Published In November 2000
The Internet is already changing the way the electrical industry operates, especially in the areas of purchasing, financing, and shipping. But it has only just begun. Business-to-business (B2B) marketplaces are particularly useful for small businesses, which represent a large percentage of companies in the electrical industry. Unlike large companies, small businesses simply don’t have the buying clout, time, or resources to find the best deals out there. But because of its vast networks and information resources, the Internet has a powerful equalizing effect on all businesses, essentially leveling the playing field. According to the Construction Industry Manufacturing Association (CIMA), approximately 62 percent of contractors use the Internet for procurement. That number will keep rising at a dramatic rate, because B2B marketplaces offer a compelling value proposition by solving fundamental business problems on both the buyer and supplier sides with no additional cost or long-term commitment. Buyers benefit from improved efficiencies and an automated ability to comparison shop. Suppliers dramatically reduce the cost of customer acquisition, lower transaction costs, and access to new markets. B2B marketplaces create efficiencies to save buyers and suppliers both time and money, representing a permanent gain in productivity in today’s highly competitive market. How B2B marketplaces work There are two main B2B pricing options consumers can choose from: fixed pricing and variable, or dynamic, pricing. Fixed pricing models essentially offer direct comparisons on similar products and services, much the same way a travel agent operates. When you’re planning a flight, you tell a travel agent (through telephone or a Web site) what you’re looking for, the travel agent gives you a list of all your options, and you pick your best option. In the same way, you can indicate what product or service you’re looking for, and immediately get a comparison list of pre-negotiated prices and rates from the B2B’s vendors. Best of all, on most sites, the service is completely free to buyers (for suppliers, they often charge a small commission fee, just like travel agents). Variable, or dynamic, pricing includes both auctions and exchanges. An auction is either one buyer and many sellers, or one seller and many buyers, whereas an exchange indicates many buyers and many sellers. Purchasing. Online companies focus on all types of products in the electrical industry—including everything from electrical and lighting supplies, to motors and safety equipment. They work closely with suppliers of all sizes-from national industry leaders, to the guy up the street—to post their items in an online catalog. On most sites, a standardized format makes it easy for members to type in one search and get a comparison list back immediately. This process puts the purchasing power right into the hands of the buyer. Before the Internet, electrical contractors, like many others in the manufacturing and construction industry, had to spend a lot of time leafing through catalogs and making calls to find the best deals. A process that took between two and three hours before can now take minutes! In addition, because there are different suppliers competing for your business in one location, prices are often 10-30 percent lower than what you’ll find in many industrial supply catalogs. To meet the specific needs of the manufacturing and construction sector, some sites have a Request-For-Quote (RFQ) system to help locate and purchase hard-to-find or specialized products. If you’re buying in bulk or can’t find what you’re looking for in the online catalog, you can fill out an RFQ, and the company will send it out to the suppliers on its network that carry the types of products you’re looking for. Suppliers usually respond very quickly with competitive bids, and you can then pick among multiple bids. Financing. Everyone knows how time-consuming it can be to get a loan. Online financial marketplaces change all that. Online banks may not suit everyone’s needs, but online financial marketplaces give you access to established, offline financial institutions, they just expedite the application and approval process. For example, some sites offer access to financial products such as equipment leasing, lines of credit, and financial loans through a network of national lenders. Usually there is only one application to complete and the more advanced sites can turn your application around with a binding offer from their lenders within two minutes. No pounding the pavement and no time wasted on hold on the phone. Shipping. In many cases customers can issue a simple quote request and have a national shipping company bid on your business. You don’t have to be a big business anymore to secure deep discounts for full load, less-than-load (LTL), and express delivery products to move anything anywhere in the United States. Some B2B sites offer discounted shipping services, without any obligation to purchase other products or services on their site. Customers can issue a simple quote request, and the site replies quickly with responses and bids from multiple shipping partners. The most important point is that B2B sites offer small businesses a whole solution to an inherent business problem. If you find the item you want, how do you get the best price possible and how do you get it from Point A to Point B? Purchasing, financing and shipping services can be procured independently, but some online services combine those functions for convenience. What to expect from B2Bs in the future Most electrical contractors are expected to integrate the Internet deep into their supply chains and business processes. There has already been an acceleration of companies adopting this model, and believe that this process will transform the way they buy, sell, and collaborate with buyers and sellers. B2Bs will fit very specialized needs of each particular industry. For example, in the next few years, electrical companies can expect to link directly from a B2B marketplace to their back-end financial, accounting, and human resource systems (or ERP). An online purchase will automatically be reflected in a contractor’s financial system and on purchase orders. The online purchase will also trigger adjustments in inventory management systems. Then the contractor’s entire team will know exactly what was ordered and when it will arrive. What you should be doing now Start by analyzing purchasing practices. This can be accomplished in three easy steps: * Begin by making the ordering process efficient. Efficiency is key in a fast-paced marketplace. The smoother and quicker you transact business the better you accomplish your goal of making the procurement process easier. * Don’t force your value-added supplier to compete on price. There has to be added value on both sides of this business model to make it succeed. * Make sure you make it easy for vendors to contact you. Have customer service representatives accessible 24 hours a day so vendors can speak with a person and not a machine. Next, analyze your selling practices. This too, can also be done in three steps: * Ask yourself if your Web site gives adequate buying information. Misleading, inaccurate, or incomplete information regarding a product will reflect poorly on your company. If information is accurate, customers will feel more confident in purchasing your products. * Make it easy for customers to contact you. Quality customer service is the key to any business. Provide customers with 24-hour personal contacts so if they encounter any problems they do not have to wait until the next business day in order to fix the problem. * Start looking at online collaboration with customers and suppliers. Online and off-line relationships should weigh heavily in your business plan. Give the customer and vendor the ease of an online relationship, and the comfort of an off-line relationship. B2B marketplaces offer tremendous opportunities to electrical contractors; don’t get left behind! The time is now to take advantage of the opportunities presented by the Internet and to make a dramatic impact on the efficiency of your entire procurement process. MARTIN is chief business development officer of EqualFooting.com. He can be reached at (703)796-4001 or via e-mail at firstname.lastname@example.org.