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.
Achieving the B2B solution
Mutually beneficial collaboration is only possible when different players have access to full information, which is never possible with a competitor in a pure, competitive market. Therefore, the obvious question is whether the supplier would attempt to take advantage of the relationship with the buyer.
The answer is "no," because pivotal to this relationship is "full information." The buyer still has access to prices from other suppliers, and it's in the buyer's best interest for the supplier to stay away from a monopolistic approach to pricing. Sustaining a good relationship allows the buyer to prosper from its superior quality and ability to deliver.
Buyers can have any number of such partnerships, with "partners" either in the same competitive space or mutually exclusive in the products and services they provide.
To make such a system work, the buyer's system should be able to rate:
• Product quality.
• Mean Time to Failure of the product.
• Ability to deliver the product on time.
• Ability to maintain competitive price compared with other suppliers of similar scale and size.
This allows buyers to keep suppliers honest, and for suppliers to keep existing business by maintaining a high rating on buyers' systems. And if two or more suppliers in the same space maintain a consistently high "buyer rating," buyers can determine the supplier for a particular product by awarding the contract on a predetermined basis, or in a specific order.
Any supplier failing to maintain the high rating can be either penalized by being skipped over for a contract or being completely removed from the system for a certain time period. Along with the obvious cost benefits, this system includes all the value adds such as superior quality, reliable delivery and competitive pricing.
The timelessness of Nash's theory requires that the underlying system stand the test of time. In the B2B world, both longevity and adaptability of the technology are important. In terms of longevity, the technology should not have to be changed often. From the adaptability perspective, a company needs to interact with different systems. An XML-based solution would be ideal.
When done right the first time, this B2B solution can be implemented in about 90 days or less with just a couple of people -- and B2B's promise of enhancing specialized buying is just around the corner.
Source : houston.bizjournals.com
1 comments:
I like you post. Thanks for sharing it with us. I thing, the relationships of Buyer and Supplier can effect business.
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