Toby SparrowIn last month’s issue, Toby Sparrow, CEO of Dooka, introduced the idea that much value could be gained by using Business to Business (B2B) Marketplaces in carrying out Indirect and Tail-spend, which usually costs a lot more than it should. Here he unpacks the concept of being less rigid and deriving more value from the new generation of B2B marketplaces emerging in Africa.

 

Firstly, let’s look at a few of the more common objections to procuring through B2B marketplaces:

“We can’t just buy from anyone – we have to screen our suppliers”

This has always been the case for larger businesses, and is one of the reasons procurement exists as a function. There is a risk when buying goods, and the procurement team is there to protect the company from those risks. Sure – some spend categories are lower risk than others, but screening is still needed.

So it is clear, then, that for a B2B Marketplace to have any chance of success, it has to provide the due diligence and supplier screening on your behalf and to your standards. And it needs to be flexible enough to be able to deal with your specific screening requirements.

We need to negotiate best prices – and we don’t want to share our prices with everyone!

For direct categories, whatever they may be in your industry, it is highly likely that the price at which you buy from any given supplier gives you a competitive advantage. Businesses are extremely sensitive about the pricing they have negotiated into contracts with these suppliers. The problem is that the same thought process has filtered through all categories of spend – even where it makes no sense, or is counter-intuitive. There are many examples of companies securing a price for a product from a supplier – take stationery as an example – and believing that they have a fantastic deal. But the fact is that you just don’t know whether that price is the best price on the market – because your visibility is limited to the few suppliers that have submitted prices to you. You could be paying way over the odds, but, because it is a lower spend category it just doesn’t get much attention, so you keep paying over-the-odds.

One of the value-drivers of a marketplace is that there is transparency across the marketplace. You can see all the prices from all the qualifying vendors, and you choose by price and other criteria like delivery times and location. In a marketplace you know that you are buying at competitive prices, without your department having the cost overhead of trying to manage a process that is delivering limited value to the business.

We need approvals – we can’t just let people buy what they want

The typical process in a large organisation is to define specific workflows, often as a part of the ERP system, to approve purchase requests. The problem with these workflows is that often they are overkill for certain simple purchases, or purchases under a certain threshold. If a marketplace is to become an option, the provider needs to understand the need for approvals, and also not try to reinvent what is already there.

You would shop, you would check out, and then the shopping basket (which would become a Purchase Request) would be put through the existing approval process – and maybe simplify the process at the same time to deliver better value.

We can’t have people buying stuff with credit cards

One of the most common reasons businesses dismiss the idea of buying goods from a marketplace is the way that the transaction ends. We know, because we have all used them to buy stuff at home. We check out, we pay with a credit card, the goods arrive. To a business that is the very definition of a nightmare. It basically amounts to giving carte-blanche to rogue spend. It is what companies have spent years trying to control and trying to manage. With an enterprise B2B marketplace, it can’t work like that. The shopping would be the same experience as buying at home. But when you hit the check-out button, something completely different has to happen – an automated process flow which will go through approvals, and culminate with POs arriving at the selected suppliers.

We need three quotes

For many businesses the requirement to get three quotes has become a golden rule, because it must mean that you have done the due diligence and selected a supplier based on a proper methodology – not just randomly picking a supplier. But is it really the best way for everything? In a recent conversation with the head of procurement of an African bank, he said, “Today our CEO has said he wants an iPhone 13. I have sent out the request for a quotation from three of our suppliers.When I receive the last quote (maybe days) I will make the selection, and then the phone can be shipped.”

The reality is that the price for the phone after the three quotes process will be within a few dollars of what you could just go and buy on the market. Or – if you actually compared prices of what’s out there on a marketplace, you may even get it at a better price. And immediately. And from a well qualified local supplier.

We want to buy local – from a marketplace our requesters can buy from anywhere

There is a lot to be said for buying local. In fact this is rapidly becoming a strategic objective for businesses because it makes so much sense. It makes sense from the ESG angle of supporting local communities, and it just makes sense to buy local with local shipping and faster delivery times. The “buy local” initiative is not something that can be brushed aside. It is essential.

Ironically, one of the main drivers of adoption of marketplaces is to reinforce the localisation initiative. The new generation of business marketplaces can filter and prioritise searches to support strategic purchasing objectives. Local businesses can, for example, appear higher on searches. In this way, without having to enforce a policy that may be abused, the objective is supported by the technology which naturally drives the desired user behaviour.

We have ESG targets and objectives to satisfy – we can’t let people just buy anything

For many large businesses their impact on the environment, their social impact and the governance used to ensure that these are addressed is a crucial strategic objective. Businesses need to make money, but increasingly they realise that they should do so in a way that protects society and the environment. This has changed behaviour in procurement where category managers reinforce the strategy by changing their sourcing criteria and purchasing behaviour to support the company’s ESG goals and targets.

The new generation of marketplaces works on the simple concept of needing to understand what companies do, and why they do that, and then using the intelligence of the software to drive that behaviour from users. As an example, suppliers may get a sustainability badge with a score. If the score is below a certain level, their product or service will not appear in the search. Or will appear with a warning. In this way, without the education overhead and human factors which can make a policy so hard to implement, the right behaviour is driven naturally and with little fuss. On the supplier side, of course suppliers want to appear in as many searches as possible. So they will do what it takes to improve their sustainability scores and appear in more searches.

Enterprise B2B Marketplaces – a smarter alternative to buy Indirects?

All of the above objections are genuine objections, and are the same objections that have prevented large enterprises from adopting the existing Business-to-Consumer (B2C) marketplaces that are already out there across Africa. There is, however, a new generation of B2B marketplace emerging. These new marketplaces are “Enterprise-enabled” meaning that they understand how large enterprises work, and how large enterprise purchasing works. And consequently they are able to offer the obvious benefits of a streamlined way of buying tail-spend categories of products and services, without the pitfalls. And that could translate to better value for all. So when you next consider how to optimise and streamline indirect spending to get better VALUE in your procurement organisation, you may want to give a thought to the possibility of shifting some spend to a B2B marketplace. You may be surprised.

By Toby Sparrow, CEO, Dooka

Read last month’s issue: Discovering New Value in Online Tail-Spend