This post is very specific focussing on B2B – Business to Business interactions and doesn’t consider the interactions between Businesses and the end consumer.
In B2B there are the seller and the buyer and it may feel this is an easy relationship to explain but there are a lot of factors to consider here. When a Business needs to buy from another Business that process has to be a collaboration to ensure both parties fully understand what is expected from the purchase / sale.
Finding and choosing a Supplier
We will start from scratch and consider a Business needs to buy a product component from another Business and is setting out to do just that but the below points will also be applicable to Businesses looking to find suppliers of services.
Specification
First the buyer must have a very clear description of what they need including any technical detail. The research team or purchasing department will need this information to scan the market for potential suppliers. Having a clear spec allows for a filtering of potential suppliers. This applies also to services, consider a Business looking for Accountancy Services but with the additional service of outsourcing payroll. This will narrow down the search making it easier to find suitable candidates.
Quality standard
Many buyers will demand that their supplier have a quality management system in place such as an ISO or related accreditation and this is often a stipulation to gain approval on their supplier list. Having quality management systems gives a supplier credibility to be consistent with quality products / services.
Price
I mention this as it is of course an important factor, however, I would note that this has to be taken into account when placing weight on quality and well, you do get what you pay for. This will depend on what the supply is though. A larger organisation is likely able to produce a product or service at a more reasonable price and as we all know we can often get more value by buying in bulk. Also refer to demand below which makes a point on competition, the more suppliers there are available, the more competitive the price.
Continuity
I was going to head this up as risk but I think continuity fits better. Entering into a supply agreement is likely going to involve a long term relationship. Yes there will be times when a Business buys a one off purchase but more often it’s a collaboration between Businesses to agree on mutually acceptable terms and I say acceptable because unreasonable expectations can lead to conflict and a potential end to the relationship. There are always going to be risks involved in dealing with external organisations that a buyer has no control over and so due diligence from the start is crucial to establish trust and continuity.
Demand
Theirs a lot to think about here as it does depend on the product/service. Some will be niche and so suppliers will be short on the ground to find. Others will be saturated in the Market with a vast array of choices. I have been focussing on the buyer here but you can imagine how competitive some products and services are and a supplier of such will have to fight for the buyers attention. Demand of course initially comes from an end consumer and this is obviously going to have an impact on the supply chain.
Finding a Buyer
Lets flip the coin and take a view from the Supplying Business. The above gives an illusion that supply companies sit around waiting to be found and of course this isn’t true. Suppliers also have to have a clear strategy on how they get onto an approved supplier list and establish a business relationship with a customer (the Buyer). As you would imagine the supplier needs to have a product they know buyers want and just as it is important for the buyer to have a spec, it is the same at the supply end. Knowing what is wanted / needed takes research and a constant ‘live’ approach to the external environment to scan the trends and the future potential patterns to stay ahead of the game.
Quality and price of course have to be a major factor in their pitch and it can be a fine balance depending on the product / service as to how much margin is left. It is true that the niche can have more margin as there are less competitors and more opportunity to ask for that higher price but this of course can cause a problem when new entries come into that same market and steal away the business with a better price at the same standards. Balancing out this potential threat therefore requires a very sensible approach to pricing.
Continuity is a tricky issue as suppliers must show they can withstand economic unrest, be flexible in their design and approach and crucially be able to ‘supply’ the goods and services both to the quantity promised and over a stable long term relationship agreement.
Overall In summary it can be seen that the nature of interactions between businesses is complex, difficult to enter as a new competitor and collaboration is key to maintain a stable relationship.
Learners working towards the Level 3 Diploma in management will find this post assists with the below criteria:
304 B&A59 1.2 Explain the nature of interactions between businesses within a market