Understanding B-to-B marketplaces

By William C. Copacino -- Logistics Management, 6/1/2000

Industry business-to-business marketplaces, such as trading exchanges and collaborative hubs, have emerged with astonishing speed. As a result, they may be confusing to many observers. In my next four columns, I will provide several frameworks for understanding these marketplaces. I will also try to provide a perspective on how they will evolve and address such questions as:

• How do these B-to-B marketplaces provide value?

• Are separate exchanges needed for direct and indirect materials?

• How do auction tools, e-procurement software, and catalogs support B-to-B marketplaces?

• Who will run and operate the successful marketplaces?

• Should your company participate in a

• B-to-B marketplace?

The accompanying matrix provides a basic framework for understanding the evolution of businesses' participation in B-to-B marketplaces.

On this diagram, the Traditional Model represents the classic purchasing approach that uses paper-based communication, telephone/fax connectivity, and/or proprietary EDI networks. Suppliers generally influence terms, unless the transaction involves large buyers that are in a position to exercise leverage.

A Supplier-Centric Model follows the one-seller-to-many-buyers model. Selected sellers develop Web sales portals that service many (generally small and mid-sized) buyers. Examples include Dell, Grainger, and Works.com.

A Buyer-Centric Model links one buyer with many sellers, with buyers using strategic sourcing, process transformation, and usually an e-procurement tool (such as Ariba or CommerceOne) to rationalize sourcing, streamline processes, manage demand, and negotiate reduced prices.

Transformed B-to-B Markets operate on a many-buyers-to-many-sellers model developed around vertical markets. These types of marketplaces are developing in almost every industry; the recently announced automotive exchange is just one example. They include both large and small buyers and sellers, and generally are hosted solutions that envision capabilities ranging from ask/bid-type trading platforms and auctions to set-price catalog buying and full collaborative planning across many functions, including forecasting/demand planning and product design.

Clearly the trend is for companies to move to the upper-right quadrant of the above matrix. As they migrate in this direction, the way they conduct business will inevitably be transformed. The economic benefits of participating in all types of B-to-B marketplaces can be substantial, but there will be different winners and losers in each cell of the matrix.

The evolution of B-to-B marketplaces will have tremendous implications for supply chain managers. It will position core supply chain functions in a more prominent position, but it also will require these managers to develop many new skill sets and capabilities. It's a very exciting time that will provide great opportunity for companies that take advantage of this new world of electronic trade.

William C. Copacino