The B2B eCommerce market has been steadily on the rise.
Between 2015 and 2021, the share of eCommerce in the US B2B industry is expected to grow from 9.7% to 13.1%.
While this is just a growth of four percentage points, it is worth pointing out that the value of this market is estimated to cross $1.2 trillion dollars over the next three years.
The digitization of B2B commerce has implications not just for the way business is done, but also for the overall supply chain of the system.
Take the example of a business supplying industry-grade ovens and refrigerators to restaurants and hotels across the country. Traditionally, such businesses rely on their sales force to find prospective restaurant businesses and convert them into paying customers.
SDRs typically have a finite territory to handle. This means that the location of your warehouse could be optimized to effectively serve all the territories covered by your sales team.
With B2B eCommerce, customer acquisition is not driven purely by sales any more. Online marketing makes it possible for businesses to expand their territory across states or even national boundaries.
If you are a verified supplier on platforms like Alibaba or Shopify’s Oberlo, you could ship products from your Chinese factory directly to your customer’s warehouse (or even dropship them to the end consumer).
This brings down the capital costs necessary to operate a local warehouse or hire a local salesforce. The lower costs thus enable you to price your products more competitively.
While this looks very promising, there are a few challenges that businesses need to deal with as well. The first and foremost challenge is that of demand forecasting.
With your traditional supply chain system, forecasting is relatively simple - contracts are signed months in advance leaving you with adequate time to plan and produce your various goods.
With eCommerce, inventory procurement is most often a ‘Just-in-Time’ (JIT) system. Orders are not placed until your customer needs it.
Long-term contracts may give way to a pay-as-you-go (PAYG) model. While this helps customers enjoy better cash flow and working capital, B2B eCommerce can potentially make your business highly volatile.
This is a particularly critical problem in the case of businesses with a lot of SKUs.
Take the example of a business that makes custom screws and fasteners for their clients. There are dozens of different specifications that come with every order.
In the absence of an order schedule, configuring your machines for the manufacture of each of these various orders could be time consuming and expensive.
This may force many businesses to abort their direct relationship with customers and deal through a distributor instead. The distributor handles the risks with respect to demand volatility while also ensuring quicker turnaround for the customer.
The result - distributors eat a share of the profits and this brings down the margins for businesses switching to online channels.
However, B2B eCommerce is expected to fix one of the biggest challenges in the industry today - cash flow volatility. In traditional commerce, startup businesses tend to have little say in the credit and invoicing period offered by suppliers and customers.
One of the most common scenarios here is when your supplier credit period is shorter than the invoicing period demanded by your customer. Failure to getting paid on time leads to a working capital deficit that forces businesses to secure debt to plug the gap. Such debts add up over time and could potentially bankrupt a business.
With eCommerce, the situation could improve since such transactions require the buyer to pay before they seek delivery. Businesses may thus expect to get cash in hand much earlier than they could expect it in a traditional setup.
It is however worth pointing out that despite all the optimism, eCommerce is expected to be only a fraction of the overall B2B market for a long time to come. Apruve helps businesses like yours avoid working capital deficits with the help of automated credit programs.
This way, businesses can get paid for their goods instantly leaving the job of collecting payment from the client to Apruve.
ECommerce in B2B is here to stay and it is important for all businesses get used to the new reality. However, while there are challenges as pointed out earlier, the opportunities that come with eCommerce more or less make up for any potential challenges.
All said and done, one of the biggest implications of eCommerce is the globalization of trade. It is now possible for an entrepreneur in India to set up an assembly chain for their products in China and ship it to their customers in the US without having to move out of their chair. While this could mean disruption for the local B2B trader, it also introduces us to a new model where businesses do not have to rely on their local turf for survival.
Author Bio: Anand Srinivasan is the founder of Hubbion, a suite of free business apps and resources. Their latest app helps find email addresses of anybody with just their name and company URL.