E-marketplaces and b2b exchanges

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E-marketplaces have, on quite a few occasions, been described as online bazaars. They consist of many companies gathering together "B2B Exchanges and e-Marketplaces are firms that link multiple buyers (of raw materials, office supplies, etc.) to sellers via an online network and allow them to conduct transactions in real-time, though they can also help perform (but rarely used in) other value-added services such as customized product design and quoting, vendor management (e.g., RFP/RFQ management, vendor prequalification, bidding), order processing (JIT ordering, order tracking), and collaborative planning (e.g., forecasting, VMI, supply planning) (Bhattacherjee, 2002)."

"Encouraged by the purported network effect, low operational costs (e.g., zero inventory), and tremendous success of eBay in the consumer sector, these Internet firms once promised to revolutionize the way firms interact and transact with other firms in performing critical business processes.For buyers, the advantages of using e-marketplaces include:

Evolution of B2B E-Marketplaces

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The earliest B2B marketplaces started about the year 1996.Since then, they have evolved as follows:

B2B Brochure-ware (pre-1996)

Online catalogs with some search capabilities but no commerce.

B2B Catalogs (1997)

This is the one-too-many model that creates value via aggregation, i.e., aggregating buyers and giving them a choice of suppliers and facilitating commerce. Examples: Grainger.

B2B Auctions (1998)

One-to-many model that creates value via market-making (matching buyers to sellers), plus aids in the price discovery process.

B2B Exchanges (1999-2000)

This is the Many-to-many model that creates value via market-making, price-discovery, and/or value-added services such as settlement and clearing, escrow, shipping, etc.

Global Trading Web (2002-)

B2B trading exchanges that will link multiple e-marketplaces across international boundaries governing multi-faceted, complex business processes such as dynamic configuration of the entire supply chain (e-design + e-procurement + e-sourcing), or procuring from global suppliers (e-procurement + financial exchange + currency exchanges), or futures exchanges, barters, or commodity swaps.However, the global trading web is more of an envisioned future than reality at this time (Bhattacherjee, 2002)."

The key benefits of participating in an exchange or marketplace

"For buyers, the advantages of using e-marketplaces include:

  • Lower prices on goods procured (about 5-20% lower compared to goods purchased offline).
  • Lower transaction costs (costs of paper-based purchase order processing are typically $50-80).
  • Lower procurement cycle time and costs (real-time order processing).
  • Reduced inventory (e.g., just-in-time).
  • Improve vendor identification and management (e.g., RFQ, bidding).
  • Implement new processes such as JIT or strategic sourcing.

Sellers want to use e-marketplaces because:

  • Internet opened up a new sales channel.
  • Reach new potential buyers.
  • Lower transaction costs (e.g., data re-keying).
  • Less errors (automated order entry, invoicing, receivables; hence fewer returns).
  • Faster payment clearing.
  • Optimized inventory (based on customer demand).
  • Implement new processes such as contract buying” (Galaviz, 2002). Primary hindrances

"The problem with B2B exchanges is that they are trying to replace point-to-point business relationships instead of automating them. The B2B concept needs to applied at the partner level to be successful since business to business relationships are generally built on that model (contracted pricing, contracted performance, and sustainable and predictable effectiveness) (Galaviz, 2002).""

  • These e-marketplaces failed to achieve a critical mass (minimum number of buyers and sellers), that can attract other buyers and sellers and self-sustain growth (just like a "critical mass" of fissile material is required to self-sustain a nuclear reaction - from Physics).
  • Setting up an exchange did not automatically motivate buyers and sellers to join the network; most participants had no overt incentive to join the marketplace.
  • Huge resistance to change particularly among old economy industries such as steel, paper, and plastics.

Best practices that will ensure success

"e-business systems implement the Web channel for an organization's marketing and business transaction processes. They must integrate with the business systems that implement a company's market, sales, and service business processes for its other channels. These business systems provide the back-office support for these online customer touch-points. It's critical that business systems present a single, unified view of customer, product, and order information. As a result, it's critical that Web applications leverage and integrate existing systems for marketing, customer management, inventory, and order management. Illustration 3 shows, for each business process of an e-business system, the back-office systems with which it might integrate (Kramer, 2000)."

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