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Beyond the Supply Chain Lies a B2B Marketplace
For business-to-business commerce, the supply chain isn't a single chain of players linked in a linear process but a complex web of interactions that can include multiple trading partners at many different levels and across previously impenetrable boundaries.
Posted Jun 2, 2000
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The Internet and the knowledge economy fundamentally alter the concept of the traditional supply chain. Organizations should realize that interactions with their various trading and business partners are not linear chains but interconnecting webs. These webs provide opportunities for new and different trading relationships that were not even considered a few years ago. Successful organizations will be those that take advantage of the opportunities that this e-business model creates.

What sorts of changes has the Internet brought to traditional supply chain relationships? Consider the following four changes:

  • Supply chains are linear, and the Internet does not rely on linear relationships. The traditional view of a supply chain is exactly that: a chain with links connecting one party to the next. But the Internet eliminates these boundaries. Now, for example, manufacturers can interact with consumers, distributors can interact with raw materials suppliers and consumers can interact with each other. This largely unstructured, collaborative model enables new trading relationships. The only possible limit is our collective imagination.

  • The nature of the Internet blows away traditional trading relationships and competitive scenarios. In the Internet economy, last year's competitor can easily become this year's partner. Businesses must actively reexamine their trading relationships. Many find partnership opportunities that they never would have considered otherwise. For example, former competitors may start buying and selling raw materials or products to and from each other in ways not possible in the bricks-and-mortar world. They can address surpluses or leverage each other's core competencies to establish a formidable market presence.

  • Intermediaries are disappearing in some areas and reappearing in others. Many analysts have predicted that the Internet would eliminate the middleman as consumers obtained products directly from manufacturers without going through distributors or dealers. While this has been proven true in some instances, many distributors and dealers have actually strengthened their businesses by aggressively establishing a strong presence on the Web. In addition, a new breed of intermediaries has emerged--Web-based marketplaces. These electronic marketplaces add a trading element to the supply web that drastically increases time-to-market efficiency by furnishing a single point of access--a marketplace portal--to facilitate business-to-business (B2B) transactions across an industry.

  • Smaller companies seem like bigger companies, and more companies make more points of interaction in supply webs. The Internet gives almost any company a chance to be noticed on a global scale. In addition, outsourcing allows smaller companies to concentrate on their core competencies and still have top-quality technical operations and infrastructures.

    Networked Supply Models
    Clearly, the Internet has displaced the traditional supply chain model. In its place, we have two types of supply models at work in the new economy: the discrete B2B model and the marketplace model.

    The discrete B2B model
    This supply model is a holdover from the traditional B2B supply chain model. The new, "postmodern" approach merely aspires to augment the old model with more automation and online communications. This is the promise of e-commerce in general, and we've seen plenty of e-commerce success in the business-to-consumer (B2C) sector. But B2B e-commerce is just beginning to take off.

    When looking at the discrete B2B supply chain model, it becomes clear that although e-commerce may enable more parties to participate more easily, the model is essentially unchanged from the traditional supply chain. Even with the rush into e-commerce, many organizations continue to view their trading-partner relationships as before.

    Marketplace supply webs
    The B2B marketplace supply model is more innovative. In this model, intermediaries provide the mechanism to bring buyers and sellers together to trade. Typically, such marketplaces bring together manufacturers, materials suppliers, wholesalers and retailers in a particular industry or market segment.

    Despite the theory that intermediaries cause market inefficiencies, Internet-based B2B marketplaces actually accelerate the distribution process. This is especially true in highly fragmented industries such as apparel, electronic components or furniture, in which there are few dominant companies or service providers around which the market revolves.

    In the marketplace model, the intermediary itself incurs the lion's share of the cost of running the marketplace, with responsibilities such as site development, implementation and maintenance. Trading partners pay a fee that may include access charges, transaction charges or a percentage of sales. In any case, the expenditures are often negligible compared to going it alone with a pure B2B play.

    The next generation Both the postmodern and marketplace supply models can be seen in practice today. However, the nature of the Internet belies the orderliness of these models. In reality, every trading partner is like an individual atom and can be connected to any number of other atoms in different ways, which in turn can be connected to many other atoms and so on.

    Thus, the Internet has given rise to an atomistic supply web that appears chaotic on the surface but actually provides an environment for limitless opportunity.

    The atomistic model represents the way the world really works. Its evolution would make the Internet's founding fathers proud. It is a limitless model without boundaries on relationships among companies, individuals, information or transactions. In the Internet economy, success depends on quickly taking advantage of new business opportunities. That means knowing when to cast aside old models--such as traditional supply chains--that may become obsolete for your business.

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