By Jayson Humphrey, Global Commercial Lead, B2B Marketplaces, Tradeshift
See what’s fueling the revolution in B2B marketplaces at a glance in our infographic at the bottom of the page.
A new generation of business professionals has long been questioning why they can order and receive any item with barely a few swipes of their smartphone in their home life, but it can take weeks to get even the most basic items at work. According to one recent study, 82% of B2B buyers want the same purchasing experience at work as when they’re buying for themselves. What they get instead are inflexible and often byzantine processes that look increasingly outdated compared with the proven convenience of consumer platforms.
Traditional B2B procurement is inefficient and time-consuming, both for the requester who has to jump through hoops to order even the smallest of items and for the procurement teams who spend a disproportionate amount of their time processing high-volume, low-value requests.
The extent to which the corporate purchasing experience is broken is laid bare by a conversation that took place between a member of our sales team and a prospect who was describing the existing procurement system they had in place. The company had 40 separate approval steps for every purchase, and over 60% of purchase requests ended up being rejected.
It transpired that the primary reason purchases got rejected was that they were ‘no longer needed.’ Digging a little deeper, it became clear that requesters, frustrated by the time it took to get approval, were simply giving up and purchasing the items they needed on their own personal credit cards, which they would later claim back through expenses.
Chief procurement officers (CPOs) across the world are seeing the collapse of carefully-calibrated purchasing policies as employees swerve mandated suppliers and instead buy the items they need from consumer marketplaces. This loss of control has real consequences.
According to the Chartered Institute of Procurement and Supply, anywhere up to 80 percent of all invoices are generated from uncontrolled long-tail spend, also known as ‘maverick’ buying. Another report by the Hackett Group found that negotiated cost reductions lost through maverick spending could account for up to 16% of all spend. In other words, what’s easy for the employee is expensive for the business.
Today, marketplaces account for around 40% of consumer online purchasing. But there’s one arena where online marketplaces have yet to penetrate to nearly the same degree: large corporate procurement departments.
In 2021, the size of the global B2B eCommerce market was valued at $17.9 trillion. That is over five times the size of the B2C eCommerce market. B2B marketplaces have been around in some form or another for nearly 25 years, but adoption has remained a blip compared to their B2C cousins. That’s now changing; fast.
Companies have seen two mega-trends collide. Digitalization was transforming B2B buying experiences even before Covid-19, but the pandemic intensified the shift as the physical economy became a digital one overnight. Meanwhile, lockdown disruptions amplified the risk of relying on a single source of supply, with just-in-time supply chains particularly exposed.
According to Digital Commerce 360, B2B marketplaces sales have increased more than fivefold between 2020 and 2022. This trend is being driven by a new generation of digitally native procurement professionals, who see B2B eCommerce marketplaces as a way to deliver the same efficiency, convenience, and control into the buying process consumers enjoy from their favorite online B2C marketplaces. They also recognize how B2B marketplaces free them from time-consuming, often repetitive, transactional work that fails to make full use of their talents.
Procurement teams are under pressure to show more strategic value, moving from gatekeepers on spend to revenue generators. B2B marketplaces can accelerate each step of the sourcing process as the products, vendors, and pricing are readily accessible digitally by the customer. As end-users can buy directly from a curated supplier base, procurement staff are able to shift their focus to more value-added activities.
B2B marketplaces are also becoming central to boardroom conversations around supply chain resilience and sustainability, thanks to the agility and end-to-end visibility these digital-only platforms provide. Analyst firm IDC has shown how cloud-based B2B marketplaces help organizations build resilience by providing easier access to a large selection of pre-vetted suppliers in multiple locations. The same model can also help organizations short-cut the process of identifying and nurturing relationships with suppliers that have strong ESG credentials - essential as businesses come under increasing scrutiny from regulators and consumers.
A great B2B marketplace platform should provide true transparency and competitive offers for buyers while offering a broad prospecting base to sellers at low customer acquisition costs. These benefits are clear, but not all marketplaces are created equal. Most marketplaces, whether B2B or B2C, are easy and intuitive to use; to determine their true value and resilience, you need to look below the surface. As demand for B2B marketplaces evolves, there remains a huge proliferation of thinly reskinned consumer sites and static catalogs masquerading as enterprise-ready products.
In my next blog in this series, I’ll be taking a deeper look at the evolution of B2B marketplaces, from centralized ‘many-to-one’ marketplace models and single-player e-procurement solutions to Tradeshift’s next-generation networked marketplace model. I’ll help you to understand which model is best suited to your needs and the value that any true B2B marketplace solution should deliver. In the meantime, do go ahead and take a look at our latest whitepaper, Harnessing the True Value of B2B Marketplaces, where you’ll find a lot more useful information to help you turn procurement from a cost center into a profit center.