Morgan Stanley: B2B Infrastructure Complete

A new report from Morgan Stanley Dean Witter declares that with the B2B infrastructure up and running, technology can now be viewed as a way of doing business, rather than a cost.

Echoing earlier reports, “The B2B Internet Report — Collaborative Commerce” says that companies will use centralized online markets to create “e-hubs” to synchronize operations with suppliers and customers and to lower procurement costs.

New Processes Solve Long-Standing Problems

“Moving business commerce online can make significant progress toward solving the three problems facing most companies: geography fragmentation, inefficient labor and information interactions, and supply chains bloated with excess inventory,” said Chuck Phillips, Managing Director and Internet Software/B2B analyst.

He added, “Though we expect that market efficiency resulting from B2B e-commerce will provide buyers and sellers with unprecedented levels of market transparency via online exchanges, we also want to address the many potential pitfalls in this highly competitive sector.”

E-Commerce Creates Specialists

One of the biggest benefits of e-commerce, according to the report, is that it is transparent, meaning that everyone can see what everyone else is doing. Buyers can easily compare between companies to find out if they are getting the best price, the best availability, and the best product. It also means that buyers will no longer have to rely on local suppliers, because they can search nationally to find the items they need.

This transparency means that as suppliers search for more buyers and square off against national and global competitors, they will become more specialized to gain a competitive advantage. The report predicts that this specialization will lead to more customization, more choice, and better service.

More Uniform Pricing

The report predicts that the B2B e-commerce will translate into more market transparency, which means customers can expect more uniform — although not necessarily lower — prices. “All things can be measured, once online,” the report says. “Everyone gets marked to market — every day. This digital audit trail means suppliers can’t rely on the unknowledgeable buyer to prop up margins and will have to more carefully target customers who value their products and services.”

Although more uniform pricing will be the order of the day, the report predicts that suppliers may actually end up getting more money for their products and services because the Internet will greatly increase the number of buyers interested in what they have to sell.

Exchanges Must Benefit Both Buyers and Sellers

Things are not all rosy in the dot-com world. The report predicts that some eMarketplaces will be in for a rocky road unless they change their mindset. In particular, Morgan Stanley Dean Witter predicts that industry sponsored exchanges that benefit only one side will “likely hit a brick wall of resistance.”

The report says that these B2B exchanges will not work unless both buyers and sellers see value in joining the exchange. One suggestion is to offer equity. For example, a buyer-driven exchange, might offer equity to key suppliers to persuade them to join.

Weak Middleman Eliminated

Although some analysts have predicted that all middlemen will be eliminated as buyers and sellers connect directly, the report predicts that only weak middlemen who add no value to the exchange will go.

Some of the value added can come from handling procurement from multiple sources, fixing snafus, and aggregating smaller orders to get better prices.

‘Just Business’

The Morgan Stanley Dean Witter report cautions that despite the changes wrought by technological advances, e-commerce should be viewed as “an important tool that can be used wisely or unwisely.

After all, according to the report, “At the end of the day, e-businesses is just business.”