B2B Marketplaces And The New Business Model for Procurement

By Jayson Humphrey, General Manager for B2B Marketplaces at Tradeshift

In a world of near-constant change, the ability to react quickly to a dizzying array of fresh challenges is often the difference between success and failure. As large organizations look to embed agility across their supply chains, procurement leaders have found themselves on the front line. And they’re struggling to find another gear.

‘High-Velocity Procurement,’ a new research study co-produced by Procurement Leaders and Tradeshift, found that procurement leaders are beset by blockers and bottlenecks at every stage of the procurement process. So how do we break the cycle?

Jayson Humphrey, General Manager for B2B Marketplaces at Tradeshift, gives his take on why he believes the adoption of new technologies must go hand in hand with a broader reimagining of the procurement function. Read on to learn how B2B marketplaces are helping procurement move from slow-moving cost-centers to dynamic revenue generators.

Get your copy of the ‘High-Velocity Procurement’ our new report co-co-produced with Procurement Leaders

Procurement Has an Image Problem

Let’s put traditional procurement on the shelf for a moment (pun intended – what pun, you say? How about shelf-ware). Okay, two issues: procurement value is hard to quantify directly, and at the same time, your procurement team has a clear cost. It is literally a cost center. You can measure it much easier than you can the value they deliver.

Our question to you is: is it necessary to keep procurement costs on the books? Our answer is: No, it is not. You’ve probably noticed a small company called Amazon. They have been massively successful as a marketplace operator – also in the B2B space. The obvious lessons from the Amazon example are that buying online is crazy easy, the selection is as good as it gets, comparison is easy, and the suppliers are incentivized to do all the work.

A Gap in the Market for Entrepreneurial Procurement Leaders

Here’s the thing. For all the retail e-commerce sites like Amazon that provide a great user experience for employees, they’re a problem for procurement. That problem comes down to intent. Sites like Amazon are retailers to the core. They are hard-wired to get you to buy more. And that DNA goes against what CPOs are looking for, namely cost-savings, efficiency, and trust.

That leaves a gap in the market. And right now, it’s a big gap. Last year Amazon Business did $80 billion in revenue out of a total B2B e-commerce market that’s set to grow to $18.97 trillion by 2028.

Capitalizing on Your Natural Advantages

If your business is a category leader in a specific vertical or region, then you’ve already got something that the retail e-commerce giants are lacking; market knowledge and existing relationships with trusted buyers and suppliers. What’s more, you already have the skill sets in-house to start generating cost-savings and efficiencies for people outside of your organization.

If you’re not already looking to monetize the expertise and market leadership you have today, then the likes of Amazon and Alibaba will. They’ll eat your lunch – if you don’t take the right actions now. The opportunity is just too big to ignore.

Let us paint a hypothetical scenario for you.

• • Step 1: Buy Tradeshift B2B Marketplace (only kidding a little).
  • Step 2: With the B2B Marketplace platform, you can now open your own marketplace. You already have all the suppliers contracted and their content. And importantly, you already have category managers who understand what your organization wants and needs.
  • Step 3: Spinoff the procurement function along with the marketplace. It’s now off the books, and this is where marketplaces get interesting. In-house, your team has salaries and overhead costs. Spun off, the salaries and overhead costs are off your books. The newly formed business now has to pay for itself like any other SSC or BPO. There are many marketplace business models, some based around seller-paid revenue share, some based on buyer-paid subscription fees, and some offer a combination of all the above. As the operator, you write these rules!
  • Step 4: Your cost base is reduced by the amount you used to spend on procurement overhead, and your balance sheet is immediately looking better. The new organization relies on upfront fees from buyers to help bootstrap the operation while seller-paid revenue share ramps up.
  • Step 5: Differentiated by your procurement category management and sourcing expertise, you have now created such an appealing marketplace that other buyers want to subscribe. You are now enjoying a far more sustainable long-term model!
  • Step 6: The future may see your marketplace sourcing from other marketplaces and transitioning from in-house category management to outsourced (other marketplaces) category specialization. This flexibility improves marketplace content while lowering costs.

Picking a B2B Marketplace Model to Suit Your Business

In this editorial, a lot has been simplified for the sake of brevity. However, the business model is proven, and Tradeshift is seeing it happen all over the world. Digitalization and the rise of B2B marketplaces are already profoundly impacting the procurement department. We believe first movers are building competitive advantage into their businesses right now by rethinking their procurement strategy.

If you want to learn more about how the next generation of networked marketplaces can help you transform the procurement function from a cost center to a profit and growth center, then request a customized demo today.