Data, Control and Direct Relationships: Designing Enterprise Marketplaces for Manufacturing
While not as quick to embrace the enterprise marketplace model as consumer-facing industries like fashion, music, travel, and entertainment, trade on these eCommerce platforms between companies has recently been gaining more traction.
In fact, B2B eCommerce is already three times bigger than B2C – and sales on B2B marketplaces are forecast to grow twice as fast as their B2C counterparts over the next 5 years. Behind this change is the expansion of digital commerce in our consumer lives, which has pushed expectations for easy and efficient digital buying experiences into our professional lives, pressuring B2B businesses to respond with greater assortment, transparency, and speed.
For manufacturers, the upside of adopting the enterprise marketplace model in this context is significant – and the alternative of maintaining the status quo in this new context can be zero, or even negative, growth. Even so, adoption of this innovative B2B eCommerce model still lags for manufacturers.
Barriers to marketplace adoption by manufacturers are rooted in traditional value chain models
For many industry leaders, their organization and partner ecosystems are built around the prevalent economic model of the late 20th century: the linear “pipeline” model. In this model, each channel partner is dependent on the next, making it challenging to drive change. Even if a manufacturer is sufficiently visionary and innovative to modernize its operations with a marketplace strategy, the final customer experience is still largely dependent on convincing downstream channel partners to make the shift. The pipeline model is deeply entrenched in manufacturing
There are also operational challenges that must be overcome to adopt the marketplace model. Manufacturers need to drive alignment across all sales channels – from channel partners to field sales - and transition low-complexity repeat purchases to digital channels, like eCommerce sites. As the marketplace expands, they also need to blend customer-specific pricing with a structured, transparent pricing model for their growing third-party assortment.
Finally, adopting the enterprise marketplace model is disruptive, breaking away from the conventional way of doing business. How does a company ask its customers and channel partners what needs and requirements they have for an online marketplace, when they too, may only know the traditional pipeline model? These barriers require a manufacturer to be visionary and turn instead to successful examples for how to optimally design a marketplace platform.
Despite these barriers, the benefits of the enterprise marketplace model are significant – and they are leading to real change in the way that manufacturers operate.
Manufacturers that adopt the marketplace model realize many benefits
There is a growing set of industry pioneers who are breaking down barriers to adoption and seizing the enterprise marketplace opportunity. With marketplaces, they can create direct relationships with their customers, optimize their operational efficiencies, and establish new avenues for profitable growth.
Building direct routes to market while reinforcing channel relationships
Nearly all manufacturers harbor the ambition to get closer to their end customers to better understand and respond to their needs. However, these aspirations are often blocked by the fear of repercussions from their channel partners, who may be responsible for as much as 80-90% of all revenue.
With an online marketplace, manufacturers don’t have to make a choice between going direct or working with channel partners. An online marketplace serves as the optimal direct-to-customer platform while also strengthening relationships with channel partners, who sell the manufacturer’s brand, as well as complementary products and services, via the marketplace. Some companies go as far as inviting competitive offerings onto their marketplace to increase choice for customers.
Increasing control over the supply chain by streamlining operations
News cycles have been riddled with supply chain challenges, from production stops in car manufacturing plants to empty shelves in UK supermarkets and everything in between. Examples abound of the unavailability or tight supply of products, components, and raw materials.
Under traditional pipeline models, large corporations are struggling to manage their own supply chain. They have stock of certain components in one factory where demand is low but have run out of the same components in other production sites. They have no adequate process in place today to forecast and transfer this stock to the sites where these components are urgently required.
Online marketplaces empower manufacturers with more visibility so that they can confidently switch supply channels within a number of days and gain increased insight in supply and demand. With a marketplace, a manufacturer can build more redundant supply channels with ease, gain more transparency across their supply chain, and better manage their supply chain risk. Where others suffer from disruption, these ‘platform-enabled’ manufacturers are streamlining their operations to continue to supply their customers, and ultimately gain new customers to grow their market share.
Leveraging customer data to improve the value proposition
When manufacturers own the design and operations of the marketplace, they gain access to customer preferences and transactional data in detail. They can also choose to share this information with the channel partners participating on the marketplace – an important incentive to join, as it provides a more holistic view of the buyers’ journey than one channel partner would obtain on its own.
Manufacturers can also use their marketplaces to experiment with new assortment by testing the customer adoption of new products and services on the platform. When there is a signal that end customers are looking for certain complimentary products, the marketplace operator can source them from a channel partner. Once the customer demand has been proven, these products may be adopted into the manufacturer’s core range. Conversely, to reduce working capital, the marketplace operator can work with specialized channel partners to source otherwise cost-prohibitive secondary components or spare parts, ultimately obtaining more competitive pricing.
With enhanced access to customer intelligence and by carefully curating marketplace partners, manufacturers can ensure a consistent and modern customer experience with rich product data and reliable fulfillment options. Ultimately, by combining this enhanced customer experience with a broader range of products and services, manufacturers gain a larger share of wallet from their customers – and first movers within their industry stand to capture the majority of market share.