B2B Manufacturer-Distributor Disruptors

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B2B Manufacturer-Distributor Disruptors

Two other companies in the United States that are disrupting the conventional manufacturer-distribution model in the business-to-business (B2B) space are GoDirect Trade and OpenMarkets. There are indications that GoDirect Trade and OpenMarkets are changing how products are distributed in the aerospace parts industry and the medical equipment and supplies industry, respectively.

GODIRECT TRADE

DESCRIPTION

  • GoDirect Trade, a business that Arizona-based, long-time aircraft engine and avionics manufacturer Honeywell Aerospace launched on December 15, 2018 after only 12 weeks of product development, is a digital marketplace that makes the process of selling and purchasing aerospace parts more efficient and more pleasant.
  • The aerospace parts that are sold on the platform are segmented into the following categories: landing gear, actuation, auxiliary power unit (APU), electronics, engines, quick engine change (QEC), flight structures or surfaces, general, interiors, lighting, mechanical, thrust reversers, wheels and brakes, blades, APU parts, and avionics.
  • To guarantee product quality, GoDirect Trade ensures that each listing on the marketplace has product photos, price, and quality documents.
  • With the help of blockchain technology which facilitates part traceability, GoDirect Trade promises a smooth and transparent experience for its buyer base, which, to date, is composed of around 2,000 buyers from more than 800 businesses in the aerospace industry. The company's buyer base is a mix of airlines, aircraft operators, and aircraft repair centers.
  • Inspiration for the marketplace came from arts and crafts platform Etsy and automotive vehicle research platform CarFax, but the platform is powered by Adobe's Magento Commerce and was developed with the help of Tata Consultancy Services.
  • Sellers are subject to a yearly subscription cost of $15,000.

DISRUPTIVE NATURE

  • GoDirect Trade is gaining traction in the e-commerce space that used to represent just less than 2% of the transactions in the $4-billion used aerospace parts market.
  • It is providing a more convenient and more transparent alternative to the traditional buying and selling process where pricing a part takes days or weeks and closing a deal takes four emails and two phone calls on average. Each part on the GoDirect Trade platform is available for immediate sale and shipping.
  • Requiring sellers to provide complete information, including images, price, and quality documentation, was an industry first. In just 10 weeks, the business was already able to generate $1 million in revenue.
  • GoDirect Trade has been covered by numerous news and media outlets, including The Wall Street Journal, Forbes, Yahoo! Finance, Phoenix Business Journal, Aviation Week, Aviation International News, and CIO.com.
  • According Lisa Butters, GoDirect Trade's general manager, the fact that a buyer on the platform recently purchased a used jet engine worth $100,000 is a signal that the aerospace industry is now more willing to shift to digital. The purchase, which took only a few days because of blockchain, would have taken around six months if the traditional process was used.
  • With well-known suppliers such as Dassault Falcon, StandardAero, Jet, H+S Aviation, and Turbo Resources already onboard, the business is now able to populate its e-commerce marketplace with more than $300 million worth of parts inventory. The first three months of the business saw inventory reaching 2,000 parts, with prices ranging from around $1,200 to $120,000.
  • As of May 2019, GoDirect Trade was already able to generate a total of $2 million in revenue, with Honeywell Aerospace projecting this amount to reach $10 million by end of 2019. Average transaction amount as of that month was around $8,000.

OPENMARKETS

DESCRIPTION

  • OpenMarkets is an Illinois-based software-as-a-service (SaaS) startup whose goal is to help healthcare providers save when procuring capital equipment and other medical products. Its software offers users improved visibility into clinician needs and vendor relationships.
  • The company positions itself as "the smart way to buy and sell" medical equipment such as bladder scanners, sterilizers, positioning tables, anesthesia machines, carts, point-of-care ultrasound equipment, lab equipment, stretchers, surgical drills, and laparoscopic instruments. It offers savings of up to 20%.
  • Well-known suppliers on the platform include Fujifilm, Mindray, Faxitron, Technibilt, Health o Meter, and Clorox Healthcare.
  • OpenMarkets's current annual revenue is an estimated $10.8 million.

DISRUPTIVE NATURE

  • According to Frost & Sullivan, group purchasing organizations (GPOs) and pharmacy benefit managers (PBMs), both long-time players in the manufacturer-distributor supply chain, consider OpenMarkets and other digital marketplaces and contract management platforms such as Amazon Business, Global Healthcare Exchange (GHX), and DST Pharmacy Solutions an opportunity and a threat. Hospital buyers now express increased willingness to buy direct from digital marketplaces that are capable of providing superior transparency, pricing, and personalization.
  • OpenMarkets is one of a few startups in the medical equipment and supplies industry that "recognize the long-standing inefficiencies and have built technology-enabled channels to connect product and service suppliers directly with providers." Its software offers price transparency, cost efficiency, and improved supplier-healthcare provider relationships that cannot be achieved with usual distribution channels such as GPOs.
  • Medtech companies are likely rethinking their relationships with GPOs given that there are now better alternatives.
  • So far, OpenMarkets has over 125 equipment suppliers and over 4,103 healthcare facilities buying and selling equipment and products on its platform. Over 30,000 products are on offer on the platform, with these products typically priced 11.8% lower than regular prices.
  • OpenMarkets was recently able to enter into a multi-year partnership with Resource Optimization & Innovation (ROi), a Missouri-based supply chain organization with a network of almost 250 hospitals.
  • Platform innovator Applico identifies OpenMarkets as one of the B2B marketplaces that are contributing to the "disruption of B2B distribution" in the United States.
  • Health systems are said to be reclaiming the purchasing process from GPOs. A case in point is Maury Regional Health, which no longer uses its GPO Vizient for purchasing. It now purchases through OpenMarkets and uses its GPO for strategic consulting services only.

Sources
Sources

Quotes
  • "GoDirect Trade is a digital marketplace that brings buyers and sellers in the Aerospace industry together to simplify their experience of buying and selling aerospace parts."
  • "GoDirect™ Trade is a marketplace where premium sellers list parts that have product images, quality documents and price. Every listing. No exception. "
Quotes
  • "“The used aerospace parts industry is worth $4 billion a year, but the crazy thing is that less than two percent of transactions are done online,” said Lisa Butters, general manager of GoDirect Trade, powered by Honeywell Aerospace. “In fact, it takes an average of two phone calls and four emails to close a deal.”"
  • "Honeywell, a Phoenix, Arizona-based company with 20 years of aerospace experience, decided it was time to revolutionize the industry. They launched GoDirect Trade, a “garage-style start-up,” to move aerospace sales online with a consumer-grade B2B marketplace to connect parts with buyers. They envisioned a cross between Amazon and Etsy, but for autothrottle engines and altimeters."
  • "Aimed at the main players in the aerospace industry, Honeywell’s B2B buyers are individual operators or airlines looking for parts, traders who buy and sell for a profit, and repair centers. To succeed, Honeywell would have to change the way a whole industry does business by providing, for the first time, such basic information as price, images, and documentation for all parts. This would involve persuading everyone from mom and pop stores to multimillion-dollar traders to take photos of their parts, scan quality documents, and totally digitize their inventory."
  • "Previously, buyers looking for aviation parts such as avionics and auxiliary power units would need to call numerous companies and wait days or even weeks to price a part. They might risk buying from a company that did not have the inventory in stock. With every part on GoDirect Trade immediately available for sale and shipping, there’s no need to wait weeks or even days for the seller to confirm availability."
  • "Honeywell launched their GoDirect Trade eCommerce site on December 15, 2018, after just 12 weeks of development. It kick-started their mission to shift the aerospace industry into a new level of transparency by providing prices, product imagery, and quality documents on every listing. By leveraging Blockchain technology, they can now bring as much valuable information to the consumer as possible. "
  • "“About three months after we went live, a customer with a Gmail account dropped a $100,000 used jet engine into their cart and checked out,” said Lisa. “If that’s not a signal that the shift to a digital experience is coming, I don’t know what is.”"
Quotes
  • "GoDirect Trade, a new B2B aviation marketplace Honeywell Aerospace launched in December as an ecommerce site for the $4 billion market for aerospace parts, is beginning to generate some traction—and, for the first time, sell an entire jet engine online, says Honeywell GoDirect Trade general manager Lisa Butters."
  • "Honeywell Aerospace, the $14 billion arm of Honeywell International Inc. that makes and maintains a wide range of parts for fixed-wing and rotary aircraft, borrowed some ecommerce lessons from arts and crafts marketplace Etsy.com and motor vehicle research site CarFax.com to launch a GoDirect Trade. In the first three months of business, available inventory on the marketplace is about 2,000 aviation parts that sell in prices ranging from about $1,200 to $120,000, Butters says."
  • "But late last week Honeywell Aerospace generated its biggest transaction yet—the online sale of a $100,000 engine off of a Learjet in Great Britain that Honeywell and a parts refurbishing contractor are harvesting for parts. The fact that an online buyer would place an order for an entire jet engine is a harbinger that the aerospace industry is ready for a lot more ecommerce."
  • "Normally it takes six months and much paper shuffling, phone calls and lots of back-and-forth negotiating between a parts seller and a buyer to sell a refurbished or about-to-be-refurbished jet engine, Butters says."
  • "GoDirect Trade says it was able to sell the $100,000 used jet engine online in just a matter of days because all of the required documentation and related paperwork was available for review on the marketplace."
  • "GoDirect Trade was able to speed up the online buying cycle by using a form of blockchain technology to link the master ledger from each out-of-service and retired plane it was harvesting for parts into the Honeywell products database and ecommerce platform."
Quotes
  • "Since GoDirect Trade went live in December, six prominent aerospace companies—Dassault Falcon Jet, StandardAero, Turbo Resources, H+S Aviation, Honeywell Inertial Measurement Units and WG Henshen—have opened online storefronts, says Lisa Butters, general manager of Honeywell GoDirect Trade. "
  • "Today buying and selling aerospace parts is highly competitive but also largely devoid of e-commerce. There are about 20 companies that have some type of e-commerce systems in place for buying and selling parts online."
  • "But most of those B2B e-commerce sites contain mostly basic parts listings, and they lack more transparent pricing and key details and images on the aerospace part being sold, Honeywell says."
  • "Currently there are about $68 million worth of products available for sale on the marketplace, a figure Honeywell expects to grow to $100 million to $150 million in the coming months. The products range in price from a few hundred dollars to more $1 million, but for now the average product sold is about $3,000, Butters says."
  • "Honeywell Aerospace began working on GoDirectTrade.com in April. The aerospace marketplace runs on e-commerce technology from Magento Commerce, now a part of Adobe Systems Inc. Honeywell Aerospace also worked with Tata Consultancy Services, an information technology services and consulting business, on some parts of the launch."
  • "To put up a storefront on GoTradeDirect.com, sellers will pay an annual subscription fee of $15,000 which lets the buyer build and brand a storefront. There is no limit to how many product listings or sales each seller can have on GoTradeDirect.com, and the site doesn’t charge sellers any transaction fees, such as a percentage of each sale, Butters says."
  • "Some aerospace product sellers originally had looked to Amazon Business to sell parts online, but as of now the Amazon marketplace cannot handle all of the complexities that are a part of buying plane and helicopter parts, Butters says. “One of the companies that will be launching a storefront this month, is a new original equipment manufacturer distributor for aerospace parts and they thought Amazon would be the perfect choice for them to start selling their goods online,” Butters says. “However, they soon realized that Amazon wouldn’t let them show technical documents or pay by purchase order, which was a must in the B2B space.”"
Quotes
  • "Honeywell International Inc. is using blockchain to shake up the market for used aircraft components, making it easier to check the certification and origin of a part and speeding up transactions."
  • "The company’s Honeywell Aerospace unit earlier this year introduced an online marketplace based on blockchain that lets more than 800 international buyers and sellers trade aerospace parts in real time. Participants include Dassault Falcon Jet Corp. and aircraft-repair specialist StandardAero Aviation Holdings Inc."
  • "Before blockchain, a transaction took, on average, two phone calls and four emails to arrange, and two days to close. The sale of larger parts such as engines could take weeks of sending quotes and exchanging documentation. With blockchain, a buyer can locate a part and purchase it immediately."
  • "The aircraft-parts industry is heavily regulated, with sales requiring certification from the U.S. Federal Aviation Administration and other agencies. Blockchain can quickly trace the history of a used part, including previous transactions, owners and repairs."
  • "The marketplace, called GoDirect Trade, has notched $2 million in sales so far, and Honeywell Aerospace targets sales of $10 million by year-end. The average transaction is worth about $8,000. One of the bigger transactions was the sale of a $100,000 turbofan engine, Mr. Muthukrishnan said."
  • "Honeywell Aerospace charges companies $15,000 to establish a storefront on the marketplace. Buyers don’t need to pay a fee."
Quotes
  • "Maury Regional Health uses its GPO, Vizient, more for strategic consulting services than purchasing. The independent Columbia, Tenn.-based provider saved about 30% off the GPO price when it purchased six CT scanners through OpenMarkets, a software-driven marketplace for healthcare equipment used by hundreds of hospitals and suppliers, said Roger Larkin, Maury Regional's director of supply chain."
  • ""Capital equipment prices have such a markup and margin" for GPOs, he said. "When we bought six CTs, we bid it out and brought in the vendor and all of our key people so we didn't have people splintering out. We used the GPO to facilitate this but did not use their pricing.""
Quotes
  • "In the U.S., there are still relatively few B2B marketplaces with traction. The most notable segments are industrial heavy machinery, parts and equipment, and freight transportation. Each of these areas have multiple startups that are growing and have notable funding or backers."
  • "In industrial heavy machinery, Iron Planet is the largest marketplace to date. It was acquired by auctioneer Ritchie Brothers for $758.5 million in August 2016 and has continued to grow its online auctions business since. In Parts and Equipment, New York City based Kinnek is the marketplace with the largest network, having raised $31.5 million to date."
  • "Finally, Freight is the most active area for startups. Uber Freight, which launched in May 2017, is Uber’s newest business unit. Convoy, which has raised $80.5 million, was launched in 2015. These new marketplaces are also going up against more established freight companies like Coyote, which was acquired by UPS for $1.8 billion in 2015."
  • "In the Wide category (meaning they carry several categories across different industries), eBay and Amazon Business are the incumbent B2C platforms that are expanding into B2B. Of the two, Amazon Business is gaining more traction and growing rapidly, particularly in the MRO and industrial segment of its marketplace. In September 2018, it was on pace to surpass $10 billion in annualized sales."
  • " Food distribution is also a likely next target, especially after Amazon’s Whole Foods acquisition."
Quotes
  • "The nearly 250 hospitals members of ROi join over 600 hospitals using OpenMarkets today. This combined community is supported by over 100 equipment suppliers, each committed to creating a more efficient way to buy and sell products."
  • "Suppliers do not have to be on contract with ROi to be a part of OpenMarkets. However, equipment products not featured on OpenMarkets will be at a disadvantage in future opportunities with ROi members as they won’t be seen as easily in the platform."
Quotes
  • "The GPO model was designed to benefit both health systems and suppliers. But medtech suppliers say that the value they receive from the national GPOs has diminished."
  • "Hospitals and health systems also are questioning the value they receive from national GPOs. This has opened the door to competition from smaller, more focused purchasing organizations. Meanwhile, potential disruptors are moving in with alternative, technology-enabled solutions."
  • "Strong market forces and stakeholders have kept traditional healthcare supply chain practices entrenched and left incumbents focused on evolutionary, not revolutionary, improvement. But today’s technology and market dynamics make historical barriers seem less daunting. Moreover, the demand for price transparency and cost efficiencies continues to escalate, creating opportunity for new solutions."
  • "Startups such as OpenMarkets and AVIA Innovator Network recognize the long-standing inefficiencies and have built technology-enabled channels to connect product and service suppliers directly with providers. Their solutions promote cost efficiency and price transparency as well as stronger collaboration between providers and suppliers."
  • "But Amazon is the main party to thank for putting the healthcare industry — including medtech manufacturers, GPOs and distributors — on notice. Amazon is ramping up and rolling out its B2B Health Services program. With a history of upending established business models, and boasting a $475 billion market cap, this powerhouse certainly has the capability to shake up supply chain practices, including contracting."
Quotes
  • "Digital marketplace and centralized contract management platforms such as OpenMarkets, Amazon Business, DST Pharmacy Solutions, and Global Healthcare Exchange (GHX) are viewed both as an opportunity and threat by groups of purchasing organization (GPOs) and pharmacy benefit management (PBMs)."
Quotes
  • "OpenMarkets has $10.8M in estimated revenue annually."