Business-to-consumer online marketplaces might seem like a good place for a manufacturing company to shop for supplies. After all, it’s the same place you can get the best prices on smartphone earbuds, Christmas gifts, or even paper towels for your kitchen. Shouldn’t you also be able to get the cheapest prices on the parts and supplies you need for manufacturing?
Maybe. Maybe not. If your favorite online seller screws up your earbud order, the biggest inconvenience is that you might have to wait a few more days for a replacement order, or visit a ‘brick-and-mortar’ store to purchase them. But if that big B2C e-commerce company screws up a parts order for a factory, shutting down the production line for a few days while they fix it can be incredibly costly.
That’s just one of the risks that manufacturing companies take when they put their purchasing faith in large e-commerce marketplaces. They may have made consumer shopping easier, but B2B purchasing is much different.
Before you sort those search results by price, consider this: When you buy from a B2C online marketplace, often you’re not even purchasing from the company whose website you selected.
Most large B2C marketplaces are really aggregations of independent sellers. While some of the products sold may come from the e-commerce firm’s own warehouses, many others ship directly from the company that makes the product. There’s little or no oversight on product quality. Shipping time and tracking ability may be all over the place. And if something’s wrong when the product arrives, you may not be able to reach the original supplier.
One well-known e-commerce company was forced to recall millions of pairs of eclipse glasses before last summer’s total solar eclipse, because it could not guarantee the glasses were manufactured to the standard required to protect wearers’ eyes. The recall simply instructed people not to use them and refunded their money; there were no new glasses provided. If something similar happened with crucial manufacturing supplies or parts, your factory floor could be left in the dark.
But still, taking costs out of manufacturing and 'leaning' down the supply chain are strategic priorities these days. Doesn’t it simply make more sense to purchase from the cheapest seller you can find? Maybe so, if the only cost is the upfront purchase cost. But, smart procurement professionals must consider the total cost of ownership associated with parts and supplies. For B2B purchasers, the best deals are still found with B2B suppliers.
Here are five factors purchasing specialists should consider:
Continuity. When a company establishes a sourcing relationship with a single supplier or a small group of suppliers, purchasing specialists can build relationships that create immense value. Shipping and delivery terms, packaging, and other details can be arranged for the purchaser’s convenience and best value. Some suppliers can even engineer customized products and help manufacturers innovate. As the relationship grows, purchasers also gain leverage to negotiate price reductions.
Financing. Purchasing from an online B2C marketplace often requires up-front payments, usually with a credit card. But when purchasing from a B2B supplier, invoicing terms can be arranged that allow payments to be delayed 30 or 60 days after delivery. With millions of dollars flowing to outside suppliers, advantageous payment terms can reduce financing costs and help manufacturers better manage cash flow.
Efficiency. Purchasing from a B2B supplier often means fewer purchase orders, less unnecessary packaging, and lower overall shipping costs. This means less cost — and less hassle — for purchasing and operations staff. These gains in efficiency can be reinvested to grow the business, or the savings in overhead can drop to the bottom line.
Reliability. B2B suppliers understand they’re not just shipping boxes to an address. They know their manufacturing clients depend on timely delivery of high-quality parts and supplies. As more manufacturers 'lean’ out their supply chain, reliable delivery and the supplier’s ability to meet specific standards becomes critical. Will that lowest-price vendor you’ve never heard of on that big B2C e-commerce site really provide that? Are you willing to risk your company’s productivity and efficiency?
Risk management. Finally, B2B suppliers reduce your risk. When you buy from an online flea market — where vendor identities, shipping locations and product quality can shift constantly — you can never be sure what you’ll get or when you’ll get it (no matter what you pay). And if something goes wrong, who do you call? B2B suppliers know their business success depends on your business success, so they focus on delivering maximum value and squeezing all the risk out of your supply chain.
Being a purchasing officer or procurement specialist is no longer just another job. According to Michigan State University supply chain expert Dr. Tobias Schoenherr, manufacturing companies spend up to 70% of their revenue on purchases from outside suppliers. That means buyers are responsible for an enormous amount of financial risk. Skilled procurement is an essential function in modern manufacturing.
The most successful procurement specialists are focused on more than just buying. They’re selecting suppliers and building relationships to help their businesses become more efficient and productive, reduce operational risks, and increase profits. Partnerships with B2B suppliers are the key to that.
Mike Roth is the Senior Director for e-commerce at MSC Industrial Supply Co.
