Why partnerships are important in the B2B market

Various vendors are vying for supremacy in the B2B space - but one thing's clear: they cannot stand alone. Frost and Sullivan's Andrew Tanner-Smith assesses the strength of the alliances springing up in the industry.
Written by silicon.com staff, Contributor

Various vendors are vying for supremacy in the B2B space - but one thing's clear: they cannot stand alone. Frost and Sullivan's Andrew Tanner-Smith assesses the strength of the alliances springing up in the industry.

Last month we looked at the way the B2B market was evolving from a maintenance repair and operations (MRO) focus to direct materials procurement provision and how there will need to be a substantial market shift if the current crop of leaders are to maintain their dominance.
This month we look in finer detail at the strategies employed by these market leaders to make the transition. First, let's define the problem: Why is direct materials provision so much more complex than indirect? Like any real-life problem there is no one defining reason but rather a whole range of factors that make it more difficult for a car manufacturer to secure raw sheet metal than it is for it to secure a computer. Perhaps the most important factor is that direct materials procurement is a strategic operation. One of the most popular methods employed by manufacturers to cut the costs of production is to build their products on a 'just-in-time' basis. This cuts overheads because it cuts down on the inventory a manufacturer has to carry. However, in order for a just-in-time system to work, a manufacturer needs to know that its suppliers can meet its short deadlines. It is no coincidence that Detroit is full of car manufacturers and car manufacturers' suppliers. When one starts to think of production as a function of the relationship between manufacturer and suppliers and supplier and its suppliers the picture becomes more complex - and more strategic than the relationship between suppliers of MRO goods and services. Mere technology cannot hope to replicate the relationships between these companies indeed software vendors cannot hope to understand the myriad relationships that may exist between a buyer and a supplier. However, there are tools available that seek to automate those parts of the supply chain that can be made more efficient. Supply chain management vendors offer tools to automate order processing, inventory, scheduling, transportation, storage, and customer service elements. The vendors of these sets of tools understand that buyer/supplier relationships are far from simple. In addition they have built up brands that are synonymous with the market. These companies which include i2 Manugistics, Industri-Matematik, SAP and Oracle have been working for years on the problems that B2B vendors are only just beginning to find. This is why those B2B vendors looking to extend their reach from indirect to direct procurement markets have been partnering with supply chain specialists. The biggest of these partnerships is Ariba's deal with IBM and i2. It is also the weakest. There has been speculation that it may falter. Indeed we at Frost & Sullivan argued in September that the partnership is unsustainable in its present form. All players are, on the one hand, co-operating to win marketplace deals but on the other hand competing. We believe that to play seriously in the direct procurement market Ariba will need to buy in or develop its own supply chain software, which will bring it in direct competition with i2 - in a market that i2 dominates. Thus even if Ariba did acquire the technology to provide its clients with supply chain and exchange software it would find gaining customers very difficult. Commerce One is in a similar situation but its relationship with SAP is markedly different and inherently more stable than the Ariba/i2/IBM axis. The terms of the deal and Commerce One's business model mean both partners have a vested interest in the partnership working. They share profit and losses 50:50. SAP's poor showing in the procurement market and its need to be seen to be at the forefront of the market means that it has invested a lot more than money in Commerce One. By the same token Commerce One needs SAP's supply chain technology to penetrate the direct procurement market. There are two big problems for this partnership. The first is technology integration - and by extension the related problem of convincing that the technology is integrated. The second problem is that old saw - the business model. The restlessness of Wall Street analysts is one indication that there is less belief that Commerce One's business model - which is dependent upon the success of its marketplace customers - is viable. One company is left outside of this discussion. Oracle can claim not only to have the supply chain technology and customers already, but to have been aggressively marketing its marketplace and e-procurement technologies to its installed base and consortia in a range of vertical markets. In addition Oracle claims leadership in a range of associated markets but how can it substantiate this leadership? Where does one product start and another stop? It is easy to be dismissive of Oracle. It has an impressive array of capabilities - more breadth even than i2, Ariba and IBM can muster - but we would question its depth, at least in terms of customers up and running with its solutions. By Andrew Tanner-Smith
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