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This was done as part of a coursework for the Business Model class at Heriot-Watt University.
It was used only in educational services.
I hope you enjoy it and learn something form it, because we certainly learned a lot.
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At LHBS, we believe that brand or business strategies need to be prescriptive not just descriptive. A strategy needs to drive action through meaningful Customer Value Propositions. Thatās why we work with our Customer Value Proposition Canvas as a navigation system for bringing strategy to life. Weāve created the Customer Value Series to analyze and share how leading companies bring their Customer Value Propositions to life through their core products, added value services, the customer journey and communication.
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Our "most favorited" 2011 study revealing Amazon.com's strategies for dominating online retail has been updated to include analyses on all of the company's latest moves, and insights into where they may be going next.
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Forrester Research estimates that cross-border B2B e-com-
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global markets and to drive down costs through greater
efficiency has also opened up new prospects for earnings
growth. This huge potential is forcing B2B companies to
adapt their supply chains to be more like a business-to-
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Business to Business eCommerce in the Amazon era
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
āThis 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 systemsā
2. Rafel Mayol B2B e-commerce and e-procurement
Index
Introduction .................................................................................................................................................. 3
E-procurement overview .............................................................................................................................. 4
B2B Marketplace Overview .......................................................................................................................... 5
Differences between B2C and B2B e-commerce .......................................................................................... 9
Product Categories...................................................................................................................................... 11
Impact 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 ................................................................................................................................................. 15
Conclusions ................................................................................................................................................. 15
2
3. Rafel Mayol B2B e-commerce and e-procurement
Introduction
Nowadays internet and e-commerce are changing the way consumers and buyers know
each other, exchange information and complete transactions; the consumer habits are being
changed and the marketplace is evolving to satisfy their needs. Customers are gaining power
both because they have more information at their disposal and because of the cost saving
opportunities that ecommerce is giving.
It is normal to see people, in
order to make an assessed decision,
searching the internet before visiting a
car dealer, a specialized shoes store or
an electronics retailer to have complete
information. It is also significant the
growth that Amazon, eBay and other
internet marketplaces are experimenting as can be seen in the following Amazon.comās
Revenue Figure. This is no surprise as the customer is rewarding the wide product catalog
offering, convenience and price competitiveness; which mean low prices on millions of
products 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 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. Top
affected product categories, game changing companies, buying habits and benefits both to
sellers and buyers will be covered. From a Supply Chain perspective, the difference logistic
3
4. Rafel Mayol B2B e-commerce and e-procurement
requirements will be analyzed. The author hopes that the reader finds this information
interesting and wants to share his passion for this evolving subject, which he believes is going to
determine 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 they
need to carry out their activities, whatever those goods are indirect supplies like office supplies
or direct supplies like manufacturing components. E-procurement occurs when this activity
involves an IT technology and infrastructure that allows a more automated and efficient
process, less paperwork and less errors. Historically, people involved in purchasing used
phones, faxes or mail1; but beginning in the 1970s, organizations installed systems such as
Material Requirements Planning (MRP), Distribution Requirements Planning (DRP) and
Electronic Data Interchange (EDI) to electronically transfer customer and supplier information.
Nowadays EDI systems are still utilized normally under web-based platforms; but
Enterprise Resource Planning (ERP) systems, that became popular in the 1990s until today,
represent the effort to increase productivity and reduce costs in an intense competition
environment. Those systems integrate all business functions to share and exchange data to
make 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 is
providing new cloud solutions such as Supplier Relationship Manager (SRM) or Customer
Relationship 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 have
been noted: e-sourcing, e-tendering, e-informing, e-reverse auctions, e-MRO and web-based
ERP systems. Surveys have confirmed that e-commerce has led to:
ļ· Cost reduction
ļ· Reduction in purchasing cycle time or order time.
ļ· Reduction in number of suppliers.
ļ· Increase in the number of products supplied by main suppliers.
ļ· Inventory savings.
ļ· Reduction of purchasing prices.
More literature about benefits from B2B e-procurement can be found in the following cited
papers. However, this study aims to the new trends from B2C that are being transferred to the
B2B e-commerce and will not deep in such aspects.
ļ 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.
ļ Analyzing B2B Electronic Procurement Benefits ā 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 from
Internet Retailer ranked by online total sales; highlighted in light blue are those sellers that
have customized B2B e-commerce sites. However, the rank doesnāt reflect the proportion of
sales done thorough their business-targeted separated platforms. Despite this lack of
2
E-procurement: How does it enhance strategic performance?. Paul Phillips and Wojciech Piotrowicz. Kent Business
School, University of Kent, Caterbury, UK. Working Paper No.113. April 2006.
5
6. Rafel Mayol B2B e-commerce and e-procurement
information, 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 Macyās Inc. $2.2
15 W.W. Grainger Inc. $2.1
Staples, ranking 2nd internet retailer, has spent two
years developing StaplesAdvantage.com B2B site, which
aims to ābe a robust procurement solution with the experience of a world-class B2C siteā that is
used 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 office
and they might like to buy on internet at work. That is just one of the reasons why more and
more businesses are taking a B2C approach to their B2B platforms. As Andy Hoar states, a
Forrester Research Inc. senior analyst, āWhat we are seeing is the B2C-ifying of B2B. [ā¦] Not
3 st
Amazon.com B2B e-commerce is done thorough AmazonSupply.com, launched August 1 , 2012.
6
7. Rafel Mayol B2B e-commerce and e-procurement
everything will work, but a lot of what works in B2C around merchandising, search and
customer care will work in B2Bā.4
Grainger5, which offers from power drills to water pumps and power generators; serves
25% of its 1.2 million customers online and is preparing to rise it to 40% in a $40 million and 4
year project. Their sales are growing more online that in any other channel (they find their
multichannel approach a competitive advantage), at a steady pace of 20-25% a year; which
means $2.1 billion a year. This operation began when a former e-commerce executive from
Sears Holdings Corp joined the company. Nowadays, Grainger is moving to a platform from
Hybris 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 has
1,600 pubs ordering thorough their new B2B e-commerce site that account for 21% of
companyās sales. Another example comes from Kennametal Inc., a $2.4 billion sales
metalworking 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 of
AmazonSupply.com this year (2012)6.
Amazon is opening 18 new DCs along 2012
up to a total of 40 to support both their
4
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-procurement
B2C and B2B operations. This movement comes with fewer additional costs, as their will take
advantage of their existing IT and logistic infrastructure to serve this segment. Amazon realized
that more businesses were buying from them and that purchasing agents were demanding
more Amazon-like capabilities; therefore, they created this platform.
To illustrate the thesis of this paper, we can take a look at the Oracle Endeca white
paper7 in which the survey indicated that 80% of professionals thought that B2C retail
experience had changed their customerās (other business) expectations, compared to a 70%
support one year before.
Other agents both in B2C and B2B e-commerce are those marketplace websites that
provide a place for buyers and sellers to meet, advertise products, offer opportunities for
cooperation and help buyers in their procurement activities. They normally earn a profit based
7
2012 B2B E-commerce Survey: Results and Trends. Oracle, Endeca. February 2012.
8
9. Rafel Mayol B2B e-commerce and e-procurement
on 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 intense
competition 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 the
B2B e-commerce stores and wonāt 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 next
common features that a typical customer gives for granted in any e-commerce site and that is
not predisposed to accept less:
ļ¼ Easy to use platform.
ļ¼ Enhanced site navigation and advanced search filters. Product categories breakdown.
ļ¼ Merchandising techniques such as ārelated productsā display and more.
ļ¼ Multi country, language and currency platform.
ļ¼ Monitor status of current orders.
ļ¼ View recent purchases.
ļ¼ 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
ļ¼ Mobile devices compatibility.
ļ¼ Web-only deals for promotion of this channel.
However, not everything is giving an Amazon look to every B2B e-commerce site9. These
platforms require custom development to meet customersā needs. Additionally, business
buyers have more limited time and need to spend less time into the searching and purchasing
activity thorough these websites. Following is a list of special features (also as development
challenges) that B2B sites have to face:
ļ¶ More detailed information: more specifications to distinguish among different but
similar parts or items.
ļ¶ See special deals or prices the buyer company has negotiated.
ļ¶ Customization of e-commerce site to display buyer brand name, logo, special
information (buyerās corporate policy on buying certain items).
ļ¶ Showing availability by warehouse to know delivery speed.
ļ¶ Price calculator for orders that require complex manufacture or operations.
ļ¶ Feature testing with customers.
ļ¶ Name and telephone number of customerās sales representative.
ļ¶ Integration with accounting and inventory software.
ļ¶ Merchandise ārelated productsā with higher profit margins.
ļ¶ Giving a variety of shipping options.
ļ¶ Purchasing authorizations for multiple employees with different purchasing
permits with also budget limits.
ļ¶ 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,.
ļ¶ Assign costs for purchased orders thorough different business units or
departments within the buying company. Create report for buyerās managers to
track employees buying activities, track inventory and
ļ¶ Consolidate orders thorough departments to reduce shipping costs.
9
The Web means business. Don Davis. Internet Retailer. March 1, 2012.
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11. Rafel Mayol B2B e-commerce and e-procurement
Product Categories
Not all companies are expected to have a B2B e-commerce site that meets the criteria
shown before; there are plenty of companies that just cannot benefit from the changes B2B is
adopting from B2C. Among the companyās profiles that are adopting the B2C approach are
those that either have many SKU and sell to a wide range of buyers, which make them look like
online retailers that sell to consumers; and/or those companies that sell indirect materials
categorized in the āleverageā or āoutsourceā quadrant of a Sourcing Matrix.
Impact on the Supply Chain
IT Infrastructure Impact
First of all, it is a huge technological challenge to develop and
implement a system that can meet the requirements, explained before in
the differences between B2C and B2B, and lot of companies have long offered packages or
Software 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 of
hundreds of thousands of items thorough multiple channels (catalogs, internet, telephone,
sales representatives, etc.) is a complicated activity that is normally a pain point both for
distributors and all business profiles that manage that quantity of items. It not only can be a
time and employee consuming activity, but it also is a critical feature for customers; that will
11
12. Rafel Mayol B2B e-commerce and e-procurement
get very upset if store and internet prices donāt match, if discounts are not applied in every
channel and if product information is wrong.
Therefore another IT solution is advised to be developed before fully deploying an
internet e-commerce presence; the implementation of a Product Information Management
(PIM) system10. Those systems require the suppliers of the B2B e-commerce stores to introduce
their product details with the help of the software without involving continuous corrections of
the store, avoiding duplicated entry of data (both by supplier and by B2B seller in their own
sales channels). Some companies like Heiler provide PIM solutions for the ecommerce and
multichannel commerce that improve service levels of product information, a metric that is
critical to the customer satisfaction11.
Supply Chain Network Impact
Companies that certainly can benefit from B2C practices actually behave or could
behave like big retailers selling to consumers. However, lots of supplierās supply chains are not
designed to serve locally in an efficient way for the B2C type of shipping; which involves lots of
orders with few items each, lot of pickings per order, small shipments (instead of LTL/TL
shipments of the same item) and lots of IT requirements needed to be compatible with the
online operations.
Therefore, one can look at top performance B2C Supply Chain Networks to replicate
their efficiencies in the B2B, and there are no better examples that Amazonās and Wal-Martās
10
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.
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13. Rafel Mayol B2B e-commerce and e-procurement
Supply Chains, which are actually one of their respective business enablers and competitive
advantages.
Despite smaller actors donāt have the economies of scale to replicate those supply chain
networks; if they cannot team up between non rival business and with 3PL service providers to
try to compete with the larger B2B retailers, they can rely on distributors that operate in high
performance supply chains.
Best in Class Operating Modes
Best in Class organizations can operate under three types of modes to best serve their
customers because in the end it leverages IT, Distribution Centers and shipment costs. Those
modes allow companies to serve a larger catalog of products, despite selling direct competitorās
products 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.
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14. Rafel Mayol B2B e-commerce and e-procurement
Best in Class Network Design
Under the following flow chart Best in Class organizations achieve better efficiencies and
better customer service levels. Suppliers or internal production facilities ship the products to
the DCs, which are located near customer concentrated areas (while considering tax
implications). 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 in
smaller shipping methods (normally by a 3PL provider). There are also represented the chain
elements when the product is sold by other sellers and when other sellers use our chain to
deliver the product.
Supply Chain Network Diagram:
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16. Rafel Mayol B2B e-commerce and e-procurement
However, there is no reason to panic as e-commerce has its limitations in customer
service levels and delivered value. Its limitations in customer service means that, despite the all
day ordering window, we cannot tell the system that āwe had an emergency incident worth a
couple of millions of dollars and that we need the item delivered by tomorrow 8am; please
fulfill our order right now and ship ASAPā. Additionally, a buyer may need advising when buying
specialized or critical material, and a sales representative with an engineering background can
deliver a value that an online shop cannot; no matter the number of videos and images it
shows. Business that can deliver results and meet customer expectations beyond a web store
will survive this changing force.
When it comes to the supply chain, sellers must balance the tradeoffs between serving
from the existing DC or from another one. Serving from the same DC has proved unprofitable
for some companies in which the pick, pack and shipping attributes of online sales has been
shared with traditional operations unsuccessfully. However, having two separate DCs increases
safety stocks and inventory costs.
Therefore, combining dot com and retail operations in the same DC is advised only if
they have the technological capability of pooling the inventory but keeping it separately; which
can be very difficult. Opposed to this, in very standardized industries such as footwear, online
and retail sales can easily share the same DC; as picking process can be totally automated (if itās
feasible to install the equipment for the volume processed).
Finally when it comes to the Supply Chain network, clearly a more decentralized
approach is needed to better serve customers, shorten shipping times and lower total costs;
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17. Rafel Mayol B2B e-commerce and e-procurement
but all these capabilities need investment. The author proposes to companies that are shifting
to 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 current
strategy.
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