Are platforms the end of direct relationships?

This is based on long-standing, trusting partnerships that prove their worth even in times of need. Because this is not just about “goods for money.” It is also about the question of how orders are processed, about meeting deadlines, about flexible responses or about genuine additional services. In addition to a pure supply relationship, strategic partnerships also include the exchange of knowledge, the development of products and processes or even joint business activities.

In the future, there will be other aspects that require closer cooperation. This is what the new requirements Supply Chain Care Act (LkSG) from the beginning of 2023, greater transparency along the supply chain. In order to identify, prevent, eliminate or at least minimize human rights and environmental risks and violations of protected legal positions along their supply chains. In addition, “green supply chains” are also being created, which make it possible to include the carbon footprint and resource consumption of precursors in the environmental balance sheet.

Even in the current corona pandemic, the quality of business relationships is an important factor for business success. Denn disrupted supply chains Due to lockdowns and logistics problems, as well as the scarcity of raw materials and intermediate products, such as metals, plastic parts or the frequently mentioned chips, production in numerous companies is threatening. How good or bad a business relationship is can determine how early or late the supply of missing parts is resumed.

Changes in value chains

In the past, value chains were generally strictly linear. Both goods and information were only exchanged bilaterally. A roughly simplified value chain ranges, for example, from producers to wholesalers (distributors), from there to retailers and finally to end customers. The raison d'être of trade lies in its function as an intermediary. By reducing complexity in order processing and acting as a direct and advisory point of contact for the customer, added value is created. The manufacturer does not have to master the complexity of the many buyers, and the customer has a limited search effort to find and evaluate products. The exchange of information usually does not extend beyond the upstream or downstream stage of the value chain.

For several years now, an alternative model to the linear supply chain has been emerging; the “ecosystem” as an economic ecosystem with multilateral links between the actors. The platform economy is the vehicle for these diverse business relationships. Because it is this in particular that, on the technical side, enables the economic collection, processing, evaluation and transfer of data in large quantities in real time, thus creating the basis for new business models. In this way, individual development and production steps can be broken down into even smaller units and outsourced to proven specialists who are particularly efficient in narrowly limited tasks. On the one hand, this environment creates new service and business models. On the other hand, this threatens the role of traditional intermediaries.

This development can be illustrated using the example of the financial industry: The traditional branch bank is suffering from declining margins and a loss of market share as direct banks are entering the market and winning over customers with innovative online services. However, these services are not necessarily developed in-house, but are provided in part by cooperation partners. These are mostly so-called fintechs — innovative companies that, as IT specialists, develop highly efficient and reliable, often narrowly focused financial services. Modern core banking systems allow these services to be easily integrated. From the customer's point of view, they fit seamlessly into the apps and websites of direct banks and cannot be recognized as a function of a third-party provider.

As a result of this development, the number of bank offices — i.e. head offices and branches — has increased from 2004 to 2020 Cut approximately in half; the number of independent banks and savings banks declined in the same period down 37.2 percent. This impact of change associated with digitization is also known as disruption.

Similar developments are also taking place in retail. This is where digital ecosystems related to smart retail, wholesale, and distribution are being created. Numerous companies from different traditional industries work together here and create new solutions in the process. For example, “Smart Human”: this ecosystem not only sells traditional safety equipment, but also services that are intended to offer people more safety in their activities. So there are also:

• sensors and other technologies;
• mobile phone services (to transfer sensor data);
• cloud services (for analysing sensor data, linking with environmental data, etc.), and
• technological know-how about the activities carried out and their relevant safety aspects.

Here, too, intermediaries are threatened with being replaced, as their function can be represented via technology and the resulting automation promises more efficient processes.

The impact of platforms on business relationships

It remains to be noted that other market participants who primarily offer digital services are moving between supplier (seller) and customer (buyer). Complex value chains and a high number of players also mean low transparency and a great need for information exchange. These prerequisites favour the development of platform-based business models that reduce complexity, use technical means to improve the exchange of information, and thus contribute to greater transparency and greater efficiency.

For this reason, there is a strong trend towards new market participants using the platform economy model, especially in retail. The study ” The marketplace world 2020“has more than 480 marketplaces globally. More than 70 of them offer a B2B approach, but many also pursue a B2C or C2C concept in parallel. There are more than 40 B2B marketplaces in Germany.

However, there are two forms here that are fundamentally different, namely with and without proprietary trading. Some focus on the platform and related services, meaning they are neutral towards both customers and suppliers. These include simple system or Onventis, for example. The others, such as Amazon or Mercateo, also participate in the retail business themselves and are therefore in competition with suppliers on their own platform. As a result, business relationships are also fundamentally different.

Platforms without proprietary trading have set themselves the task of digitizing in particular the administrative part of the business relationship, i.e. linking the purchasing process on the customer side with the sales process on the supplier side. As “enablers,” they support participants in their business activities instead of taking them on themselves. In this way, they offer a technical infrastructure on which the cooperation between partners works particularly efficiently. This is particularly attractive for those suppliers who offer added value themselves and are supported by the trading platform. Standardised platform interfaces simplify the exchange of data between supplier and customer, so that networking becomes closer, which simplifies collaboration and strengthens the business relationship.

Proprietary trading platforms, on the other hand, are more likely to take on traditional retail-level tasks, such as product range creation, pricing, and in some cases logistics and consulting. This results in an interruption of the business relationship: The supplier's business partner is no longer the customer but the platform, and the customer's business partner is no longer the original supplier, but the platform as an intermediary dealer.

Such platforms are of interest to customers for whom only the respective transaction is relevant, where a high level of transparency about prices and availability are the key factors for the purchase decision. In this case, there is no need for supplier relationship management (SRM), negotiations on prices and conditions. On the other hand, there may be a lack of transparency with regard to the supply chain, i.e. who the original supplier is, and as a result, there may also be a lack of information on product quality. In addition, such platforms are hardly suitable for suppliers with extensive value-added services, as these services cannot be displayed or offered due to the “indirect” customer relationship.

Conclusion

Despite digitization and globalization, direct, strong business relationships remain highly valued, especially among SMEs. To ensure business continuity, small and medium-sized entrepreneurs generally rely on partners who are characterized by quality, reliability and punctuality, who in turn are interested in lasting, sustainable cooperation and react flexibly in difficult situations.

Digital trading platforms offer the opportunity to make procurement more efficient and transparent, and thus strengthen your own business — if you choose the platform that is right for your own orientation. Platforms without proprietary trading are helping to make established business relationships even more efficient with the help of digitization and to strengthen them sustainably. Proprietary trading platforms are more suitable for procuring marginal supplies cost-effectively and with reduced effort if, in return, you forego added value, closer business relationships and provider neutrality. If you just look at the internal processes, the two types of platforms are very similar.