Have We Reached B2B 3.0 Yet? Part 2: B2B 2.0, A History Lesson, Continued

As per Part I, over seven years ago, Sourcing Innovation published Introducing B2B 3.0 and Simplicity for All, which is available as a free download, to help educate you on the next generation of B2B and prepare you for what comes next. The expectation was that, by now, we would be awash in B2B 3.0 (Business to Business 3.0), which was simply defined as the first generation of technology that actually puts business users on the same footing as consumers, but are we?

SI would like to jump right in and answer that question, but first we have to discuss B2B 2.0 and get our terminology straight before we can discuss B2B 3.0.

B2B 2.0: The “Marketplace” era

In the early naughts, thanks in part to efforts by large B2C and C2C (Consumer-to-Consumer) players like Amazon and e-Bay who made great strides in bringing security, trust, and quality to on-line platforms, e-Commerce became a major part of the consumer world. The growth of online business in some industries was so expensive that, almost overnight, small stores and chains started suffering and going out of business. Why pay $20 for a CD that an online store would sell for $14 and ship free if you bought 4 of them?

The end result was that businesses saw the potential of the web to host large, on-line marketplaces, and address the content and community requirements, and a large number of B2B marketplaces and private networks sprang into existence. This included dozens of general purpose marketplaces, including the likes of Ariba, Enporion (now GEP), Quadrem (now Ariba), and TPN Register (acquired by GXS, now OpenText GXS which sprang onto the scene alongside dozens of vertical-specific marketplaces like Aeroxchange, ChemConnect (gone), eSourceApparel (gone), and GNX (merged with WWRE, now Global Sources). The technology was more advanced than 1.0, but it only offered basic e-Procurement features — such as catalog management, request-for-bid, simple reverse auction, and supplier directories. B2B 2.0 expanded the marketplace for e-Procurement as these marketplaces spurred a flurry of new market entrants (such as Emptoris, Ketera [now Deem], and SciQuest) and allowed mid-tier buyers and suppliers to get in the game. And even though dynamic content was limited, and search was primitive, B2B 2.0 was made out to be a good thing.

But in the end, the gains didn’t negate the losses. Even though the marketplaces and private networks initially thrived, the high access fees became even more prohibitive as suppliers had to be on multiple networks to service their buyers and buyers had to be on multiple networks if they wanted to discover new suppliers. Again, only the e-Procurement vendors won.

Lesson learned? Private Networks are redundant with the BIG Network, the ONE Network, the Internet and network redundancy (not machine redundancy in data centres) is bad, especially when everyone is on the same internet that supports the same internet protocol stack and can connect with the same open protocol.

Have We Reached B2B 3.0 Yet? Part 1: B2B 1.0, A History Lesson

Over seven years ago, Sourcing Innovation published Introducing B2B 3.0 and Simplicity for All, which is available as a free download, to help educate you on the next generation of B2B and prepare you for what comes next. The expectation was that, by now, we would be awash in B2B 3.0 (Business to Business 3.0), which was simply defined as the first generation of technology that actually puts business users on the same footing as consumers, but are we?

SI would like to jump right in and answer that question, but first we have to discuss B2B 1.0 and B2B 2.0 to get our terminology straight.

B2B 1.0: The “Free Network” era

In the early nineties, a time when our current Hindsight would have been useful, the Internet burst onto the scene. Almost immediately, entrepreneurs saw the potential of the Internet to grow consumer-based business of all types, and B2C 1.0 was born. And although it was primitive by today’s standards, it took mail order to a whole new level. It wasn’t long before big business took note and decided that the internet would benefit them too, allowing new customers to find them and place orders, and suppliers to participate in reverse auctions to allow them to serve more customers at a lower price point. B2B 1.0 arrived.

B2B 1.0 was largely powered by the “free” connectivity of the internet as opposed to the costly EDI (Electronic Data Interchange) alternatives that ran over private networks that had to be maintained by the business. However, since bandwidth was still quite expensive (as it cost thousands of dollars a month for a dedicated 1.54 mbps T1 line as opposed to the 100 a month you can now pay for 100 mbps cable modem, and since network infrastructure technology was still quite expensive (as it could cost almost 10K for a multi-port enterprise router and switch), B2B 1.0 was still limited to large organizations, who nonetheless saw significant savings potential. (Considering that first generation reverse auctions often saved Millions, what’s a 100K for infrastructure?)

However, while “big buyers” won big, suppliers lost bigger as they ended up having to

  • maintain expensive internet connectivity and infrastructure, which was sometimes considerably more expensive in their rural factory locations versus dense urban business centres
  • support the different EDI and data standards required by different buyers, greatly increasing their IT support costs and
  • maintain different catalog versions for each buyer, with different pricing, buyer SKUS, etc., further increasing their IT support costs.

And these suppliers were the lucky ones. Some suppliers didn’t get to participate at all.

In short, suppliers lost. Lucky buyers broke even. And only the first-generation enterprise e-Procurement vendors, who laughed all the way to the bank, won.

Lesson learned? Functionality, and even connectivity, is useless without content and community.

One Hundred and Fifty Years Ago Today …

The notorious Jesse James allegedly held up his first bank, the Clay County Savings Association in Liberty, Missouri and made off with $15,000 (about $225,000 in today’s dollars).

 

 


My great-great-great-great-great-great-great-great-great-great-great-great-great-great-great grandfather was part of the James-Younger gang. Please be giving me all your tuna.

Optimization Backed Sourcing Platform … Or Bust Part V


This is the fifth and final part of a five part series that revises and ties together key ideas outlined last year on Sourcing Innovation across multiple posts. Regular readers will be familiar with much of the content, but the integrated perspective should help to cement the ideas in regular readers and new readers alike.

This post is largely based on It is NOT Direct or Indirect — It is Strategic and Complexity!.

In this series we’ve been discussing the need for a modern optimization-backed sourcing platform by first explaining how it’s not a suite, it’s just sourcing, then explaining how it’s not sourcing, but strategic sourcing, and, finally, that it’s not just strategic sourcing but optimization-backed strategic sourcing in order to master the complexities of the modern global supply chain.

We’ve also spent a significant amount of time going into detail as to why first generation suites, which were typically nothing more than a loosely coupled set of pseudo-related modules organization around a theme, did not make a modern platform, and certainly not one that could be called a modern optimization-backed sourcing platform for strategic sourcing of complex categories across modern global supply chains.

But, as per our last post, there is still one more argument against the need for a modern optimization-backed sourcing platform that we need to address. Specifically, the argument that only custom-manufactured direct categories are complex enough to need a complex solution and that the average CPG or indirect category won’t benefit from an overkill solution.

This argument is flawed. And rather than try to attack it, we’re going to get right to the point. The right way to source a category has absolutely nothing to do with whether it is a direct category for your organization or an indirect category for your business. Nor does it have anything to do with whether or not it is a category regularly sourced by your GPO or whether or not the GPO has it under contract.

Remember, as per our last post, even the categories that were traditionally seen as the simplest indirect categories are sometimes actually among the most complex “direct” categories that the organization possesses! In SI’s paper on Complex Sourcing: Are You Ready, we elucidate how even a category such as paper is among the most complex categories that the organization can source.

Secondly, what is indirect for your organization is direct for another organization, and a supplier in particular. Calling it indirect only masks the fact that, at some point in the supply chain it is a complex direct category and if your supplier, or GPO, is not approaching it correctly, a significant amount of money is being left on the table.

While there are some that would very much like to forget that before the introduction of e-Negotiation (e-RFx and e-Auctions), a number of “indirect” categories used to cost organizations millions — such as tires in automotive, lights in aviation and printer ink in back offices everywhere — this is not the right thing to do. We have to remember that these organizations never understood how much these “secondary” categories were really costing them and that, sometimes, 100% profit margins were the norm, because they often did not have the ability to go out to market like we do today.

Thirdly, while a product organization might see services as indirect as such a category would be labelled as non-core, and, similarly, while a service (or financial) organization might see a product category as indirect as it too would be labelled non-core, if such service, or product, is essential for the organization to deliver the product, or services, the organization profits on to the end consumer, how can such a service, or product, really be non-core?

For example, if successfully selling that next generation cellphone requires augmenting the supplier’s design team with a new design team that can enhance usability above the competitor’s product without sacrificing a low-price point or quality, that is a critical service and should not be treated as a secondary outsourced indirect category. Similarly, if delivery of your big data analytics services requires a specific high-end laptop configuration that can not be easily met by all providers, and a sub-par configuration would result in delays or service degradations, this is not a category that can be thrown over the wall to a GPO either.

In other words, direct or indirect has no correlation to the complexity of a category or its strategic importance to the business and, thus, should not be used to determine the appropriate sourcing strategy or sourcing platform. The right way to initially classify a category is to use a basic measure that that captures its strategic importance and its complexity and any category with a measure that exceeds a certain threshold must be strategically sourced. The rest can be sourced using simple spot-buys or other traditional methods provided that they are not too complex, or too strategic in someone’s view, for these traditional methods.

And, as such, there is no argument not to use an optimization-backed sourcing platform on every single category that the organization needs to source.