We exist to connect the world’s B2B trading partners. We will do this by reducing Partnership Cost.
B2B trade can be envisioned as a network of businesses. The edges between them symbolize trade partnerships facilitating the exchange of physical goods between buyer and seller businesses. We call this network the B2B Graph.
Individual businesses operate uniquely to achieve their goals. They deploy unique resources and execute internal processes, including how they wish to buy and sell, based on what they deem to be in their best interest. In B2B trade, buyers and sellers must agree not just on products, prices, and quantities, but also on a mutual approach to working together. Inevitably, situations arise where there is conflict between the ways each partner would normally work to form the partnership and transact. Buyers may have unique ideals for the process of buying and receiving products and sellers each have unique ideals for how they produce and deliver their product. This operational gap, or partnership ops gap, emerges from every trade relationship and represents a body of work that needs to be addressed for trade to occur.
Therefore, in order for partnerships to form and transactions to occur, agreements need to be made between partners around which parts of whose process needs to change. Typically, the party with the least market power takes on the majority of the partnership ops gap work. As an example from retail, a large retailer requiring a specific hanger type for shirts in their stores will likely require their shirt vendors to pack and deliver shirt wholesale orders with this hanger style. This requirement represents an ops gap in the fulfillment process for all shirt sellers that don’t already pack with this hanger type. If the same retailer requires a specific EDI document format to transact, all sellers who do not already implement this specification need to address this ops gap, in this case an IT ops gap. All of these differences add up for each business that has trading partners, and cumulatively across the B2B graph, creating massive costs.
Partnership profitability is determined by a number of aspects, including direct and indirect costs. Direct costs, including the quality, quantity, price and shipping costs of products being exchanged plays a large factor. Much effort is spent by both parties to ensure these direct costs are minimized. However, an implicit cost is introduced by the partnership itself. This is the partnership cost, the additional cost incurred by overcoming the partnership ops gap. Each edge in the B2B Graph has a partnership cost that negatively affects profits when initially formed and ongoing as trade occurs between partners. Think of this as the cost of creating the edge between businesses in the B2B Graph and the ongoing toll for using the connection for trade. Examples include onboarding partners, integrating data, collaborating, new shipping procedures, and more concretely compliance chargeback fees that occur when mistakes are made. In some cases partnership cost can exceed 10% of the transaction value. Each time partnership cost occurs in a supply chain, the immediate cost is borne by one or both partners, but the end consumer ultimately ends up paying more for the product in the long run as these costs get passed along.
There are three areas that can reduce partnership cost:
- Human Effectiveness
- Industry Standardization
Automation, via the outsourcing of work to technology, can significantly reduce partnership cost in two ways. Automation can reduce the scope of the partnership ops gap. For example, differences in data formats between trading partners can be automatically translated with intelligent automation, thus eliminating the effective gap. Secondly, automation can reduce the cost to execute the remaining necessary operational gaps by taking work previously done by humans and executing with technology, including technology powered by machine learning. Throughout the lifecycle of a B2B partnership, from initial formation to high scale transacting, manual efforts can be replaced by both deterministic and AI-powered generative automation to increase quality, rate of work and to reduce cost.
Human effectiveness, including members working from both partners, can be increased with new or improved tools for work that is best suited for people to perform. Quality and productivity can be increased with better user interfaces for manual work, access to relevant and accurate information, and simplifying the manual workflows required during the course of a trade partnership. Automation generally can also increase human effectiveness. Traditional software and AI-powered co-pilots that partner with humans will improve their effectiveness by helping them focus on the highest value work, and augment the quality and rate of the work being done. Though much work in forming and maintaining B2B trade will be automated over time, human effectiveness improvement will be a major way to reduce trade partnership costs ongoing.
Standardization, either occurring naturally by market forces or created by institutions, ensures consistent and compatible practices among trade partners. They have the effect of reducing the scope of the ops gap by creating a way for businesses to build internal processes in anticipation of new trade partners. B2B ecommerce marketplaces leverage ecommerce standards to sell online, effectively eliminating the ops gap. Dropship partnerships are B2B trade relationships that leverage ecommerce standards in fulfillment processes, since dropship pick, pack and shipping is similar to B2C fulfillment. However dropship partnerships lack complete standards in the data integration realm for products and orders, therefore leaving an IT ops gap. Wholesale and supply chain relationships have much higher partnership costs because they are less standard and have relatively high IT and fulfillment process gaps.
Convictional’s focus is to minimize partnership cost across all types of B2B trade by bringing products to market that target and reduce the operational gaps introduced by B2B trade. Businesses in the B2B Graph that leverage Convictional will automate as much as possible in the life cycle of partnership, maximize human effectiveness for tasks best suited for manual effort, and over time emerge new industry standards for effective B2B. We call this Autonomous B2B, and it will allow a more open and effective B2B Graph.
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