Streamlining and fostering strategic supplier relationships is key to optimizing procurement and lowering costs. As more organizations embrace eProcurement technology, firms are looking to shrink their vendor bases to promote efficiency.
But inevitably, every business will find itself in a position when it must make an emergency purchase – and when the usual suppliers aren’t available to fill that need, companies can find themselves over-spending with unfamiliar sellers.
Today more than ever, supply chain disruptions make optimizing ad-hoc procurement critical to keeping business – and cash – flowing, noted MSTS President Brandon Spear.
In a recent conversation with Karen Webster, he discussed why big-box retailers that have struggled to compete in an eCommerce ecosystem found an unexpected leg-up as they stepped into the B2B business model. And while the coronavirus pandemic has thrust traditional B2B suppliers into a state of uncertainty, Spear noted that there are opportunities to emerge from the volatility by transforming accounts receivable (AR) and trade credit processes.
Optimizing Ad-Hoc Procurement
For organizations that invest significant resources in establishing strategic vendor relationships and contracts, emergency purchases can create a lot of frustration.
“We’ve seen a real proliferation of procurement software, and the goal of those activities is to optimize purchasing and have fewer supply-side relationships – to spend more money with fewer people,” Spear said. “But if there’s an emergency purchase that’s required, you can end up with procurement activities that are basically happening outside of those contracts you’re trying to put in place.”
To highlight this challenge, PYMNTS recently collaborated with MSTS for the Innovating B2B Retail Payments Playbook: Optimizing Payment Solutions for Business Customers edition.
The Playbook offers the example of a hotel with several broken television sets. While that hotel may be part of a larger chain with established television vendor relationships, a hotel manager must fix or replace those televisions immediately, or risk losing out on revenue through unoccupied rooms.
This is the opportunity MSTS identified when establishing its service, which can connect these buyers to sellers that have the inventory they need nearby and on-demand while still ensuring that those buyers can enforce their contract pricing, whether those purchases are made in-store or online.
B2C Sellers’ B2B Incentive
Ad-hoc procurement can be a powerful incentive to nudge traditionally B2C sellers into the B2B ecosystem, which presents the opportunity for large retailers to expand their revenue stream, Spear explained.
“You have big-box retailers that, in the past, have seen their inventory and physical locations as something that makes it more difficult for them to be competitive with eCommerce-only players,” he said. “They are in a unique position, by virtue of their physical location and inventory, to respond better than anybody else, because they’re not centralized.”
Optimizing the process of emergency procurement for retailers is all about identifying the unique buying needs of the B2B customer. In the example of hotel managers, it means accelerating the purchasing process. In other verticals, like the education system, connecting sellers to schools with strict budget constraints is another opportunity.
“It was really through observing these needs and pain points in different verticals that we developed these different use cases,” Spear noted. “As you get the use case right, you can replicate that across a whole vertical.”
Finding Opportunity In Volatility
Though the B2B business model may be a challenge for B2C retailers, more sellers are finding a lucrative opportunity in working with corporate customers who are struggling to fill purchasing needs at a time when supply chain volatility is at an all-time high.
Mandated school closures have forced educators to seek out devices like iPads and Chromebooks for students to continue their studies at home, Spear explained. Hospitals, of course, are facing monumental pressure to procure personal protective equipment (PPE) from sources beyond their established vendor base.
While the current climate creates a greenfield opportunity for B2C sellers, for the vendors themselves, more volatility lies ahead.
Spear noted that suppliers must rethink many of their sales and AR operations, particularly when it comes to extending trade credit to buyers.
“How do you underwrite somebody today?” he asked, pointing to the airline industry as one sector that had solid financials only a few weeks ago. “Now, more than ever, just relying on historic financial data is not helpful. You really have to look at other data sources to get the flavor of how a business is operating and how they’re dealing with this crisis.”
Professionals working from home and relying on their personal cell phones to conduct business presents new challenges in combating B2B payments fraud, while empty offices have also threatened the B2B ecosystem’s ongoing use of paper checks with no one available to print or sign the documents.
These are unprecedented times – but, as Spear noted, some of the biggest challenges that arise out of volatility offer some of the biggest opportunities.
B2B suppliers will develop more robust underwriting and security processes to mitigate the risks of non-payment and fraud, and are likely to accelerate their migration away from paper checks and toward electronic B2B payments, said Spear. Consumer-focused retailers will open up new revenue streams as they are nudged into the B2B ecosystem. And as a whole, the industry will come out stronger.
“There’s never been any event like this,” said Spear. “And when we get through it and come out the other side, we’re all going to remember what the challenges were like. The collective memory is going to be very helpful.”