Experts Agree: Online B2B Marketplaces are the Future

While B2B digital marketplaces have already made a significant impact on small and medium sized business operations, procurement departments at large organizations are yet to experience the same innovation. That’s because complicated purchases come with legitimate concerns about scale, compliance, quality, and reliability, not to mention a longstanding tradition of dealing directly with suppliers who have established relationships.

“That’s starting to change,” explains McKinsey and Company’s recent How B2B Online Marketplaces Could Transform Indirect Procurement report. “A new generation of procurement leaders, who have grown up buying online for increasingly complex personal needs, are beginning to wonder whether buying online also makes sense for business.

According to the McKinsey report, this new class of B2B marketplaces offer businesses greater transparency in terms of product, service, supplier availability and pricing and purchasing terms. The result is a more streamlined and cost efficient procurement process, and a procurement team that’s able to generate value in new ways outside of traditional transaction management.

“Instead of simply connecting buyers and sellers, the new B2B marketplace will be more like a vertical operating system, granting full visibility over supply and demand,” explains Andreessen Horowitz, fintech general partner Anish Acharya, who lists B2B marketplaces as a top trend for 2020. “These platforms provide unique value to businesses by solving cash flow issues, automating workflow, and boosting efficiency with free software.”

Acharya, who offers a few examples of B2B digital marketplaces that are disrupting procurement as usual, says the segment is poised to grow significantly in the year ahead. Here are a few more reasons why experts believe online B2B marketplaces are the way of the future.

Ease of procurement

When it comes to the speed and efficiency of procurement within large enterprises, there’s a lot of room for improvement. As it currently stands, most organizations spend months onboarding each individual vendor, and several more processing each individual purchase order. Most procurement, in other words, is bottlenecked by paperwork, but that paperwork is necessary to ensure compliance, compatibility and usability.  

B2B marketplaces, however, provide open access to a wide range of pre-vetted products and services. In other words, procurement departments only need to go through a single onboarding process to provide their organization access to an entire marketplace of thoroughly vetted and readily available products and services.

The democratization of procurement

As these marketplaces evolve products and services can be marketed and sold to buyers inside and beyond the procurement department using plain, clear language instead of industry jargon. As a result, McKinsey predicts that the future buyers of high tech products won’t be limited to tech-savvy IT employees. 

“The rapid increase in tech spending by non-IT business units suggests that IT services might be an important category for marketplaces, particularly for controlling quality,” write the authors of the study. “Industry analysts project that by 2021, indirect spending will be led and directed by tech-procurement people at up to 60 percent of large enterprises.”

Faster delivery

Not only do B2B marketplaces free up time for procurement departments by reducing paperwork, but they can also provide faster throughput-times thanks to advanced IT and logistics capabilities, according to the McKinsey report. After all, enterprises are under extreme pressure to deliver results in a quickly changing world, and any delays in the procurement process can be detrimental to their competitiveness.

In the future, those whom the procurement teams serve will be able to have direct access to marketplaces, with some restrictions and under certain constraints, drastically reducing the time it takes to acquire new digital products and services.

Consistent, lower pricing

While procurement expenditures can range widely from month-to-month and year-to-year, B2B marketplaces that utilize a software as a service (SaaS) model help organizations manage spending through fixed monthly pricing. Within GravityAI, for example, organizations pay a fixed monthly fee for access to a predetermined number of algorithms and machine learning solutions.

According to the McKinsey report, companies typically spend 15% to 30% of revenue on indirect spending. “Even if spending initially rises because of the lower friction that B2B marketplaces offer compared to their traditional counterparts, a more accessible and transparent paper trail makes it easier to retake control,” explains the report.

Built-in compliance

One of the primary barriers keeping large enterprises out of B2B marketplaces are heightened compliance burdens. After all, they can’t just take algorithms and software off of an open-source platform or even purchase it from a vendor without lengthy, thorough checks and balances, often rendering these options impractical.

As with sharing platforms like AirBnB and Uber, however, vendors within a closed B2B marketplace will be thoroughly vetted by the market platform before being permitted to join. Furthermore, individual products and services can also be reviewed and rated, and platforms can highlight vendors with a proven track record.

“Marketplaces can adapt the old limited-catalogue model, setting up ‘preferred’ and ‘restricted’ vendors and categories to aid customers in controlling indirect (and especially rogue) spend,” explains the McKinsey report.

New opportunities for procurement professionals

As a result of these added efficiencies, McKinsey predicts that B2B marketplaces will enable procurement teams to dedicate their time to more important tasks in the future.

“Marketplaces free up procurement teams to place more focus on value-adding activities, such as strategic purchase categories, innovation, and sustainability,” write the authors of the report. “With less time spent vetting vendors, chasing down transactions, coping with paperwork, reining in rogue spend, and ensuring compliance, procurement teams will be able to devote more of their energies to higher-value work, such as researching new and better materials, and unearthing promising marketplaces.”