How to do B2B

Companies large and small are adopting it; in fact the biggest players in some of the world's biggest industries are planning and implementing one of the hottest technologies on the globe: B2B or business to business e-commerce. "Get in early or nurse your wounds," goes the battle cry as analysts predict trading figures will hit trillions of dollars in just three years. Julia King reportsAnalysts' forecasts may vary by billions of dollars, but they all point to the same thing: an enormous business-to-business e-commerce market.

Forrester Research pegs last year's business-to-business Internet trade at $US109 billion ($188 billion). It expects that figure to reach $US2.7 trillion by 2004. Gartner also predicts skyrocketing growth, from $US145 billion last year to $US7.29 trillion worldwide by 2004.

Analysts expect the bulk of this trade to take place on vertical industry exchanges, the online trading communities where multiple buyers and sellers come together to buy, sell and conduct a wide range of other activities, from posting requests for proposals and comparing pricing to auctioning off excess inventory.

In the past few months alone, the number of these trading communities has nearly doubled - from about 200 to 400 - according to Vernon Keenan at Internet consultancy Keenan Vision.

"We're seeing a general movement [towards exchanges] in every industry you can think of," Keenan says.

For now, most of these exchanges are busy wooing buyers and sellers in the new digital marketplaces. But before long, wooing won't be necessary, analysts say.

"Economic factors will compel everybody to participate," Keenan says. Those who don't, as well as latecomers, "will be wounded in their economic underbellies", not unlike the small hardware stores that went belly-up with the advent of mega-home improvement stores.

But not all exchanges operate the same way. Some link buyers with sellers, while others operate with a middleman at the centre of the process. Still others offer auction capabilities. Some charge only sellers, while others provide users with the information technology infrastructure, software and implementation services to get up and running on their exchanges.

The following scenario is based on a real exchange.

The Seller's Agent

Business-to-business e-commerce isn't new to medical supplies distributors. For more than a decade, these organisations have been using electronic data interchange (EDI) to buy and then sell health care products and equipment, primarily to hospitals and nursing homes.

But now, one distributor in the US, a $90 million a year operation, is ready to take a giant step onto the Internet, and has made its product catalogue available online via a Seller's Agent business-to-business health care exchange.

Putting its catalogue on the Seller's Agent site for anybody to use, tears down the geographic barriers and allows the medical supply company to branch out and sell beyond hospitals and nursing homes. While only a few new orders have trickled in from the exchange in the first four months of operation, the medical supply CEO isn't worried because he's still ahead of the competition.

"It's still the early adopters and pioneers who are doing this stuff," says Gartner analyst Mike Davis. In general, Davis notes, health care companies are slow to adopt new technologies. But in three to five years, he says, business will be thriving on the digital exchanges, which have the potential to pare industry transaction costs of between $24 and $100 per order today to between $5 and $10. Eventually, those numbers should drop to less than $1 per order, Davis says.

Meanwhile, as a beta site, the medical supply company hasn't spent anything on technology or professional services to begin selling its products via the Internet. The Seller's Agent exchange has done all the systems integration work, including customising contract pricing data for various customers. Previously the medical supply company had been developing its own Web site, but it dropped the project in favour of moving to the Internet via the industry exchange.

The company's customers can also access real-time availability and shipping information as the exchange site transparently connects customers to the supplier's in-house enterprise systems.

The Seller's Agent exchange also does much of the systems integration work necessary to hook up buyers and suppliers to the Web site. It is able to deploy its robust implementation methodology, under which an integration manager is dispatched with a series of tools that identifies which suppliers a hospital needs to deal with to conduct business.

Buyers need only minimal IT expertise as the Seller's Agent exchange provides a turnkey service where buyers can come onto its site with very little in the way of internal systems to support their work online. The exchange also furnishes the buyers with detailed monthly reports of all of their purchasing activity. This can pinpoint high-volume suppliers, which hospitals can then target as candidates for contract renegotiation.

This Seller's Agent pricing model calls for free use by buyers, while suppliers like the medical supply company pay a transaction fee of less than 1 per cent of the total for each order that comes in over the exchange. One of the biggest ways a supplier can recoup these costs is in the significant savings achieved by processing orders electronically, rather than by phone or fax.

But pricing is also where things may get sticky. The CEO of the medical supply company, for example, says he's willing to pay a fee for new business that comes in via the Web site, but he doesn't want to ante up for Web-based orders from existing customers who now use EDI (about 55 per cent to 60 per cent of current incoming orders) or do business with the company manually.

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