How to Grow Your B2B Network

Forget the 80/20 rule, and stop wasting money. You need to get the rest of your trading partners online to reap real return from e-commerce.

The next time you're ready to brag about your company's B2B e-commerce strategy, hold your tongue. Chances are, you're leaving millions of dollars on the table in spite of your best efforts to do business electronically with your partners.

Although B2B e-commerce has been the talk of the town for years and has survived more than one antihype backlash, the truth is that few companies today are actually transacting the bulk of their business through electronic connections, be they Web sites, public or private exchanges, one-to-one links with business partners or EDI. Aberdeen Group reports that more than 60 per cent of suppliers in all industries continue to receive orders via fax or e-mail. And a mere 4.5 per cent of all purchasing dollars are transacted through B2B e-commerce, according to a 2002 survey by the Centre for Advanced Purchasing Studies. With so few transactions conducted electronically, companies are missing out on the full value of B2B e-commerce.

Louis Columbus, a senior analyst with AMR Research (US), says procuring direct materials via phone, fax or e-mail costs between $US160 and $US200 per transaction, while the same activity executed electronically rings up as low as $US40 per transaction - a fivefold savings. Aberdeen Group estimates that automating procurement activities will save midsize companies $US2 million per year. And that's not to say anything of the cost savings resulting from better supply chain collaboration. Indeed, the advantages of B2B e-commerce include savings in administrative costs; decreases in acquisition, purchasing and payment cycles; reductions in errors and product returns; better inventory data; and incremental revenue growth.

The key to reaping those benefits lies in recruiting the multitude of business partners that have yet to sign on for your B2B trading.

Of course, there are other obstacles to B2B ROI besides participation: legacy systems ill-equipped to deal with B2B transactions, the volume of legacy processes that need to be mapped and automated, and the lack of standards. Security fears are also a concern for many companies loath to see their data flow over the Web into companies that aren't under their direct control. Nevertheless, recruitment remains a critical challenge.

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Forget the 80/20 Rule

Although it seems intuitive to get your biggest customers and suppliers on board with B2B first, you must devote some of your efforts to automating tier-two and tier-three customers and suppliers. While the third tier may generate just 20 per cent of your revenue, those companies are often the most costly to deal with per transaction, making their conversion to cheaper e-commerce all the more urgent. As for tier-two suppliers, over time they'll become tier ones, says Rowland Archer, CTO of Holcomb, Archer, Heber & Tyler Commerce, a provider of software that facilitates B2B trading. "It's worth looking at them and finding out who's doing the volume that would merit tight integration," Archer says.

But trying to get these smaller partners doing business electronically can seem like an insurmountable task. Unless you're Intel or Wal-Mart and can force your partners to comply with your standards, you'll have to use the subtle strategies of companies such as BorgWarner, Celanese Chemicals, KeyNext, Panasonic Industrial and Sigma-Aldrich. While they're making inroads, these companies have miles to go before they reach the land of B2B gold. Here are the strategies they've devised and used in their recruitment efforts.

Strategy 1: Take your customers' B2B temperatures.

Before you begin warming your business partners to the idea of using the Web instead of phone or fax, you must first determine their readiness for B2B e-commerce. Sigma-Aldrich, a $US1.2 billion manufacturer and distributor of chemicals, has more than doubled the amount of business it does electronically each year since 1999. To enable those gains, the company trains its field sales force to ask customers questions to gauge their interest and alacrity in e-business. When visiting customers, the sales staff asks them what they know about e-business and if they've tried ordering over the Web or through an exchange. The salespeople also ask if customers are considering rebuilding their purchasing systems, and if so, how they're going about it and whether Sigma-Aldrich can participate.

"From those discussions, we identify the organisations that are in the midst of grappling with this topic, and we partner with them to determine the problems and pitfalls associated with deploying enterprise-scale procurement systems," says Brad Johnson, Sigma-Aldrich's director of e-business.

Strategy 2: Appoint an e-business implementation manager.

Although your sales staff can identify prospects for B2B recruitment, you'll want to designate an individual or team that will sell one or several of your business partners on the benefits of e-business and serve them in their deployment efforts. This relationship manager should discuss with the partner technology issues such as infrastructure and data transfer, processes for payment, procurement, invoicing and order fulfilment. The manager must work to develop an understanding of what the partner wants to get out of participating in your company's B2B network.

KeyNext, the e-business arm of financial services company KeyCorp, has a sales team composed of relationship managers that, on an ongoing basis, works with both suppliers and buyers who participate in KeyProcure, the company's e-marketplace. "Very often this is a change management issue for them," says Amy Anderson, KeyNext's director of technology and operations. That's because the role of purchasing managers generally changes after B2B implementation. Instead of handling the purchasing process centrally, they redistribute process management to other buyers in the company, establish a new approval process and manage indirect purchasing more strategically, says Linda Grandstaff, KeyNext's president and CEO.

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Strategy 3: Show them the money.

Jack Kalina, BorgWarner's CIO, says that when his company's purchasing organisation set out to involve suppliers in B2B trading, BorgWarner had to demonstrate that the value its suppliers would realise would exceed any cost that might be incurred. The $US2.7 billion company makes transmissions, systems and components for engines, four-wheel-drive systems and fuel systems for automakers. BorgWarner explained to its suppliers that connecting via GE Global Exchange Service's TradeWeb exchange would prevent the manual error of transposing part numbers and quantities, which would reduce the number of returns the supplier would have to process or excess inventory concerns.

"Nobody changes a method in business unless there's a reasonable level of comfort that it's going to work and that it's going to be cost-effective," says Kalina. Of BorgWarner's 800 suppliers of direct materials, 400 are connected via TradeWeb.

Panasonic Industrial creates a value case for its third-party logistics providers that are servicing the OEM customers so that the customers can see what's to be gained from linking their warehouses to Panasonic Industrial's ERP system. Sixty-five per cent of all of Panasonic Industrial's orders each year are processed electronically. "I researched the total quantities of offline warehouses, the number of transactions, and the number of entries on orders, deliveries and invoices," says Ken Jeanos, group manager of e-business. "I then went to our accounting groups and asked how often they find discrepancies that need to be reconciled. I showed these numbers to my customers." Jeanos's customers couldn't argue with his maths. Jeanos also calculates cost savings from automating business processes. For example, he determined that creating and sending an order and an invoice electronically takes just a half day while doing the same thing manually takes two days. To determine the cost savings associated with that reduction in processing time, Jeanos multiplies administrative costs by the per cent of time each month that's spent on those activities.

Strategy 4: Don't forget the end user.

Recruiting partners for B2B can resemble selling an IT project inside your organisation: you need buy-in from end users as well as executives. "Too many companies devote adoption to senior management," says Sigma-Aldrich's Johnson. "The reality is, it's the lower-level people you serve who can really help or hinder your B2B activity," he adds.

While it's possible to convince purchasing agents and other executives using high-level cost/benefit, risk/reward analyses, such as the ones Jeanos whips up, the key to winning over front-line workers is to understand their needs and curb their fears about technology rendering their job obsolete.

Celanese Chemicals addresses that issue by pointing out that B2B e-commerce won't replace end users but will change their role from executing mundane, repetitive tasks, such as tracking down purchase-order approvals, to higher value activities such as procurement analysis. "We're definitely not headed toward a zero-person environment anytime soon," says Bill Schmitt, director of business enablement at the $US3 billion company. "There is so much to do to sort out the complexities of this connectivity that people who now do the manual processes are very valuable." The chemical producing unit of Celanese AG does 10 per cent of its global business through its e-commerce site - ChemVIP.com - and through dedicated B2B connections, and it hopes to boost that number to 25 per cent during 2002.

When Sigma-Aldrich's e-business team pitches its B2B initiatives to customers' procurement departments, it homes in on two selling points that are most important to those workers: efficiency and control. Like Celanese, the team promises that by ordering through Sigma-Aldrich's Web site, by participating in Pipeline (its private exchange) or by setting up a dedicated B2B interface, procurement employees will spend less time on repetitive tasks and will be needed to review and authorise all purchase orders before they are submitted. They are also able to see how the technology will make their job easier by giving them one source - the Web site - for checking what stock is in and the status of orders.

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Strategy 5: Hold Their Hands.

For business partners to completely and whole-heartedly adopt your e-business initiatives, you must assiduously monitor their interactions to see whether they are taking place via phone, fax, e-mail or the Web. If their e-commerce activity seems inconsistent or end users seem uncertain, you need to provide support.

Sigma-Aldrich uses business intelligence software from Cognos to track customers' buying behaviour across channels. If Sigma-Aldrich's implementation manager sees that a customer used the Web to place an order once but then used the phone next time, he'll contact the customer, ask if he is having problems and offer to show him the system again. The Web customer service organisation uses software from Hipbone, to take control of the customer's browser and guide him through the process. Until the customer is fully up and running on Sigma-Aldrich's Web site or Pipeline exchange, the company continually follows up to offer assistance. "We've learned that [adoption] requires this continual loop of reinforcement," says Johnson. But support costs money. Panasonic Industrial's Jeanos carefully determines which partners are worth this effort based on business volumes. Though he hasn't completely sussed out the maths, he believes long-term benefits of e-business outweigh the short-term costs of providing support. "I'm not doing this at a loss. The people who are working on it are supporting other projects. This is above and beyond [their normal responsibilities]," he says.

Jeanos's IT staff helps partners with decisions on potential solutions, testing, coding and formatting data. They also tell them what technical issues they need to consider before they establish the first connection. For example, assessing what mechanisms they will use to transfer data, how they will confirm that the data moves from point A to point B, and what they'll do if the data doesn't make the connection. Panasonic's people provide support remotely, which helps keep costs down.

Reap the Rewards

Most companies are just beginning to get traction with their business partners on their B2B endeavours. But they're starting to see cost reductions and a handful, like Sigma-Aldrich, are witnessing growth in incremental revenue and significant cost savings - to the tune of $US400,000 per month in order-processing costs.

At BorgWarner, the savings are significant enough that "you can see it on the annual report in earnings per share", says Kalina. "It's significant enough that our stockholders can see improvements."

Many B2B recruiters may not be able to show astounding financial results right now, with the US economy in the doldrums, but discussing e-business initiatives and enablement with business partners will prepare them for the turnaround, says Jeanos. "Right now times are bad. But when our customers are ready to begin [e-business] projects, we'll have made it easier for them to do business with us."