CIO — The next time you’re ready to brag about your company’s B2B e-commerce strategy, hold your tongue. Chances are, you’re leaving millions of dollars on the table in spite of your best efforts to do business electronically with your partners.
Although B2B e-commerce has been the talk of the town for years and has survived more than one antihype backlash, the truth is that few companies today are actually transacting the bulk of their business through electronic connections, be they websites, public or private exchanges, one-to-one links with business partners or EDI. Aberdeen Group reports that more than 60 percent of suppliers in all industries continue to receive orders via fax or e-mail. And a mere 4.5 percent of all purchasing dollars are transacted through B2B e-commerce, according to a 2002 survey by the Center for Advanced Purchasing Studies. With so few transactions conducted electronically, companies are missing out on the full value of B2B e-commerce.
Louis Columbus, a senior analyst with AMR Research in Boston, says procuring direct materials via phone, fax or e-mail costs between $160 and $200 per transaction, while the same activity executed electronically rings up as low as $40 per transaction?a fivefold savings. Aberdeen Group estimates that automating procurement activities will save midsize companies $2 million per year. And that’s not to say anything of the cost savings resulting from better supply chain collaboration. Indeed, the advantages of B2B e-commerce include savings in administrative costs; decreases in acquisition, purchasing and payment cycles; reductions in errors and product returns; better inventory data; and incremental revenue growth.
The key to reaping those benefits lies in recruiting the multitude of business partners that have yet to sign on for your B2B trading.
Of course, there are other obstacles to B2B ROI besides participation: legacy systems ill-equipped to deal with B2B transactions, the volume of legacy processes that need to be mapped and automated, and the lack of standards. Security fears are also a concern for many companies loathe to see their data flow over the Web into companies that aren’t under their direct control. (Read about how to secure your B2B partners in "How to Practice Safe B2B," Page 52.) Nevertheless, recruitment remains a critical challenge.
Forget the 80/20 Rule
Although it seems intuitive to get your biggest customers and suppliers on board with B2B first, you must devote some of your efforts to automating tier-two and tier-three customers and suppliers. While the third tier may generate just 20 percent of your revenue, those companies are often the most costly to deal with per transaction, making their conversion to cheaper e-commerce all the more urgent. As for tier-two suppliers, over time they’ll become tier ones, says Rowland Archer, CTO of Holcomb, Archer, Heber & Tyler Commerce, a provider of software that facilitates B2B trading based in Research Triangle, N.C. "It’s worth looking at them and finding out who’s doing the volume that would merit tight integration," Archer says.
