2014 Predictions: The Return (and Supply Chain Evolution) of the Private B2B Marketplace
Categories: Procurement Commentary, Procurement Strategy & Planning, Supply Chain | Tags: Enterprise Irregulars, Incendiary Tidbits
Back in the early 2000s, independent electronic B2B public marketplaces gave birth to the software to run them, which then gave birth to the brick and mortar companies that wanted to control their own destinies to use such software to run industry consortia marketplaces. But, they found the technology lacking in deep support for much beyond things like reverse auctions, simple directories, and equally simple catalogs and order management. Eventually, the firms stood back and realized that they needed deeper support for their processes, and maybe that they should consider using such a software architecture as a platform for more strategically differentiated processes. There’s only so much benefit you can derive from trading paperclips and laptops after all!
From a provider standpoint, most of these marketplaces were consolidated or died off. The remaining players focused their efforts on proving solutions to enable commerce rather than be a single destination for the commerce.
However, from a practitioner standpoint, a seed had been planted regarding thinking more broadly about extended supply chains and technology. Actually, multiple seeds had been planted that would eventually germinate. Let’s take High Tech as an example regarding the lessons learned:
- Industry standards can indeed be useful if you stick with them. For example, this can be to help suppliers adopt a common standard rather than a common marketplace or provider. In High-Tech, RosettaNet may have been slightly over-engineered, which can impact adoption, but some of that design work is starting to pay off regarding tapping the flexibility of XML while not allowing syntactical/semantic tyranny to reign. This is where third parties who can translate between the dialects (putting the “Rosetta Stone” in RosettaNet, if you will). We’ll be highlighting an interesting case study in this area soon, so stay tuned for that.
- A broader business process focus helps keep a clear line of sight on end objectives and value rather than technology du jour. E2open was founded as a large High-Tech industry consortium, and it has stayed viable by staying nimble and focusing on industry pain points. It may not have the most advanced or integrated architecture, but it focuses on key points of value surrounding business processes (e.g., RosettaNet support), multi-tier networks, visibility, and true B2B collaboration for the supply chain planning/execution boundary.
- Practitioners are providers too. It’s not so easy being on the other side of the table in terms of developing solutions. But if you can get it right, there’s a big payoff. Consider Amazon, who not only went from B2C clicks to B2B bricks, but had the vision to see everything as a service. They understood that if you can own the web services “information supply chain,” you are inherently better positioned than your competitors to own the actual supply chain. On the other hand, if you go proprietary, whether you are in Bentonville or Walldorf, you need to change course. We expect to see more brick-and-mortar supply chain services providers put some more thought and investment into their supply chain information services. For example, if you were a large contract manufacturer, why wouldn’t you invest in a new supply chain platform to help yourself and your customers while selling it as a stand-alone solution to other supply chain tiers and other industries? Why not take the Amazon model upstream into B2B? If you are trading at 10-25% of revenue and E2open is trading at eight times the revenue, that is about a 50-fold difference on the multiplier. Closing that difference to 25x doubles your valuation. It may be time to get into the cloud solutions space!
- Funding is fickle, so you need to self-fund as much as possible. Better make sure you can self-fund your business or else the financiers will start moving from the right hand side of your balance sheet to the left (i.e., they’ll start telling you what to do with that dwindling money). This is especially pertinent in the supply chain where a new architecture of supply chain solutions needs to be developed.
- Supply Chain Information Networks are much more complicated and important than simpler single-tier indirect-spend catalog-centric marketplaces. It’s not just a many-to-many data model and an elastic cloud infrastructure to scale, but also the ability to combine a set of smaller supply chain domains that have remained islands to each other in terms of PLM, advanced cost modeling, commodity management, risk management, compliance management, supply network design, profitability planning, supply chain finance, visualization, optimization, analytics, dashboards, event/response management, integration to supply chain sensors, and on and on. One vendor will not this build this out natively even though there are some interesting mash-ups out there right now. If you want to read about how direct procurement organizations are leading the convergence in this broader space, then you should download our direct procurement research, Re-inventing Direct Procurement, on Spend Matters PRO.
So, supply chain information networks like E2open (High Tech), GT Nexus (CPG/Retail), Elemica (Chemicals — see: Elemica: Shifting From a Shared Services Bazaar to Platform “PaaS” Standard), and others are trying to make the transition to cross-industry supply chain Platforms as a Service (Paas). We applaud them because they have to solve some problems that other more simplistic business networks do not. They need to go hybrid/private because of the strategic nature of the transactions including data security, confidentiality, and criticality regarding data visibility and error-free processing in an error-intolerant environment.
Please note that when we talk about a Procurement / Supply Chain PaaS, we mean a lot more than just serving up some infrastructure and an apps marketplace. It’s not just creating a buy-side clone of Salesforce / Force.com. It includes a lot more, such as ways to open up data models (and develop/extend open standards), crowd-source new functionality with partners, share portable business logic, and a host of other enablers that we’ll be publishing on Plus and PRO.
Until then, check out the rest of the 2014 predictions:
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