Should I add B2B eCommerce to my distribution business?
In my previous article, “Changes in the US economy are affecting your business. Take action!” we concluded that one of the possible actions to counteract the effects of these changes was to incorporate the eCommerce marketplace technology into your business model. In this article, I will expand on this notion: What is B2B eCommerce? How to incorporate it into your traditional B2B model? What are the benefits you will get and the challenges you must face? Let’s start with the basics.
What is B2B eCommerce and how it differs from traditional B2B?
Business-to-business or B2B is a form of transaction between companies, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business-to-business stands in contrast to business-to-consumer (B2C) and business-to-government (B2G) transactions. B2B has been the traditional sales practice of manufacturers and distributors with their customers.
B2B eCommerce is also the sale of products or services between businesses but, unlikely traditional B2B where the sales involve sales reps and order taking, , eCommerce transactions are done through an online portal.
Trends in B2B eCommerce
The concept of a B2B market space is an old one. By 1995 Rayport and Sviokla introduced the term “electronic marketspace” suggesting that the Internet created a new environment that had significant implications for how businesses trade. The graph below shows the sales volume in billions on this channel in the US between 2006 and 2018.
By that time, it was predicted that sales by 2023 would be in the order of US1.7 trillion. However, the paradigm shifts that the COVID pandemic produced in the purchase habits, both in people and business, have grossly increased those projections. Below I show some additional statistics to be considered.
- 2020 Business to Business eCommerce volume in the US$6.6 trillion. (Statista, 2020)
- This segment is predicted to make up more than 12% of the overall B2B revenue by 2020. (Forrester, 2019)
- 64% of B2B companies plan to increase their investments in eCommerce websites. (Digital Commerce 360, 2020)
- 35.6% of B2B companies expect an increase of up to 75% in online sales from B2B buyers (Net Solutions, 2020)
Benefits of implementing eCommerce for a Distributor
There are several benefits an eCommerce channel might bring to distributors.
Keep your market share
Statistics do not lie! The number of B2B companies going eCommerce and the sales projection on that channel clearly indicate that if your business doesn’t ride that wave you risk losing ground to your competitors whose businesses do.
Increase your sales
You can consider doing B2B online as an additional sales channel. According to Digital Commerce 360, 2020, B2B digital sales in all channels grew by 10.9% in 2019. An adequate eCommerce strategy that blends your traditional B2B practice with the online channel could achieve that growth.
Improve sales process efficiency
One of the goals defined in the previous article to cope with the changes in the US economy was to reduce labor costs and operational expenses. An eCommerce sales channel eliminates the need for additional sales reps for these sales and reduces the steps related to such sales. Adequate eCommerce software should integrate the orders received online with your accounting system and your WMS for picking and delivery. This will increase the gross profit for the sales stemming from this channel.
Increase your customer base
Once you have consolidated your existing customer base, you can expand your eCommerce site to address new customers and channels. With the appropriate strategy, you can increase your geographical coverage and your market segment. For example, serving companies with low drop sizes is not profitable for the B2B traditional model. However, through an agreement with delivery companies like UPS, you can expand your market coverage to include this type of store. The same applies to stores beyond your geographical coverage.
Gain market intelligence
Sales made online grant you access to granular levels of customer data and insights not available elsewhere. This might help you refine your market and product strategies.
Challenges for the distributor
Despite the overwhelming data that points towards the incorporation of eCommerce into your sale channels, there are several issues you must consider if you want to succeed when implementing an eCommerce strategy. Below I summarize the challenges I consider to be the most important ones.
Many of the key customers of a distribution or manufacture company, like the big chains, are complex by nature. There are contract pricing, special agreements, payment conditions, shipping constraints, etc.
An eCommerce strategy requires cultural changes that, sometimes, might pose a big challenge.
- An eCommerce channel is very different from the traditional B2B one. For successful developments, you need to have the correct people managing the channel.
- On top of that, you will have the traditional “resistance to change“ problem. Some sales reps might feel threatened by this initiative.
- The new channel will carry an additional workload for IT personnel which can disrupt the purchase and delivery processes.
E-Commerce strategy for distributors
OK! You went over all these and decided that eCommerce is the right mix for your business. What is the best implementation strategy? Regretfully there is no foolproof recipe for that. It depends on the specifics of your company. However, based on my experience, I can recommend a baseline strategy focused on these guidelines.
Start with your existing customers
Take into account that you have an existing customers base that could benefit from placing orders online. Start by purchasing a private eCommerce solution that will give your existing customers the possibility to buy online and integrate with a Warehouse Management System. This approach will allow you to gradually adjust your structure to handle online sales within a controlled environment to be later upgraded to a public BB platform.
Expand the same platform to cover new segments
Once you have mastered the previous level, you can expand the same platform with a B2B Self-Service App to address new segments that will increase your sales, optimize resources, and will not disrupt the main operation, which is B2B sales and deliveries. These new segments could include smaller customers and stores outside your current geographical coverage.
Upgrade the platform to allow new customers online
If the two previous expansions have proven successful, then you can upgrade your B2B eCommerce software to allow direct sales to customers outside your “comfort” zone. At this point, you will be in a public marketplace.
I hope this article has been helpful. I will continue to publish information related to Warehouse Management, distribution practices, and the general economy. If you are interested in this article or want to learn more about Laceup Solutions, register to keep you updated on future articles.
If you are in accord with the proposed strategy, take a look at the LaceUp solution for B2B eCommerce implementation.