All you need to know about B2B ecommerce models
B2B ecommerce is a budding market in India. If you want to succeed, you need to know the pros and cons of each. Come and find which suits you best, in this post.Chirag Dagli
Currently, our B2B ecommerce market is estimated to reach $ 40Bn this year and expected to reach 2.5 times of B2C ecommerce market in 2020. B2B ecommerce segment is showing signs of rapid digital acceptance which is going to feed the considerable rise of entrepreneurs and MSMEs from the Indian hinterland. Also, many MSMEs are exploring the era of online selling and thus, accessing new customers across the country.
It has been observed that MSMEs which adopt advanced level of digital engagement, experience annual revenue growth that is 27% higher than those of offline businesses. This is because of factors such as reduction in marketing and distribution costs, shorter time to market, etc.
It’s an ecommerce business model where a firm doesn’t produce or warehouse any item but collects (aggregates) information on goods and/or services from several competing sources at its website.
The aggregation mechanism works best in the following settings:
• Purchasing is done through pre-negotiated contracts.
• The supplier universe is highly classified.
• The cost of a purchase order process is higher than the cost of items procured.
• Products are not commodities but are specialized.
• The number of individual products or SKUs (stock-keeping units), is extremely large.
• A meta-catalog of products carried by a large number of suppliers can be created.
• Buyers are not sophisticated enough to understand dynamic pricing mechanisms.
Business Purchasing Patten
Purchases can be classified into-
1. Manufacturing inputs
2. Operating inputs
1. Manufacturing inputs:
Raw materials and components that go directly into a product or a process as from industry to industry, these goods vary considerably. And these goods are purchased usually from industry-specific or vertical distributors and suppliers.
2. Operating inputs:
On other hand, they’re not the parts of finished products. Often called MRO (maintenance, repair, and operating) goods, they include things like spare parts, office supplies and services. They’re frequently purchased from the horizontal suppliers - vendors such as Tolexo.com and Industrybuying.com.
In business purchasing, the second snag is how services and products are bought. Companies can either engage in spot sourcing or systematic sourcing. As far as spot sourcing is concerned, the buyer’s goal is to accomplish an immediate requirement at the lowest possible cost. This approach is exemplified by commodity trading for products such as steel, energy and oil. Spot transactions seldom involve a long-term relationship with suppliers and surprisingly, buyers on the spot market often don’t know from whom they’re buying! Systematic sourcing includes negotiated contracts with qualified suppliers as the contracts incline to be long-term, the buyers-sellers mostly develop close relationships.
Future of Aggregator Model
With the steady rise of B2B ecommerce in India, the aggregator model is playing a key role in bringing equilibrium within organized space across various sectors. While still at an emerging stage, it can be concluded for now that the aggregator model will witness greater adoption among numerous market players in the near future, enabling the creation of an ecosystem that benefits all parties involved.
Today, any ecommerce business is thriving on the subsidies and incentives that they give customers and suppliers to gain market share and traction. Even the major players will not sustain if the trends continue to remain. The aggregators will have to actually test the model by eliminating subsidies and incentives and then, figure out whether it’s doable or some twigging is required in the model.
Almost 95% of ecommerce B2B market is unorganized and dominated by local vendors. Lack of education on using right technology among customers (to buy) and sellers (to list) create a disadvantage for the sellers because they don’t have access to buyers via internet. Plus, small-scaled sellers aren’t able to scale up and sell to the multinationals at more competitive rates than those of higher-scale producers. Critical feedback for these small sellers to improve operations is also lost by remaining offline.
Preference for credit:
Historically “Credit” is a preferred mode of payment in offline B2B transactions where payment in offline trade is made 30 days after receipt of goods. However in B2B ecommerce, payment will have to be made upfront and at the most, Cash On Delivery will be accepted.
Nomination for PSE (Public Sector Enterprise):
Currently there is a lack of a transparent and efficient competitive bidding route to choose the PSEs. It restricts Public Sector entity or Public Exchequer from getting the best options for service providers.
Lack of expertise in peripheral activities:
As the merchants move to online channels, they lack expertise in peripheral activities where they seek the support of ecommerce platforms and logistics partners such as managing inventory, handling invoicing and providing consumer insights.
Furthermore, Aggregator Model assures small and large enterprises to fulfill their product requirements in the simplest, most efficient and transparent manner. Major three roadblocks for any SMEs during procurement are:
3. Financial Credit
All these three individual processes are challenges for SMEs. In India, Metal Junction and MMRTC only are focusing towards this model through auction model. If SMEs are able to provide benefits to both buyers and suppliers through streamline value chain, it can bring success in near future. Their value chain precisely focuses on reduction of time, cost, inventory and people through transparency and better pricing mechanism.
In B2B ecommerce era, companies are also exploring MRO (Maintenance Repair & Operation) Model, but in this model also, there are some major challenges such as:
1. Sourcing and Procurement
2. Inventory Management
3. Supply chain Management
4. Govt. & Legal policies