One problem with business-to-business e-procurement is that it __________.
Business-to-business (B2B), also called B-to-B, is a form of transaction between businesses, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business-to-business refers to business that is conducted between companies, rather than between a company and individual consumer. Business-to-business stands in contrast to business-to-consumer (B2C) and business-to-government (B2G) transactions. Show
Key Takeaways
1:12 Business-to-BusinessUnderstanding Business-to-Business (B2B)Business-to-business transactions are common in a typical supply chain, as companies purchase components and products such as other raw materials for use in the manufacturing processes. Finished products can then be sold to individuals via business-to-consumer transactions. In the context of communication, business-to-business refers to methods by which employees from different companies can connect with one another, such as through social media. This type of communication between the employees of two or more companies is called B2B communication. B2B E-CommerceLate in 2018, Forrester said the B2B e-commerce market topped $1.134 trillion—above the $954 billion it had projected for 2018 in a forecast released in 2017. That's roughly 12% of the total $9 trillion in total US B2B sales for the year. They expect this percentage to climb to 17% by 2023. The internet provides a robust environment in which businesses can find out about products and services and lay the groundwork for future business-to-business transactions. Company websites allow interested parties to learn about a business's products and services and initiate contact. Online product and supply exchange websites allow businesses to search for products and services and initiate procurement through e-procurement interfaces. Specialized online directories providing information about particular industries, companies and the products and services they provide also facilitate B2B transactions. Special ConsiderationsBusiness-to-business transactions require planning to be successful. Such transactions rely on a company’s account management personnel to establish business client relationships. Business-to-business relationships must also be nurtured, typically through professional interactions prior to sales, for successful transactions to take place. Traditional marketing practices also help businesses connect with business clients. Trade publications aid in this effort, offering businesses opportunities to advertise in print and online. A business’s presence at conferences and trade shows also builds awareness of the products and services it provides to other businesses. Example of Business-to-Business (B2B)Business-to-business transactions and large corporate accounts are commonplace for firms in manufacturing. Samsung, for example, is one of Apple's largest suppliers in the production of the iPhone. Apple also holds B2B relationships with firms like Intel, Panasonic and semiconductor producer Micron Technology. B2B transactions are also the backbone of the automobile industry. Many vehicle components are manufactured independently, and auto manufacturers purchase these parts to assemble automobiles. Tires, batteries, electronics, hoses and door locks, for example, are usually manufactured by various companies and sold directly to automobile manufacturers. Service providers also engage in B2B transactions. Companies specializing in property management, housekeeping, and industrial cleanup, for example, often sell these services exclusively to other businesses, rather than individual consumers. Digital technology has completely transformed the way business is conducted, not only in selling goods and services but also in sourcing supplies and materials. Most companies today adopt an e-procurement system for procuring goods. It is the same as traditional procurement, only the process takes place online. E-procurement benefits businesses greatly, especially in terms of cost and productivity. However, there are still challenges to fully digitalizing procurement. Let's dive in and learn more about this interesting concept. E-Procurement DefinitionE-procurement is the buying and selling of supplies, work, and services via the Internet. It can occur business-to-business (B2B), business-to-consumer (B2C), or business-to-government (B2G). E-procurement means purchasing supplies, work, or services via the Internet. E-procurement employs software and networking systems to source suppliers, track inventory, handle invoices, and trigger payments. Here's an example of the e-procurement process: Using e-procurement software, staff from the procurement department can browse online catalogs from a supplier’s website and select items they want to buy. After sending the request, they enter the supplier into the company’s system and wait for managers’ approval. Once the vendor is approved, the e-procurement system automatically sends purchase order (PO) requests to the supplier. If everything goes smoothly, the payment is triggered on receipt of the order invoice. Compared to the traditional procurement method, e-procurement comes with various benefits, including:
The software and information systems for e-procurement are part of the Procure-to-Pay process (P2P). Procure-to-Pay is the integration of purchasing and accounts payable to increase efficiency. It includes three main stages:
The Value Chain of E-procurementThe value chain is the full process of creating a product or service from start to finish. There are five steps to the e-procurement value chain: E-procurement: e-informingE-informing is the pre-stage of e-purchasing. It's the process where buyers and sellers exchange information using the Internet. Data sharing is a key component in e-informing. The data exchanged should be accurate, timely, adequate, and credible. E-informing often takes place in ERP (Enterprise Resource Planning).2 E-procurement: e-sourcingE-sourcing is the process of selecting suppliers using procedures such as a request for information (RFI), request for quotation (RFQ), and request for proposal (RFP). It takes place before the ordering and purchasing of goods. E-procurement tools are important here as they can help the company communicate, evaluate, and shortlist potential suppliers.3
E-procurement: e-tenderingWhen purchasing supplies, companies may encounter multiple vendors selling the same product. To find the best suppliers for the best price, they can accept biddings from different vendors and choose the one they prefer. This is known as tendering. When tendering takes place online, it is called e-tendering. E-tendering is superior to traditional tendering as it removes paperwork and improves the security of the entire tendering process. However, this process may require a lot of staff training. There is also the risk of system breakdown, putting the tendering to a halt.4 E-procurement: e-auctioningE-auctioning is part of the e-tendering process. It involves multiple vendors competing to obtain the buyer's contract. Some popular e-auction methods are:
E-procurement: e-orderingE-ordering is when the company places an order. An electronic purchase order (PO) is sent to request goods or services from the chosen supplier. The platform that holds and manages POs is called electronic data interchange (EDI). It allows an automatic workflow, from ordering to delivering goods and invoicing.6 The Value Chain of E-procurementE-procurement can lead to higher ROI. There are two reasons for this. First, e-procurement provides an automatic framework for businesses to source and manage vendors. This saves time, cost, and effort while increasing the security and transparency of the transaction. Second, the comprehensive data collected by the e-procurement system can help with ROI analysis and improve the company's future performance. Check out our explanation of Marketing ROI to find out more about the importance of return on investment in marketing. At a glance, it may seem that e-procurement has little to do with marketing. However, their link is more intimate than ever. An e-procurement system can integrate with marketing to enable instant information exchange and smoother, more flexible operations.7 Data from e-procurement can also be used in promotional campaigns to increase transparency and improve customers' trust. Thanks to the cheap costs of e-procurement, companies can lower prices for customers. Meanwhile, the risk of late delivery is minimized as inventory is closely monitored with an e-procurement system. All in all, effective e-procurement can streamline processes and make marketing activities more effective. E-Procurement ExampleNow that you know what e-procurement is, let's look at some examples of e-procurement functions and tools. Examples of E-procurement functionsE-procurement has many functions in a company's purchasing process. Some examples are:
Examples of E-procurement toolsThere are many tools that help companies source suppliers online. Here are some examples:
Some examples of e-procurement platforms: Precoro is a total purchasing control tool that allows businesses to create purchase orders quickly, track the order, and assign payment on receipt of an invoice. Promena is an e-sourcing tool for finding and managing suppliers. It also assists bidding and keeps them organized. Orderhive is a procurement tool for e-commerce companies. Its main functions include tracking inventory, handling invoices & payments, and producing analytics & reports. Difference between EDI & ERPEDI and ERP may seem interchangeable, but they have minor differences.
The Difference between E-procurement and ProcurementWe've covered a lot about e-procurement in this explanation. But how does it differ from the traditional procurement method? You will learn about their differences as well as the pros and cons in Table 1. Traditional procurement E-procurement Features
Benefits
Disadvantages
Table 1. E-procurement vs Traditional Procurement E-Procurement Advantages and DisadvantagesUsing digital software for managing the purchasing process, e-procurement certainly has many perks. However, there are still challenges when adopting an e-procurement system. This section will introduce you to the pros and cons of e-procurement. Advantages of e-procurementThere are many benefits to an e-procurement system, including:
A real-life application of E-procurement: RPA (robotic process automation) is a spend analysis and procure-to-pay tool. IBM adopted it to resolve blocked invoices. Since employing the system, the company has managed to cut its resolution time from 32 minutes down to 90 seconds - a massive improvement in efficiency.8 Disadvantages of e-procurementThe main drawback of e-procurement is its heavy reliance on software and electronic system. This makes the company vulnerable to hacker attacks. Technology also requires regular updates and training for staff, which might incur extra costs. There is also difficulty getting all suppliers on board, especially older vendors who are not used to modern technology. For example, they might have a hard time updating digital catalogs. E-procurement - Key takeaways
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