Create the right relationship with B2B e-marketplaces

By Staff -- Industrial Distribution, 2/1/2001

NEW YORK-E-marketplaces are shifting the boundaries between industries and transforming value-chains. Distributors wonder if they will be squeezed out as customers can access manufacturers in a B2B-direct environment.

"The e-marketplaces will supplant some of the marketing functions provided by distributors," said Matt Sanders, senior analyst for Forrester Research in Cambridge, Mass. "But the distributor plays many essential roles, especially allowing the end-customer to sell their services rather than burning up valuable time trying to find and purchase supplies."

"The future for e-marketplaces and distributors will increasingly be about cooperation," said Phillip L. Carter, executive director of the Arizona State University-based Center for Advanced Purchasing Studies (CAPS) Research. "One won't replace the other. Some large suppliers will find it cheaper to deal with smaller distributors through e-marketplaces and distributors may find cost savings through e-marketplaces. For the distributor, e-marketplaces may potentially reduce inventory and increase supply chain efficiency."

Survival will be difficult for B2B e-marketplaces whose model is to shift or squeeze supplier margins, which doesn't provide long-term value, said Carter.

"To find the right relationship with an e-marketplace," said Carter, "distributors need to determine if a marketplace's functionality is based on sound economic principals which reduce costs or increase revenues in the long-term."

A recent study conducted by Forrester Research cites that $1.4 trillion will be traded in e-marketplaces by 2004, but that cannot support the thousands of markets that exist today. Less than 200 e-marketplaces are predicted to survive beyond 2003.

"As initial funding dries up," said Sanders, "those with weak value propositions will close their doors. The stronger sites will form alliances and partnerships to gain market share. In 2003, the winners will have emerged."

A recent CAPS report indicates that project managers, which provide tools to plan and manage projects and processes, and supply consolidators, which identify supply bases for customers and conduct the transaction, are models that provide significant long-term value that is difficult to replicate.