forms of e-procurement applications havebeen noted: e-sourcing, e-tendering, e-informing, e-reverse auctions, e-MRO and web-basedERP systems. Surveys have confirmed that e-commerce has led to:  Cost reduction  Reduction in purchasing cycle time or order time.  Reduction in number of suppliers.  Increase in the number of products supplied by main suppliers.  Inventory savings.  Reduction of purchasing prices. More literature about benefits from B2B e-procurement can be found in the following citedpapers. However, this study aims to the new trends from B2C that are being transferred to theB2B e-commerce and will not deep in such aspects.  ERP Systems and Implementation-Process Benefits: Implications for B2B E-procurement. Elliot Bendoly and Tobias Schoenherr: An investigation of 61 B2B success cases in which an implementation of ERP systems led to savings dependent on the length the systems have been active.  Analyzing B2B Electronic Procurement Benefits – Information Systems Perspective. Wojciech Piotrowicz and Zahir Irani, Brunel Business School, Brunnel University, UK: a study of 4 case companies and its e- procurement benefits analysis.B2B Marketplace Overview Following is a rank of the top 15 internet retailers according to Top 500 guide fromInternet Retailer ranked by online total sales; highlighted in light blue are those sellers thathave customized B2B e-commerce sites. However, the rank doesn’t reflect the proportion ofsales done thorough their business-targeted separated platforms. Despite this lack of2 E-procurement: How does it enhance strategic performance?. Paul Phillips and Wojciech Piotrowicz. Kent BusinessSchool, University of Kent, Caterbury, UK. Working Paper No.113. April 2006. 5
  • 6. Rafel Mayol B2B e-commerce and e-procurementinformation, companies such as Staples (2nd), Office Depot (6th), Sears (8th) and Grainger (15th)are known for their strong B2B high level of sales. Rank Company Sales (billion) 1 Amazon.com Inc.3 $48.1 2 Staples Inc. $10.6 3 Apple Inc. $6.6 4 Walmart.com $4.9 5 Dell Inc. $4.6 6 Office Depot Inc. $4.1 7 Liberty Interactive Corp. $3.8 8 Sears Holding Corp. $3.6 9 Netflix Inc. $3.2 10 CDW Corp. $3.0 11 Best Buy Co. $2.9 12 OfficeMax Inc. $2.9 13 Newegg Inc. $2.7 14 Macy’s Inc. $2.2 15 W.W. Grainger Inc. $2.1 Staples, ranking 2nd internet retailer, has spent twoyears developing StaplesAdvantage.com B2B site, whichaims to “be a robust procurement solution with the experience of a world-class B2C site” that isused for 4 million individuals that will generate 25 million annual transactions.StaplesAdvantage.com generates more than $6 billion annually and is conducted 90% online. Purchasing people, even from large companies, are also consumers outside the officeand they might like to buy on internet at work. That is just one of the reasons why more andmore businesses are taking a B2C approach to their B2B platforms. As Andy Hoar states, aForrester Research Inc. senior analyst, “What we are seeing is the B2C-ifying of B2B. […] Not3 st Amazon.com B2B e-commerce is done thorough AmazonSupply.com, launched August 1 , 2012. 6
  • 7. Rafel Mayol B2B e-commerce and e-procurementeverything will work, but a lot of what works in B2C around merchandising, search andcustomer care will work in B2B”.4 Grainger5, which offers from power drills to water pumps and power generators; serves25% of its 1.2 million customers online and is preparing to rise it to 40% in a $40 million and 4year project. Their sales are growing more online that in any other channel (they find theirmultichannel approach a competitive advantage), at a steady pace of 20-25% a year; whichmeans $2.1 billion a year. This operation began when a former e-commerce executive fromSears Holdings Corp joined the company. Nowadays, Grainger is moving to a platform fromHybris and Oracle Corp technology to provide the important features of B2B e-commerce. Other suppliers such as Punch Taverns, which supplies 5,000 pubs in the UK, now has1,600 pubs ordering thorough their new B2B e-commerce site that account for 21% ofcompany‘s sales. Another example comes from Kennametal Inc., a $2.4 billion salesmetalworking equipment manufacturer that is redesigning its web portal; or Ingram Micro Inc.,a company that distributes software from suppliers to resellers and has moved $5 billion of its$35 billion annual sales to the web. The last surprise was the launch ofAmazonSupply.com this year (2012)6.Amazon is opening 18 new DCs along 2012up to a total of 40 to support both their4 Staples upgrades its B2B site. Don Davis. Internet Retailer. November 16, 2011.5 Grainger budgets $40 million for online growth. Paul Demery. Internet Retailer. March 2, 2012.6 Amazon launches a supply site for business. Kevin Woodward. Internet Retailer. April 23, 2012. 7
  • 8. Rafel Mayol B2B e-commerce and e-procurementB2C and B2B operations. This movement comes with fewer additional costs, as their will takeadvantage of their existing IT and logistic infrastructure to serve this segment. Amazon realizedthat more businesses were buying from them and that purchasing agents were demandingmore Amazon-like capabilities; therefore, they created this platform. To illustrate the thesis of this paper, we can take a look at the Oracle Endeca whitepaper7 in which the survey indicated that 80% of professionals thought that B2C retailexperience had changed their customer’s (other business) expectations, compared to a 70%support one year before. Other agents both in B2C and B2B e-commerce are those marketplace websites thatprovide a place for buyers and sellers to meet, advertise products, offer opportunities forcooperation and help buyers in their procurement activities. They normally earn a profit based7 2012 B2B E-commerce Survey: Results and Trends. Oracle, Endeca. February 2012. 8
  • 9. Rafel Mayol B2B e-commerce and e-procurementon a commission over the sale or on advertising fees. They offer both a sales increase potential,due to exposure to global demand, and also saving opportunities because of the intensecompetition on these channels. Next chart shows top B2B Marketplaces8: Rank Marketplace Features 1 Alibaba.com Products 2 Made-in-China.com Chinese products and suppliers 3 Globalsources.com Sourcing 4 Tradett.com Trading platform 5 Tradevv.com China suppliers 6 DIYTrade.com Sourcing and selling 7 Ec21.com Export and import 8 Ecplaza.net Marketing exporting 9 DHGate.com Chinese wholesalers & manufacturers 10 Hktdc.com Hong Kong traders, exporters Despite their importance, this paper is focused on the B2C trends that are shaping theB2B e-commerce stores and won’t get any further on the topic before.Differences between B2C and B2B e-commerce Among the B2C appeal that suppliers are giving to their web stores are the nextcommon features that a typical customer gives for granted in any e-commerce site and that isnot predisposed to accept less:  Easy to use platform.  Enhanced site navigation and advanced search filters. Product categories breakdown.  Merchandising techniques such as “related products” display and more.  Multi country, language and currency platform.  Monitor status of current orders.  View recent purchases.  Personalization of page and displayed items according to buying habits.8 Top 10 B2B E-commerce Marketplaces. Monika. Kronik Media. October 7, 2012. 9
  • 10. Rafel Mayol B2B e-commerce and e-procurement  Mobile devices compatibility.  Web-only deals for promotion of this channel. However, not everything is giving an Amazon look to every B2B e-commerce site9. Theseplatforms require custom development to meet customers’ needs. Additionally, businessbuyers have more limited time and need to spend less time into the searching and purchasingactivity thorough these websites. Following is a list of special features (also as developmentchallenges) that B2B sites have to face:  More detailed information: more specifications to distinguish among different but similar parts or items.  See special deals or prices the buyer company has negotiated.  Customization of e-commerce site to display buyer brand name, logo, special information (buyer’s corporate policy on buying certain items).  Showing availability by warehouse to know delivery speed.  Price calculator for orders that require complex manufacture or operations.  Feature testing with customers.  Name and telephone number of customer’s sales representative.  Integration with accounting and inventory software.  Merchandise “related products” with higher profit margins.  Giving a variety of shipping options.  Purchasing authorizations for multiple employees with different purchasing permits with also budget limits.  Application of buyers guidelines, requirements and procedures to the seller e- commerce platform such as: managerial approval for orders above certain value, minimum environmental-friendly products,.  Assign costs for purchased orders thorough different business units or departments within the buying company. Create report for buyer’s managers to track employees buying activities, track inventory and  Consolidate orders thorough departments to reduce shipping costs.9 The Web means business. Don Davis. Internet Retailer. March 1, 2012. 10
  • 11. Rafel Mayol B2B e-commerce and e-procurementProduct Categories Not all companies are expected to have a B2B e-commerce site that meets the criteriashown before; there are plenty of companies that just cannot benefit from the changes B2B isadopting from B2C. Among the company’s profiles that are adopting the B2C approach arethose that either have many SKU and sell to a wide range of buyers, which make them look likeonline retailers that sell to consumers; and/or those companies that sell indirect materialscategorized in the “leverage” or “outsource” quadrant of a Sourcing Matrix.Impact on the Supply ChainIT Infrastructure Impact First of all, it is a huge technological challenge to develop andimplement a system that can meet the requirements, explained before inthe differences between B2C and B2B, and lot of companies have long offered packages orSoftware as a Service (SaaS) products to implement standard e-commerce sites. However,vanguard companies such as Oracle, with its Endeca technology used by Grainger B2B website;are leading the way with their cutting edge advancements. However, the need to coordinate the product information, prices and features ofhundreds of thousands of items thorough multiple channels (catalogs, internet, telephone,sales representatives, etc.) is a complicated activity that is normally a pain point both fordistributors and all business profiles that manage that quantity of items. It not only can be atime and employee consuming activity, but it also is a critical feature for customers; that will 11
  • 12. Rafel Mayol B2B e-commerce and e-procurementget very upset if store and internet prices don’t match, if discounts are not applied in everychannel and if product information is wrong. Therefore another IT solution is advised to be developed before fully deploying aninternet e-commerce presence; the implementation of a Product Information Management(PIM) system10. Those systems require the suppliers of the B2B e-commerce stores to introducetheir product details with the help of the software without involving continuous corrections ofthe store, avoiding duplicated entry of data (both by supplier and by B2B seller in their ownsales channels). Some companies like Heiler provide PIM solutions for the ecommerce andmultichannel commerce that improve service levels of product information, a metric that iscritical to the customer satisfaction11.Supply Chain Network Impact Companies that certainly can benefit from B2C practices actually behave or couldbehave like big retailers selling to consumers. However, lots of supplier’s supply chains are notdesigned to serve locally in an efficient way for the B2C type of shipping; which involves lots oforders with few items each, lot of pickings per order, small shipments (instead of LTL/TLshipments of the same item) and lots of IT requirements needed to be compatible with theonline operations. Therefore, one can look at top performance B2C Supply Chain Networks to replicatetheir efficiencies in the B2B, and there are no better examples that Amazon’s and Wal-Mart’s10 Kramp Focuses on Long Tail and Efficient Customer Response in its Ecommerce Strategy. Heiler Software AG.11 Enterprise Product Information Management. Chapter 2. PIM 360 for Ecommerce & Multichannel Commerce.Heiler Software AG. 12
  • 13. Rafel Mayol B2B e-commerce and e-procurementSupply Chains, which are actually one of their respective business enablers and competitiveadvantages. Despite smaller actors don’t have the economies of scale to replicate those supply chainnetworks; if they cannot team up between non rival business and with 3PL service providers totry to compete with the larger B2B retailers, they can rely on distributors that operate in highperformance supply chains.Best in Class Operating Modes Best in Class organizations can operate under three types of modes to best serve theircustomers because in the end it leverages IT, Distribution Centers and shipment costs. Thosemodes allow companies to serve a larger catalog of products, despite selling direct competitor’sproducts if needed, but allow them to maintain a high level of customer visits. 1. As a seller: The seller owns or purchases the inventory, manages the customer relationship thorough their website and picks, packs and ships to the customer. Inventory can be purchased to a competitor (and shipped by him) if needed. 2. As a service provider: Use own Supply Chain to sell products from other sellers for a fee. Other sellers rely in the efficiency of our supply chain for savings, while we maintain our dominant position in supply chain. This operating mode is not always used at the same time with the other two. 3. As an intermediary: If needed, the company connects buyer and seller, collects and sends the money; transmits shipping information to the seller and gives customer assistance to the buyer. 13
  • 14. Rafel Mayol B2B e-commerce and e-procurementBest in Class Network Design Under the following flow chart Best in Class organizations achieve better efficiencies andbetter customer service levels. Suppliers or internal production facilities ship the products tothe DCs, which are located near customer concentrated areas (while considering taximplications). Then Cross Docking Hubs can be used before the final delivery: in this situation,LTLs and TLs shipments from the DC are separated in those hubs for the last mile delivery insmaller shipping methods (normally by a 3PL provider). There are also represented the chainelements when the product is sold by other sellers and when other sellers use our chain todeliver the product.Supply Chain Network Diagram: 14
  • 15. Rafel Mayol B2B e-commerce and e-procurementCross Docking HubPicking Picking is a very important process amongthe processes in a DC and account for 50% of thecosts in B2C environments. The objective in moderndesigns is to always have the workforce picking,packing and shipping; never walking or waiting.Therefore, disruptive systems such as the Kiva ©by Kiva SystemsFulfillment System12; in which items “come” to theoperator, are maximizing performance for best in class fulfillment systems for e-commercesellers.Conclusions The author opines that business that meet the cited criteria of “being like retailers totheir buyers” either or join the B2C trends or they are going to struggle in the medium termbecause of the superior value proposition of large catalogs, 24/7 convenience and low pricesthat their competitors will be offering.12 Pod 1 Shipping Pod. © Kiva Systems. http://www.kivasystems.com/resources/demo. 15
  • 16. Rafel Mayol B2B e-commerce and e-procurement However, there is no reason to panic as e-commerce has its limitations in customerservice levels and delivered value. Its limitations in customer service means that, despite the allday ordering window, we cannot tell the system that “we had an emergency incident worth acouple of millions of dollars and that we need the item delivered by tomorrow 8am; pleasefulfill our order right now and ship ASAP”. Additionally, a buyer may need advising when buyingspecialized or critical material, and a sales representative with an engineering background candeliver a value that an online shop cannot; no matter the number of videos and images itshows. Business that can deliver results and meet customer expectations beyond a web storewill survive this changing force. When it comes to the supply chain, sellers must balance the tradeoffs between servingfrom the existing DC or from another one. Serving from the same DC has proved unprofitablefor some companies in which the pick, pack and shipping attributes of online sales has beenshared with traditional operations unsuccessfully. However, having two separate DCs increasessafety stocks and inventory costs. Therefore, combining dot com and retail operations in the same DC is advised only ifthey have the technological capability of pooling the inventory but keeping it separately; whichcan be very difficult. Opposed to this, in very standardized industries such as footwear, onlineand retail sales can easily share the same DC; as picking process can be totally automated (if it’sfeasible to install the equipment for the volume processed). Finally when it comes to the Supply Chain network, clearly a more decentralizedapproach is needed to better serve customers, shorten shipping times and lower total costs; 16
  • 17. Rafel Mayol B2B e-commerce and e-procurementbut all these capabilities need investment. The author proposes to companies that are shiftingto B2B e-commerce to outsource e-fulfillment services the first years to a third party provider,and then realize where the business is going, its projections and annually review the currentstrategy. 17