Models of B2B Commerce

Although the exploitation of Internet technologies at the business-to-business level is in its infancy, a number of models have begun to emerge that manage transactions between buyers and suppliers:

1. Established Buyer-Supplier Relationship
This is a pre-determined one-to-one relationship between a buyer and supplier that is supported by electronic commerce technologies. Due to the aforementioned limitations associated with EDI, companies have now turned their attention towards the Internet to support these types of buyer-supplier relationships. Companies are now pursuing a more intensive and interactive relationship with their suppliers, impacting upon the buyer-supplier relationship in a number of areas, including the integration of manufacturing systems and supplier involvement in new product development. Exchanging information via extranets costs less and is more effective than through older traditional methods such as faxes and voicemail. For example, NEC has developed an advanced information system to carry out a large part of its procurement activities, ranging from procurement notices to settlement on the Internet.

2. Supplier-Oriented Marketplace
In this model, both organizations and consumers use the supplier-provided marketplace. This is the most common type of B2B model. In this model, both business buyers and individual consumers use the same supplier-provided marketplace. An example of this model is RS Components (rswww.com). RS Components is a leading distributor of electronic, electrical, and mechanical components, instruments, and tools in Europe. The marketplace provides fast search and retrieval of 100,000 products, combined with personalized customer promotions based on the buying profiles of its major customers. A supplier-oriented marketplace may also provide an auctioning facility to offload surplus inventory or offer discounts to customers.

3. Buyer-Oriented Marketplace
Under this model, a buyer opens an electronic market on its own server and invites potential suppliers to bid on the announced Requests for Quotation (RFQs). One company that has successfully exploited this model is GE Lighting. The purchasing department receives electronic requisitions from internal customers that are then sent to potential suppliers over the Internet. Within two hours of the purchasing department starting the process, suppliers are notified of incoming RFQs and are given seven days to prepare bids and send them back over the extranet to GE. With the transaction handled electronically, the procurement function has been able to concentrate on more strategic activities rather than clerical and administration tasks.

4. Business-to-Business Intermediary
This model is sometimes referred to as a ‘hub’ or ‘exchange’. It is established by an electronic intermediary that runs a marketplace where suppliers and buyers have a central point to come together. These B2B hubs tend to focus mainly on non-core items that may range from stationery and computers to catering services and travel. There are two types of hubs:

• Vertical - focus on an industry and provide content that is specific to the industry’s value system of buyers and suppliers. Examples include e-Steel that acts as an intermediary between steel- makers and customers, and VerticalNet that provides intermediaries for many industries including electronics, process, telecommunications, and utilities.
• Horizontal - provide the same function for a variety of industries. An example is iMark.com, which acts as an intermediary between buyers and suppliers of used capital equipment in different industries.

An intermediary may be closed - where members and trading partners are vetted for legal and financial probity - or open to all-comers, with the marketplace itself acting as a trusted intermediary. It is important to note that intermediaries may be biased towards either buyers or suppliers. Supply-side intermediaries may be run by consortia of manufacturers such as Chemdex that acts as an intermediary for suppliers to the life sciences industry. Similarly, buy-side intermediaries may be run by a consortia of customers such as Covisint for car makers or by independent organizations such as Achilles for utilities. These intermediaries may attempt to aggregate demand for buyers in order to obtain reduced prices and more favorable terms from suppliers. In relation to payment, some intermediaries may charge a flat fee per transaction to both the buyer and suppliers. Alternatively, a percentage may be charged in the case of value-added services such as auctions. In the case of large, repetitive transactions, to achieve maximum benefit the intermediary should be linked seamlessly to the buyer’s purchasing and the suppliers’ systems so that the entire purchasing process can be executed electronically.
In the context of competitive advantage and the influence of the Internet, customer/supplier lifecycle is a useful framework for understanding an organization’s business processes, as well as those of their customers, suppliers, and competitors. This framework provides a way of distinguishing between buying and selling activities to better understand the interrelationships between customers and suppliers’ business processes, and what they term ‘TouchPoints’ in the company.

A successful electronic business strategy will alter the nature of the product or service being offered, its value in the marketplace, or the buyer-supplier relationship.