B2B network broadens partnership potential but requires trust

Global supply chains increase need for networks

Business processes have traditionally stayed within an enterprise and were brand-owner focused, according to Christian Titze, research director at Gartner. But now that supply chains are more global and more complex, companies need to be able to quickly reach out to suppliers and partners, and the old business network models don't allow for that kind of agility.

Christian Titze

"Historically, connections have been point-to-point: You connect to a supplier and send them a [purchase order]; they send an acknowledgement," Titze said. "But point-to-point is not scalable."

Rather than point-to-point, a B2B network is many-to-many, he said, which enables a company to reap the benefits of the network effect.

"Let's say L'Oréal joins the network and invites their business partners and suppliers to join; they also connect -- but to the network, not to L'Oréal," Titze explained. "When Unilever joins and they have the same suppliers, they don't need to connect to the suppliers because they are already on the network, they just have to activate the process but not the [connections]. That's the thing, it's one platform for a community."

Definition of B2B network has evolved

B2B networks have never been more important, more powerful and more valuable, agreed Dana Gardner, president and principal analyst at Interarbor Solutions, but the definition of a business network has grown.

Dana Gardner

In the past, business networks brought together buyers, sellers and some data to help companies "grease the skids of commerce," Gardner said. But the pressure to move to the cloud and develop service-type business models as rapidly as possible is influencing what B2B networks can do.

"Now we're seeing them grow into app marketplaces, service integration hubs and even process improvements," Gardner said.

Benefits for buyers and sellers

B2B networks benefit both sellers and buyers, said Mickey North Rizza, program vice president for enterprise applications and digital commerce at IDC.

Mickey North Rizza

"Sellers on a B2B network get new business opportunities and increased sales because the network provides many more potential and customer opportunities instead of just a localized aspect. It opens up the opportunities globally for a business," Rizza said.

Buyers on B2B networks can benefit from getting more visibility into their supply chains, and they can gain cost savings by having multiple sources of supply, she said.

However, digitally socializing business partnerships has its drawbacks, according to Rizza.

"The network information on each company must be kept up to date, and if partners within a network don't perform, it can hurt a business," she said. "For example, if an organization on the network is having difficulties, the recommendations may be low and feedback from other companies may be low, which could result in revenue loss if orders are placed elsewhere."

Leveling the playing field

Joining a B2B network like San Francisco-based Tradeshift can the level of the playing field between small and large companies, because all companies on the network have access to the same members and data flowing through the network, said Gert Sylvest, co-founder and vice president of network products at Tradeshift.

Gert Sylvest

Tradeshift is a cloud-native B2B network that focuses primarily on logistics and procurement, and the idea is to drive the digitization of processes in the enterprise supply chain that have been traditionally paper-based, Sylvest said.

"It's not about technology [like electronic payments] because we've had that for more than 30 years; it's actually about getting the economic model right, and that means sharing the value of the digitization to all the participants," he said. "We figured we could do that by creating an open model that works essentially like LinkedIn or other social networks where everybody is on equal footing."

One advantage of a B2B network is that it enables companies to understand the other companies in the network because their identities have been verified by others in the network, according to Sylvest. 

"If you look at the consumer world, that's what makes networks like LinkedIn very attractive to people who sell advertising or for recruitment," he said. "In the same vein, B2B networks are very attractive because they have a lot of companies with strong verified identities and they have huge volume."

For example, there's a multi-trillion-dollar credit gap in the financial services market because banks and alternative lenders don't provide credit to companies because they don't fully understand who they are lending to, he said. Networks provide a huge volume of things like purchase orders and trade receivables, allowing the lenders to understand the relationships between companies.

"Any company joining a network is looking to see what they can get out of joining the network: Do they get access to markets and more opportunities? Do they get access to finance? Do they get access to knowledge and insights?" Sylvest said.

However, not all companies are ready to join a network, according to Sylvest. Some companies might not be willing to share company data, while others may have different processes that makes connecting difficult.

"Let's say you want to digitize invoices in your supply chain, the first thing you'll run into is that everybody will resist, because everybody wants to know what's in it for them," he said. "On the seller side, they have hundreds of thousands of customers who might be on a different network, and each will have different requirements for how to deliver the information."

Ease of use is key

B2B networks provide opportunities for smaller businesses, but only if the network is easy to join and use, said Donna Wilczek, senior vice president of product strategy at Coupa.

Donna Wilczek

Coupa, based in San Mateo, Calif., is a cloud-native B2B network that focuses on spend management processes.

The data provided by all the companies in the network allows companies to find other companies that they want to work with, she said. For example, if a company has diversity as a goal for its suppliers, it can search the Coupa network and find what other businesses have said about the diversity of their suppliers. Coupa has the information about the companies because it facilitates the transactions that flow through the network.

"The whole network model opens the door to smaller companies to participate in the economy along with the giant businesses," Wilzcek said. "For too long these small and medium businesses have been left out."

A matter of trust

Although B2B networks can make it easier for smaller companies to find larger markets and increase sales, they are not necessarily the right answer for everyone, according to Rizza.

"If you look at a network like Etsy that favors small businesses that might be anywhere from one to 10 employees, scale can be an issue if the company is inundated with orders," Rizza said. "But when you look at other networks like SAP Business Network, Tradeshift or even Amazon's network of sources, you find many of these sellers have already scaled for mid- to large-sized organizations so they have already set up to deliver at these larger volumes. The network is a series of buyers and sellers that can meet needs in the market, but scale is dependent upon product and service demand and type."

The networks can also only work if users have confidence that the data is handled properly and is accurate, according to Interarbor's Gardner. Companies using networks need to know that the network provider is not tipping the scales in any way toward particular members.

"All of these companies -- SAP, Tradeshift, Coupa and others -- need to put more emphasis on trust because it's not just the user experience but the user perception that's important," he said.  "The networks are gathering and sharing a lot of information, which needs to be secured and private, but it needs to be trusted so that you know you're getting the information that's in your best interest for your particular business demands."

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.