B2B Marketplaces Emerging as a Solution to Optimize Tail Spend Purchases

Mature companies in the top categories have already started managing their tail spend purchases using B2B marketplaces. Some companies are exploring and trying to understand how B2B marketplaces operate, their adoption trends, and other features. They are also looking into the procurement process, typical tail spends channelized categories and optimization avenues. 

“B2B online marketplaces provide a self-service environment with products digitally sourced from multiple vendors who can offer products or services to business customers. B2B Marketplaces have offerings from varied top suppliers to corporate customers in a cost-effective and convenient manner,” said Sujeet Kumar R, Senior Research Analyst at Beroe.

The online marketplace is meant for direct selling to corporate customers while also acting as intermediaries for other sellers, obtaining sales margins from each transaction. The online marketplace is a high volume, low margins business and a cost-effective way for corporates to make business purchases.  

The B2B online marketplaces cater to lower purchases involving $2,000 of sales per supplier per annum and the second category of up to $50,000 per supplier per annum. The latter is called the Middle of the Tail, while the former is called the Tail of the Tail.

B2B marketplaces are convenient for companies for managing tail spend purchases as they facilitate single purchase order entry payment solutions against multiple suppliers. One of the factors favoring increased adoption of tail spend purchases through B2B marketplaces is the increase in millennials becoming purchasing managers. 

B2B marketplaces provide the advantage of diversifying tail spend purchasing for companies as they list many products and product categories.  For many companies, 80 percent of the large purchases are accounted for by 20 percent of the suppliers. As a result, B2B marketplaces have become the preferred choice for top companies in North America and Europe as it serves the objective of reducing cost on tail spend purchases. 

According to Mckinsey, B2B online marketplaces create a win-win situation for both buyers and sellers. It provides buyers with choice, value, and greater efficiencies while sellers gain access to a broader pool of buyers. Marketplace procurement can also facilitate reporting and data analysis. There are different types of market places such as product-focused markets, time-and-materials marketplaces, scope-of-work marketplaces, corporate-spinoff marketplaces. 

Advantages of B2B Marketplaces

• It allows companies to consolidate purchases under one roof.

• It helps in gaining control over rogue spend leading to reduced risk and improved compliance.

• Long-tail purchases are quite time-consuming, particularly for catalog-type purchases. B2B marketplaces can help in effectively managing such purchases by providing auto-replenishment.

• Conventionally, long-tail purchases were affected by a lack of price transparency in markets. Now, B2B marketplaces provide price transparency by providing product-detail pages that help buyers make informed choices, eliminating the time spent on internet searches.

• B2B Marketplaces can help decrease vendor management costs.

• Since invoices are submitted electronically, it results in simplified invoicing.

• Standardized payment terms may help in extending average payment terms, thereby putting less pressure on working capital.

"B2B Marketplaces are indeed a fitting solution to the challenges of companies to manage and diversify tail spend purchases while for sellers, it provides access to a broad pool of buyers," said Sujeet Kumar R, Senior Research Analyst at Beroe. “Of course, even with this, there are challenges. And this may not be a fitting choice for every type of business. But the point is more of Fortune 500 companies have steered this way, and many more companies will follow suit as tail spend purchase management becomes a priority for them”.