Value-Chain Report -- Long-Term Winners

The sifting of the B2B online exchange industry has begun with a string of critical reviews from various groups. All, it seems, predict large-scale consolidation of the exchanges, and many say most exchanges offer little long-term value to participants. One of the latest reports comes from the Tempe, Ariz.-based Center for Advanced Purchasing Studies (CAPS), which worked with consultants McKinsey & Co. to review 1,000 B2B marketplaces (or "e-marketplaces"), survey 300 such sites, and conduct in-depth interviews with executives at 50 sites that were cited by users as leaders in 12 major industries. Interviews with major B2B customers also took place during the research period -- June to September 2000. Major conclusions of the research include:

A majority of leading sites fail to deliver substantial, long-term economic value to customers.

The most valuable things B2B marketplaces can offer are knowledge building and removal of waste from supply chains. This contradicts the assumption of many B2B users that the greatest value of the marketplaces is driven by shifting or squeezing supplier profits.

The industry and its users would benefit from a rapid retooling of site capabilities or a major industry consolidation. "To ensure long-term viability, B2B e-marketplaces will need to meet two criteria," says CAPS Director Philip L. Carter. "First they must deliver lasting impact focusing on removing waste in the supply chain rather than strictly shifting the same functions from a manual to an online environment. Secondly, they must be able to build a valuable content knowledge that is unique and not easily replicable." The study concluded that B2B sites fall into five broad categories:

project/specification managers -- provide tools to plan and manage complex projects and processes for customers.

supply consolidators -- identify relevant supply bases for customers and conduct purchasing transactions.

liquidity creators -- establish liquid, dynamic market for commodity products traded between many buyers and sellers.

aggregators -- bundle demand among numerous buyers to lower prices.

transaction facilitators -- improve purchase-order efficiency and automate back-end financial-management systems. CAPS and McKinsey predict that project/specification manager and supply consolidator marketplaces will survive the pending consolidation because those models deliver substantial long-term value. The other models don't. "More than half of today's leading B2B e-marketplaces focus on providing only short-term value to buyers," says Viveck Sankaran, the lead researcher on the project for McKinsey. "Short-term gains are simply not enough. Buyers -- as well as the B2B marketplaces themselves -- need to make a basic assessment of whether their current functionality is adhering to fundamental economic principals and creating sustainable mechanisms that will continuously drive down costs or enhance revenues." The CAPS research and report brings valuable criticism to an arena of hype. Following the pattern of Web-based business, B2B generally follows B2C. As if research from CAPS and others isn't enough, the fallout of high-profile B2C retail operations in the past three months anecdotally tells us that the same frost will be hitting B2B soon. Those that survive should be marketplaces that facilitate true supply-chain partnerships that bring long-term value to manufacturers and others. Tonya Vinas is New Media Editor for IndustryWeek.com and IWValueChain.com.