B2B - business-to-business - is a process of selling products or services to other businesses. Both in the U.S. and worldwide, the B2B eCommerce market is more than twice the size of the B2C market. According to Forrester's first-ever five-year B2B e-Commerce forecast B2B sales will top US$8.3 trillion by 2020, the share of e-Commerce being only 12%. At the same time B2B buyers are growing increasingly impatient with B2B sellers that do not provide B2C-like customer experiences online.
B2B lagging behind B2C lies in their principal difference.
B2C is driven by a consumer desire to immediately possess some commodities or services. B2C transaction is emotionally triggered by B2C ad campaign and goes in synch.
B2B is driven by corporate reason to make some plant or device work and produce other commodities and services. B2B buyers are only a link in a chain of decisions leading to the B2B transaction. The latter and the B2B ad campaign are never in synch: the B2B marketers "push" product-advertising materials to the prospects and try to engage them long before the actual B2B transaction takes place. Unlike B2C, B2B may go off/on-line many times.
In other words, those who will find way to control the decision making chain, will eventually monopolize the B2B eCommerce and take up its biggest part - 88% or US$7.3 trillion.
Over 80% of this figure is in manufacturing, maintenance and operation sectors.
The share of process capital projects (oil and gas, chemical, pharma and water) in the B2B commerce
is rather small. In my opinion it may recover to 8% by 2020.
Regardless of the industry, the decision making chain is basically the same. I will illustrate its working in the water treatment and desalination mega-projects - the major source of my experience.
Current practice adopted by many EPC contractors is to bundle purchase items of similar design into bigger order packages to save on the paperwork and the bureaucracy of approvals. How big the purchase package is depends on the manufacturing products range of pre-selected manufacturers. For example, not all pump manufacturers work with super-duplex steels resistant to corrosion in seawater. Therefore, those who work may get purchase orders with more items.
If the package price is above some pre-defined value, it should be approved by a purchasing committee – the heaviest chain in a decision making. Each adds 2 - 6 weeks to the project schedule.
As follows from the graph above showing the distribution of the purchase package prices for US$ 160 million desalination plant, if the transaction value limit is set to US$20,000, only 35% of all purchasing orders may be processed without approval of the purchasing committee.
It leads us to rather pessimistic conclusion that within the frame of current purchasing practice B2B eCommerce has no chances to penetrate the capital projects market.
On the contrary, not bundling items into purchase packages - purchase streaming - raises the percentage of orders eligible for eCommerce to 85%!
The current handshake scheme between the project contractor and the original equipment manufacturer (OEM), describing the purchase streaming, is a 10-step procedure.
|1||Consumer pre-qualifies OEM according to survey results|
|2||Consumer studies OEM capabilities and register it on the product and service categories|
|3||Consumer offers to pre-qualified OEM the ad space and "news channel" in the design environment, optimized to the project running tasks|
|4||Consumer notifies OEM on RFQ/Public/Private tenders|
|5||OEM pulls the tender package or RFQ from Consumer platform|
|6||OEM uploads the offer data to Consumer platform|
|7||Consumer compares technical and commercial offers and terms and conditions, and select the winning one|
|8||Consumer adds the product to the project schedule|
|9||Consumer orders the product|
|10||Consumer tracks the order execution|
In the table 8 out of 10 tasks belong to Consumer. It means that B2B eCommerce works opposite to B2C; the consumer builds procurement platform for OEMs to participate.
The B2B figure of US$560 Billion for capital projects mentioned above is rather conservative as compared to the recent forecast by www.pwc.com setting global infrastructure investment between 2015 and 2020 as high as US$28.8 trillion. The latter does not include China, which recently released new regulations and directives governing PPP investments and launched more than 1,000 PPP projects worth US$317.75 billion.