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B2B e-commerce can help lower procurement costs in industry
From which quarter is the biggest economic impact of the Internet likely to come from? Business-to-business (B2B) commerce, says the redoubtable The Economist magazine, quoting a Gartner Group forecast that global B2B turnover could reach a staggering $4 trillion in the United States in 2003, compared to less than $400 billion of online sales to consumers. In India, too, e-business transactions are not out of sync with global trends, though the figures - given the state of our telecom infrastructure, PC penetration and bandwidth availability - are far more modest.A recent Nasscom survey reveals that e-business transactions are expected to touch Rs 3,500 crore in 2000-01, and of this as much as Rs 3,200 crore would comprise B2B transactions. Nasscom is optimistic that with the requisite regulatory framework in place, improvements in telecom infrastructure, and rise in PC penetration, e-commerce transactions would swell to Rs 15,000 crore by 2001-2002. From a corporate perspective, the single biggest advantage of B2B e-commerce is a reduction in costs. B2B e-commerce enables companies to pare costs in three ways: First, it reduces procurement costs, making it easier to find the cheapest supplier and cutting the cost of processing transactions. British Telecom, for instance, claims that procuring goods and services online will reduce the average cost of processing a transaction by 90 per cent and reduce the direct costs of goods and services it purchases by 11 per cent. B2B exchanges also offer big savings: Ford, GM and DaimlerChrysler are setting up a joint exchange to buy components from suppliers over the Internet, and the biggest aerospace firms would follow suit. Second, it allows better supply-chain management. Third, it makes possible tighter inventory control, so that firms can reduce their stocks or even eliminate them.Through these three channels B2B e-commerce reduces firms' production costs, by increasing efficiency or by squeezing suppliers' profit margins. That Indian corporates have not been slow to appreciate the potential of B2B e-commerce is evident from a recent Nasscom survey. More than 41 per cent of corporate respondents said e-commerce transactions were integral to their corporate plans. Significantly, nearly 85 per cent of these were industries which did not have direct or frequent contact with end-consumers. About 18 per cent of respondents (primarily corporate) already have some form of e-commerce infrastructure already in place. Some Indian dot.com companies - amongst them Satyam Infoway, Indiainfo, India Markets Online - have launched horizontal portals that seek to serve as an electronics marketplace for a host of industrial products and services. Essentially, all such portals not only profess to offer a platform for buyers and sellers of various industrial products and services - who in a vast country like India can be scattered - to communicate with each other but some of them go further to enable transactions to take place online. The attempt - by some of these portals at least - is to replicate the key business processes involved in a real-world transaction. A buyer logged on to the Web site, can not only search - and locate - the right products and suppliers by means of a parametric search enabled by means of a powerful search engine, compare competitive quotes, send request for quotations and - if he prefers - place orders online. The actual payment for goods/services bought, though, is still largely offline, using conventional payment mechanisms. With cyber laws in place, even this may eventually change. On his part, a seller using this portal can reach out to more customers/prospects than before, showcase prominent features of his products, send quotes and receive purchase orders. The question of ensuring security of transactions on the Net - a major concern - is also being addressed in various ways, including issue of digital certificates by credible international agencies set up for this very purpose. Digital certificates are electronic credentials that identify parties online, enabling encrypted communications and legally binding, valid digital signatures for online transactions in e-commerce. Here's a short list of the major benefits that accrue to industrial buyers using horizontal B2B portals. The time needed to locate and evaluate suppliers is much reduced since vendor information is available - as it were - on their fingertips. This also makes for informed purchasing as distinct from `gut-feel' purchasing. Enables faster replenishment of inventory and, therefore, lower inventory. Better pricing is achieved through expanding their supplier base and availing of discounts and special offers. Increases productivity by reducing the time needed to purchase. Enables more efficient management of purchasing information. Since purchasing information is stored electronically in their computers, buyers can see what was purchased and by whom, and evaluate supplier performance. In other words, the very important record-keeping function is taken care of.From the sellers, point of view the advantages are: Customers can be better served by constantly supplying current information - information on introduction of a new model, discontinuance of another, change in price, and so on - when it is needed. Customers' time and money are saved since the complete electronic purchasing transaction may well take less man hours and paperwork than the traditional one. Money spent on phone calls/fax, filing, printing can be reduced, so also the number of employees involved in purchasing. Enhances visibility of products as also enlarges market reach at very low cost. In sum, lowering procurement cost is one of the major benefits of B2B e-commerce.The Goldman Sachs report (quoted earlier) reckons that doing business with suppliers online could reduce the cost of making a car - to give just one example - by as much as 14 per cent. Not only that, lowering of costs in one industry will reduce the price of inputs for other industries. If cost reduction is the key to competitiveness in the industrial marketplace, B2B e-commerce seems to be the way to go. At least that seems to be the way the world is going, India included. N Raghavan is head of content B2B portal Satyam Infoway Limited Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.
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