Different Types of B2B Interaction
Not all models for business-to-business interaction are the same. As the technologies and mechanisms for e-business evolve, so too do the models for B2B business. In particular, B2B business models are migrating from long-term one-to-one relationships to rapidly changing and fluid many-to-many relationships. Rather than establishing fixed relation-ships with a set of identified supply chain partners, there has been an increasing trend towards fluid and in some cases spontaneous supply chain partnering. This section describes the various types of B2B relationships enabled by e-business systems.
First, it is important to identify the roles that parties play in B2B e-commerce. In general, they fall along four main types, with organizations playing multiple roles at different parts in the chain:
Buyers. Customers such as individuals and businesses that purchase goods and ser-vices from suppliers. In the context of e-business, these buyers use electronic pro-curement systems.
Suppliers. Businesses that market and sell goods or services to buyers directly or indirectly through sales and distribution channels. These suppliers use electronic procurements systems and marketplaces to sell their goods.
Marketplaces. Third-party organizations that connect multiple buyers with multiple suppliers in an electronic market that allows for the arbitrary pairing of supplier product with buyer demand with a combination of services such as payment, credit, and logistics.
Service providers. Third-party organizations that provide buyers, sellers, and marketplaces with services to facilitate commerce such as payment, credit, and logistics.
The simplest and most immediate form of supply chain relationship is the direct partner-ship. When suppliers and buyers are strategic to each other’s needs, strong direct rela-tionships are formed. Each business inherently and intimately knows the other’s business needs, and thus electronic systems can be crafted around these requirements. Due to the intimate nature of the relationship, parties can take advantage of automated reordering through Electronic Data Interchange or the Internet, as well as vendor-managed inven-tory services. The supplier may even take on the burden of monitoring material levels at the buyer’s sites. Although simple in nature and setup, direct partnerships require a large amount of trust and are very difficult to scale to any large number of partners. As such, direct partnerships are relegated to simple and direct relationships in industries that are critical and trust centric, such as munitions.
The predominant means for working with suppliers is through a multiple-party system using electronic procurement methods. As opposed to a direct partnership, multiple-party procurement is a more hands-off relationship with suppliers that allows a vendor to abstract elements of the working relationship without having to become intimately tied to its suppliers’ businesses. However, these relationships are not completely fluid, because they involve long-term commitments and investments on behalf of both parties. Products in this channel arrangement are frequently supplied from multiple supplier locations to a single customer location. The primary challenge is in electronically enabling a significant enough population of suppliers so that costs may be reduced and efficiencies increased.
Agents and Distributors
Many products aren’t directly transacted between buyer and seller but rather flow through intermediary channels that serve to add value. There are two primary categories of supplier channel: stocked and stockless. Stocked channels carry inventory and are responsible for making sure enough product is carried on-hand to meet buyer demand. Stockless channels provide value-add to the sales process without carrying inventory. This value-add includes sales, marketing, and service support to assist a company in “extending its enterprise” without having to carry the burden of inventory.
Stocked agents and distributors typically need to maintain a sufficient quantity of inven-tory for stocked items to meet delivery lead-time requirements. These channels then can actually rapidly assemble many small orders as they arrive from the buyer. These chan-nels also make use of automated picking using sophisticated materials-handling systems. Due to the additional information and timing requirements, the addition of these parties in a supply chain greatly adds to the complexity of the overall solution.
Exchanges, Auctions, and Digital Transaction Hubs
A new and increasing form of B2B commerce involves the use of a “marketplace,” which provides a single location where multiple buyers and sellers can accumulate their eco-nomic interests for the improvement of the overall sales process. Currently, marketplaces are a relatively new phenomenon, and transaction volumes are still very low among the majority of B2B marketplaces. However, as the Internet becomes more predominant in supply chains, there will no doubt be a turn of attention toward these efficiency-improv-ing methods.
So-called “fulfillment e-marketplaces” help buyers locate sellers, and vice versa. They accomplish this by providing mechanisms such as dynamic partner discovery, exchanges, auctions, and reverse auctions that aim to set prices and establish relationships between trading parties. In general, marketplaces can be either public or private. Public market-places are open to any carrier or shipper that wishes to participate, whereas private mar-ketplaces are restricted solely to member providers and users. Public marketplaces are “buying clubs,” whereas private marketplaces are usually community sites aimed at attracting a focused group of commerce participants.
As opposed to arranging new partnerships between suppliers and buyers, which is the focus of the aforementioned “exchanges and auctions,” digital transaction hubs are focused on reducing the cost of integration between buyers and sellers. In these transaction hubs, the relationships between suppliers and buyers are already established; they routinely buy and sell product from one another. These hubs let participants outsource noncore fulfillment activities and other services to achieve better efficiencies. This also allows service providers to interact with a single point of integration to work with multiple supply chain parties and therefore can offer value-added services, such as inventory, transportation, and supply chain management, at lower costs and greater economies of scale.