Thursday, December 14, 2000

Dynamic Pricing Plays Critical Role in the Growth of B2B

As business-to-business (B2B) ecommerce grows, the value of goods and services sold through dynamic pricing sites will increase more rapidly than overall B2B sales. According to IDC, the percentage of worldwide B2B ecommerce that is "dynamic" will jump from 5% in 2000 to 13% in 2004. In the United States, dynamic pricing will represent 20% of B2B ecommerce in 2004.

"Although dynamic pricing is on the rise worldwide, geographic and cultural factors play crucial roles in determining the extent to which it catches on," said Rob Rosenthal, research analyst for IDC's Internet Economy program. "In Europe, where venture capital is sometimes difficult to obtain, localization and reaching potential customers could slow dynamic pricing activity. In Japan, where business relationships are most important, the use of dynamic pricing for ecommerce will most certainly lag that of both the United States and Western Europe."

IDC believes commodities and unique goods are the mainstay of today's dynamic pricing sites. Next will come raw materials and components - the lion's share of B2B ecommerce. Negotiated pricing systems best enable companies to buy and sell based on their overall value propositions, rather than simple price. However, many emarketplaces need to build a clientele and work the bugs out of their transactional models before dynamic pricing can play an important role in ebusiness solutions.

Supply Chains Will Materialize Through eMarketplaces
As firms engage in eBusiness environments, they will need a mechanism to manage the flow of information between partners. Network Supply Chains (NSCs) will act as the prime facilitator in this online collaborative environment, according to a new Report from Forrester Research B.V. Forrester defines an NSC as: A network of inter-enterprise supply chain events connected through a private or public eMarketplace.

"Companies are struggling with outdated information and planning discontinuities across their supply chain," said Charles Homs, senior analyst at Forrester's European Headquarters in Amsterdam, Netherlands. "European firms must transform their offline supply chain management systems in order to plan, optimize, and collaborate with suppliers online. With more partners, increased reach through the Internet, and a 24-hour economy, companies must gear up for continuous real-time adjustments in their supply chain. A supply chain consists of more than just suppliers, manufacturers, and logistics -- design, sales, and marketing also influence the chain of events. By including all the business functions in an NSC, partners will take ownership to resolve product discrepancies swiftly. With NSCs in place, companies will decrease the chances of potential liability claims and improve intercompany collaboration."

Moving to an NSC environment will not happen overnight, and firms will gradually progress to this online supply chain world through three phases. Firms must communicate production and sales plans online with their suppliers through XML. Once firms move beyond integrated procurement, the focus will shift to the synchronization of planning and production schedules. eMarketplaces must install top-notch advanced planning and scheduling (APS) solutions to handle business logic such as planning data from multiple participants and to allow users to shield data from other participants, thus ensuring corporate data privacy.

"NSCs will be in full swing once eMarketplaces become the information hub for all business process," Homs added. "But large corporations will still require internal planning, for which they will run an in-house planning system. To achieve true benefits from collaboration, all steps of the supply chain -- from concept design through after-sales service -- must become one integrated flow of information. To facilitate that process, NSCs must offer a full-blown service of enterprise applications, from customer relationship management and SCM to ERP."

Forrester advises that firms investing in NSC initiatives will need to gauge software providers' solutions and evaluate their own risks in order for the investment to pay off. For instance, the software investments a manufacturing company will make range from €1 million to €4 million, with ongoing maintenance between €200,000 and €400,000 per year.

At present, vendors lack vision and not all of today's traditional supply chain software providers will deliver solutions for NSCs," says Homs. "Current mainstream enterprise applications will continue to evolve around internal business processes, and none of the leading software vendors truly support planning, scheduling, and optimizing activities across networks with multiple participants. But technology is just one part of the solution. In order to assess the impact of moving to an NSC, firms need to pre-empt the impact of collaborative production and design on their online supply chain solutions."

For the Report Network Supply Chains Emerge, Forrester interviewed 40 supply chain executives to understand their use of the Internet and eMarketplaces for supply chain management (SCM).

News Tidbits (appears every day on front page)
- There have been more job layoffs at a well-known dot com company. This time Ask Jeeves fired 180 people, which is about 25% of its entire workforce. Ask Jeeves says the layoffs will save the company tens of millions of dollars.

- Network Solutions started early registrations of .biz and .info names yesterday creating a major traffic jab that forced it to shut down the service and remove the link from its front page. Since yesterday morning, trying to access the service resulted in the following message: "Due to unusually heavy demand, we are experiencing temporary technical difficulties. Please try back at a later time to sign up for our exciting new services."