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Models of B2B E-Commerce

The three major B2B e-commerce models are determined by seller, buyer or intermediary (third party) who controls the marketplace. Consequently, the following four marketplaces have been created. Each model has specific characteristics and is suitable for a specific business:

Seller-Oriented Marketplace
This is the most popular type of B2B model for both consumers and businėsses. In this model the sellers who provide to fragmented markets such as chemicals, electronics and auto components come together to generate a common trading place for the buyers. While the sellers aggregate their market power, it simplifies the buyers search for alternative sources. Businesses and sometime consumers use the seller's product catalog to order products and services online.  

In the sell-side marketplace model, organisations attempt to sell their products or services to other organisations electronically. This model is similar to the B2C model in which the buyer is expected to come to the seller's site (or to an electronic mall), view catalogues, and place an order. In this case, however, the buyer is an organisation that may be a regular customer of the seller.

The key mechanisms in the sell-side model are: 
  1. Electronic catalogues that can be customized for each large buyer (dell.com), and 
  2. Forward auctions. 
Dell Computer also uses auctions extensively (dellauction.com). In addition to auctions from their website, organisations can use auction sites, such as eBay, to liquidate items. Companies such as freemarkets.com are helping organisations to auction obsolete and old assets and inventories (asset recovery programmes). 

The sell-side model is used by thousands of companies and is especially powerful for companies with superb reputations. For example, major computer companies such as Cisco, IBM, and Intel. The seller in this model can be either a manufacturer, a distributor (e.g., bigboxx.com and avnet.com), or a retailer. In this model E-Commerce is used to increase sales, reduce selling and advertising expenditures, increase delivery speed, and reduce administrative costs.

Buyer-Oriented Marketplace
This model is used by large companies with significant buying power or a consortium of several large companies. The consortium among Ford, General Motors and Daimler Chrysler is a good example of this model. In this model a buyer or a group of buyers opens an electronic marketplace and invites sellers to bid on the announced products or RFQS (Request for Quotation). 

Using this model the buyers are looking to efficiently manage the procurement process, lower administrative cost and exercise uniform pricing. Companies are making investments in a buyer-controlled marketplace with the goal of establishing new sales channels that increase market presence and lower the cost of each sale. 

By participating in a buyer-side marketplace a seller could perform the following: 
  1. Get better understanding of buying behaviors, 
  2. Carry out pre-sales marketing, 
  3. Carry out sales transactions, 
  4. Carry out post-sales analysis,
  5. Reduce order placement and delivery cycle time, 
  6. Offer an alternative sales channel, 
  7. Automate the order management process, 
  8. Automate the fulfillment process. 
Figure 2.2 illustrates a buyer-side marketplace configuration. As this figure shows, the suppliers can bid on products or RFQS announced by the buyer or a group of buyers. 

The buyer-side marketplace, also known as e-procurement, is a model in which E-Commerce technology is used to streamline the purchasing process in order to reduce the cost of items purchased, the administrative cost of procurement, and the purchasing cycle time. A major method of e-procurement is a reverse auction.



Third-Party Exchanges Marketplace 
A third-party-controlled marketplace model is controlled by a third party not by sellers or buyers (figure 2.3). A third-party-controlled marketplace model offers suppliers a direct channel of communication to buyers through online storefronts. The interactive procedures within the marketplace contain features like product catalogues, Request for Information (RFI), rebates and promotions, broker contacts and product sample requests.

The marketplace makes revenue from the fees generated by matching buyers and sellers. These marketplaces are usually active either in a vertical or horizontal market. A vertical market focuses on a specific industry or market. 

For example, PaperExchange.com (supplies for publishers), PlasticsNet.com (raw materials and equipment), SciQuest.com (laboratory products) and VerticalNet.com (Provide end-to-end e- business solutions that are targeted at distinct business segments).


Types of Third-Party Exchanges Marketplace 
There are four basic types of exchanges:
  1. Vertical Distributors for Direct Materials: These are B2B marketplaces where direct materials (materials that are inputs to manufacturing) are traded, usually in large quantities in an environment of long-term relationship known as systematic sourcing. For example, Plasticsnet.com and Papersite.com. 
  2. Vertical Exchanges for Indirect Materials: Here indirect materials in one industry are purchased usually on an as-needed basis (called spot sourcing). Buyers and sellers may not even know each other. For example, ChemConnect.com and Isteelasia.com. In such vertical exchanges, prices are continually changing, based on the matching of supply and demand. Auctions are typically used in this kind of B2B marketplace, sometimes done in private trading rooms, which are available in exchanges like ChemConnect.com. Companies may trade the same commodity or parts in both types of markets. 
  3. Horizontal Distributors: These are many-to-many e-marketplaces for indirect (MRO) materials, such as office supplies, used by any industry. Prices are fixed or negotiated in this systematic sourcing-type exchange. For example, EcEurope.com. Globalsources.com, and Alibaba.com. 
  4. Functional Exchanges: Here, needed services such as temporary help or extra space are traded on an as-needed basis (spot sourcing). For example, Employease.com can find temporary labour using employers in its Employease Network. Prices are dynamic, and vary depending on supply and demand. 
All four types of exchanges offer support services, ranging from payments to logistics. Vertical exchanges are frequently owned and managed by a group of big players in an industry (referred to as a consortium).

Trading Partner Agreements 
The main objectives of the trading partner agreements B2B e-business model are to automate the processes for negotiating and enforcing contracts between participating businesses. This relatively new model is gaining popularity. This model is expected to become more common as Extensible Markup Language (XML) and the e-business XML initiative (ebXML) become more accepted. 

This worldwide project is attempting to standardize the exchange of e-business data via XML, including electronic contracts and trading partner agreements. Using this model enables customers to submit electronic documents that previously required hard-copy signatures via the Internet. As soon as act passed by the Turkish Government that gives digital signatures the same legal validity as handwritten signatures, this model will also be very popular in Turkey too.

Benefits of B2B E-Commerce 
  1. 24x7x 365: Businesses are no longer bound by closing hours. The business is open 24 hours, 7 days a week, and 365 days a year. Organizations in different time zones find it difficult to synchronize their business times with international trading partners. However, a comprehensive website with detailed information ensures that business information, such as product specifications, pricing, delivery charges and minimum quantities, is available for prospective and existing partners to see and to place an order. When the business opens the next day, the order is put together and dispatched after payment has been tendered. 
  2. Breaking Geographic Barriers: Businesses are not limited to purchasing raw materials or components from local manufacturers. A Google search for 'sugar refineries' will generate over 20000 hits. By sifting through these results one will find a number of sugar refineries worldwide with whom to trade.
  3. Online Tenders: Indiamart.com is a tender portal where one can tender to sell products to states in India. One of the large manufacturers of sweets and chocolates put a tender online and, within days, was able to purchase sugar from Brazil at a fraction of the cost of local sugar. 
  4. Lower Costs: With the ability to access foreign suppliers of raw materials and components, businesses can keep their costs low, because they have access to more suppliers. Furthermore, local suppliers who are afraid of losing local buyers would be willing to negotiate lower prices. For example, Ford and DaimlerChrysler regularly purchase manufactured motor components from obscure parts of the world at lower costs than those supplied by American component manufacturers. 
  5. Perfect Competition: Perfect information is required to reach perfect competition. The internet may not always provide perfect information. However, it makes information more transparent, which means that buyers can expect more uniform and consistent although not necessarily lower - prices. 
  6. Eliminating Weak Middlemen: Intermediaries add to the cost of finished goods and ultimately selling prices. However, B2B e-commerce allows firms to deal directly with other firms, eliminating middlemen and reducing costs.
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