The B2B Primer

In order to provide a good framework for the B2B marketing section of ClickZ, I thought it would be appropriate to start with a very basic primer on business-to-business e-commerce. Much has been written on the topic, so I don’t plan on rehashing the discoveries of our industry’s leading analysts and software product managers. My point of view will be straightforward, and I’ll try to break things down in a form that both those new to the subject and the very seasoned can find some value.

So, here it goes.

There are an infinite number of B2B models for companies to implement. That is part of the confusion and excitement behind what is happening today as companies of all sizes try to figure out how to use the web to generate greater profits. The challenge is making sense of it all, and for business managers, investing your resources the right way.

At the most basic level, there are three operational areas in which companies can apply Internet technology that will help them become more effective: buying things, producing things, and selling things. This simple paradigm is often the most useful way to categorize the myriad of B2B concepts.

B2B for Buying Things: E-Procurement

If you have ever purchased something for work, you’ve probably experienced the number of manual processes, paper forms, and personal approvals it takes you to buy a $35 desk lamp. This process is costly and sucks up precious time that you could be spending doing real work. Just to give you an idea the National Association of Purchasing Management estimated a cost of $76 to process the average purchase order. In other words, that $35 desk lamp actually cost the firm $111.

Internet-enabled e-procurement systems are designed to save money on corporate purchases. The next time you buy that lamp, you will select it from your company’s online catalog that presents products from an established group of vendors. The order form will either get routed for approval or go directly to the vendor that will ship your lamp ASAP. The system eliminates paper-approval bottlenecks in the process and rogue purchasing practices that cost companies millions of dollars annually.

For companies that make billions of dollars in purchases annually, reverse auctions represent a fantastic opportunity to save on procurement. As an example, General Electric Power Systems, which makes turbines for power production, built an auction procurement site that enables vendors to bid competitively for GE’s business. GE states the parameters of the deal and a description of what it wants to buy. Vendors then submit offers to fulfill the order, and GE accepts those that offer the best combination of price and service. It’s been a boon for GE Power Systems, as it has saved close to $150 million in corporate purchases since the system went live.

B2B for Producing Things: C-Commerce and Process Integration

In today’s outsourced and integrated production environment manufacturing is a multicompany process. Today, if you buy a car, it probably was assembled in the United States with parts from Canada, using steel from Korea and components from Mexico. We live in a collaborative world, where it takes many companies to build one thing.

Manufacturers are implementing B2B strategies to make the production process run smoother with less overhead, better management of inventory, and greater collaboration across the entire supply chain. This best describes collaborative commerce or c-commerce a B2B model for producing things.

The goal is to eliminate any of the guesswork involved with planning how much stuff to make. Take cars as an example. Chrysler, in anticipation for demand of its new PT Cruiser, has to exchange information with suppliers that provide the chassis, components, or other important parts of the car. If any one of these companies fails to estimate demand for the end product accurately, everyone loses out, from the manufacturers to the dealer to you, the customer.

One derivation of this concept is called business process integration. It usually describes a model where a company works in concert with its network of suppliers or vendors. The motivation is simple. The more well informed all parties are with supply-and-demand triggers, the better all parties can react and maximize profitability.

Web technology enables better communication among companies that work together in order to produce something. The stakes are huge, and the opportunities to bolster the bottom line are incredible.

B2B for Selling Things: Online Channels and Net Marketplaces

Okay. Now for the oldest B2B strategy in the books selling goods online.

Business-to-business sales strategies and challenges closely resemble business-to-consumer sales. Typically, the models involve one product vendor selling to many customers. The classic example is seen in Cisco.com. The network equipment megacorporation uses an online channel to sell equipment and services directly to business customers or resellers. The strategy has been fantastically successful as Cisco derives close to 50 percent of its sales from online channels.

There are variants to the direct-selling B2B model. The first one is called net marketplaces. This model resembles the commercial activity of an open bazaar. Many businesses gather online, in either private or open exchanges to buy and sell products or services. The benefits to sellers are greater access to customers and services available through net marketplaces. For buyers, net marketplaces represent a great opportunity to drive costs down by selecting and purchasing from a competitive set of vendors.

Regardless of what model a company implements, the business case behind an online sales strategy is to increase revenue. B2B sales channels increase global access, eliminate costly chains in the sales process, and lower the costs of acquiring new business.

Putting It All Together

B2B is e-business. It’s about applying technology to improve the basic processes of a company, from how it buys things to how it makes things to how it sells things. There are multitudes of strategies that can be implemented across these three dimensions, and the decision process can be difficult for today’s managers.

Here is my suggestion: Understand that the only way you can really take advantage of web technology is by giving people only one choice the most productive and efficient way.

Rank strategies according to the impact on corporate efficiency and profitability. Once this is done, eliminate the confusion by quickly determining the best model that suits your company’s situation, standardize fast, and implement effectively.

That’s the introduction. In the coming weeks, we’ll explore e-business concepts in greater detail. Stay tuned; it’s a fast-moving subject, and there is a lot of ground to cover.

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