Supply chains latch on to B2B commerce
By James Christie
Redherring.com, October 03, 2000
The demise of the business-to-business (B2B) sector has been
greatly exaggerated, according to new projections released by
Jupiter Research. The Web commerce research firm says U.S.
companies will rush to manage supply chains online. This
projection comes a week after Jupiter forecasted a $350 billion
boom in Internet infrastructure spending by 2003.
The blitz, Jupiter Research says, will balloon the value of B2B
commerce on the Web to $6.3 trillion in 2005 from $336 billion
this year.
Such a dizzying climb in online B2B commerce also will be paired
with cost savings for companies as supply chains are managed
over the Web. The savings could be big. "Collaboration costs
[between companies] won't be eliminated completely, but at
best we'll see them cut in half over the next five years," says
John Katsaros, a vice president and analyst with Jupiter
Research, a unit of Jupiter Media Metrix (Nasdaq: JMXI).
More online trade transacted more efficiently also augurs well for
an economy stoked by sustained productivity gains. Output gains
will continue to be posted as companies take to the Web to
manage supply chains, cut costs, and bring goods to market
faster. The Web raises productivity because it brings clarity and
transparency to buyers and sellers. This is especially important in
the supply-chain area of B2B commerce, which is traditionally
messy, paperwork-intensive, and prone to producing
miscommunication.
"In war, the weakest points of an army are the lines between
divisions," Mr. Katsaros says. "In supply chains, the weakest
points are the lines between companies. Online, you can
eliminate them by getting everybody on the same system."
CHAIN REACTION
Jupiter's forecast assumes online supply-chain management will
stay one of the hottest B2B technology fields. It's a safe bet.
Companies are only now starting to figure out the efficiencies
and cost savings they can realize with Web systems that allow
buyers and sellers to access the same information online.
"Throughout the 1990s, the world was headed into [online]
hub-and-spoke relationships, with the hubs being large
companies and the spokes being suppliers. Now, we're going
toward [online] peer-to-peer relationships, and we're just at the
beginning of this shift," Mr. Katsaros says. "Also, experiments in
Net marketplaces, which appeared at the end of 1998, have
been wildly successful. The formation of coalitions by large
buyers and large sellers has validated the concept of Net
marketplaces."
"Think about the momentum Net marketplaces are creating," Mr.
Katsaros adds. "What we're seeing now is anything but
skepticism about going online. These coalitions show large
businesses are enthusiastic" about moving supply-chain
operations to the Web.
To be sure, hardly a day now goes by without the launch of a
new Internet marketplace -- or without Web marketplace
creators such as Ariba (Nasdaq: ARBA) and Commerce One
(Nasdaq: CMRC) announcing projects in development with
corporate partners. The reason for their hyperactivity: online
marketplaces -- even database software giant Oracle (Nasdaq:
ORCL) wants to develop them -- are ways for companies to cut
the traditional clutter and costs of B2B commerce.
HEAVYWEIGHT SHIFT
Jupiter is extremely confident in the Internet marketplace model
-- so confident that company analysts say Web marketplaces
will drive a significant shift in supply-chain management for
several core industries.
For example, the aerospace and defense, chemicals, computer
and telecommunications equipment, electronics, and motor
vehicles and parts industries will conduct more than half of their
B2B buying and selling online by 2004, according to Jupiter.
Among those five heavyweight industries, the computer and
telecommunications industry will emerge as an online B2B
monster. Jupiter predicts that industry's online B2B sales will
exceed $1 trillion in 2005, up from $90 billion this year.
Jupiter also forecasts online B2B sales rising dramatically in four
other industries between 2000 and 2005: $863 billion in sales for
the food and beverage sector, up from $35 billion; $660 billion for
car makers and car-parts makers, up from $21 billion; $556 billion
for industrial equipment and supplies providers, up from $20
billion; and $528 billion for the construction and real estate
industry, up from $19 billion.
"They'll go great guns sooner than other industries because
these industries have adopted the necessary technologies," Mr.
Katsaros says. "A B2B landgrab is about to take place, and these
industries are at the head of the line."
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