Global Market Outlook On  Amazon B2B Marketplace Capabilities

Different challenges in managing Tail Spend Procurement

  • There are large number of suppliers in the tail hence effectively managing them would be difficult
  • Purchases in tail tend to lack purchase visibility making it difficult to manage
  • Managing tail spend for an organization can be stressful since procurement managers become too busy handling low value purchase and unable to analyze and address the root cause of tail spend
  • With large number of low value transactions, procurement professionals will be expensive and procurement operations would be inefficient
  • Any change needs backend I.T teams support for P2P process and policies taking into account large number of suppliers

Reasons for Tail Spend Problem

  • When there are more number of suppliers than employees
  • Around 67% suppliers supply only 5% of spend
  • Whenever more than 30% of the orders are not negotiated by the procurement team
  • Less than half of the purchases are automated
  • Less than half of the transactions are done with preferred suppliers
  • Addition of 10% new suppliers every quarter

Alibaba B2B Marketplace

  • Alibaba Model acts as a Handshake Medium for Buyers and Vendors helping search efficiency
  • Started with main motive is to connect Chinese manufacturers with western companies for Low Cost Country Sourcing
  • Buyers can get details of large number of suppliers along with  their contact details  and location

Who prefers this type of model ?

  • This model  is useful for Head of the Tail and Middle of the Tail section of Tail Spend where priority is given to supplier consolidation and contracted purchase
  • Preferable for buyers looking to touch base with the direct suppliers
  • Buyers looking for purchase of goods following traditional procurement process prefer to use this model
  • Organizations who prefers using their own dedicated logistics or logistics arranged by direct suppliers uses this model of market place

Information and Product Flow

  • Buyers visits Alibaba.com to search the list of suppliers subscribed to Alibaba for particular categories
  • Buyers can sort suppliers based on certification & ratings by Alibaba and geographical preferences
  • Further communication of contract negotiation and delivery terms will be directly between Buyers and Suppliers with least involvement of Alibaba
  • Logistics are arranged either by the suppliers or buyers with least involvement of Alibaba

Advantages and Disadvantages of Alibaba B2B Marketplace

Pros

  • Competitions:- With availability of category wise multiple suppliers gives opportunity of price comparison driving competition
  • Supplier Analysis:- Buyers gets access to view trade records, market experience  and detailed contact information of different suppliers
  • Supplier Verification:- Alibaba provides a list of suppliers verified and certified suppliers based on their past performances
  • Simplified RFQ:- Helps finding suppliers based on the RFQ submitted by buyers reducing search cost
  • Least Cost Country Sourcing:- Alibaba platform connects buyers from the US to sellers from country like Chine providing goods at much cheaper rate
  • B2B Interface:- Interface is more inclined towards industrial requirements with lesser view of unwanted categories which Amazon lacks to provide

Cons

  • Marketplace Model:- Alibaba only acts as a bridge between buyers and suppliers and doesn't take part in actual procurement
  • Recompilation:- Since invoices generated are directly from suppliers, it reduces the Accounts Payable reconciliation efficiency
  • Logistics:- Logistics are not managed by Alibaba, it has to be taken care by either by buyers or suppliers
  • Product Availability:- Product availability are mostly from Countries like china which sometimes lacks quality
  • Transaction Cost:-  Transaction cost for sourcing, supplier control, contract negotiation and financial terms are high for  buyers opting for this model