B2B Electronic Commerce

B2B – Business To Business Electronic Commerce

Business to Business (B2B) applications comprise about 85% of electronic commerce (EC) volume.[i] B2B applications enable an organization to improve supply chains and partner relations through electronic relationships with its suppliers, distributors, customers and other partners. There are several ways that businesses use electronic commerce to develop these relationships.

The following list gives a brief explanation of the major B2B e-commerce methods:

· Sell-side corporate marketplace – the organization sells products or services to other organizations via their own e-marketplace or from a third party site. This model offers the seller great latitude in allowing the buyer to customize the product.

· Buy-side corporate marketplace – the organization buys needed products or services from sellers. This model is well suited for specific purchases where the company wants to evaluate offers from multiple vendors.

· Public exchange – brings many buyers and sellers (normally both businesses) together to facilitate the exchange of goods and services. The trading platform is usually owned and operated by a third party.

Electronic commerce offers cost saving opportunities by simply improving market efficiency. Each B2B method has advantages for specific types of business. For instance, a public exchange is an efficient way to procure raw materials for manufacturing, but it is not an efficient way to sell office supplies to retailers. The following explanation gives examples of the most applicable use for each EC method.

Sell-side Marketplace

The sell-side model is a powerful sales tool suited for companies with a good reputation and name-brand recognition (e.g. IBM). It is an excellent sales channel for a manufacturer (e.g. Dell), a distributor (e.g. www.avnet.com ) or a retailer (e.g. www.bigbox.com ). The seller can customize electronic catalogues for buyers at different levels, hold forward auctions ( www.dellauction.com ) or use third party auction sites such as Overstock.com to liquidate excess inventory. The sell-side model is also well suited to customization. Vendors can easily allow buyers to specify or self-configure products to meet their needs with fewer misunderstandings and faster order fulfillment.

Buy-side Marketplace

The predominant method of commerce in the buy-side model is a reverse auction. A company purchasing items places a request for proposal (RFQ) on its website or in a third party bidding marketplace. Then sellers, usually pre-approved suppliers, submit bids electronically which are evaluated internally and successful bidders are notified. E-procurement is a type of buy-side marketing which uses reverse auctions, group purchasing and desktop purchasing.

Group purchasing combines many smaller orders from multiple buyers into a larger order. Especially popular in the health-care industry and in education, orders of smaller buyers are often aggregated by third party vendors which merits greater consideration and discounts from sellers.

Desktop purchasing refers to the aggregation of multiple vendors’ catalogues into an internal master catalogue which resides on the buyer’s server. This facilitates efficiency in purchasing when a company has many suppliers, but the quantities purchased from each are relatively small (e.g. office supplies). The U.K. Department for Environment, Food and Rural Affairs (www.defra.gov.uk ) implemented a desktop purchasing system and realized a savings of approximately $1.2 million due to improved efficiency.

Public Exchanges

An e-marketplace where many buyers and sellers (usually businesses) come together is called a public exchange or exchange. This type of EC is typically owned and operated by a third party and open to all businesses with product offerings or needs. Vertical e-marketplaces offer services particularly suited to the industry served. There are four basic types of exchanges[ii]:
· Vertical distributors for direct materials – materials used as inputs in manufacturing are traded in large quantities (systematic sourcing) with established business partners.
· Vertical exchanges for indirect materials – indirect materials in one industry are purchased on an as needed basis in an auction format where supply and demand are matched by the service provider.
· Horizontal distributors – a many-to-many e-marketplace where prices can be fixed or negotiated. Examples are EcEurope.com, Globalsources.com and www.alibaba.com .
· Functional exchange – services such as temporary help or storage space are traded on an as needed basis. Prices are dynamic and vary based on supply and demand.
These exchanges tend to function best under the following conditions:

· Products are commodities or near-commodities.
· Trading volumes are massive, relative to transaction costs.
· Products are relatively standardized and can be traded sight-unseen.
· Buyers and sellers are sophisticated enough to deal with dynamic pricing.
· Purchasing is often done on a spot/transactional basis.
· Logistics and fulfillment can be conducted by third-parties, often without revealing the identity of the seller or buyer.
· Demand and prices are volatile.

Business-to business electronic commerce is a tool to improve efficiency and profitability by increasing sales, improving delivery time, reducing mistakes, selling and advertising costs and administrative costs.

The following link, http://www.tradekey.com/index.html?action=aboutus_howtosell&w=780&h=525 , provides an excellent explanation of services offered on its B2B website.


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[i] Turban, Leidner, Mclean and Wetherbe. Information Technology for Management . Danvers, Ma.: John Wiley & Sons, Inc., 2007.

[ii] Kaplan, Steven and Sawney, Mohanbir. "B2B E-Commerce Hubs: Towards a Taxonomy of Business Models." 1999.