As B2B commerce continues to rapidly transform, procurement professionals’ expectations are higher than ever. They want fast, efficient and flexible buying experiences, a variety of product categories available on a single website, and the option to order small quantities rather than full pallets. They also require their orders to be completed without stockouts, and with delivery of goods the next day.
In other words, business customers are now behaving much like consumers. As an example, procurement professionals are accustomed to the “Amazon experience” they get when they order merchandise for the home.
They want the same transactions when they’re back at the office ordering for the enterprise.
“In both B2B and B2C, marketplaces have taken a big chunk of the e-commerce pie,” said Marc A. Huras, senior director of sales commerce for Valtech North America. “In retail, for example, Amazon owns a large portion of the online retail market. B2B is not quite as consolidated, but former catalog distributors such as Grainger have become marketplaces as well. And they provide an excellent e-commerce experience with a very wide range of products.”
The new psychology is especially pronounced for Millennials and Gen Zers stepping into the procurement roles left behind by retiring Boomers. They have digital devices in hand and are ready to use them. Phones, faxes and e-mails are viewed as relics of the 20th century. “The customer wants to log into an online portal, place an order, hit ‘send’ and know the job is done,” said David Mascitto, retail e-commerce supply chain product marketing manager at Tecsys Inc., a distribution management software solutions company.
It’s no surprise that B2B e-commerce continues to show steady growth. Sixty-five percent of B2B companies now offer some e-commerce capabilities, up from 53% in 2021, according to McKinsey & Company. The management consulting firm estimates the portion of revenue emanating from e-commerce at 18% — a pace that is overtaking in-person sales and is higher than either e-mail, phone or online chat.
What a new generation of buyers has started, market forces have completed. Amazon Business jump-started the trend with its marketplaces, allowing the click-to-buy purchase of products, very often for lower prices than those at traditional B2B distributors with frozen margins. Now other companies have joined the parade. “If you're a distributor and your competitor is offering an easier, smoother and more accurate buying experience, you're going to have to take it a step further or be left behind,” said Mascitto. “There’s no turning back once the conversion to a digitized, streamlined process begins.”
Mascitto anticipates the next few years as a time when there will be an almost total shift away from manual, human-based processes to completely automated, electronic purchasing. Enabling the shift is the rapid adoption over the past few years of software as a service (SaaS), systems that can be quickly updated and improved in response to evolving market requirements.
The digitization of business ordering has become more complicated as e-commerce companies feel the need to pursue formerly out-of-bounds sales channels. “It's become a converged marketplace where everyone is having to do everything,” said Bill Denbigh, vice president of product marketing at Tecsys. “Distributors are behaving like retailers, going direct to consumers. Manufacturers are behaving like distributors, selling direct to retailers.
Retailers are behaving like manufacturers, creating their own brands and selling them through distribution centers. The result is mayhem.”
The convergence of the B2B and B2C worlds is creating a tremendous challenge for distributors who now find they must adapt their legacy order and warehouse management systems to a bewilderingly complex environment. Consider the hurdles for a brand or a distributor that chooses to sell direct. The first challenge, of course, is to avoid angering current customers. The second is to create a B2C warehouse inside a B2B warehouse that enables a product to be shipped to the end user profitably and on time.
“Establishing an online channel is not a matter of flipping a switch,” said Mascitto. “There's a significant amount of work required to implement an e-commerce type of experience for a traditional B2B distributor whose core business has always been bringing in pallets, putting them on shelves, then picking, packing and shipping.”
The same distributor struggling to meet the demands of B2C commerce must also often take measures to firm up its B2B operations. “Distributors are in a fight to survive and to remain relevant,” said Huras. “They need to focus on what makes them the best; typically, that's their proximity to and their knowledge of local markets, and their ability to better serve those markets. That's why we are seeing e-commerce in the distribution sector grow so much and so fast.” Huras works with distributors and retailers to implement long-term e-commerce strategies and order management systems in the realms of D2C, B2C or B2B.
Dealing With Complexity
Going direct means considering all the different downstream touchpoints, from order processing to fulfillment. Here are a few of the most prominent challenges:
Online sales channels: A traditional retailer’s B2C online sales will usually launch from a single e-commerce website. However, the sales channel for a distributor in the new selling environment will often include multiple marketplaces that are not part of the company’s own website, but that reside on third-party aggregators. These sites are growing quickly because customers would rather order items from multiple vendors at a single place rather than browse the Internet. It’s easier — just as it’s simpler for consumers to buy toothpaste and paper towels from Amazon rather than take time navigating to other sites dedicated to those specific products.
The issue is further complicated by the possibility that more than one third-party aggregator has captured sufficient market share to place it among the “must haves” in a distributor’s network. Somehow, the e-commerce platform must be able to efficiently and accurately collect orders from multiple sites.
The order management system: Order processing presents a second layer of complexity. A computerized system requires that all items be logged and must recognize various customer-specific pricing arrangements. The system must also work with the company’s warehouse management system and enterprise resource planning system without crashing.
The warehouse management system: The B2B company that starts selling direct to consumers — or to the new breed of professional procurement agents — finds itself grappling with a vastly different picking, packing and fulfillment dynamic. Instead of ordering cases and pallets full of product, customers are demanding “eaches,” or ones and twos. This requires a complete retooling of the warehouse management system.
The physical plant: The distributor may need to abandon its comfortable siloed approach in which all of a customer’s orders are serviced from a single nearby distribution center. In its place is a fulfillment network in which a number of smaller branches feed off each other, consolidating orders to a single customer and automatically replenishing from a distribution center.
“At one time, a business organization could centralize its distribution to one very large, very efficient distribution center based somewhere in the middle of America, and ship to everyone, with three to five days required to get there,” said Denbigh. “No more. Now an item must be on the customer’s doorstep the next morning. Therefore, distribution centers are going down in size and many, many more are required to guarantee next-day delivery.
That only builds greater inventory and complexity into the fulfillment process.”
An expansion of the physical plant means more expense, and a concomitant bottom-line challenge. Distributors have become accustomed to selling products at margins based on costs for case-level fulfillment with three-day shipping. Single items shipped overnight are far more expensive to pick and ship. How can such orders be filled at the same price? Distributors must become massively more efficient, which means tapping into new solutions like automation.
As the above comments suggest, the creation of an integrated system that provides a holistic view of a company’s entire supply chain and allows for effective, efficient and rapid fulfillment is the ultimate goal. The order management system must automatically route orders to the right locations. The warehouse management system must be flexible enough to enable the processing of small quantities as well as pallets and cases. The physical plant must eliminate centralized distribution centers in favor of networked regional branches.
All this retrofitting takes both money and expertise. It also takes time. What can a company do to survive until it achieves a thoroughly integrated e-commerce system? The most common approach is manual intervention.
Mascitto described a typical scenario: “Perhaps a customer goes online and buys 250 light fixtures, 250 light bulbs and 100 light switches. Once the order processes, it’s discovered the stock isn't there. At that point, a representative must order the goods from a distribution center and arrange for it to be shipped to their location the next day so it can be sent to the customer.”
Manual interventions like this one can be a solution when e-commerce is a small part of the enterprise. But when transactions start to escalate and customers demand one or two-day delivery, the system can get bogged down quickly. “At some point, manual interventions can’t keep up with the pace of e-commerce,” said Mascitto.
Another stopgap measure involves opening a larger network of fulfillment centers. That allows for rapid deliveries but requires a huge increase in inventory and real estate. Again, it’s too costly to be effective.
Yet a third short-term measure is to hire outside help. “There’s a massive demand for 3PLs (third-party logistics providers) that specialize in the shipping of single items,” said Denbigh. “While a company can hire them to fulfill orders, this solution will not be effective long-term. After all, those third parties need to make their own margins. Unless the organization is incredibly efficient, the process is too expensive.”
A viable medium-term solution is to establish a B2B e-commerce platform. However, as mentioned above, market forces will compel distributors to release their operations from the constraints of outmoded procedures that threaten the bottom line. “Throwing money at the problem is not a viable long-term solution,” concluded Denbigh. “Distributors must be thoughtful about how they undertake a complete digital transformation that institutes best practices throughout the supply chain.”
Resource Link: www.tecsys.com
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