B2b Applicability Analysis

Introduction

Prehistoric Computers has built a business of refurbishing laptops and selling them to small and medium sized companies. Now the company is looking into becoming a B-to-B exchange, thus increasing its efficiency and position on the market. According to Managing B-to-B Relationships simulation (2005), “B2B solutions enable businesses to save costs by reducing inventories, lead-time, and demand forecasting errors”. Prehistoric Computers must decide whether adopting this strategy would benefit the company and support its primary goals and objectives. Below are pros and cons for making this decision.

Argument “For” a Prehistoric Computer B-to-B Strategy

The B-to-B exchange model is clearly relevant to Prehistoric Computers operations. The exchange is ideal for bringing together the different links of the supply and delivery chain. Exchanges work best for companies placing and receiving multiple small orders, which is exactly what Prehistoric Computers does. It operates with multiple supplies, buying used computers and parts, refurbishing them, and then reselling the refurbished goods to other companies.

A digital exchange has great potential for reducing overhead and maximizing profits by enabling just in time ordering which is very important for an organization such as Prehistoric dealing in technology that becomes obsolete quickly and thus has a very short shelf life. It will also open up new suppliers to Prehistoric and help ensure they are getting the best price possible.

The exchange will not only help on the supply side, but also on the demand side of equation. Taking part in an exchange will grant greater visibility to Prehistoric growing its customer base. This is much more effective than other forms of advertising since it reaches a nearly ideal target audience.

The single biggest drawback would be cost. While setting up an exchange can potentially be expensive and time consuming, joining an existing exchange (or exchanges) should not be prohibitively expensive and should undoubtedly pay for itself in a short period of time by slashing operating costs and simultaneously increasing sales.

Perhaps most importantly, by not taking part in an exchange, Prehistoric will lose out big to their competitors that do, which is unacceptable in the highly competitive computer sales market.

Argument “Against” a Prehistoric Computer B-to-B Strategy

There are many reasons why Prehistoric Computers should not consider a B2B solution. “If you are a supplier, you may have to shave profit margins to compete” (Vanscoy, 2001). Prehistoric Computers is a small company with 35 employees. Their immediate goal is to improve their profit margin and a B2B strategy does not support this objective. In addition, other small business has experienced this disadvantage first hand. The owner of a small machine parts supplier in Connecticut won a $1.1 million contract but had to reduce its profit margins. According to Vanscoy (2001), the owner stated that is important for a company to understand what their capabilities are; including the kind of profit margin needed before placing a bid and that the experience was “essentially a wash”. Furthermore, Vanscoy (2001) says this was the typical result for small and medium business experimenting with e-commerce and the benefits are usually one-time windfalls.

Another reason why Prehistoric Computers should not consider a B-to-B strategy is that most marketers feel “successfully implementing a business-to-business (B2B) strategy is significantly more difficult than implementing one aimed at consumers” (Weathering the E-Business Storm, 2005). Vanscoy (2001) believes “even the most elementary foray onto the