In 2012, CEO Jeff Bezos launched AmazonSupply, a venture into the unsexy world of B2B distribution. Currently,the Amazon Business site has 9 million business-relevant items, ranging from stethoscopes to tractor equipment and pretty much everything in between.
Making B2B Distribution ‘Sexy’
Research firm eMarketer estimates that roughly 9.9% of all B2B retail spending (roughly $855 billion) will take place online this year, and will likely continue increasing. As a sign of the e-commerce giant’s appeal, 300,000 businesses have reportedly created accounts with Amazon Business.
According to Bloomberg, Amazon’s B2B e-commerce unit has surpassed the $1 billion revenue threshold—not too shabby for a business operating for less than two years. What’s more, sales are reportedly growing at a staggering rate of 20% month over month! Thus, the B2B marketplace is becoming the destination for merchants to start, but is it suitable for every business?
Clarifying the Benefits
In today’s buying climate, B2B marketplaces all work in more or less the same way—curating goods from a variety of sources, and then selling them on a pay-per-transaction or subscription-fee basis, or one that combines both methods.
Cost Reductions: Companies that have adapted B2B e-commerce solutions have reported cost savings on direct materials of up to 15%, primarily due to waste reduction, supplier margins, and price transparency in the market.
Lower Transaction Costs: E-marketplaces often include standardization and automation of agreement, inquiring, paying/receiving, and ordering processes that reduce overall transaction costs.
Find and Conduct New Business: Companies can find business partners that they previously did not know about or could not trade with. The global span of the Internet allows many-to-many interactions. In addition, the costs of finding and promoting new customers are minimal through such e-marketplaces.
Supply Chain Efficiencies: E-marketplaces give companies the advantage to increase their efficiency of their supply chain, by automated procurement processes. For example, companies can receive deliveries just in time, reduce inventory and bring products to the market more quickly.
Monitor Corporate Spending: B2B e-commerce solutions enable buyers to track buying patterns, consequently allowing organizations to allocate, control and reduce corporate spending. This is done through integrating procurement applications with the corporate computing systems. Suppliers can also better provide the needs of their customers.
Barriers to Break Through
Old Mentality Persists—Despite the many success stories, SMEs are not convinced that their business would benefit from using e-commerce marketplaces. Common barriers for such resistance are due to lack of motivation to change traditional business strategies, methods and technologies. SMEs are mainly concerned with surviving and are not familiar with the opportunities available through e-commerce.
Complicated B2B Shopping Decision Making—The majority of consumer purchase decisions involve one or two decision makers, and the total time for a purchase decision tends to be on the shorter side. On the other hand, the B2B sales cycle involves a complicated set of factors, involving multiple stakeholders and decision-makers, with decision times that can stretch out for months. Also, the typical sales process in B2B demands considerable face time, often with multiple meetings, and gets driven by quantifiable factors, rather than the qualitative and emotional factors that drive sales in B2C.
Payment Obstacles—Finally, the lack of integration between buyers’ and suppliers’ ERP systems is a hurdle. Paper checks have retained a large portion of B2B payments (at least in North America). Although ePayments run more smoothly on average than paper, if suppliers are unable or unwilling to accept payment electronically, then paper checks will continue to retain a high percentage of supplier payments.
There is a diversity of B2B e-marketplaces. When it comes to potential benefits and barriers, that depends mainly on each B2B marketplace’s business purpose and quality. To match the right marketplace for your business purpose is not an easy task that requires knowledge and time.