Business to business, or B2B, e-commerce swept through the business world with huge potential. But the ride continues to be bumpy. In today's economy, many companies are re-evaluating and re-strategizing the scope and scale of their B2B business models.
Online exchanges and reverse auction sites, which were considered to be the keys to success, failed to deliver. Yet there are solutions, especially from the perspective of specialized buying, that can make B2B really pay off.
Buying cheapest doesn't work well
First, the big problems. In reverse auctions, the lowest price wins. These are unfavorable for suppliers that have to whittle away profit margins to win bids. In fact, suppliers are better off not competing on an cost-only basis that eliminates the "value add" they bring to the entire supply chain process.
With no real way to differentiate their products, these exchanges did a huge disservice to the suppliers. Buyers, who looked like the overall winners, were quick to discover that buying from the cheapest supplier actually added more problems. Since the most important part of the supply process is the actual delivery of the product, failure to deliver results in mismanaged expectations and missed deadlines.
But the theory by Nobel laureate John Nash -- made famous in "A Beautiful Mind" -- lets companies interact with each other to maximize both individual payoffs and overall outcome. The problem, though, is that competing suppliers try to undercut each other on price, which weakens suppliers in general since each wants to reach their own best outcome.
Although economists dismiss this sort of behavior as "irrational," it is more the norm than the exception. Suppliers cannot work together on a long-term basis because it is hard to predict what a competing supplier is planning to do. The short-term payoff from a competing supplier's ability to find and "cut a better deal" is enough of a reason. That makes it virtually imperative that they team up with a buyer, and vice versa.
Source : houston.bizjournals.com
0 comments:
Post a Comment